<PAGE> 1
As filed with the Securities and Exchange Commission on February 12, 1998
Registration No. 333-43361
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
WESTERN RESERVE BANCORP, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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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.)
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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 any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
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: [ ]
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
<PAGE> 2
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 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. INVESTORS SHOULD
BE ABLE TO AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. 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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Per Share $20.00 -0- $20.00
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Total Minimum (4) $5,000,000 -0- $5,000,000
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Total Maximum $10,000,000 -0- $10,000,000
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(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
<PAGE> 4
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.
(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,
the Escrow Agent will return the subscription funds, together with
interest earned on such funds, to the subscribers promptly after the
termination of the Offering. 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. In the event that the Offering is successful but the Company is
not successful in opening a subsidiary bank, the Company intends to
liquidate and return all assets, after reduction for any liabilities, to
the shareholders.
Western Reserve Bancorp, Inc.
23 Public Square, Suite 220
Medina, Ohio 44256
(330) 764-3131
The date of this Prospectus is February __ , 1998.
2
<PAGE> 5
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.
Western Reserve Bancorp, Inc. is not currently subject to the
informational requirements of the Securities Exchange Act of 1934 (the
"Exchange Act"). However, as a result of the Offering, the Company will become
subject to the informational requirements of the Exchange Act. In the event
that the number of shareholders of the Company subsequent to the Offering
exceeds 300, the Company will become subject to the reporting requirements of
Section 12(g) of the Exchange Act. The Company will file all reports required
under the Exchange Act 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............................................................... 8
Use of Proceeds............................................................11
Pro Forma Capitalization...................................................13
The Offering...............................................................14
Information About Western Reserve Bancorp, Inc. and Western Reserve Bank...17
Management.................................................................21
Certain Transactions and Relationships.....................................27
Indemnification............................................................28
Description of the Common Shares...........................................29
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
4
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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. Subject
to receipt of all necessary regulatory approvals, it is anticipated that the
Bank will open in the fourth quarter of 1998.
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 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.
PURCHASE OF SHARES BY ORGANIZERS
The directors have indicated that they intend to purchase, in the
aggregate, 51,500 Shares of the Company at $20.00 per share ($1,030,000) in
connection with the Offering. There is no maximum number of Shares which may
be purchased by the Organizers in either the maximum or minimum Offering
hereunder. However, because the Organizers intend to obtain a broad
shareholder base, none of the Organizers has the current intent to purchase
more than the number of Shares specified below under "MANAGEMENT." Thirteen
Thousand Seven Hundred Fifty (13,750) 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. Such amount does not include all amounts
anticipated to be spent before the opening of the Bank, which expenses are
estimated to be $466,00. Proceeds from the sale of all Shares to the
Organizers will be included in determining whether the minimum $5 million
offering has been met.
5
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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 hired by a group of persons including some of the Organizers to
perform such study, 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. The growth in the PSA has been a result of the confluence of
a number of factors including the county's proximity to both Cleveland and
Akron, the accessibility of transportation to further markets, the reputation
of the school system and the rural environment. 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.
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.
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 5% of the total Shares anticipated to be
outstanding at the conclusion of the Offering (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 not anticipated that cash dividends will be declared and paid in the
foreseeable future on the Shares. The Company intends 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. 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.
6
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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. 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 AS ADJUSTED (1)
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MINIMUM OFFERING MAXIMUM OFFERING
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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
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(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").
7
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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.
POSSIBILITY OF INADEQUATE CAPITALIZATION OR INABILITY TO COMMENCE OPERATIONS
There can be no assurance that the sale of the Shares hereunder will
allow the Company to adequately capitalize its subsidiary bank or to operate
profitably. If less than 250,000 Shares are sold in the Offering, 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 all remaining assets of the Company to investors as
the holders of the Shares on a pro rata basis. No assurance can be given as to
the amount, if any, or the timing of any such liquidating distribution. The
Organizers would receive their pro rata share of any such distribution even
though a portion of their Shares will be purchased outside of the terms of the
Escrow Agreement. (See "PRO FORMA CAPITALIZATION" and "USE OF PROCEEDS").
LACK OF MARKETABILITY OF THE SHARES
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. Given the lack of a ready market for the Shares,
holders of the Shares would need to find their own buyers of their Shares if
they want to sell such Shares. 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").
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").
THE COMPANY HAS NO OPERATING HISTORY
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. It
is anticipated that the Bank, and therefore the Company, will operate at a loss
for the first two years of operations until the Bank is able to gather deposits
and make loans and other fee income to offset the expenses of operating the
Bank. (See "INFORMATION ABOUT WESTERN RESERVE BANCORP, INC." and "SUPERVISION
AND REGULATION").
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POTENTIAL FOR 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").
LACK OF 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").
EXISTING COMPETITION IN THE MARKET AREA
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 OF COMPANY DEPENDENT UPON BANK OPERATIONS
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").
NO DIVIDENDS LIKELY FOR THE FORESEEABLE FUTURE
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.
Other than Mr. McKeon, and Mr. Nichols, who has significant banking experience
including having served as Superintendent of Banking in the State of Ohio, none
of the members of the Board of Directors has been employed in any significant
capacity by a bank or served on the Board of Directors of a bank or bank
holding company.
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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").
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").
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<PAGE> 13
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 COULD DELAY OPENING OF BANK OR PROFITABILITY
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.
ANTITAKEOVER PROVISIONS AND CONTROL BY ORGANIZERS
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. Further, it is
anticipated that the Organizers of the Company will own approximately 51,500
Shares of the Company at the conclusion of the Offering. Such number of Shares
will constitute between 10.3% and 20.6% of the outstanding Shares of the
Company at the conclusion of the Offering dependent upon the total number of
Shares sold in the Offering. Such an ownership position by the Organizers will
afford them a significant level of control over the affairs of the Company and
the Bank. (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
($275,000). 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
11
<PAGE> 14
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"). In the event that
the Company is unsuccessful in organizing the Bank, the Company would intent to
return the remaining capital of the Company, less any outstanding liabilities,
to its shareholders on a pro rata basis. The Organizers would receive their
pro rata share of any such distribution even though a portion of their Shares
will be purchased outside of the terms of the Escrow Agreement.
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.
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<PAGE> 15
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 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."
13
<PAGE> 16
<TABLE>
<CAPTION>
Pro Forma as of
Completion of the Offering 1, 20
Actual as of --------------------------------
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
Additional Paid-in Capital(2) 152,000 4,675,000 9,400,000
Deficit Accumulated During the
Preopening Development Stage(3) (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 51,500 Shares at $20.00 in connection with
the organization of the Company. While not anticipated, the Organizers may
purchase more than 51,500 in the aggregate as there is no maximum limit as to
the number of Shares that may be purchased except the 5% limit noted below.
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."
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<PAGE> 17
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 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.
15
<PAGE> 18
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.
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
16
<PAGE> 19
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.
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").
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 January 24, 1998, 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
17
<PAGE> 20
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.).
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
18
<PAGE> 21
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 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
19
<PAGE> 22
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.
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.
20
<PAGE> 23
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.
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 13,750 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 51,500 Shares, in the aggregate, for a total purchase price of
$1,030,000 ($20.00 per Shares).
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<PAGE> 24
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 December 31, 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 1,250 Shares at a price of
$20.00 per Share (a total investment of $25,000). 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 Directors1)
---------------------
<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)
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)
</TABLE>
22
<PAGE> 25
<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>
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.
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.
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<PAGE> 26
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.
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.
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<PAGE> 27
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 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.
25
<PAGE> 28
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(1)
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(2)
-------------------------- ----------------
(A) (B) (C) (D) (E) (F)
PERIOD SECURITIES
NAME AND ENDED UNDERLYING ALL OTHER
PRINCIPAL POSITION DECEMBER 31 SALARY($)(3) BONUS($) OPTIONS/SARS (#) COMPENSATION ($)
- ------------------ ----------- ------------ -------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Edward J. McKeon,
President and Chief
Executive Officer 1997 $35,066 -0- -0- -0-
</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 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.
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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. In no event will options be issued within the first year after
the effective date of the Offering to purchase more than 15% of the outstanding
shares of stock of the Company (determined at the conclusion of 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 not be longer than 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
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.
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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. Austin Associates, Inc. has
assisted the Company in the preparation of a market study of the Medina area,
executive search for the president of the Company and the Bank, and the
preparation of regulatory applications filed or to be filed with the Ohio
Department of Financial Institutions, the Federal Deposit Insurance Corporation
and the Federal Reserve System. Austin Associates, Inc. is a financial
institution consulting firm to community banks across the country, with the
majority of its work in the Midwest The firm has assisted a number of
community banks and trust companies in their organization as well as ongoing
advice on areas such as strategic planning, mergers and acquisitions,
regulatory assistance and other similar matters. 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.
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
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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 13,750 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").
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.
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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 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.
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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.
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
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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.
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,
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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.
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.
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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 FDIC-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 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
34
<PAGE> 37
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.
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.
35
<PAGE> 38
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.
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
36
<PAGE> 39
contract or other document referred to are not necessarily complete; although
all material terms of such documents have been addressed in this Prospectus, and
in each instance, reference is made to the copy of the document filed as an
exhibit to the Registration Statement.
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.
37
<PAGE> 40
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> 41
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.
Crowe, Chizek and Company LLP
Cleveland, Ohio
December 3, 1997
F - 2
<PAGE> 42
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> 43
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> 44
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> 45
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> 46
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> 47
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:
<TABLE>
<S> <C>
1998 $ 5,488
1999 5,488
2000 4,116
-------
$15,092
=======
</TABLE>
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> 48
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> 49
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> 50
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
(99.1) Form of Tombstone Ad dated ___________, 1998.
(99.2) Form of Cover Letter dated ___________, 1998.
<PAGE> 51
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> 52
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
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Medina, State of Ohio,
this 12th day of February, 1998.
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 February 12, 1998
- ------------------------------------ ---
Edward J. McKeon, President,
Chief Executive Officer and Director
/s/ Paul M. Jones February 12, 1998
- ------------------------------------ ---
Paul 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 February 12, 1998
------------------------------------ ---
Edward J. McKeon, Attorney-in-Fact
<PAGE> 53
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*
Exhibit 99.1 Form of Tombstone Ad dated ___________, 1998.
Exhibit 99.2 Form of Cover Letter dated ___________, 1998.
* Previously Filed
<PAGE> 1
EXHIBIT 23
EXHIBIT 23 CONSENT OF CROWE, CHIZEK & COMPANY LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation in to this registration statement of Western
Reserve Bancorp, Inc. on Form SB-2, and all amendments thereto, of our report
dated December 3, 1997 on 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. 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
February 9, 1998
<PAGE> 1
EXHIBIT 99.1
This announcement is neither an offer to sell nor a
solicitation of an offer to buy any of these Securities.
The offer is made only by the Prospectus.
$10,000,000
WESTERN RESERVE BANCORP, INC.
NO PAR VALUE COMMON STOCK
______________
$20.00 PER SHARE
______________
Copies of the Prospectus may be obtained only from the undersigned.
WESTERN RESERVE BANCORP, INC.
23 Public Square, Suite 220
Medina, OH 44256
(330) 764-3131
, 1998
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<PAGE> 1
EXHIBIT 99.2
_________________, 1998
In response to our prior conversation, I have enclosed a copy of the Prospectus
which outlines the complete terms of the offering of no par value common stock
in Western Reserve Bancorp, Inc. at $20.00 per share. I urge you to review the
Prospectus carefully.
If you decide to subscribe for shares, please complete and sign the
Subscription Agreement and return it to the Company, together with a check in
the amount of $20.00 times the number of shares subscribed, which check should
be made payable to "MidAmerican Bank & Trust, Escrow Agent." The Company will
notify you upon its acceptance of the Subscription Agreement.
If you have any questions regarding the Subscription process or any additional
questions regarding the Company, please contact Edward J. McKeon at the address
and phone number set forth above. We appreciate your support of our efforts.
Very truly yours,
__________________________
