<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1999
REGISTRATION NO. 333-______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
GLB BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
Ohio 6710 31-1529973
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
7001 Center Street, Mentor, Ohio 44060 (440) 974-0000
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
Richard T. Flenner, Jr.
President and Chief Executive Officer
GLB Bancorp, Inc.
7001 Center Street
Mentor, Ohio 44060
(440) 974-0000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
Copies to:
<TABLE>
<S> <C>
Joseph Drain, Esq. Stanley T. Koenig, Esq.
Grady & Associates Ulmer & Berne LLP
20800 Center Ridge Road, Suite 116 Bond Court Building
Rocky River, Ohio 44116-4306 1300 East Ninth Street, Suite 900
(440) 356-7255 Cleveland, Ohio 44114-1583
(216) 621-8400
</TABLE>
Approximate Date of Proposed Sale to the public: As soon as practicable after
this Registration Statement becomes effective
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================== ======================== ======================= ======================== =======================
Title Of Each Proposed Proposed
Class Of Maximum Maximum
Securities Amount To Be Offering Price Aggregate Offering Amount Of
To Be Registered Registered Per Share Price (1) Registration Fee (1)
- -------------------------- ------------------------ ----------------------- ------------------------ -----------------------
<S> <C> <C> <C> <C>
Common Stock,
no par value 375,000 Shares N/A $8,850,455 $2,460.43
========================== ======================== ======================= ======================== =======================
</TABLE>
(1) Calculated in accordance with Rule 457(f)(2) based upon $8,850,455, the
aggregate book value on December 31, 1998 of the securities of Maple Leaf
Financial, Inc. expected to be canceled in connection with the merger.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
MAPLE LEAF FINANCIAL, INC.
10800 KINSMAN ROAD
NEWBURY, OHIO 44065
________________, 1999
Dear Shareholders:
You are cordially invited to attend the special meeting of shareholders
to be held on April , 1999, at 10:00 a.m. (local time) at the Punderson Manor
House, Punderson State Park, 11755 Kinsman Road, Newbury, Ohio 44065. At the
special meeting of shareholders, holders of Class A and Class B common stock of
Maple Leaf Financial, Inc. will be asked to adopt the Agreement of Affiliation
and Plan of Merger dated as of November 24, 1998, as amended, between GLB
Bancorp, Inc. and Maple Leaf Financial, Inc.
When the acquisition of Maple Leaf Financial, Inc. by GLB Bancorp, Inc.
becomes effective, each outstanding share of Maple Leaf Financial, Inc. Class A
and Class B common stock (other than shares held by shareholders who properly
perfect dissenters' rights) will be exchanged for cash and GLB Bancorp, Inc.
common stock. Each outstanding warrant to acquire Class A and Class B common
stock will also be exchanged for cash and GLB Bancorp, Inc. common stock.
Warrant holders need not exercise their warrants in order to receive cash and
GLB Bancorp, Inc. common stock in the acquisition.
Your Board of Directors has concluded that the acquisition of Maple
Leaf Financial, Inc. by GLB Bancorp, Inc. is in the best interests of Maple Leaf
Financial, Inc.'s shareholders and warrant holders. The Board of Directors
unanimously recommends that shareholders vote FOR the adoption of the
acquisition proposal. Maple Leaf Financial, Inc. shareholders are entitled to
exercise dissenters' rights with respect to their Class A and Class B common
stock. The terms of the proposed acquisition and important information relating
to Maple Leaf Financial, Inc. and GLB Bancorp, Inc. are explained in the
accompanying Prospectus/Proxy Statement. Please give this document your prompt
attention.
We have received an opinion from Tucker Anthony Incorporated, Maple
Leaf Financial, Inc.'s financial advisor, that the acquisition consideration is
fair from a financial point of view to the holders of Maple Leaf Financial, Inc.
common stock and holders of warrants to acquire common stock.
TO APPROVE THE PROPOSED ACQUISITION, IT WILL BE NECESSARY TO OBTAIN THE
AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES
OF MAPLE LEAF FINANCIAL, INC. CLASS A AND CLASS B COMMON STOCK VOTING
TOGETHER AND VOTING SEPARATELY. AN ABSTENTION OR FAILURE TO VOTE HAS
THE SAME EFFECT AS A VOTE AGAINST THE PROPOSED ACQUISITION.
We enclose a proxy for your use. The proxy relates to the proposal to
adopt the Agreement of Affiliation and Plan of Merger, as amended, and approve
the acquisition contemplated thereby. Please indicate your voting instructions
and sign, date and mail the proxy promptly in the postage-paid envelope
provided. Regardless of whether you plan to attend the special meeting in
person, it is important that you return the enclosed proxy so that your shares
of Maple Leaf Financial, Inc. common stock will be voted.
Thank you for your attention to this important matter.
Sincerely,
Betty L. Kimbrew
President
<PAGE> 3
MAPLE LEAF FINANCIAL, INC.
10800 KINSMAN ROAD
NEWBURY, OHIO 44065
(440) 564-9441
- --------------------------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL ______, 1999
- --------------------------------------------------------------------------------
Notice is hereby given that a Special Meeting of Shareholders of Maple
Leaf Financial, Inc. (the "Maple Leaf Special Meeting") will be held at the
Punderson Manor House, Punderson State Park, 11755 Kinsman Road, Newbury, Ohio
44065 on , April , 1999, at 10:00 a.m. Eastern Time.
A proxy card and a Proxy Statement for the Maple Leaf Special Meeting
are enclosed. The purpose of the Maple Leaf Special Meeting is:
1. To consider and vote upon the Agreement of Affiliation and
Plan of Merger dated as of November 24, 1998, as amended as of
December 29, 1998, by and between GLB Bancorp, Inc. and Maple
Leaf Financial, Inc., pursuant to Section 1701.78 of the Ohio
Revised Code;
2. To transact such other business as may properly come before
the Maple Leaf Special Meeting or any adjournments or
postponements thereof. The Board of Directors is not aware of
any other business to come before the Maple Leaf Special
Meeting.
Any action may be taken on the foregoing proposals at the Maple Leaf
Special Meeting on the date specified, or on any date or dates to which the
Maple Leaf Special Meeting may be adjourned or postponed. Shareholders of record
of Maple Leaf Financial, Inc. at the close of business on ____________________,
1999 are entitled to receive notice of and to vote at the Maple Leaf Special
Meeting.
You are requested to complete and sign the enclosed proxy, which is
solicited by the Board of Directors, and to return the proxy promptly in the
postage-paid return envelope provided. Please sign your name on the proxy
exactly as indicated thereon. FAILURE TO VOTE IN PERSON OR BY PROXY IS
EQUIVALENT TO A VOTE AGAINST THE PROPOSAL BEING SUBMITTED TO SHAREHOLDERS FOR
THEIR CONSIDERATION AT THE MAPLE LEAF SPECIAL MEETING.
THE BOARD OF DIRECTORS OF MAPLE LEAF FINANCIAL, INC. RECOMMENDS THAT
YOU VOTE FOR THE APPROVAL AND ADOPTION OF THE AGREEMENT OF AFFILIATION AND PLAN
OF MERGER DATED AS OF NOVEMBER 24, 1998, AS AMENDED AS OF DECEMBER 29, 1998.
PLEASE DO NOT SEND YOUR MAPLE LEAF FINANCIAL, INC. STOCK CERTIFICATES AT THIS
TIME.
By Order of the Board of Directors
Lloyd V. Clemmer, Jr.
Secretary and Treasurer
Newbury, Ohio
___________________, 1999
================================================================================
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE MAPLE LEAF FINANCIAL, INC. THE
EXPENSE OF FURTHER REQUESTS FOR PROXIES. A SELF-ADDRESSED, PREPAID ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE.
================================================================================
<PAGE> 4
<TABLE>
<S> <C>
PROXY STATEMENT
PROSPECTUS OF
OF MAPLE LEAF FINANCIAL, INC.
GLB BANCORP, INC. FOR THE SPECIAL MEETING OF
COMMON STOCK, NO PAR VALUE SHAREHOLDERS
(NOT TO EXCEED 375,000 SHARES) TO BE HELD ON APRIL ________________, 1999
</TABLE>
Maple Leaf Financial, Inc. and GLB Bancorp, Inc. entered into an
acquisition agreement on November 24, 1998, which was amended as of December 29,
1998. The acquisition agreement, as amended, is included as Appendix A to this
Prospectus/Proxy Statement. The agreement provides that Maple Leaf will by
acquired by GLB. Shares of Maple Leaf common stock and warrants to acquire Maple
Leaf common stock will be converted in the acquisition as follows:
* each share of Maple Leaf common stock that you hold will be
converted into $________ in cash and ________ shares of GLB
common stock
* each warrant issued by Maple Leaf in 1991 will be converted
into $_________ in cash and _________ shares of GLB common
stock
* each warrant issued by Maple Leaf in 1996 will be converted
into $__________ in cash and _______ shares of GLB common
stock
The amount of cash and the number of shares of GLB common stock to be received
by each holder of Maple Leaf common stock and each holder of warrants may change
according to a formula contained in the acquisition agreement.
GLB and Maple Leaf cannot complete the acquisition unless we obtain
necessary government approvals and unless the shareholders of Maple Leaf approve
it. Maple Leaf will hold a special meeting of shareholders to vote on this
proposal. The Maple Leaf special meeting will be held on ____________, April
___, 1999 at 10:00 a.m. (local time) at the Punderson Manor House, Punderson
State Park, 11755 Kinsman Road, Newbury, Ohio 44065.
This Prospectus/Proxy Statement includes a Proxy Statement of Maple
Leaf, which the Board of Directors of Maple Leaf is using to solicit proxies for
the special meeting of Maple Leaf shareholders. This Prospectus/Proxy Statement
also includes a Prospectus of GLB for 375,000 shares of GLB common stock to be
issued in the acquisition. This Prospectus/Proxy Statement gives you detailed
information about the acquisition we are proposing. We encourage you to read
this entire document carefully.
GLB common stock is quoted on the Nasdaq SmallCap Market under the
symbol "GLBK." The closing price of GLB common stock reported on the Nasdaq
SmallCap Market on February , 1999 was $ per share.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE GLB COMMON STOCK TO BE ISSUED OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES OF COMMON STOCK
GLB IS OFFERING BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND THEY ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
- --------------------------------------------------------------------------------
PROSPECTUS/PROXY STATEMENT DATED ______________, 1999
FIRST MAILED TO MAPLE LEAF SHAREHOLDERS AND WARRANT HOLDERS ON OR ABOUT
_________, 1999.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY............................................................................................................
The Acquisition...........................................................................................
Conversion of Maple Leaf Common Stock and Warrants into Cash and GLB Stock................................
Comparative Per Share Market Price Information............................................................
The Companies.............................................................................................
The Maple Leaf Shareholders' Meeting......................................................................
Record Date; Vote Required................................................................................
Reasons for the Acquisition...............................................................................
Management of GLB After the Acquisition...................................................................
Maple Leaf's Recommendation to Shareholders...............................................................
Opinion of Maple Leaf's Financial Advisor.................................................................
No Solicitation of Alternative Acquisition Transactions...................................................
Conditions to Completion of the Acquisition...............................................................
Regulatory Approvals......................................................................................
Waiver of Conditions; Amendment or Termination of the Agreement...........................................
Accounting Treatment......................................................................................
Interests of Directors and Officers in the Acquisition that Differ From Your Interests....................
Federal Income Tax Consequences...........................................................................
Material Differences in the Rights of Shareholders........................................................
Forward-Looking Statements Could Prove to be Inaccurate...................................................
Selected Financial Data...................................................................................
RISK FACTORS.......................................................................................................
Control by Significant Shareholders.......................................................................
Reliance on Acquisitions for Growth; Risks Associated with Acquisitions; Financing of Acquisitions........
Potential Impact of Changes in Interest Rates.............................................................
Antitakeover Provisions...................................................................................
Lending Risks.............................................................................................
Economic Conditions and Monetary Policies.................................................................
Competition...............................................................................................
Limited Trading in GLB Common Stock.......................................................................
No Assurance of Dividends.................................................................................
Need for Technological Change.............................................................................
Regulatory Risk...........................................................................................
Indemnification of Directors and Officers.................................................................
SPECIAL MEETING OF MAPLE LEAF SHAREHOLDERS.........................................................................
Purpose of the Meeting....................................................................................
Record Date; Shares Outstanding and Entitled to Vote......................................................
Vote Required.............................................................................................
Voting; Solicitation and Revocation of Proxies............................................................
Quorum; Broker Non-Votes..................................................................................
BACKGROUND OF AND REASONS FOR THE ACQUISITION......................................................................
Reasons for the Acquisition -- GLB........................................................................
Background of the Acquisition -- Maple Leaf...............................................................
Reasons for the Acquisition -- Maple Leaf.................................................................
Opinion of Maple Leaf's Financial Advisor.................................................................
Recommendation of Maple Leaf's Board of Directors.........................................................
TERMS OF THE ACQUISITION...........................................................................................
Acquisition of Maple Leaf by GLB..........................................................................
Conversion of Maple Leaf Common Stock and Warrants into Cash and GLB Stock................................
Rights of Holders of Maple Leaf Stock Certificates and Warrant Agreements Prior to Surrender..............
Lost Certificates.........................................................................................
No Fractional Shares of GLB Common Stock Will be Issued...................................................
No Effect on GLB Common Stock.............................................................................
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
Conduct of GLB's Business Until Completion of the Acquisition.............................................
Conduct of Maple Leaf's Business Until Completion of the Acquisition......................................
No Solicitation of Alternative Acquisition Transactions...................................................
Conditions to the Acquisition that Must be Satisfied or Waived............................................
Regulatory Approvals......................................................................................
Actions Required for Regulatory Approval..................................................................
Waiver of Conditions, Amendment or Termination of the Acquisition Agreement...............................
Effective Time............................................................................................
Interests of Directors and Officers in the Acquisition that Differ From Your Interests....................
Price Range of Common Stock and Dividends.................................................................
Federal Income Tax Consequences...........................................................................
Accounting Treatment of the Acquisition...................................................................
Resales of GLB Common Stock Received in the Acquisition...................................................
GLB'S Articles of Incorporation and Code of Regulations...................................................
Year 2000 Compliance......................................................................................
RIGHTS OF DISSENTING SHAREHOLDERS..................................................................................
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS....................................................
GLB'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................
Results of Operations.....................................................................................
Net Interest Income.......................................................................................
Provision for Loan Losses.................................................................................
Non-Interest Income.......................................................................................
Non-Interest Expense......................................................................................
Federal Income Taxes......................................................................................
Financial Condition.......................................................................................
Capital...................................................................................................
Liquidity.................................................................................................
Asset/Liability Management................................................................................
New Accounting Pronouncements.............................................................................
Impact of Inflation and Changing Prices...................................................................
Year 2000 Readiness Disclosure............................................................................
BUSINESS OF GLB....................................................................................................
Market Area...............................................................................................
Business Strategy.........................................................................................
Competition...............................................................................................
Lending Activities........................................................................................
Nonperforming Loans.......................................................................................
Investments...............................................................................................
Source of Funds...........................................................................................
Properties................................................................................................
Legal Proceedings.........................................................................................
Personnel.................................................................................................
MANAGEMENT OF GLB..................................................................................................
Executive Officers........................................................................................
Nonemployee Directors.....................................................................................
Remuneration of Directors.................................................................................
Executive Compensation....................................................................................
Pension and Retirement Plan Information...................................................................
Stock Option Plan.........................................................................................
Certain Relationships and Related Party Transactions......................................................
Leases for Bank Property..................................................................................
PRINCIPAL SHAREHOLDERS OF GLB......................................................................................
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
MAPLE LEAF'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..............................................................................................
Forward-Looking Statements................................................................................
Introduction..............................................................................................
Results of Operations.....................................................................................
Net Interest Income.......................................................................................
Provision for Loan Losses.................................................................................
Non-Interest Income.......................................................................................
Non-Interest Expense......................................................................................
Federal Income Taxes......................................................................................
Financial Condition.......................................................................................
Capital...................................................................................................
Liquidity.................................................................................................
Asset/Liability Management................................................................................
New Accounting Pronouncements.............................................................................
Impact of Inflation and Changing Prices...................................................................
Year 2000 Readiness Disclosure............................................................................
BUSINESS OF MAPLE LEAF.............................................................................................
General...................................................................................................
Lending Activities........................................................................................
Investment Activities.....................................................................................
Deposits and Borrowings...................................................................................
Competition...............................................................................................
Taxation..................................................................................................
Personnel.................................................................................................
MANAGEMENT OF MAPLE LEAF WHO WILL SERVE AS DIRECTORS
OR EXECUTIVE OFFICERS OF GLB..............................................................................
PRINCIPAL SHAREHOLDERS OF MAPLE LEAF...............................................................................
SUPERVISION AND REGULATION.........................................................................................
Regulation of Bank Holding Companies......................................................................
Regulation of Thrift Holding Companies....................................................................
Federal Deposit Insurance.................................................................................
Interstate Banking and Branching..........................................................................
Capital...................................................................................................
Limits on Dividends and Other Payments....................................................................
Transactions with Affiliates..............................................................................
Community Reinvestment Act................................................................................
Federal Home Loan Banks...................................................................................
State Banking Regulation..................................................................................
Monetary Policy...........................................................................................
Bank Regulatory Developments..............................................................................
DESCRIPTION OF GLB CAPITAL STOCK...................................................................................
Common Stock..............................................................................................
Preferred Stock...........................................................................................
Transfer Agent............................................................................................
Certain Antitakeover Matters..............................................................................
Limitations on Liability and Indemnification..............................................................
COMPARISON OF GLB AND MAPLE LEAF CAPITAL STOCK.....................................................................
Classes of Common Stock...................................................................................
Voting Rights.............................................................................................
Amendment to Governing Documents..........................................................................
Directors.................................................................................................
Dividends.................................................................................................
Repurchases...............................................................................................
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
Preferred Stock...........................................................................................
LEGAL MATTERS......................................................................................................
EXPERTS............................................................................................................
WHERE YOU CAN FIND MORE INFORMATION................................................................................
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................................................
FORWARD-LOOKING STATEMENTS.........................................................................................
FINANCIAL STATEMENTS OF GLB BANCORP, INC........................................................................F-1
FINANCIAL STATEMENTS OF MAPLE LEAF FINANCIAL, INC..............................................................F-26
</TABLE>
APPENDICES
A. Agreement of Affiliation and Plan of Merger dated as of November 24,
1998, as amended as of December 29, 1998
B. Fairness Opinion of Tucker Anthony Incorporated
C. Ohio Dissenters' Rights Statute
D. Form of Agreement with Warrant Holders
<PAGE> 9
SUMMARY
THIS BRIEF SUMMARY HIGHLIGHTS SELECTED INFORMATION IN THIS
PROSPECTUS/PROXY STATEMENT. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION
THAT IS IMPORTANT TO YOU. IN ORDER FOR YOU TO UNDERSTAND THE ACQUISITION, WE
URGE YOU TO READ CAREFULLY THE ENTIRE PROSPECTUS/PROXY STATEMENT AND THE OTHER
DOCUMENTS TO WHICH THIS DOCUMENT REFERS. SEE "WHERE YOU CAN FIND MORE
INFORMATION."
THE ACQUISITION (PAGE ______)
THE AMENDED ACQUISITION AGREEMENT IS ATTACHED TO THIS DOCUMENT AS
APPENDIX A. PLEASE READ THE ACQUISITION AGREEMENT. IT IS THE LEGAL
DOCUMENT THAT GOVERNS THE ACQUISITION.
We propose that Maple Leaf be acquired by GLB. As the acquiring
company, GLB will continue to be incorporated in Ohio and its corporate
headquarters will remain in Mentor, Ohio. GLB expects to complete the
acquisition in the second quarter of 1999.
Promptly after the acquisition of Maple Leaf by GLB, Maple Leaf's
wholly owned subsidiary, Geauga Savings Bank, will merge into GLB's wholly owned
subsidiary, Great Lakes Bank. Great Lakes Bank is an Ohio-chartered commercial
bank with total assets of approximately $75.4 million as of September 30, 1998.
Geauga Savings Bank is an Ohio-chartered savings bank with total assets of
approximately $111.5 million as of September 30, 1998. The deposits of Great
Lakes Bank and Geauga Savings Bank are insured by the Federal Deposit Insurance
Corporation. When the acquisition of Maple Leaf by GLB and the related merger of
Geauga Savings Bank into Great Lakes Bank have been completed, GLB will continue
to conduct business through Great Lakes Bank, which will then have more than
$200 million in total assets.
CONVERSION OF MAPLE LEAF COMMON STOCK AND WARRANTS INTO CASH AND GLB STOCK
(PAGE ___________)
MAPLE LEAF SHAREHOLDERS. Each of your shares of Maple Leaf Class A and
Class B common stock will automatically become the right to receive GLB common
stock and cash.
MAPLE LEAF WARRANT HOLDERS. Each warrant to acquire Maple Leaf Class A
and Class B common stock will also become automatically the right to receive
shares of GLB common stock and cash. It is not necessary for you to exercise
your warrants in order to receive cash and GLB common stock in the acquisition.
In fact, holders of warrants are being asked to execute and return to Maple Leaf
an agreement not to exercise their warrants. The agreement not to exercise
warrants is attached to this Prospectus/Proxy Statement as Appendix D. Maple
Leaf requests that warrant holders execute that agreement and return it to Maple
Leaf. A warrant holder's exercise of warrants will not change the amount of
consideration he or she receives in the acquisition. The cash paid to Maple Leaf
by a warrant holder upon exercise of warrants after the date of this
Prospectus/Proxy Statement and prior to completion of the acquisition will be
returned without interest to the former warrant holder after completion of the
acquisition. Exercise of warrants might also have tax consequences that are less
favorable than simply exchanging warrants directly for the cash and GLB common
stock acquisition consideration.
The amount of cash and the number of shares of GLB common stock you
receive in exchange for your Maple Leaf common stock and warrants may change
according to a formula in the acquisition agreement, depending principally upon
changes in the market price of GLB common stock prior to completion of the
acquisition. It could also be influenced by other factors, such as the number of
warrants, if any, exercised before the acquisition is completed, but Maple Leaf
intends to disregard warrant exercises for purposes of calculating how much cash
and how many shares of GLB common stock will be distributed to Maple Leaf
shareholders and warrant holders. Changes in the cash and GLB common stock
acquisition consideration received by each Maple Leaf shareholder and warrant
holder will affect the distribution of the cash and stock consideration among
Maple Leaf shareholders and warrant holders, but will not affect the total
consideration received by all Maple Leaf shareholders and warrant holders as a
group. The total consideration is fixed at $18
<PAGE> 10
million in cash and 375,000 shares of GLB common stock (although the acquisition
agreement does provide for additional cash consideration payable by GLB if the
acquisition is not completed by August 20, 1999).
The final decision concerning allocation of cash and GLB common stock
among Maple Leaf shareholders and Maple Leaf warrant holders will not be made
until we complete the acquisition. At that time, we will determine the final
price of GLB common stock, which we refer to in this Prospectus/Proxy Statement
as the "GLB CLOSING PRICE." See "TERMS OF THE ACQUISITION - CONVERSION OF MAPLE
LEAF COMMON STOCK AND WARRANTS INTO CASH AND GLB STOCK" at page . The
consideration to be received by Maple Leaf shareholders and holders of warrants
can be illustrated as follows:
<TABLE>
<CAPTION>
HOLDERS OF MAPLE LEAF HOLDERS OF MAPLE LEAF HOLDERS OF MAPLE LEAF
COMMON STOCK RECEIVE 1991 WARRANTS RECEIVE 1996 WARRANTS RECEIVE TOTAL
<S> <C> <C> <C> <C>
If the GLB Closing Price is
$12.00 per share:
GLB common stock... 221,990 shares 51,013 shares 101,997 shares 375,000 shares
Cash............... $10,655,535 $2,448,619 $4,895,846 $18 million
If the GLB Closing Price is
$13.00 per share:
GLB common stock... 221,174 shares 51,157 shares 102,669 shares 375,000 shares
Cash............... $10,616,366 $2,455,540 $4,928,094 $18 million
If the GLB Closing Price is
$14.00 per share:
GLB common stock... 220,384 shares 51,297 shares 103,319 shares 375,000 shares
Cash............... $10,578,461 $2,462,238 $4,959,301 $18 million
If the GLB Closing Price is
$15.00 per share:
GLB common stock... 219,620 shares 51,432 shares 103,948 shares 375,000 shares
Cash............... $10,541,759 $2,468,724 $4,989,517 $18 million
If the GLB Closing Price is
$16.00 per share:
GLB common stock... 218,880 shares 51,563 shares 104,557 shares 375,000 shares
Cash............... $10,506,204 $2,475,007 $5,018,789 $18 million
</TABLE>
GLB will not issue any fractional shares of GLB common stock. If the
calculation of acquisition consideration to be received by any shareholder or
warrant holder of Maple Leaf yields a fractional share amount, that shareholder
or warrant holder will receive cash in an amount representing the value of that
fractional share interest. You will have to surrender your Maple Leaf common
stock certificates and warrant agreements in order to receive cash and new
certificates representing common stock of GLB. This will not be necessary until
you receive written instructions after we have completed the acquisition.
GLB SHAREHOLDERS. Each outstanding share of GLB common stock will
remain outstanding as one share of GLB common stock after the acquisition. GLB
shareholders do not need to surrender their shares or exchange them for new
ones.
2
<PAGE> 11
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
Shares of GLB common stock are authorized for trading on the Nasdaq
SmallCap Market, under the symbol "GLBK." On November 24, 1998, the last trading
day before we announced the acquisition, GLB common stock closed at $14 per
share. Maple Leaf common stock and warrants to acquire Maple Leaf common stock
are not publicly traded and no established market for those securities exists.
Any trading that occurs in Maple Leaf common stock and warrants is the result of
privately negotiated transactions.
Assuming that the GLB Closing Price at the time the acquisition is
completed is $ per share (the closing price as of February , 1999), and
assuming no warrants are exercised, the approximate market value of the cash and
GLB common stock consideration that Maple Leaf shareholders will receive in the
acquisition for each share of Maple Leaf common stock would be $ in cash and
$ in GLB common stock. Using those same assumptions, the approximate market
value of the cash and GLB common stock consideration that Maple Leaf warrant
holders will receive in the acquisition for each share of Maple Leaf common
stock acquirable by exercise of a warrant would be $ in cash and $ in
GLB common stock for warrants issued in 1996, and $ in cash and $ in
GLB common stock for warrants issued in 1991. Of course, the market price of
GLB common stock will fluctuate prior to completion of the acquisition, which
will affect the distribution of cash and GLB common stock consideration among
Maple Leaf shareholders and warrant holders. You should obtain current stock
price quotations for GLB common stock.
THE COMPANIES (PAGES _________AND ____________)
GLB BANCORP, INC.
7001 Center Street
Mentor, Ohio
(440) 974-0000
GLB is a bank holding company organized in 1997 under the laws of Ohio.
Registered under the Bank Holding Company Act, GLB's sole subsidiary is Great
Lakes Bank. Currently, GLB has very limited operations independent of Great
Lakes Bank. GLB's independent operations consist of investments in a small
number of financial institutions or holding companies, which investments
represent less than 5% of the outstanding shares of those institutions or
holding companies. Through Great Lakes Bank, GLB provides a focused core of
banking services, primarily for individuals and small to medium-sized
businesses. Great Lakes Bank's lending services focus primarily on secured
lending for residential and commercial real estate. Great Lakes Bank also offers
a broad array of deposit products, including checking and savings accounts and
certificates of deposit.
On July 18, 1994, Great Lakes Bank became the successor to Great Lakes
Commerce Bank, which was chartered as an Ohio banking corporation in April of
1957. In July 1994 Great Lakes Commerce Bank had total assets of approximately
$19 million and four offices. By September 30, 1998, GLB and Great Lakes Bank
had grown to approximately $92 million in total assets, with seven offices in
Lake County and two more planned in the first quarter of 1999. Great Lakes Bank
is the only commercial bank headquartered in Lake County, Ohio.
MAPLE LEAF FINANCIAL, INC.
10800 Kinsman Road
Newbury, Ohio 44065
(440) 564-9441
Maple Leaf is a unitary thrift holding company registered under the
Home Owners' Loan Act with the Office of Thrift Supervision. Maple Leaf is
incorporated under Ohio law.
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<PAGE> 12
Maple Leaf and its sole subsidiary, Geauga Savings Bank, provide a
broad range of banking and financial services to individual, commercial, real
estate and small business customers, principally customers located in Geauga
County, Ohio. Maple Leaf and Geauga Savings Bank's products and services include
basic deposit and lending banking products and services. Geauga Savings Bank has
two banking offices, both located in Geauga County, Ohio.
At September 30, 1998, Maple Leaf's consolidated assets were
approximately $112 million, deposits were $55 million and shareholders' equity
was $8.7 million.
THE MAPLE LEAF SHAREHOLDERS' MEETING (PAGE ______)
The Maple Leaf meeting will be held on April , 1999 at 10:00 a.m.
(local time) at the Punderson Manor House, Punderson State Park, 11755 Kinsman
Road, Newbury, Ohio 44065. At the Maple Leaf meeting, shareholders will be asked
to adopt an agreement providing for the acquisition of Maple Leaf by GLB.
RECORD DATE; VOTE REQUIRED (PAGE ______)
You may vote at the meeting of Maple Leaf shareholders if you owned
Maple Leaf common stock at the close of business on ____________, 1999. You may
cast one vote for each share of Maple Leaf Class A common stock you owned at
that time, and twenty votes for each share of Maple Leaf Class B common stock
you owned at that time. To adopt the acquisition agreement, the holders of a
majority of shares of Maple Leaf Class A and Class B common stock allowed to
vote at the meeting must vote in favor of doing so, and a majority of each class
must also vote separately in favor of doing so.
You may vote your shares in person by attending the meeting or by
mailing us your proxy if you are unable or do not wish to attend. Proxies may be
revoked at any time prior to the voting thereof by
* attending the meeting and voting in person (but attendance
will not by itself constitute revocation),
* filing with the Secretary of Maple Leaf another proxy card
duly executed and bearing a later date, or
* giving to the Secretary of Maple Leaf written notice of the
proxy revocation at or before the meeting.
Directors and executive officers of Maple Leaf and certain substantial
shareholders of Maple Leaf have entered into an agreement with GLB and Maple
Leaf to vote in favor of the acquisition. Together, these directors, executive
officers and shareholders control the power to vote approximately 69.64% of the
voting power of Maple Leaf, which is a sufficient percentage of the voting power
to assure approval of the acquisition.
REASONS FOR THE ACQUISITION (PAGE ________)
Our companies are proposing the acquisition because we believe that we
can create a stronger and more diversified company. The combined companies will
provide significant benefits to our shareholders and customers alike. GLB
believes the community banking philosophy of Great Lakes Bank and the combined
strengths of GLB and Maple Leaf will benefit shareholders of GLB and Maple Leaf,
as well as customers and potential customers in Geauga County who are
underserved by large banks headquartered nearby, whether in Cleveland, Akron or
elsewhere. The acquisition will expand GLB's existing banking operations in its
northern Ohio market, enhancing GLB and Great Lakes Bank's market position and
creating opportunities to achieve operating efficiencies in those markets.
We expect the acquisition to strengthen GLB's position as a competitor
in the financial services business, which is rapidly changing and growing more
competitive. At the same time, GLB and its banking
4
<PAGE> 13
subsidiary, Great Lakes Bank, expect to maintain a community-banking orientation
that places the highest value on close relationships with customers. After the
acquisition, GLB and Great Lakes Bank will have seven offices in Lake County and
two offices in Geauga County, with two additional Lake County offices planned
for the first quarter 1999. GLB expects to rank _____ in terms of total deposits
in Lake County and ______ in Geauga County immediately after the acquisition.
GLB expects to incur charges of approximately $175,000, before tax, as
a result of the acquisition.
The discussion of reasons for the acquisition includes forward-looking
statements about possible or assumed future results of operations and the
performance of GLB as the resulting company after the acquisition. For a
discussion of factors that could affect these future results, see
"FORWARD-LOOKING STATEMENTS" on page _______.
MANAGEMENT OF GLB AFTER THE ACQUISITION (PAGE ______)
The board of directors of GLB after the acquisition will be comprised
of the same individuals who currently comprise the GLB Board of Directors. Mr.
Richard T. Flenner, Jr. will continue as President and Chief Executive Officer
of GLB and Great Lakes Bank after the acquisition.
The President of Maple Leaf, Ms. Betty L. Kimbrew, will be appointed
immediately after the acquisition to the GLB Board of Directors. In addition to
her service as a director of GLB, Betty L. Kimbrew will serve as Senior Vice
President - Corporate Development of GLB after the acquisition pursuant to an
employment agreement. Mr. Howard Amster, who is a director of Maple Leaf and its
largest shareholder, will be nominated for election to the GLB Board of
Directors at GLB's 1999 Annual Meeting of Shareholders. See, "TERMS OF THE
ACQUISITION - INTERESTS OF DIRECTORS AND OFFICERS IN THE ACQUISITION THAT DIFFER
FROM YOUR INTERESTS" beginning at page ________ and "MANAGEMENT OF MAPLE LEAF
WHO WILL SERVE AS DIRECTORS OR EXECUTIVE OFFICERS OF GLB" beginning at page
______ for a discussion of the interests of certain officers and directors of
Maple Leaf in the acquisition.
MAPLE LEAF'S RECOMMENDATION TO SHAREHOLDERS (PAGE _______)
The Board of Directors of Maple Leaf believes that the acquisition is
fair to you and in your best interests, and unanimously recommends that you vote
"FOR" the proposal to adopt the acquisition agreement.
OPINION OF MAPLE LEAF'S FINANCIAL ADVISOR (PAGE ______)
Tucker Anthony Incorporated has delivered its written opinion to the
Maple Leaf Board of Directors that the consideration to be received is fair from
a financial point of view to the holders of Maple Leaf Class A and Class B
common stock and holders of warrants to acquire Maple Leaf Common Stock. The
Tucker Anthony opinion is attached to this document as Appendix B. You should
read the opinion completely to understand the assumptions made, matters
considered and limitations of the review undertaken by Tucker Anthony.
If we complete the acquisition, Maple Leaf will pay to Tucker Anthony a
total fee that depends in part on the value of the transaction, as measured by
the prevailing price per share of GLB common stock. This is in addition to the
$5,000 paid by Maple Leaf to Tucker Anthony in July 1998, when Maple Leaf
engaged Tucker Anthony, and an additional $50,000 paid by Maple Leaf to Tucker
Anthony on November 24, 1998, when Tucker Anthony delivered its fairness
opinion. Assuming a price per share of GLB common stock of $________, the total
fee payable to Tucker Anthony by Maple Leaf on completion of the acquisition
would be $_______.
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<PAGE> 14
NO SOLICITATION OF ALTERNATIVE ACQUISITION TRANSACTIONS (PAGE _____)
Maple Leaf has promised GLB that (i) Maple Leaf and Geauga Savings Bank
will not solicit or negotiate any proposals or offers from any person other than
GLB to acquire Maple Leaf or Geauga Savings Bank and (ii) that the Maple Leaf
Board of Directors will not withdraw or modify its recommendation to the Maple
Leaf shareholders in favor of the acquisition by GLB after Maple Leaf receives
an alternative acquisition proposal, unless the Maple Leaf Board of Directors
determines that such action is necessary in order to carry out its fiduciary
responsibilities. If the Maple Leaf Board of Directors accepts an alternative
acquisition proposal before December 31, 1999, Maple Leaf must pay to GLB cash
in the amount of $2,250,000.
CONDITIONS TO COMPLETION OF THE ACQUISITION (PAGE ______)
The completion of the acquisition depends on a number of conditions
being met. These include:
* approval of the acquisition agreement by the Maple Leaf
shareholders;
* approval of the acquisition by federal and state regulatory
authorities;
* receipt by each of us of a legal opinion that, for United
States federal income tax purposes, GLB and Maple Leaf will
not recognize any gain or loss as a result of the acquisition.
The legal opinion will be subject to various limitations. We
recommend that you read the more detailed description of tax
consequences provided in this document beginning on page ____;
* approval by The Nasdaq Stock Market, Inc. of the listing of
the additional shares of GLB common stock to be issued in the
acquisition; and
* the absence of any injunction or legal restraint blocking the
acquisition, or of any proceedings by a government body trying
to block the acquisition.
A party to the acquisition agreement could choose to complete the
acquisition even though a condition has not been satisfied, as long as the law
allows it to do so. We cannot be certain when, or even whether, the conditions
to the acquisition will be satisfied or waived, or that the acquisition will be
completed.
REGULATORY APPROVALS (PAGE ____)
We cannot complete the acquisition unless it is approved by the Board
of Governors of the Federal Reserve System. After the Federal Reserve Board
approves the acquisition, we must wait anywhere from 15 to 30 days before we may
complete the acquisition, during which time the Department of Justice could
challenge the acquisition.
In addition, the acquisition is subject to the approval of, or notice
to, state and other regulatory authorities.
We have filed all of the required applications or notices with the
Federal Reserve Board and these other regulatory authorities. As of the date of
this Prospectus/Proxy Statement, we have not received all of the required
approvals. Although we do not know of any reason that we will not be able to
obtain the necessary approvals in a timely manner, we cannot be certain when we
will get them or even whether we will get them.
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<PAGE> 15
WAIVER OF CONDITIONS; AMENDMENT OR TERMINATION OF THE AGREEMENT (PAGE ______)
We may jointly amend the acquisition agreement, and each of us may
waive our right to require the other party to adhere to the terms and conditions
of the acquisition agreement. However, we may not do so after Maple Leaf
shareholders approve the acquisition if the amendment or waiver reduces or
changes the consideration that will be received by Maple Leaf shareholders. An
amendment or waiver of that kind would require another vote of Maple Leaf
shareholders.
We can agree at any time to terminate the acquisition agreement without
completing the acquisition. Also, either of us can decide to terminate the
acquisition agreement without the consent of the other if:
* any government agency denies an approval we need to complete
the acquisition, or if any governmental entity issues an order
blocking the acquisition;
* the acquisition is not completed by December 15, 1999, unless
the failure to complete the acquisition by that time is due to
a violation of the acquisition agreement by the party seeking
to terminate the agreement; or
* one company commits a material breach of the acquisition
agreement and does not correct the breach promptly (as long as
the company seeking to terminate the acquisition agreement has
not also committed a material breach of the agreement).
Maple Leaf could have the additional right to terminate the acquisition
agreement if three conditions exist shortly before the time of completion of the
acquisition:
(1) if the price of GLB common stock over a certain
period is less than $8.00;
(2) if the price of GLB common stock has not changed
since November 24, 1998 on a basis consistent with
changes in an index of Ohio bank stocks; and
(3) if GLB decides not to pay additional cash
consideration in an amount equal to (a) the
difference between $8.00 and the price of GLB stock
(b) multiplied by 375,000.
This potential additional termination right on Maple Leaf's part
creates some price protection for Maple Leaf shareholders and warrant holders.
If the price of GLB common stock declines to less than $8.00 per share, the
termination provision described immediately above could enable Maple Leaf
shareholders and warrant holders to obtain additional cash consideration in an
amount approximating the lost value of GLB common stock.
Regardless of whether the acquisition is completed, we will each pay
our own fees and expenses, except that we will evenly divide the costs
associated with the tax opinion to be delivered by Maple Leaf's counsel.
ACCOUNTING TREATMENT (PAGE _____)
GLB expects to account for the acquisition using the "purchase" method
of accounting. GLB will record the acquired assets and assumed liabilities of
Maple Leaf at their fair value. To the extent the total purchase price exceeds
the fair value of the assets acquired and liabilities assumed, GLB will record
goodwill. GLB will include in its consolidated results of operations the results
of Maple Leaf's operations after the acquisition is completed.
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<PAGE> 16
INTERESTS OF DIRECTORS AND OFFICERS IN THE ACQUISITION THAT DIFFER FROM YOUR
INTERESTS (PAGE ______)
Some of Maple Leaf's directors and officers have interests in the
acquisition that differ from, or are in addition to, their interests as
shareholders and warrant holders in Maple Leaf. Ms. Betty L. Kimbrew is
President of Maple Leaf and Geauga Savings Bank and a director of each of those
companies. She will be appointed as a member of the Board of Directors of GLB
promptly after the acquisition. She will also serve as Senior Vice President -
Corporate Development of GLB after the acquisition under an employment agreement
having a term of one year. Mr. Howard Amster, a director of each of Maple Leaf
and Geauga Savings Bank and the largest shareholder of Maple Leaf, will be
nominated for election to the GLB Board of Directors at the 1999 Annual Meeting
of GLB Shareholders, which is currently expected to be held in April 1999. See,
"MANAGEMENT OF MAPLE LEAF WHO WILL SERVE AS DIRECTORS OR EXECUTIVE OFFICERS OF
GLB" at page ______.
The members of Maple Leaf's Board of Directors knew about these
additional interests and considered them when they approved the acquisition
agreement and the acquisition.
Ohio law provides Maple Leaf shareholders with dissenters' appraisal
rights in the acquisition.
FEDERAL INCOME TAX CONSEQUENCES (PAGE _____)
MAPLE LEAF SHAREHOLDERS AND WARRANT HOLDERS. We expect that for United
States federal income tax purposes, your conversion of shares of Maple Leaf
common stock and warrants into shares of GLB common stock and the right to
receive cash generally will be a taxable event.
DETERMINING THE ACTUAL TAX CONSEQUENCES OF THE ACQUISITION TO YOU COULD
BE COMPLICATED. THEY WILL DEPEND ON YOUR SPECIFIC SITUATION AND ON
VARIABLES NOT WITHIN OUR CONTROL. YOU SHOULD CONSULT YOUR OWN TAX
ADVISOR FOR A FULL UNDERSTANDING OF THE ACQUISITION'S TAX CONSEQUENCES.
GLB SHAREHOLDERS. Outstanding shares of GLB common stock will remain
unchanged by the acquisition. The acquisition will not cause GLB's existing
shareholders to recognize any gain or loss for purposes of the United States
federal income tax.
MATERIAL DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS (PAGE ____)
The rights of GLB shareholders are governed by Ohio law and GLB's
Articles of Incorporation and Code of Regulations. The rights of Maple Leaf
shareholders are governed by Ohio law and Maple Leaf's Articles of Incorporation
and Code of Regulations. The rights of holders of warrants to acquire Maple Leaf
common stock are governed principally by the warrant agreements setting forth
the terms of those warrants. When the acquisition is completed, shareholders of
Maple Leaf and holders of warrants for Maple Leaf common stock will become
shareholders of GLB, and your rights will be governed by Ohio law and by GLB's
Articles of Incorporation and Code of Regulations.
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<PAGE> 17
FORWARD-LOOKING STATEMENTS COULD PROVE TO BE INACCURATE (PAGE ___)
We have each made forward-looking statements in this Prospectus/Proxy
Statement. Forward-looking statements are subject to risks and uncertainties.
These forward-looking statements include information about future results of our
operations or the performance of GLB after the acquisition is completed. When we
use any of the words "believes," "expects," "anticipates," "estimates" or
similar expressions, we are making forward-looking statements. Many possible
events or factors could affect the future financial results and performance of
each of our companies and GLB after the acquisition and could cause those
results or performance to differ materially from those expressed in our
forward-looking statements. These possible events or factors include the
following:
* actual cost savings resulting from the acquisition are less
than expected, GLB is unable to realize those cost savings as
soon as expected or GLB incurs additional or unexpected costs;
* revenues after the acquisition are lower than expected;
* competition among financial services companies increases;
* GLB has more trouble integrating our businesses than we
expected;
* changes in the interest rate environment reduce interest
margins;
* general economic conditions change or are worse than we
expected;
* legislative or regulatory changes adversely affect our
businesses;
* personal or commercial customers' bankruptcies increase;
* technology-related changes, including "Year 2000" data systems
compliance, are harder to make or more expensive than we
expected; and
* changes occur in the securities markets.
SELECTED FINANCIAL DATA
The following tables show summarized historical financial data for each
of us and also show similar pro forma information reflecting the acquisition.
The pro forma information reflects the "purchase" method of accounting.
We expect to incur acquisition and integration charges as a result of
the acquisition. GLB also anticipates that the acquisition will provide the
resulting company with financial benefits that include reduced operating
expenses and opportunity to earn more revenue. The pro forma information,
although helpful in illustrating the financial characteristics of the resulting
company under one set of assumptions, does not reflect these expenses or
benefits. Accordingly, the pro forma information does not attempt to predict or
suggest future results. It also does not necessarily reflect what the historical
results of GLB would have been had our companies been combined.
The summary financial information to follow is not a substitute for the
historical financial information and other detailed financial information we
provide elsewhere in this document. You should read the summary financial
information together with the historical financial information and other
detailed financial information we provide elsewhere in this document.
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<PAGE> 18
PRO FORMA SELECTED COMBINED FINANCIAL DATA
The following unaudited selected pro forma financial data combine GLB's
historical results with Maple Leaf's historical results, in each case as of or
for the nine months ended September 30, 1998 and for the year ended December 31,
1997. See "Where You Can Find More Information" and "Unaudited Pro Forma
Condensed Consolidated Financial Information."
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
----------------------- ----------------------
<S> <C> <C>
SUMMARIZED INCOME STATEMENT DATA:
Net interest income........................... $ 4,809,529 $ 5,459,631
Provision for loan losses..................... 132,124 414,380
Non-interest income........................... 694,765 748,023
Non-interest expense.......................... 4,205,070 4,795,954
Federal income tax expense (benefit).......... 439,308 360,237
----------------------- ----------------------
Net Income.............................. $ 727,792 $ 637,083
====================== =====================
PER SHARE DATA:
Basic net income.............................. $ 0.42 $ 0.66
Diluted net income............................ $ 0.42 $ 0.66
Book value.................................... $ 11.86 $ 11.25
WEIGHTED AVERAGE NUMBER OF SHARES (ACTUAL):
Basic......................................... 1,715,516 970,942
Diluted....................................... 1,715,576 970,942
BALANCE SHEET DATA AT PERIOD END:
Total assets.................................. $ 200,741,460
Federal Home Loan Bank advances............... $ 50,448,279
Total shareholders' equity.................... $ 29,756,256
</TABLE>
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<PAGE> 19
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
GLB BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, AS OF OR FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1998 1997 1997 1996 1995 1994
------- ------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income.................................. $ 4,243 $ 3,146 $ 4,382 $ 3,234 $ 2,498 $ 757
Interest expense................................. 1,780 1,375 1,938 1,325 1,014 276
----- ----- ----- ----- ----- --- ---
Net interest income............................ 2,463 1,771 2,444 1,909 1,484 481
Provision for credit losses...................... 90 67 97 77 51 0
----- ----- ----- ----- ----- --- ---
Net interest income after provision for loan losses 2,373 1,704 2,347 1,832 1,433 481
Non-interest income.............................. 492 359 552 294 250 86
Non-interest expense............................. 2,120 1,727 2,345 1,904 1,642 896
----- ----- ----- ----- ----- --- ---
Income before income taxes....................... 745 336 554 222 41 (329)
Income tax expense (benefit)..................... 288 134 210 10 4 (1)
----- ----- ----- ----- ----- --- ---
Net income..................................... $ 457 $ 202 $ 344 $ 212 $ 37 $ (328)
====== ====== ====== ===== ===== ======
PER COMMON SHARE DATA:
Basic net income (loss).......................... $ 0.34 $ 0.34 $ 0.58 $ 0.39 $ 0.07 $ (0.72)
Diluted net income (loss)........................ $ 0.34 $ 0.34 $ 0.58 $ 0.39 $ 0.07 $ (0.72)
Book value....................................... $ 11.84 $ 10.53 $ 10.77 $ 10.18 $ 9.43 $ 9.28
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic............................................ 1,340,516 595,764 595,942 548,089 496,250 455,000
Diluted.......................................... 1,340,576 595,764 595,942 548,089 496,250 455,000
BALANCE SHEET DATA:
At period end:
Total assets..................................... $ 92,305 $ 63,143 $ 66,631 $ 54,037 $ 40,915 $ 32,550
FHLB advances.................................... $ 7,500 $ 7,500 $ 7,500 $ 5,000 $ 0 $ 0
Total shareholders' equity....................... $ 25,256 $ 6,281 $ 6,428 $ 6,039 $ 4,809 $ 4,222
</TABLE>
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<PAGE> 20
MAPLE LEAF FINANCIAL, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, AS OF OR FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1998 1997 1997 1996 1995 1994
------- ------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income.................................. $ 6,623 $ 5,578 $ 7,694 $ 5,970 $ 5,039 $ 3,967
Interest expense................................. 4,029 3,440 4,798 3,491 3,124 2,084
----- ----- ----- ----- ----- - -----
Net interest income............................ 2,594 2,138 2,896 2,479 1,915 1,883
Provision for credit losses...................... 42 251 317 134 46 61
----- ----- ----- ----- ----- - -----
Net interest income after provision for loan losses 2,552 1,887 2,579 2,345 1,869 1,822
Non-interest income.............................. 203 118 196 179 147 123
Non-interest expense............................. 1,471 1,157 1,632 1,716 1,312 1,223
----- ----- ----- ----- ----- - -----
Income before income taxes....................... 1,284 848 1,143 808 704 722
Income tax expense............................... 444 285 388 266 245 246
----- ----- ----- ----- ----- - -----
Net income..................................... $ 840 $ 563 $ 755 $ 542 $ 459 $ 476
====== ====== ====== ===== ===== =====
PER COMMON SHARE DATA:
Basic net income................................. $ 57.96 $ 38.22 $ 51.73 $ 45.61 $ 52.88 $ 54.96
Diluted net income............................... $ 26.68 $ 17.75 $ 23.91 $ 18.78 $ 33.53 $ 34.81
Book value....................................... $ 597.65 $ 532.41 $ 542.68 $ 487.49 $ 520.63 $ 444.57
Diluted book value............................... $ 482.23 $ 451.97 $ 456.82 $ 431.24 $ 429.58 $ 403.81
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic............................................ 14,598 14,558 14,598 14,558 8,686 8,666
Diluted.......................................... 31,578 31,538 31,578 31,538 25,666 25,646
BALANCE SHEET DATA:
At period end:
Total assets..................................... $ 111,512 $102,831 $ 105,078 $ 82,263 $ 63,832 $ 59,077
FHLB advances.................................... $ 42,948 $ 28,098 $ 28,098 $ 24,598 $ 17,736 $ 17,924
Total shareholders' equity....................... $ 8,725 $ 7,751 $ 7,922 $ 7.097 $ 4,522 $ 3,853
</TABLE>
RISK FACTORS
An investment in GLB common stock involves risk. The following
constitute some of the potential risks of an investment in GLB common stock and
should be carefully considered by shareholders and warrant holders of Maple
Leaf. The order in which risks are discussed is not necessarily indicative of
the relative importance of any described risk, nor is the following intended to
be inclusive of all risks of investment in GLB common stock.
CONTROL BY SIGNIFICANT SHAREHOLDERS
Jerome T. Osborne, Sr. and his son, Richard M. Osborne, together own
approximately 23.30% of the shares of GLB common stock that are currently issued
and outstanding (or issuable upon exercise of options). Jerome T. Osborne, Sr.
owns approximately 167,329 shares (7.84%), and Richard M. Osborne owns 329,836
shares (15.46%), including shares they have the right to acquire within 60 days.
Jerome T. Osborne, Sr. is Chairman of the Board and Richard M. Osborne is Vice
Chairman of the Board of each of GLB and Great Lakes Bank. In addition, Jerome
T. and Richard M. Osborne are, individually and with affiliated companies and
immediate family members, Great Lakes Bank's most substantial depositors. They
have also held important positions in other local financial institutions in the
recent past, and have approximately 40 years of combined experience with
community-based financial institutions in Northeast Ohio. See "PRINCIPAL
SHAREHOLDERS OF GLB" and "MANAGEMENT OF GLB - CERTAIN RELATIONSHIPS AND RELATED
PARTY TRANSACTIONS."
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<PAGE> 21
Although GLB believes that it benefits from its association with the
Osbornes, whom GLB believes to be prominent members of the communities in which
Great Lakes Bank conducts business, this relationship presents a number of
scenarios that could have a material adverse effect on GLB. The sale by Messrs.
Jerome T. and Richard M. Osborne of a substantial amount of their GLB common
stock could have an adverse effect on the price of the GLB common stock and an
adverse effect on GLB. Within limits established under Securities and Exchange
Commission Rule 144, Messrs. Jerome T. and Richard M. Osborne may be able to
resell freely shares of GLB common stock on the open market.
From time to time the Osbornes may pledge shares of GLB common stock to
secure personal borrowings or borrowings by one or more affiliates. According to
publicly available filings with the Securities and Exchange Commission,
approximately 175,950 of Mr. Richard M. Osborne's shares of GLB common stock are
currently pledged to secure borrowings from an Ohio-based financial institution.
See "PRINCIPAL SHAREHOLDERS OF GLB." If either of Jerome T. or Richard M.
Osborne defaults on any obligations secured by a pledge of his GLB shares, the
secured party could exercises its rights under the pledge. Exercise by the
secured party of its rights under a pledge could have an adverse effect on GLB
and could lead to a change in control of GLB. GLB has no reason to believe that
the Osbornes and their affiliates will not be able to satisfy all of their
obligations under borrowings that may be outstanding from time to time, or any
pledge agreement(s) related thereto.
GLB would also be adversely affected if the Osbornes were to withdraw a
substantial amount of the deposits that they maintain with Great Lakes Bank. GLB
is not aware of any intention on the Osbornes' part to withdraw any substantial
portion of their deposits with Great Lakes Bank.
RELIANCE ON ACQUISITIONS FOR GROWTH; RISKS ASSOCIATED WITH ACQUISITIONS;
FINANCING OF ACQUISITIONS
An element of GLB's business strategy is to pursue selective
acquisitions that expand and complement Great Lakes Bank's business, including
acquisitions of other community financial institutions or financial institution
branches. There can be no assurance that GLB will be able to identify suitable
acquisition opportunities, negotiate favorable terms or consummate any such
transactions. Moreover, as the financial institutions industry continues the
trend toward consolidation, GLB can expect to compete for suitable acquisition
opportunities with other financial institutions, many of which have greater
resources than GLB. GLB believes that competition for acquisitions of financial
institutions has resulted and will continue to result in higher acquisition
prices. Accordingly, no assurance can be given that GLB's acquisition strategy
will be successfully implemented. The failure of or inability of GLB to pursue
its acquisition strategy could hinder growth.
Acquisitions involve a number of risks inherent in assessing the
values, strengths, weaknesses and profitability of acquisition candidates,
including the following: adverse short-term effects of acquisitions on operating
results; diversion of management's attention; dependence on retaining key
personnel; and risks associated with unanticipated problems. In addition, the
success of an acquisition will depend in part on GLB's ability to integrate the
operations of the acquired institution or assets, and GLB's success in
capitalizing on synergies to achieve cost savings.
GLB may use GLB common stock or authorized shares of preferred stock,
cash, debt obligations, contingent payments based on future performance or any
combination of the foregoing to finance acquisitions. The extent to which GLB
will be able or willing to use common stock for this purpose will be influenced
by the market price and liquidity of the GLB common stock relative to that of
its competitors. If GLB does not maintain sufficient market value or maintain
sufficient market value relative to its competitors, or if potential acquisition
candidates are unwilling to accept GLB common stock as consideration in an
acquisition, GLB may have to rely principally on cash in order to pursue its
growth strategy, which may put GLB at a competitive
13
<PAGE> 22
disadvantage. Capital adequacy requirements applicable to banks and bank holding
companies could prevent reliance on cash and credit resources for financing any
substantial portion of an acquisition.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
GLB's results of operations are dependent to a large degree upon net
interest income, which is the difference between interest earned from loans and
investments, on the one hand, and interest paid on deposits and borrowings, on
the other. In the early 1990s, many banking organizations experienced
historically high interest rate spreads, meaning the difference between the
interest rates earned on loans and investments and the interest rates paid on
deposits and borrowings. More recently, however, interest rate spreads have
generally narrowed due to changing market conditions and competitive pricing
pressures, and there can be no assurance that such interest rate spreads will
not narrow even further or that such higher interest rate spreads will return.
See "GLB'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
ANTITAKEOVER PROVISIONS
GLB's Amended and Restated Articles of Incorporation, as amended, and
Code of Regulations contain provisions that could delay or make more difficult
and costly an acquisition of control of GLB. Because these factors could prevent
a shareholder from realizing the premium that is commonly paid to shareholders
in connection with a change in control, these factors could affect adversely the
price of GLB common stock.
Any proposed acquisition of GLB could be subject to the "control share
acquisition" and "merger moratorium" statutes under Ohio law, because GLB has
not opted out of coverage under those statutes. Assuming that all directors and
executive officers as a group continue to retain a substantial percentage of the
outstanding voting shares of GLB, that ownership position could be expected to
deter any prospective acquiror from seeking to acquire ownership or control of
GLB, potentially allowing GLB's Board of Directors and management to defeat any
acquisition proposal requiring approval of GLB shareholders. GLB also has
2,000,000 shares of authorized but unissued preferred stock that may be issued
in the future with such rights, privileges and preferences as are determined by
the Board of Directors of GLB. Issuance of preferred stock could have the effect
of making more difficult and costly or discouraging altogether any acquisition
of GLB that is not supported by the Board of Directors of GLB. See "DESCRIPTION
OF GLB CAPITAL STOCK -- CERTAIN ANTITAKEOVER MATTERS."
LENDING RISKS
The risk of nonpayment of loans is inherent in banking. Management of
GLB attempts to minimize credit exposure by carefully monitoring the
concentration of loans within specific industries, in addition to managing risks
of individual credits through loan application and approval procedures. See
"BUSINESS OF GLB -- LENDING ACTIVITIES."
ECONOMIC CONDITIONS AND MONETARY POLICIES
Great Lakes Bank's lending operations have been concentrated in Lake
County, Ohio, and after the acquisition will be concentrated in Geauga and Lake
Counties, Ohio. The vast majority of Great Lakes Bank's loans are secured by
real estate. These factors expose the bank to the risk of a decline in the local
economy, particularly the risk of declining real estate values. Although GLB
believes that economic conditions in Lake County and in Geauga County have been
generally favorable in recent years, significant deterioration in economic
conditions locally or on a wider scale could adversely affect Great Lakes Bank
and GLB's business, including loan demand, the ability of borrowers to repay
outstanding loans and the value of loan collateral. This in turn could result in
increased levels of nonperforming loans and charge-offs and increases in the
provision for loan losses.
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Conditions beyond the control of GLB management could have a
significant impact on changes in net interest income from one period to the
next. Examples of such conditions include: (1) the extent of credit demand from
customers; (2) fiscal and debt management policies of the federal government,
including changes in tax laws; (3) monetary policies of the Board of Governors
of the Federal Reserve System; (4) introduction and growth of new investment
instruments and transaction accounts by non-bank competitors of financial
institutions; and (5) potential changes in rules and regulations governing
payment of interest on deposit accounts.
COMPETITION
Banking institutions operate in a highly competitive environment. GLB
and Great Lakes Bank compete with other commercial banks, credit unions, savings
institutions, finance companies, insurance companies, mortgage companies, mutual
funds and other financial service organizations. Consolidation of the financial
services industry in the Midwest in recent years has increased the level of
competition among financial institutions and other financial service
organizations. Additionally, recent and proposed legislative and regulatory
changes could have the effect of increasing competition. For example, Congress'
recent elimination of many restrictions on interstate branching could have the
effect of increasing competition from large banks headquartered outside of Ohio.
See "SUPERVISION AND REGULATION -- INTERSTATE BANKING AND BRANCHING."
Many of the competitors of Great Lakes Bank have substantially greater
resources, which offer those competitors advantages such as the ability to price
services at lower, more attractive levels and the ability to provide larger
credit facilities than Great Lakes Bank is able to provide. In addition, some of
the competitors offer products and services that are not offered by Great Lakes
Bank. Likewise, some of the competitors are not subject to the same kind and
amount of regulatory restrictions and supervision to which GLB and Great Lakes
Bank are subject. Because Great Lakes Bank is a community bank that is
considerably smaller than other commercial lenders in the market, Great Lakes
Bank's legal lending limit does not allow it to make commercial loans in amounts
many competitors can offer. Great Lakes Bank accommodates loan volumes in excess
of its lending limit from time to time through the sale of participations in
loans to other banks.
LIMITED TRADING IN GLB COMMON STOCK
Although the GLB common stock is authorized for quotation on the Nasdaq
SmallCap Market, public trading of GLB common stock began in May 1998 and there
has been limited trading in GLB common stock since that time.
NO ASSURANCE OF DIVIDENDS
It is anticipated that no cash dividends will be paid to GLB's
shareholders for the foreseeable future. GLB will be dependent upon dividends
paid to it by Great Lakes Bank for funds to pay dividends on the GLB common
stock. GLB cannot assure you that future earnings of Great Lakes Bank will be
sufficient to permit payment by Great Lakes Bank of cash dividends to GLB. Under
state and federal law, the ability of Great Lakes Bank or GLB to pay dividends
can be restricted under certain circumstances. Even if dividends may legally be
paid, the amount and timing of dividends will be at the discretion of the Board
of Directors. Rather than being paid in the form of cash dividends by Great
Lakes Bank to GLB or thereafter by GLB to its shareholders, earnings may instead
be used to support growth or for other corporate purposes. See "SUPERVISION AND
REGULATION -- LIMITS ON DIVIDENDS AND OTHER PAYMENTS."
NEED FOR TECHNOLOGICAL CHANGE
With frequent introductions of new technology-driven products and
services, the banking industry is undergoing rapid technological changes. In
addition to enhancing customer service, the effective use of
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technology increases efficiency and enables financial institutions to reduce
costs. Financial institutions' success is becoming increasingly dependent upon
use of technology (i) to provide products and services that satisfy customer
demands and (ii) to create additional operating efficiencies. Many of Great
Lakes Bank's competitors have substantially greater resources to invest in
technological improvements, which may enable them to perform various banking
functions at lower costs than Great Lakes Bank. Great Lakes Bank cannot assure
you that it will be able to develop and implement new technology-driven products
or services or that it will be successful in marketing any such products or
services to its customers.
GLB and Great Lakes Bank are aware of the current concerns throughout
the business community of reliance upon computer software programs that do not
properly recognize the year 2000 in date formats, commonly referred to as the
"Year 2000 Problem." See "GLB'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- YEAR 2000 READINESS
DISCLOSURE." A failure by a business such as Great Lakes Bank to identify
properly and to correct a Year 2000 Problem in its operations could result in
system failures or miscalculations. In turn, this could result in disruptions of
operations, including among other things a temporary inability to process
transactions, send invoices or otherwise engage in routine business transactions
on a day-to-day basis. Great Lakes Bank currently does not expect the Year 2000
Problem to materially affect its results of operations or financial condition,
and Great Lakes Bank likewise does not expect costs associated with prevention
or remediation of the Year 2000 Problem to be material. Nevertheless, there can
be no assurance that the Year 2000 Problem will not lead to temporary failures
of critical systems and software programs on which Great Lakes Bank depends.
REGULATORY RISK
GLB and Great Lakes Bank are and will continue to be subject to
extensive state and federal government supervision and regulation. Affecting
many aspects of the banking business, including permissible activities, lending,
investments, payment of dividends and numerous other matters, state and federal
supervision and regulation is intended principally to protect depositors, the
public and the deposit insurance funds administered by the Federal Deposit
Insurance Corporation. Protection of shareholders is not a goal of banking
regulation. In contrast to numerous restrictions placed on GLB's activities by
the Bank Holding Company Act and regulations of the Board of Governors of the
Federal Reserve System, Maple Leaf is subject to very little federal regulatory
oversight and very few restrictions under federal law. See "SUPERVISION AND
REGULATION."
Applicable statutes, regulations, agency and court interpretations and
agency enforcement policies have been subject to significant changes, sometimes
retroactively applied, and could be subject to significant changes in the
future. Changes in applicable laws and regulatory policies could adversely
affect the banking industry generally or GLB and Great Lakes Bank in particular.
The burdens of federal and state banking regulation could place banks in general
at a competitive disadvantage compared to less regulated competitors. See
"SUPERVISION AND REGULATION."
INDEMNIFICATION OF DIRECTORS AND OFFICERS
GLB's Amended and Restated Articles of Incorporation, as amended, its
Code of Regulations and the Ohio General Corporation Law provide for
indemnification of officers and directors, insulating officers and directors
somewhat from liability for breaches of the duty of care. If a director or
officer seeks indemnification under these provisions in the future, it is
possible that GLB's indemnification obligation could require a charge against
earnings, affecting the market value of the GLB common stock and the
availability of funds for the payment of dividends to shareholders. See
"DESCRIPTION OF GLB CAPITAL STOCK -- LIMITATIONS ON LIABILITY AND
INDEMNIFICATION."
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SPECIAL MEETING OF MAPLE LEAF SHAREHOLDERS
This Prospectus/Proxy Statement is being furnished in connection with
the solicitation of proxies by the Board of Directors of Maple Leaf Financial,
Inc., an Ohio corporation, for use at the Special Meeting of Shareholders of
Maple Leaf to be held at 10:00 a.m. (local time) on April , 1999 at the
Punderson Manor House, Punderson State Park, 11755 Kinsman Road, Newbury, Ohio
44065, and at any adjournments or postponements thereof. At the Maple Leaf
Special Meeting, holders of Maple Leaf Class A common stock, without par value,
and Class B common stock, without par value, will be asked to vote upon a
proposal to approve and adopt the Agreement of Affiliation and Plan of Merger
dated as of November 24, 1998 by and between GLB and Maple Leaf, amended as of
December 29, 1998 (as amended, the "ACQUISITION AGREEMENT"). The Acquisition
Agreement provides that GLB Bancorp, Inc., an Ohio corporation, will acquire
all of the stock of Maple Leaf. The acquisition will be accomplished by means
of the merger of a subsidiary of GLB with and into Maple Leaf, which subsidiary
has been formed by GLB for the sole purpose of carrying out the acquisition.
The Class A common stock and the Class B common stock of Maple Leaf are
hereinafter referred to together as the "MAPLE LEAF COMMON STOCK" and
individually as the "CLASS A COMMON STOCK" and "CLASS B COMMON STOCK."
ALL INFORMATION CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT RELATING
TO GLB HAS BEEN FURNISHED BY GLB, AND ALL INFORMATION CONTAINED IN THIS
PROSPECTUS/PROXY STATEMENT RELATING TO MAPLE LEAF HAS BEEN FURNISHED BY
MAPLE LEAF. THE PARTY FURNISHING INFORMATION IS RESPONSIBLE FOR ITS
ACCURACY.
PURPOSE OF THE MEETING
The purpose of the Maple Leaf Special Meeting is to consider and vote
upon adoption of the Acquisition Agreement.
RECORD DATE; SHARES OUTSTANDING AND ENTITLED TO VOTE
The record date for the determination of holders of Maple Leaf Class A
and Class B common stock entitled to notice of and to vote at the Maple Leaf
Special Meeting (the "MAPLE LEAF RECORD DATE") has been fixed by the Board of
Directors of Maple Leaf as of the close of business on ____________, 1999. As of
the Maple Leaf Record Date, there were approximately 14,420 shares of Maple Leaf
common stock issued and outstanding, including 7,210 shares of Class A common
stock and 7,210 shares of Class B common stock. The Maple Leaf common stock was
held of record on that date by approximately ________ shareholders. Holders of
record of Class A common stock on the Maple Leaf Record Date are entitled to one
vote per share. Holders of record of Class B common stock on the Maple Leaf
Record Date are entitled to twenty votes per share. All holders of Maple Leaf
common stock are entitled to exercise dissenters' rights. See "RIGHTS OF
DISSENTING SHAREHOLDERS."
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of
Class A common stock and Class B common stock voting together and a majority of
each class voting separately is required to adopt the Acquisition Agreement.
Accordingly, the affirmative vote of approximately 3,606 shares of each of Class
A common stock and Class B common stock is required to adopt the Acquisition
Agreement.
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On the date the Acquisition Agreement was executed, certain
shareholders of Maple Leaf entered into a Shareholder Voting Agreement with GLB
and Maple Leaf as an inducement for GLB to enter into the Acquisition Agreement.
The Shareholder Voting Agreement requires the shareholders who have executed the
Shareholder Voting Agreement to
* vote their Maple Leaf common stock in favor of the
acquisition;
* vote against any other acquisition proposal involving a change
in control of Maple Leaf or similar transaction (other than
the acquisition by GLB); and
* vote against any other transaction that is inconsistent with
the obligation of Maple Leaf to consummate the acquisition.
The shareholders who executed the Shareholder Voting Agreement include all of
the directors of Maple Leaf, the executive officers of Maple Leaf (Ms. Kimbrew,
its President, and Mr. Lloyd V. Clemmer, Jr., its Treasurer), the spouse of
Director Howard Amster and the Bobbie Brooks Trust, a shareholder of Maple Leaf
that owns approximately 13.56% of Maple Leaf's issued and outstanding common
stock. Collectively, these shareholders own or exercise voting power over
approximately 10,042 shares of Maple Leaf's issued and outstanding common stock
(excluding shares acquirable upon exercise of warrants), or 69.64% of the voting
power. Accordingly, these shareholders own or exercise voting power over enough
shares to assure approval of the Acquisition Agreement, and they have agreed in
the Shareholder Voting Agreement to vote in favor of the acquisition. See
"PRINCIPAL SHAREHOLDERS OF MAPLE LEAF."
VOTING; SOLICITATION AND REVOCATION OF PROXIES
The enclosed proxy card is solicited on behalf of the Maple Leaf Board
and may be used by Maple Leaf shareholders to vote at the Maple Leaf Special
Meeting. Maple Leaf shareholders are requested to complete, date and sign the
accompanying proxy cards and promptly return them in the accompanying postage
prepaid envelope. Proxies may be revoked at any time prior to the voting thereof
by
* attending the Maple Leaf Special Meeting and voting in person
(but attendance will not by itself constitute revocation),
* filing with the Secretary another proxy card duly executed and
bearing a later date, or
* giving to the Secretary of Maple Leaf written notice of the
proxy revocation at or before the Maple Leaf Special Meeting.
Any written notice revoking a proxy should be delivered to Lloyd V. Clemmer,
Jr., Secretary of Maple Leaf, 10800 Kinsman Road, Newbury, Ohio 44065.
Unless revoked, shares represented by proxy will be voted at the Maple
Leaf Special Meeting. Shares represented by valid proxies will be voted at the
Maple Leaf Special Meeting in accordance with the instructions noted thereon. If
no instructions are given, proxies will be voted in favor of adoption of the
Acquisition Agreement.
In addition to solicitation by mail, directors, officers and employees
of Maple Leaf and Geauga Savings Bank may solicit proxies from the shareholders
of Maple Leaf personally or by telephone, telegram or other forms of
communication. However, they will not be specifically compensated for such
services. Brokerage houses, nominees, fiduciaries and other custodians will be
requested to forward soliciting materials to beneficial owners and will be
reimbursed for their reasonable expenses incurred in sending proxy material to
beneficial owners.
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QUORUM; BROKER NON-VOTES
The required quorum for the transaction of business at the Maple Leaf
Special Meeting is a majority of the shares of Maple Leaf common stock issued
and outstanding on the Maple Leaf Record Date, whether represented in person or
by proxy. Abstentions and broker non-votes will be counted as present for
purposes of determining whether there is a quorum at the Maple Leaf Special
Meeting, but will not be voted. Because the adoption of the Acquisition
Agreement requires the affirmative vote of the holders of a majority of the
outstanding shares of Maple Leaf common stock, abstentions and broker non-votes
will have the same effect as votes against adoption of the Acquisition
Agreement.
If a quorum is not obtained, or if fewer shares of Maple Leaf common
stock than the number required therefor are voted in favor of the adoption of
the Acquisition Agreement, the Maple Leaf Special Meeting may be postponed or
adjourned in order to permit additional time for soliciting and obtaining
additional proxies or votes. At any subsequent reconvening of the Maple Leaf
Special Meeting, all proxies will be voted in the same manner as such proxies
would have been voted at the original convening of the Maple Leaf Special
Meeting, except for any proxies that have been effectively revoked or withdrawn.
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BACKGROUND OF AND REASONS FOR THE ACQUISITION
REASONS FOR THE ACQUISITION -- GLB
GLB believes that external growth through acquisitions of other
community banks or branch offices can enhance Great Lakes Bank's existing branch
network and allow Great Lakes Bank to extend its community banking philosophy to
other communities. Maple Leaf and its subsidiary, Geauga Savings Bank, operate
in Geauga County, one of the most rapidly growing counties in the state in terms
of population. GLB's and Great Lakes Bank's operations have been confined to the
adjoining Lake County, where Great Lakes Bank is the only commercial bank
headquartered in that county. GLB believes the community banking philosophy of
Great Lakes Bank and the combined strengths of GLB and Maple Leaf will benefit
shareholders of GLB and Maple Leaf, as well as customers and potential customers
in Geauga County who are underserved by large banks headquartered nearby,
whether in Cleveland, Akron or elsewhere. The acquisition of Maple Leaf will
continue the evolution of Great Lakes Bank that began in July 1994, when Great
Lakes Bank succeeded to the business of Great Lakes Commerce Bank and started
afresh under new ownership. The acquisition will expand GLB's existing banking
operations in its northern Ohio market, enhancing GLB and Great Lakes Bank's
market position and creating opportunities to achieve operating efficiencies in
those markets.
GLB expects to realize cost reductions from elimination of duplicate
data processing and other corporate overhead and consolidation of other
operations. After the acquisition, GLB might relocate one or both of the
existing Geauga Savings Bank offices or open an additional Geauga County branch
office. Although GLB believes that cost reductions are achievable, no assurance
can be given that cost reductions will actually be achieved; that cost
reductions will be achieved within the time frame planned by GLB; or that any
cost savings that are achieved will not be offset by declining revenues or other
charges to earnings. If those cost reductions are not achieved, or if they are
not achieved within the time frame planned by GLB, GLB's earnings after the
acquisition would be less than GLB anticipates.
BACKGROUND AND REASONS FOR THE ACQUISITION -- MAPLE LEAF
Approximately months ago, the Board of Directors of Maple Leaf
determined that, in order for Maple Leaf to remain competitive as a community
bank in an industry undergoing significant consolidation of banks and other
financial institutions, Maple Leaf needed to undergo significant growth. Several
alternatives were explored, including acquisitions of other financial
institutions, engaging in an initial public offering to obtain the capital
necessary to engage in sustained growth, and the possibility of obtaining a
merger partner for Maple Leaf on terms favorable to Maple Leaf's shareholders.
During the Summer of 1998, the Board of Directors of Maple Leaf met with the
investment banking firm of Tucker Anthony Incorporated ("TUCKER ANTHONY") to
discuss the various options available to Maple Leaf in the current market
environment. In addition, Maple Leaf had received an informal inquiry from
another local financial institution regarding the possible sale of Maple Leaf,
and the Maple Leaf Board felt it was advisable to discuss this situation with an
investment banking firm. As a result of these discussions, on June 16, 1998,
Tucker Anthony was engaged as financial advisor for Maple Leaf to further
evaluate Maple Leaf's available opportunities. On July 28, 1998, Tucker Anthony
made a presentation to the Maple Leaf Board concerning Geauga Savings, including
an analysis of the current market conditions for a public offering and the
possible shareholder returns which could be achieved by a sale of Maple Leaf or
Geauga to a merger partner. As part of this presentation, Tucker Anthony
explained that previous multiples of book value achieved by financial
institutions in prior initial public offerings did not appear to be presently
available based on current conditions in the public capital market. However,
shareholder returns which would take several years to achieve through an initial
public offering could be more quickly realized through the sale of Maple Leaf to
a merger partner.
Based on these discussions and the analysis by Tucker Anthony, which
included examples of mergers of other financial institutions which had produced
highly successful banks, and which involved returns to shareholders from a
merger partner at higher values than had historically been the case, the Maple
Leaf Board
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decided that a potential merger merited serious consideration by Maple Leaf, and
accordingly, the Maple Leaf Board authorized Tucker Anthony to make contact on a
confidential basis with certain institutions that Maple Leaf and Tucker Anthony
believed were of a size capable of an acquisition of Maple Leaf and whose
shares, as part of a total consideration package to be received by the Maple
Leaf shareholders, were believed to be an attractive investment.
By August of 1998, approximately 16 companies had received an
information package on Maple Leaf prepared by Tucker Anthony, and each of these
companies signed a confidentiality agreement regarding the information provided.
Tucker Anthony requested that these companies provide a "term sheet" to Maple
Leaf, containing the economic terms of any proposed transaction. On October 20,
1998, a meeting of the Maple Leaf Board was held to discuss all of the offers
received to date. In attendance at the directors' meeting was outside counsel
for Maple Leaf, as well as a representative of Tucker Anthony. A total of four
merger proposals were received by the date of the meeting. Some of these
proposals took the form of a term sheet, others did not.
Tucker Anthony made a detailed presentation of these proposals,
including the proposal received from GLB. Tucker Anthony explained that GLB's
proposal, which involved a cash price of $18,000,000 and 375,000 shares of GLB,
a publicly traded company, appeared to be the highest and best offer received,
and merited serious consideration. Tucker Anthony distributed information to the
Maple Leaf Board on GLB, including its annual and quarterly reports and
historical daily price information on the performance of the GLB Stock. Tucker
Anthony then explained that this proposal contained a 'no shop agreement' which
meant that Maple Leaf could not solicit other offers after accepting the GLB
proposal, although the Maple Leaf Board could consider other offers if
approached by another institution. To proceed to the next step in the
negotiations, a letter of intent, containing the general terms of the proposed
merger, would need to be signed. The proposed letter of intent, which had been
reviewed by outside counsel for Maple Leaf, was then presented to the Maple Leaf
Board for its consideration. The letter of intent was non-binding, except for
the no-shop agreement, certain confidentiality provisions, and an agreement by
GLB that it not solicit the customers or employees of Geauga in the event that
the merger is not consummated.
Outside counsel for Maple Leaf then discussed the obligations of the
Maple Leaf Board in evaluating the GLB proposal, including the obligation that
Maple Leaf conduct a due diligence review of GLB since part of the consideration
to be received by Maple Leaf's shareholders is GLB stock. Outside counsel also
discussed the need for a fairness opinion from Tucker Anthony prior to signing a
binding merger agreement with GLB. Finally, counsel discussed the likely
nonfinancial terms of a binding merger agreement based on the terms of other
recent agreements involving financial institutions, including the likelihood
that GLB would insist on certain lock-up arrangements involving significant
shareholders of Maple Leaf on terms similar to the Shareholder Voting Agreement.
After further discussion, the Maple Leaf Board concluded that it would
be in the best interest of Maple Leaf to proceed with the negotiations with GLB
by executing the proposed letter of intent. During the weeks that followed,
Maple Leaf conducted a confidential due diligence review of GLB, and engaged in
the negotiation of the terms of a binding agreement with GLB. During these
negotiations, GLB proposed that contemporaneously with the binding acquisition
agreement, the Maple Leaf Board and their affiliates enter into the Shareholder
Voting Agreement. When it became clear that GLB viewed the Shareholder Voting
Agreement as an essential component of its willingness to enter into a binding
acquisition agreement, the terms of the Shareholder Voting Agreement were
negotiated and it was agreed that the Shareholder Voting Agreement would be
presented to the Maple Leaf Board for their consideration, although the decision
to execute the Shareholder Voting Agreement would be made by the Maple Leaf
Board in their capacities as shareholders.
At its regular meeting on November 17, 1998 and at a special meeting
held on November 19, 1998, the Maple Leaf Board met to consider the Acquisition
Agreement and the Shareholder Voting Agreement. At the meeting held on November
17, 1998, Tucker Anthony discussed the financial terms of the proposed
transaction, and comparable transactions. Tucker Anthony also presented its
fairness opinion that the proposed transaction
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with GLB was, in Tucker Anthony's opinion, fair to Maple Leaf's shareholders
from a financial point of view. Maple Leaf's outside counsel described the
nonfinancial terms of the Acquisition Agreement and the Shareholder Voting
Agreement, including the various proposals negotiated. Tucker Anthony discussed
the fact that based on its prior solicitation efforts and the offers received,
it was unlikely that Maple Leaf would receive a higher offer during the pendency
of the Acquisition Agreement. Maple Leaf management discussed the satisfactory
results of their due diligence review. After further discussion, the Maple Leaf
Board unanimously resolved to enter into the Acquisition Agreement and the
Acquisition Agreement and the Shareholder Voting Agreement were executed soon
after the Board meeting on November 19, 1998.
In reaching its conclusion to approve the Acquisition Agreement, the
Maple Leaf Board, without assigning any relative or specific weights, considered
a number of factors, including the following:
(a) Information with respect to Maple Leaf's financial
condition on both a historical and a pro forma basis, and the financial
prospects for Maple Leaf and its shareholders if Maple Leaf determined to remain
a stand-alone company.
(b) The opinion of Tucker Anthony that, from a financial point
of view, the consideration to be received by Maple Leaf shareholders and holders
of warrants in exchange for their shares and warrants was fair. See " B Opinion
of Maple Leaf's Financial Advisor."
(c) A comparison of the terms of the acquisition with recent
transactions involving similar companies, including the consideration to be paid
to Maple Leaf's shareholders and how it compares with recent bank merger
transactions involving selling institutions with assets of similar size.
(d) The terms of the proposed acquisition.
(e) The effect on Maple Leaf's shareholders' value if Maple
Leaf continued as a stand-alone entity, as compared to the effect of a merger
with GLB. The Maple Leaf Board analyzed future dividends for Maple Leaf
shareholders and the marketability of its stock if it remained a stand-alone
entity, as compared to the post-merger potential dividends for GLB Stock and the
marketability of the GLB Stock.
(f) The interests of Maple Leaf and its shareholders as well
as the social, legal, and economic effects on employees, customers and the
community.
OPINION OF MAPLE LEAF'S FINANCIAL ADVISOR
Maple Leaf has received an opinion from Tucker Anthony, an investment
banking broker/dealer founded in 1892, that the acquisition is fair to Maple
Leaf's stockholders and warrant holders from a financial point of view.
Tucker Anthony was retained by the Board of Directors of Maple Leaf in
July 1998 for the purpose of providing financial advice and consultation,
including a review of the operating performance, business plans and strategic
alternatives of Maple Leaf, the development of information with respect to the
valuation of Maple Leaf, the identification of potential merger partners or
acquirors, the evaluation and negotiation of any proposal that might be received
or issued with regard to an acquisition or other business combination, and, if
appropriate, the rendering of a fairness opinion in connection with a proposal.
In connection with its services, Tucker Anthony was authorized by Maple Leaf to
solicit, and did solicit, potential purchasers of Maple Leaf and was directed to
provide, and did provide, information concerning Maple Leaf to certain third
parties requesting such information which were believed capable of making a
viable proposal to acquire Maple Leaf and which had executed a confidentiality
agreement.
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Maple Leaf selected Tucker Anthony for a number of reasons, including
its familiarity with Maple Leaf and its business. Maple Leaf also considered
Tucker Anthony's experience and reputation in the area of valuation and
financial advisory work generally, and in relation to financial institutions
specifically. Tucker Anthony is a nationally recognized investment banking firm
and is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, private placements and valuations for corporate and other
purposes.
Tucker Anthony has rendered a written opinion to the Board of Directors
of Maple Leaf to the effect that the consideration to be received by holders of
Class A common stock and Class B common stock and 1996 and 1991 warrants to
purchase Class A and Class B common stock of Maple Leaf pursuant to the
Acquisition Agreement is fair, from a financial point of view, to such holders.
THE FULL TEXT OF THE FAIRNESS OPINION, SETTING FORTH THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE REVIEW
UNDERTAKEN BY TUCKER ANTHONY, IS INCLUDED AS APPENDIX B. HOLDERS OF MAPLE LEAF
COMMON STOCK AND HOLDERS OF WARRANTS ARE URGED TO READ THE FAIRNESS OPINION IN
ITS ENTIRETY. This opinion is directed to the Board of Directors of Maple Leaf
only and does not constitute a recommendation to any holder of Maple Leaf Class
A common stock and Class B common stock as to how such shareholder should vote
at the meeting. Tucker Anthony has advised the Maple Leaf Board that Tucker
Anthony does not believe any person other than the Maple Leaf Board has the
legal right to rely on the opinion and, absent any controlling precedent, would
resist any assertion otherwise.
In connection with rendering its opinion, Tucker Anthony performed a
variety of financial analyses, including those summarized below. The summary set
forth below, which has been provided by Tucker Anthony, does not purport to be a
complete description of the analyses performed by Tucker Anthony in this regard.
The preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of these methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to a summary description. Accordingly,
notwithstanding the separate factors summarized below, Tucker Anthony believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and factors considered by it, without considering all analyses and
factors, or attempting to ascribe relative weights to some or all of such
analyses or factors, could create an incomplete view of the evaluation process
underlying Tucker Anthony's opinion. In addition, Tucker Anthony may have used
the various analyses for different purposes and may have deemed various
assumptions more or less probable than other assumptions, so that the ranges of
valuations resulting from any particular analysis described below should not be
taken to be Tucker Anthony's view of the actual value of Maple Leaf. The fact
that any specific analysis has been referred to in the summary below is not
meant to indicate that such analysis was given more weight than any other
analyses.
The analyses performed by Tucker Anthony are not necessarily indicative
of actual values or actual future results, which may be significantly more or
less favorable than those suggested by such analyses. Such analyses were
prepared solely as a part of Tucker Anthony's analysis of the fairness of the
consideration to be received by holders of the Class A common stock and Class B
common stock and 1996 and 1991 warrants to purchase Class A and Class B common
stock pursuant to the Acquisition Agreement, from a financial point of view, and
were provided to Maple Leaf's Board of Directors in connection with the delivery
of Tucker Anthony's opinion. The analyses do not purport to be appraisals or to
reflect the prices at which Maple Leaf might actually be sold at the present
time or at any time in the future. In addition, as described above, Tucker
Anthony's opinion is just one of the many factors taken into consideration by
Maple Leaf's Board of Directors (see " - BACKGROUND AND REASONS FOR THE
ACQUISITION - MAPLE LEAF").
In arriving at its opinion, Tucker Anthony, among other things,
reviewed the draft form of the Acquisition Agreement dated November 20, 1998;
reviewed certain historical financial and other information concerning Maple
Leaf for the five fiscal years ended December 31, 1997, and for the three
quarters ended March 31, June 30, and September 30, 1998; reviewed certain
historical financial and other information
23
<PAGE> 32
concerning GLB for the three fiscal years ended December 31, 1997, and for the
three quarters ended March 31, June 30, and September 30, 1998, including GLB's
common stock Prospectus dated May 14, 1998 and quarterly reports on Form 10-Q;
held discussions with the senior management of Maple Leaf and GLB with respect
to their past and current financial performance, financial condition and future
prospects; reviewed certain internal financial data, projections and other
information of Maple Leaf including financial projections prepared by
management; analyzed certain publicly available information of other financial
institutions that Tucker Anthony deemed comparable or otherwise relevant to its
inquiry, and compared Maple Leaf and GLB from a financial point of view with
certain of these institutions; compared the consideration to be received by the
stockholders of Maple Leaf pursuant to the Acquisition Agreement with the
consideration received by stockholders in other acquisitions of financial
institutions that it deemed comparable or otherwise relevant to its inquiry;
reviewed publicly available earnings estimates, historical trading activity and
ownership data of GLB common stock and considered the prospects for dividends
and price movement in it; and conducted such other financial studies, analyses
and investigations and reviewed such other information as it deemed appropriate
to enable it to render its opinion. In its review, Tucker Anthony also took into
account an assessment of general economic, market and financial conditions and
certain industry trends and related matters. Tucker Anthony's opinion was
necessarily based upon conditions as they existed and could be evaluated on the
date thereof and the information made available to Tucker Anthony through the
date thereof.
No limitations were imposed by the Board of Directors of Maple Leaf
upon Tucker Anthony with respect to the investigations made or procedures
followed by Tucker Anthony in its review and analysis. In its review and
analysis and in arriving at its opinion, Tucker Anthony assumed and relied upon
the accuracy and completeness of all the financial information publicly
available or provided to it by Maple Leaf and GLB, and did not attempt to verify
any of such information. Tucker Anthony assumed (i) that the financial
projections of Maple Leaf provided to it with respect to the results of
operations likely to be achieved by Maple Leaf have been prepared on a basis
reflecting the best currently available estimates and judgments of Maple Leaf's
management as to future financial performance and results, and (ii) that such
forecasts and estimates would be realized in the amounts and in the time periods
estimated by management. Tucker Anthony further assumed, without independent
verification, that the aggregate reserves for possible loan losses for Maple
Leaf and GLB were adequate to cover such losses. Tucker Anthony did not make or
obtain any independent evaluations or appraisals of any assets or liabilities of
Maple Leaf, GLB or any of their respective subsidiaries nor did it verify any of
Maple Leaf's or GLB's books and records or review any individual loan credit
files. Tucker Anthony's opinion was furnished for the use and benefit of the
Board of Directors of Maple Leaf and did not represent a recommendation to Maple
Leaf's shareholders. Tucker Anthony has advised the Board of Directors of Maple
Leaf that Tucker Anthony does not believe any persons other than the members of
the Board of Directors of Maple Leaf have the legal right to rely on the opinion
and, absent any controlling precedent, would resist any assertion otherwise.
Tucker Anthony made a presentation to Maple Leaf's Board of Directors
on November 17, 1998 and rendered a written opinion to Maple Leaf's Board of
Directors just prior to the execution and public announcement of the
Acquisition Agreement. Set forth below is a brief summary of the report
presented to Maple Leaf's Board of Directors on November 17, 1998.
Historical Financial Performance. Tucker Anthony examined the financial
performance of Maple Leaf over the five-year period ended December 31, 1997 and
for the three-month interim periods ended March 31, June 30, and September 30,
1998, and examined the financial performance of GLB over the three-year period
ended December 31, 1997 and the three-month interim periods ended March 31, June
30, and September 30, 1998. The analysis of historical performance showed among
other things that: i) over the three-year period ended December 31, 1997, the
compound annual growth rate in total assets was 28.3% for Maple Leaf and over
the two-year period ended December 31, 1997, the annual growth rate in total
assets was 23.3% for GLB; ii) the compound annual growth rate in net loans
during the same respective periods was 29.3% for Maple Leaf and 37.4% for GLB;
iii) the compound annual growth rate in total deposits during the same
respective periods was 28.5% for Maple Leaf and 23.1% for GLB, iv) equity to
asset ratios as of September 30, 1998 of 7.8% for
24
<PAGE> 33
Maple Leaf and 26.7% for GLB, v) loan to deposit ratios as of September 30, 1998
of 151.2% for Maple Leaf and 95.5% for GLB, vi) latest twelve months net
interest margin of 3.48% for Maple Leaf and 5.41% for GLB, vii) latest twelve
months return on average assets of 0.95% for Maple Leaf and 0.75% for GLB, and
viii) latest twelve months return on average equity of 12.41% for Maple Leaf and
3.95% for GLB.
Stock Trading Analysis. Tucker Anthony examined the historical trading
prices and volume of GLB's common stock, and compared the historical trading
prices of GLB's common stock in relation to movements in certain stock indices,
specifically, its peer group index, comprised of Chester Bancorp, Inc.,
Community Bank Shares of Indiana, Inc., Community Financial Corp., Damen
Financial Corp., German American Bancorp, Mashaska Investment Company, State
Financial Services Corp., United Bancorp, and Wayne Bancorp, Inc., and the
Nasdaq Bank Index. Tucker Anthony also analyzed the historical trading data,
price/book value and price/earnings multiples of GLB's common stock and compared
them to those of certain other publicly traded financial institutions deemed to
be comparable or otherwise relevant as described below.
Analysis of Selected Publicly Traded Reference Commercial Banks and
Thrifts. Tucker Anthony compared the selected financial data and financial
ratios of Maple Leaf and GLB to the corresponding data and ratios of certain
publicly traded commercial banks and thrifts located in the midwestern United
States for both Maple Leaf and GLB, with total assets and capital and
profitability ratios comparable to those of Maple Leaf and GLB, respectively.
The institutions included in the comparison to Maple Leaf were ASB Financial
Corp., CBES Bancorp, Inc., First Federal Bancorp, First Independence Corp.,
Hardin Bancorp, Inc., Harvest Home Financial Corp., Midwest Bancshares, Inc.,
Potters Financial Corp., River Valley Bancorp, Sobieski Bancorp, Inc., Three
Rivers Financial Corp., Wells Financial Corp., and Wood Bancorp, Inc.
(collectively, the "Maple Leaf Selected Reference Institutions") The Maple Leaf
Selected Reference Institutions, as a group, exhibited certain
characteristics--including asset size (assets between $50 million and $200
million), equity to total assets ratios between 7% and 15%, geographic proximity
(located in midwestern and northeastern United States) and business
risk--similar to those exhibited by Maple Leaf. The institutions included in the
comparison to GLB were: Chester Bancorp, Inc., Community Bank Shares of Indiana,
Inc., Community Financial Corp., Damen Financial Corp., German American Bancorp,
Mashaska Investment Company, State Financial Services Corp., United Bancorp, and
Wayne Bancorp, Inc. (collectively, the "GLB Selected Reference Institutions")
The GLB Selected Reference Institutions, as a group, exhibited certain
characteristics--including asset size (assets between $50 million and $600
million), equity to total assets ratios no less than 10%, market dominance
within their respective regions and business risk--similar to those exhibited by
GLB.
The comparison of Maple Leaf to the Maple Leaf Selected Reference
Institutions showed among other things that: (i) the ratio of Maple Leaf's net
loans to assets was 74.8% as of September 30, 1998, compared to an average of
70.2% for the Maple Leaf Selected Reference Institutions (as of September 30,
1998 when available, otherwise as of June 30, 1998); (ii) the ratio of Maple
Leaf's nonperforming assets to the sum of shareholders' equity and loan loss
reserves was 10.1%, compared to an average of 3.6% for the Maple Leaf Selected
Reference Institutions; (iii) the ratio of Maple Leaf's equity to total assets
was 7.8%, compared to an average of 11.6% for the Maple Leaf Selected Reference
Institutions; (iv) the latest twelve months return on average assets for Maple
Leaf was 0.95%, compared to an average return on assets of 0.92% for the Maple
Leaf Selected Reference Institutions; and (v) the latest twelve months return on
average equity for Maple Leaf was 12.41%, compared to an average return on
equity of 7.92% for the Maple Leaf Selected Reference Institutions.
The comparison of GLB to the GLB Selected Reference Institutions showed
among other things that: (i) the ratio of GLB's net loans to assets was 60.9% as
of September 30, 1998, compared to an average of 57.0% for the GLB Selected
Reference Institutions (as of September 30, 1998 when available, otherwise as of
June 30, 1998); (ii) the ratio of GLB's nonperforming assets to the sum of
shareholders' equity and loan loss reserves was 0.2%, compared to an average of
4.2% for the GLB Selected Reference Institutions; (iii) the ratio of GLB's
equity to total assets was 27.4%, compared to an average of 13.3% for the GLB
Selected Reference Institutions; (iv) the latest quarter annualized return on
average assets for GLB was 1.13%, compared to an
25
<PAGE> 34
average return on assets of 1.11% for the GLB Selected Reference Institutions;
and (v) the latest quarter annualized return on average equity for GLB was
5.95%, compared to an average return on equity of 8.96% for the GLB Selected
Reference Institutions; (vi) as of November 13, 1998, the ratio of GLB's market
price to its book value per common share was 114%, compared to an average of
167% for the GLB Selected Reference Institutions; and (vii) as of November 13,
1998, the price/earnings ratio for GLB based on the latest twelve months
earnings per share was 30.2x compared to an average of 19.4x for the GLB
Selected Reference Institutions for their latest twelve months earnings per
share.
Analysis of Selected Reference Merger and Acquisition Transactions.
Tucker Anthony reviewed and performed analysis on 9 unassisted acquisitions of
thrift institutions in Ohio (the "Selected Ohio Thrift acquisitions") and 52
unassisted acquisitions of thrift institutions in the U.S. with a transaction
size between $10 million and $50 million (the "Selected U.S. Thrift
acquisitions") announced between January 1, 1997 and November 13, 1998,
comparing the target financial institutions' capital structure and profitability
with Maple Leaf's current results of operations and financial condition. The
Selected Ohio Thrift Transactions and Selected U.S. Thrift Transactions were
chosen because they represented merger and acquisition transactions which
involve target financial institutions exhibiting certain
characteristics--including asset size, geographic proximity and business
risk--similar to those exhibited by Maple Leaf. Excluding the highest and lowest
ratios, the target financial institutions involved in the Selected Ohio Thrift
and the Selected U.S. Thrift Transactions had an average return on assets for
the latest twelve months prior to announcement date of 0.76% and 0.68%,
respectively, and an average return on equity for the latest twelve months prior
to announcement date of 7.88% and 6.37%, respectively, as compared to 0.95% and
12.41%, respectively, for Maple Leaf.
Set forth below is a summary of the information presented to the Maple
Leaf Board of Directors with respect to the Selected Ohio Thrift Transactions
and the Selected U.S. Thrift Transactions based upon an estimated value of
$941.59 per share and common share equivalent of Maple Leaf common stock.
<TABLE>
<CAPTION>
Selected Ohio Thrift Selected U.S. Thrift
Transactions Transactions
--------------------- ---------------------
GLB GLB Offer GLB Offer
Offer (1) Median Percentile (2) Median Percentile (2)
--------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
Consideration/Latest Twelve Months
Earnings........................... 22.3x 30.9x 29% 20.8x 65%
Consideration/Book Value........... 264% 163% 70% 166% 95%
Deposit Premium.................... 27.0% 23.3% 65% 10.6% 99%
</TABLE>
- --------------
(1) Based on value of the acquisition consideration of $941.59 per share and
common share equivalent of Maple Leaf common stock as of November 20, 1998.
(2) Position of the GLB offer in relation to percentile ranking of the Selected
Ohio Thrift Transactions and the Selected U.S. Thrift Transactions,
respectively.
Discounted Cash Flow Analysis. At the Board of Directors meeting on
November 17, 1998, Tucker Anthony presented the results of a discounted cash
flow analysis through the fiscal year ended December 31, 2003 designed to
compare the present value, under certain assumptions, that would be attained if
Maple Leaf remained independent through the year 2003. The results produced in
the analysis did not purport to be indicative of actual values or expected
values of Maple Leaf or the shares of Maple Leaf common stock.
For the purpose of the analysis Tucker Anthony made reference to
financial forecasts and projections prepared by Maple Leaf management (the "Base
Case"). The projections assumed, among other things, that Maple Leaf would
achieve a compound annual growth rate in average earning assets of 13.8% per
year, a compound annual growth rate in average loans of 16.2% per year, a net
interest margin averaging approximately 3.47% per year, operating expenses as a
percentage of average assets averaging approximately 1.66% per year and annual
return on average assets averaging approximately 1.04% per year. Tucker Anthony
noted that for the four fiscal years ended December 31, 1997, average earning
assets increased at a compound
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<PAGE> 35
annual growth rate of 20.3%, average loans increased at a compound annual growth
rate of 21.0%, net interest margin averaged approximately 3.38% per year,
operating expenses averaged approximately 2.13% of the average assets per year
and return on average assets averaged approximately 0.80% per year. The
projections assumed that Maple Leaf would maintain a target equity to assets
ratio of 7.50%. In addition to the Base Case, Tucker Anthony reviewed Base Case
financial forecasts and projections revised to assume variations in net interest
margin (the "Stress Test Scenarios"). The Stress Test Scenarios were based on
increases and declines in net interest margin of up to 20 basis points.
The projected cash flows of Maple Leaf were comprised of the dividends
per share paid in fiscal years ended December 31, 1999 through 2003 plus the
terminal value of Maple Leaf common stock at fiscal year end 2003 discounted to
November 17, 1998, calculated as described below. The cash flows were discounted
at a range of rates from 15.0% to 20.0%. Based upon Tucker Anthony's experience
and judgment, Tucker Anthony believes that holders of Maple Leaf common stock
would typically seek returns within the indicated range of discount rates, in
view of Maple Leaf's operating projections, historical performance, financial
condition and market capitalization, among other matters.
In estimating the appropriate terminal value of Maple Leaf at fiscal
year end 2003, Tucker Anthony used methods based on multiples of earnings.
Tucker Anthony applied price/earnings multiples in the range of 10.0x to 20.0x
to the estimate of fiscal year December 31, 2003 earnings per share. The low end
of the range of multiples reflected the bottom of an estimated future trading
range for Maple Leaf as an independent entity, while the high end of the range
of multiples was more indicative of the top of an estimated range assuming a
future sale of Maple Leaf to a larger financial institution. Acquisition and
trading multiples from time to time fluctuate considerably, and no assurance can
be made that future acquisition or trading multiples will be comparable to
historical levels.
Set forth below is a summary of the results of Tucker Anthony's
discounted cash flow analysis, indicating the range of derived present values
per share of Maple Leaf common stock, as presented to Maple Leaf's Board of
Directors on November 17, 1998 and compared to the acquisition consideration of
$941.59 per Maple Leaf common share as of that date.
<TABLE>
<CAPTION>
Discount Rate
Terminal -----------------------------------
P/E 15.0% 17.5% 20.0%
------- ------- ------- -------
<S> <C> <C> <C> <C>
Base Case 10.0x $434.77 $398.03 $365.09
15.0x $652.16 $597.05 $547.63
20.0x $869.55 $796.06 $730.18
NIM Down 20 Basis Points 10.0x $359.60 $328.08 $299.84
15.0x $552.87 $505.02 $462.14
20.0x $746.15 $681.96 $624.44
NIM Up 20 Basis Points 10.0x $555.45 $510.22 $469.62
15.0x $812.53 $745.57 $685.50
20.0x $1,069.60 $980.92 $901.37
</TABLE>
The summary of the Tucker Anthony opinion set forth above provides a
description of the main elements of Tucker Anthony's presentation to Maple
Leaf's Board of Directors on November 17, 1998. It does not purport to be a
complete description of the presentation of Tucker Anthony to Maple Leaf's Board
of Directors or of the analyses of Tucker Anthony. The preparation of a fairness
opinion is not necessarily susceptible to partial analysis or summary
description. Tucker Anthony believes that its analyses and the summary set forth
above must be considered as a whole and that selecting portions of its analyses,
without considering all analyses, or selecting part of the above summary,
without considering all factors and analyses, would create an incomplete view of
the procedures underlying the analyses set forth in the Tucker Anthony
presentation and opinion. In addition, the ranges of valuations resulting from
any particular analyses described above should not be taken to be Tucker
Anthony's opinion of the actual value of Maple Leaf. The fact that any
27
<PAGE> 36
specific analysis has been referred to in the summary above is not meant to
indicate that such analysis was given more weight than any other analyses.
In performing its analyses, Tucker Anthony made numerous assumptions
with respect to industry performance, general business and economic conditions,
and other matters, many of which are beyond the control of Maple Leaf. The
analyses performed by Tucker Anthony are not necessarily indicative of actual
value or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
a part of Tucker Anthony's analysis of the fairness of the consideration to be
received by Maple Leaf's stockholders and warrant holders from a financial point
of view and were provided to Maple Leaf's Board of Directors in connection with
the delivery of Tucker Anthony's opinion. The analyses do not purport to be
appraisals or to reflect the prices at which any securities may trade at the
present time or at any time in the future. In addition, as described above,
Tucker Anthony's opinion and presentation to Maple Leaf's Board of Directors is
just one of many factors taken into consideration by Maple Leaf's Board of
Directors (see "Background of the Acquisition"; and "Maple Leaf's Board of
Directors' Reasons for Approving the Acquisition").
RECOMMENDATION OF MAPLE LEAF'S BOARD OF DIRECTORS
The Maple Leaf Board of Directors has unanimously adopted and approved
the Acquisition Agreement and the transactions contemplated thereby. The Maple
Leaf Board of Directors has unanimously determined that the acquisition is fair
to and in the best interests of Maple Leaf, its shareholders and holders of
warrants. THE MAPLE LEAF BOARD OF DIRECTORS THEREFORE RECOMMENDS A VOTE FOR
ADOPTION AND APPROVAL OF THE ACQUISITION AGREEMENT AND THE ACQUISITION
CONTEMPLATED THEREBY.
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<PAGE> 37
TERMS OF THE ACQUISITION
This portion of the Prospectus/Proxy Statement describes various
aspects of the acquisition. The following description is not complete and is
qualified in its entirety by reference to the Acquisition Agreement attached
hereto as Appendix A and incorporated herein by this reference. We urge you to
read the Acquisition Agreement in its entirety.
ACQUISITION OF MAPLE LEAF BY GLB
Under the Acquisition Agreement, Maple Leaf will be acquired by GLB at
the time and date selected by Maple Leaf and GLB, which is referred to in this
Prospectus/Proxy Statement as the "EFFECTIVE TIME." The Acquisition Agreement
provides that GLB will acquire all of the stock of Maple Leaf. The acquisition
will be accomplished by means of the merger of a subsidiary of GLB with and into
Maple Leaf, which subsidiary has been formed by GLB for the sole purpose of
carrying out the acquisition. The shareholders and warrant holders of Maple Leaf
will become shareholders of GLB. See " -- EFFECTIVE TIME." However, the
acquisition will not occur unless the conditions to consummation of the
acquisition are either satisfied or waived. The conditions to consummation of
the acquisition that must be satisfied (or waived) include adoption of the
Acquisition Agreement by the shareholders of Maple Leaf and receipt of all
necessary regulatory approvals. See "-- CONDITIONS TO THE ACQUISITION THAT MUST
BE SATISFIED OR WAIVED."
CONVERSION OF MAPLE LEAF COMMON STOCK AND WARRANTS INTO CASH AND GLB STOCK
COMMON STOCK. When the acquisition is completed, each of your shares of
Maple Leaf Class A and Class B common stock will automatically become the right
to receive GLB common stock and cash.
WARRANTS. When the acquisition is completed, each of your warrants to
acquire Maple Leaf Class A and Class B common stock will also automatically
become the right to receive shares of GLB common stock and cash. It is not
necessary for you to exercise your warrants in order to receive cash and GLB
common stock in the acquisition. In fact, holders of warrants are being asked to
execute and return to Maple Leaf an agreement not to exercise their warrants.
The agreement not to exercise warrants is attached to this Prospectus/Proxy
Statement as Appendix D. If you exercise your warrants before the acquisition is
completed, that will not change the kind or amount of consideration you receive
in the acquisition. The cash you pay to exercise your warrant(s) would be
returned to you without interest after completion of the acquisition, and the
cash and GLB common stock consideration to be paid to you would continue to be
calculated as if you had not exercised your warrant(s). Exercise of warrants
might also have tax consequences that are less favorable than simply exchanging
warrants directly for the cash and GLB common stock consideration.
The amount of cash and the number of shares of GLB common stock you
receive in exchange for your Maple Leaf common stock and warrants may change
according to a formula in the Acquisition Agreement, depending principally upon
changes in the market price of GLB common stock prior to completion of the
acquisition. The formula is explained below. The amount of cash and the number
of shares of GLB common stock you receive could also be influenced by other
factors, such as the number of warrants, if any, exercised before the
acquisition is completed, but Maple Leaf intends to disregard warrant exercises
for purposes of calculating how much cash and how many shares of GLB common
stock will be distributed to Maple Leaf shareholders and warrant holders.
Changes in the cash and GLB common stock consideration received by each
Maple Leaf shareholder and warrant holder will affect the distribution of the
cash and stock consideration among Maple Leaf shareholders and warrant holders,
but will not affect the total consideration received by all Maple Leaf
shareholders and warrant holders as a group. The total consideration is fixed at
$18 million in cash and 375,000 shares of GLB common stock. Although the
Acquisition Agreement does provide for additional cash
29
<PAGE> 38
consideration payable by GLB if the acquisition is not completed by August 20,
1999, GLB and Maple Leaf have no reason to believe completion of the acquisition
will be delayed that long.
Rather than having each Maple Leaf shareholder and warrant holder elect
whether to receive all cash, all shares or some combination of cash and shares,
the Maple Leaf Board of Directors decided that the Acquisition Agreement should
provide for each shareholder and warrant holder to receive the same proportion
of cash and shares of GLB common stock. The Acquisition Agreement treats shares
of Class A and Class B common stock equally insofar as their rights to
acquisition consideration are concerned, but after consultation with Tucker
Anthony the Maple Leaf Board of Directors decided that the Acquisition Agreement
should take account of the separate warrant classes' values.
One class of warrants was issued in 1991 at an exercise price of $625
per share (which are referred to in this Prospectus/Proxy Statement as "1991
WARRANTS"), and another class was issued in 1996 at an exercise price of $825
per share (which are referred to in this Prospectus/Proxy Statement as "1996
WARRANTS"). The shares of Maple Leaf were changed in 1998 from 18,000 authorized
shares of one class of common stock to two classes of common stock, consisting
of 18,000 authorized shares of Class A common stock and 18,000 authorized shares
of Class B common stock, and an additional class of preferred stock, with 10,000
authorized shares. If you held one share of Maple Leaf common stock, one 1991
Warrant and one 1996 Warrant before the 1998 recapitalization, after the
recapitalization:
* your share of Maple Leaf common stock became one share of
Class A common stock and one share of Class B common stock of
Maple Leaf;
* your 1991 Warrant became one 1991 Warrant to acquire one share
of Class A common stock and one share of Class B common stock,
exercisable at the same aggregate exercise price of $625 (or
$312.50 for one share of each class); and
* your 1996 Warrant became one 1996 Warrant to acquire one share
of Class A common stock and one share of Class B common stock,
exercisable at the same aggregate exercise price of $825 (or
$412.50 for one share of each class).
Accordingly, to distribute the cash and GLB common stock consideration
proportionately among holders of Maple Leaf common stock, holders of 1991
Warrants and holders of 1996 Warrants, the Acquisition Agreement treats shares
of Class A and Class B common stock equally, but it accounts separately for the
two classes of warrants based on their exercise prices. Because the aggregate
value of the fixed consideration ($18 million in cash and 375,000 shares of GLB
common stock) will change as the price of GLB common stock changes until
consummation of the acquisition, the final determination of the amount of cash
and number of GLB shares that will be received by each Maple Leaf shareholder,
each holder of 1991 Warrants and each holder of 1996 Warrants will not be made
until the Effective Time of the acquisition.
At the Effective Time, Maple Leaf and GLB will determine the value of
the GLB common stock. Because the price of any stock can vary greatly from one
day to the next, GLB and Maple Leaf will treat the value of GLB common stock
over a period of twenty days prior to closing as the value of GLB common stock
at closing, rather than using the price of GLB common stock on one and only one
day of trading. More precisely, the twenty-day period will include twenty days
on which actual trades of GLB common stock occurred and it will end on the
seventh day immediately prior to consummation of the acquisition. The average
value of the GLB common stock over that twenty-day period will be the "GLB
CLOSING PRICE." The GLB Closing Price will then be used to determine the
allocation of cash and GLB common stock among Maple Leaf shareholders, holders
of 1991 Warrants and holders of 1996 Warrants.
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<PAGE> 39
The allocation of the acquisition consideration among Maple Leaf
shareholders and holders of warrants can be illustrated as follows:
<TABLE>
<CAPTION>
HOLDERS OF MAPLE LEAF HOLDERS OF MAPLE LEAF HOLDERS OF MAPLE LEAF
COMMON STOCK RECEIVE 1991 WARRANTS RECEIVE 1996 WARRANTS RECEIVE TOTAL (1)
<S> <C> <C> <C> <C>
If the GLB Closing Price is $12.00
per share:
GLB common stock......... 221,990 shares 51,013 shares 101,997 shares 375,000 shares
Cash..................... $10,655,535 $2,448,619 $4,895,846 $18 million
If the GLB Closing Price is $13.00
per share:
GLB common stock......... 221,174 shares 51,157 shares 102,669 shares 375,000 shares
Cash..................... $10,616,366 $2,455,540 $4,928,094 $18 million
If the GLB Closing Price is $14.00
per share:
GLB common stock......... 220,384 shares 51,297 shares 103,319 shares 375,000 shares
Cash..................... $10,578,461 $2,462,238 $4,959,301 $18 million
If the GLB Closing Price is $15.00
per share:
GLB common stock......... 219,620 shares 51,432 shares 103,948 shares 375,000 shares
Cash..................... $10,541,759 $2,468,724 $4,989,517 $18 million
If the GLB Closing Price is $16.00
per share:
GLB common stock......... 218,880 51,563 shares 104,557 shares 375,000 shares
Cash..................... $10,506,204 $2,475,007 $5,018,789 $18 million
</TABLE>
- ----------------
(1) If the GLB Closing Price is less than $8.00, Maple Leaf may elect to
terminate the Acquisition Agreement. If Maple Leaf makes that election,
GLB will have the right to increase the cash portion of the total
acquisition consideration by an amount equal to (a) the difference
between $8.00 and the GLB Closing Price per share multiplied by (b)
375,000. If GLB does so, Maple Leaf will be unable to terminate the
Acquisition Agreement.
GLB has designated National City Bank to act as exchange agent (the
"EXCHANGE AGENT") for distribution of the acquisition consideration. You will
have to surrender your Maple Leaf common stock certificates and warrant
agreements to the Exchange Agent to receive cash and new certificates
representing GLB common stock. This will not be necessary until you receive
written instructions after we complete the acquisition. GLB will send you
written instructions in the form of a "LETTER OF TRANSMITTAL" after we complete
the acquisition.
The Letter of Transmittal will contain detailed instructions explaining
what you need to do to receive the cash and GLB common stock acquisition
consideration. Please do not submit your Maple Leaf stock certificates or
warrant agreements until you receive the Letter of Transmittal. Whether you are
a Maple Leaf shareholder or warrant holder, you will be required to submit to
the Exchange Agent a properly executed Letter of Transmittal along with your
Maple Leaf stock certificate(s) and warrant agreement(s) to obtain issuance of a
new stock certificate evidencing the shares of GLB common stock and cash to
which you are entitled in the acquisition.
MAPLE LEAF STOCK CERTIFICATES AND WARRANT AGREEMENTS SHOULD NOT BE
FORWARDED TO THE EXCHANGE AGENT UNTIL A MAPLE LEAF SHAREHOLDER OR
WARRANT HOLDER HAS RECEIVED THE LETTER OF TRANSMITTAL. MAPLE LEAF STOCK
CERTIFICATES AND WARRANT AGREEMENTS SHOULD NOT BE RETURNED WITH THE
ENCLOSED PROXY.
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<PAGE> 40
RIGHTS OF HOLDERS OF MAPLE LEAF STOCK CERTIFICATES AND WARRANT AGREEMENTS PRIOR
TO SURRENDER
Once you surrender to the Exchange Agent a properly completed Letter of
Transmittal accompanied by your Maple Leaf stock certificates and warrant
agreements, you will receive in exchange the cash and GLB common stock
certificate(s) representing the appropriate number of shares of GLB common stock
to which you are entitled under the Acquisition Agreement.
If a dividend or other distribution on GLB common stock is declared by
GLB with a record date after the Effective Time, you will not receive that
dividend or other distribution until you surrender your Maple Leaf stock
certificate(s) or warrant agreement(s). If your Maple Leaf certificates are lost
or destroyed, you must submit documentation acceptable to the Exchange Agent
instead of the lost or destroyed certificates or warrant agreements. Any
dividends or distributions withheld from you ultimately will be remitted to you
when you deliver your Maple Leaf stock certificate(s) or warrant(s) (or
substitute documentation if your certificates or warrant agreements are lost or
destroyed), but they will be remitted to you without interest and less any taxes
that may have been imposed. See " - LOST CERTIFICATES." Holders of unsurrendered
certificates or warrant agreements will be entitled to vote after the Effective
Time at any meeting of GLB shareholders, regardless of whether such holders have
exchanged their certificates or warrant agreements.
LOST CERTIFICATES
If you have lost or misplaced a certificate for shares of Maple Leaf
common stock or if you have lost or misplaced your original warrant
agreement(s), contact Lloyd V. Clemmer, Jr., Corporate Secretary, at Maple Leaf
at (440) 564-9441, to begin the process of replacing the lost certificate or
warrant agreement before the Effective Time. Procedures you should follow if you
are unable to deliver your certificate(s) or warrant agreements will be
explained in the Letter of Transmittal, but you will find it easier to complete
the exchange process if you obtain a replacement certificate(s) or warrant
agreement from Maple Leaf before the Effective Time.
NO FRACTIONAL SHARES OF GLB COMMON STOCK WILL BE ISSUED
No fractional shares of GLB common stock will be issued in the
acquisition. If you would otherwise be entitled to a fraction of one whole share
of GLB common stock, you will be paid the cash value (without interest) of such
fraction, which will be equal to such fraction multiplied by the average price
of GLB common stock over a period of five trading days immediately prior to the
Effective Time.
NO EFFECT ON GLB COMMON STOCK
Each outstanding share of GLB common stock will remain outstanding as
one share of common stock of GLB, the company resulting from the acquisition.
GLB shareholders do not need to surrender their shares or exchange them for new
ones.
CONDUCT OF GLB'S BUSINESS UNTIL COMPLETION OF THE ACQUISITION
GLB has promised in the Acquisition Agreement that it will conduct its
business in a manner that does not delay the Effective Time of the acquisition
and that does not materially interfere with GLB's ability to consummate the
acquisition. GLB has very limited operations independent of Great Lakes Bank.
Therefore, GLB has made the foregoing promise in the Acquisition Agreement on
its own behalf and on behalf of Great Lakes Bank.
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<PAGE> 41
CONDUCT OF MAPLE LEAF'S BUSINESS UNTIL COMPLETION OF THE ACQUISITION
Maple Leaf has promised in the Acquisition Agreement (both on its own
behalf and behalf of Geauga Savings Bank) to conduct its business in the
ordinary course, substantially consistent with its practices in effect on
November 24, 1998, the date the Acquisition Agreement was signed. In addition,
the Acquisition Agreement restricts Maple Leaf from engaging in certain
transactions during the period from November 24, 1998 until the Effective Time.
These restrictions apply to the following actions, among others:
* amending, repealing or modifying the Articles of Incorporation
or Code of Regulations of Maple Leaf, or comparable
organizational documents of Geauga Savings Bank;
* without first consulting with GLB, entering into any loan or
credit commitment with any person or entity if such loan or
commitment would exceed
* $5,000 as an unsecured loan or investment
* $5,000 as a residential, commercial or commercial
real estate loan not fully secured by real estate, or
* $500,000 as a residential, commercial or commercial
real estate loan, except that Maple Leaf and Geauga Savings
Bank may honor contractual obligations in existence on
November 24, 1998, and Geauga Savings Bank may continue making
fully secured automobile loans;
* entering into any venture capital or similar investment, other
than the purchase of mortgage-backed securities (Freddie Mac,
Fannie Mae or Ginnie Mae);
* selling, assigning or disposing of branch offices or other
material properties or assets to a third party, or purchasing
or acquiring from a third party branch offices or assets
constituting another line of business or other properties or
assets outside of the ordinary course of business;
* entering into any transaction, agreement or commitment outside
the ordinary course of business if the transaction, agreement
or commitment is material to Maple Leaf and Geauga Savings
Bank taken as a whole;
* issuing or selling any capital stock or other securities (with
certain limited exceptions, including issuance of Class A
common stock and Class B common stock upon exercise of 1991
Warrants or 1996 Warrants outstanding on November 24, 1998);
* acquiring beneficial ownership of any class of equity
securities of any corporation;
* declaring a dividend (excluding dividends declared and payable
by Geauga Savings Bank to Maple Leaf) or making a change in
dividend policy; and
* adopting or amending (with certain limited exceptions) any
employee compensation, bonus, or benefit plans, except in
accordance with past practice, but in no event in an amount in
excess of three percent (3%) of total annual compensation.
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<PAGE> 42
NO SOLICITATION OF ALTERNATIVE ACQUISITION TRANSACTIONS
Maple Leaf has promised GLB that Maple Leaf and Geauga Savings Bank
will not solicit or negotiate any proposals or offers from any person to acquire
Maple Leaf or Geauga Savings Bank, to acquire any material amount of their
assets or to acquire any of their equity securities. However, Maple Leaf and
Geauga Savings Bank may negotiate with any person making an unsolicited proposal
if (i) the Board of Directors of Maple Leaf (after consultation with legal
counsel) determines that such action is necessary to fulfill the Board of
Director's fiduciary duties and obligations to the Maple Leaf shareholders and
other constituencies, and (ii) Maple Leaf provides immediate written notice to
GLB stating that Maple Leaf intends to furnish information to or enter into
discussions or negotiations with such a person or entity. In addition, the
Acquisition Agreement provides that the Maple Leaf Board of Directors may not
withdraw or modify its recommendation to the Maple Leaf shareholders after Maple
Leaf receives an alternative acquisition proposal unless the Board of Directors
of Maple Leaf (after consultation with legal counsel) determines that such
action is required to fulfill the Board of Director's fiduciary duties and
obligations to the Maple Leaf shareholders and other constituencies. The Board
of Directors of Maple Leaf is recommending unanimously that the holders of Maple
Leaf common stock vote in favor of adoption of the Acquisition Agreement at the
Maple Leaf Special Meeting.
If the Board of Directors accepts an acquisition proposal of the kind
described in the preceding paragraph (acquisition of a material amount of
assets, acquisition of Maple Leaf or Geauga Savings Bank equity securities,
merger or business consolidation), Maple Leaf must pay to GLB cash in the amount
of $2,250,000. This obligation would apply solely to an acquisition proposal
accepted by Maple Leaf or Geauga Savings Bank prior to December 31, 1999.
CONDITIONS TO THE ACQUISITION THAT MUST BE SATISFIED OR WAIVED
CONDITIONS FOR BOTH GLB AND MAPLE LEAF. Our obligation to consummate
the acquisition is subject to the fulfillment or waiver of a number of
conditions, including the following:
* the Acquisition Agreement shall have been approved and adopted
by the necessary vote of Maple Leaf shareholders;
* all necessary consents and approvals of governmental agencies
shall have been received. For this purpose, a consent or
approval imposing conditions or requirements that would have a
material adverse effect on the economic and business benefits
GLB anticipates in the acquisition would have the same effect
as failure to obtain consent or approval;
* no restraining order or injunction prohibiting the acquisition
shall be in effect;
* the additional shares of GLB common stock to be issued in the
acquisition shall have been approved by The Nasdaq Stock
Market, Inc.; and
* Maple Leaf's counsel shall have delivered to Maple Leaf and
GLB an opinion to the effect that neither GLB nor Maple Leaf
will recognize gain or loss as a result of the acquisition.
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<PAGE> 43
CONDITIONS FOR GLB. The obligation of GLB to consummate the acquisition
is also subject to the fulfillment or waiver of customary conditions, such as
the following:
* there shall not have been any material adverse change in the
financial condition, results of operations or business of
Maple Leaf and Geauga Savings Bank after November 24, 1998;
* shareholders of Maple Leaf holding less than ten percent (10%)
of the Maple Leaf common stock shall have exercised
dissenters' rights under Ohio law; and
* no litigation shall have been initiated that challenges or
seeks to prevent or delay the acquisition or that seeks to
impose material limitations on GLB's ability to exercise its
full rights of ownership of the assets or business of Maple
Leaf.
CONDITIONS FOR MAPLE LEAF. The obligation of Maple Leaf to consummate
the acquisition is also subject to the fulfillment or waiver of customary
conditions, including the following:
* there shall not have been any material adverse change in the
financial condition, results of operations or business of GLB
and Great Lakes Bank; and
* no litigation shall have been initiated that challenges or
seeks to prevent or delay the acquisition.
REGULATORY APPROVALS
The acquisition may not be consummated unless we receive regulatory
approvals. Approvals must be obtained from the Board of Governors of the Federal
Reserve System and the Ohio Division of Financial Institutions. We have
submitted applications for these approvals, but the approvals have not yet been
granted. The acquisition may not be consummated until these regulatory approvals
are received and at least until the 15th day after approval is received from the
Board of Governors of the Federal Reserve System. GLB must also seek approval of
the subsidiary merger (the merger of Geauga Savings Bank into Great Lakes Bank)
from the Federal Deposit Insurance Corporation and the Ohio Division of
Financial Institutions.
ACTIONS REQUIRED FOR REGULATORY APPROVAL
We have undertaken in the Acquisition Agreement to use diligent efforts
to resolve any objections to the acquisition asserted by the Board of Governors
of the Federal Reserve System, the United States Department of Justice or any
other governmental entity (including, without limitation, objections under any
antitrust or banking laws). If a lawsuit is threatened or instituted
challenging the acquisition under the antitrust laws, we are required by the
Acquisition Agreement to use diligent efforts to avoid the filing of such
lawsuit and to resist or resolve the lawsuit. We are also required by the
Acquisition Agreement to use diligent efforts to take any other actions that
may be required (a) by the Board of Governors of the Federal Reserve System,
the Department of Justice or any other governmental entity to resolve any
objections they may have to the acquisition, or (b) by any federal or state
court of the United States to prevent or resolve any injunction or order that
would prevent consummation of the acquisition under the antitrust laws.
WAIVER OF CONDITIONS, AMENDMENT OR TERMINATION OF THE ACQUISITION AGREEMENT
WAIVER. Either GLB or Maple Leaf may extend the time for the
performance of the other party's obligations under the Acquisition Agreement.
Likewise, either of us may waive inaccuracies in the representations or
warranties of the other party contained in the Acquisition Agreement, waive
compliance with the conditions or covenants of the other party contained in the
Acquisition Agreement, or waive or modify
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<PAGE> 44
performance of the obligations of the other party under the Acquisition
Agreement. However, the acquisition cannot be completed unless the approvals of
the acquisition by the Board of Governors of the Federal Reserve System and
certain other regulatory authorities are obtained and unless the shareholders
of Maple Leaf adopt the Acquisition Agreement by the necessary vote. See " --
REGULATORY APPROVALS" and "SPECIAL MEETING OF MAPLE LEAF SHAREHOLDERS -- VOTE
REQUIRED."
AMENDMENT. We may amend the Acquisition Agreement either before or
after the Maple Leaf shareholders adopt the Acquisition Agreement. However, an
amendment after adoption of the Acquisition Agreement by Maple Leaf shareholders
may not (a) alter the amount or change the form of the consideration
contemplated by the Acquisition Agreement or (b) alter or change any term of the
articles of incorporation of GLB.
TERMINATION. We may terminate the Acquisition Agreement at any time
prior to the Effective Time, whether before or after adoption of the
Acquisition Agreement by Maple Leaf shareholders, under the following
circumstances:
* by mutual agreement of GLB and Maple Leaf;
* by either of GLB and Maple Leaf if the acquisition is not
consummated on or before December 15, 1999 (but the party
seeking to terminate the Acquisition Agreement may not do so
if it is in material breach of its obligations under the
Acquisition Agreement);
* by either of GLB and Maple Leaf if any regulatory agency has
denied approval of the acquisition;
* by either of GLB and Maple Leaf if the other party is in
material breach of any representation or promise contained in
the Acquisition Agreement, unless the breach is cured within
30 days;
* by Maple Leaf at any time before the second full day
immediately preceding the date on which the acquisition is
consummated, if three conditions exist:
(1) the GLB Closing Price is less than $8.00;
(2) since November 24, 1998, the price of GLB common
stock has not changed on a basis consistent with
changes in an index of bank stocks (as explained
below); and
(3) GLB decides not to pay additional cash consideration
in the acquisition in an amount equal to (a) the
difference between $8.00 and the GLB Closing Price
(b) multiplied by 375,000.
The provision described immediately above is intended
to create some price protection for Maple Leaf shareholders
and warrant holders. That is, the value of the 375,000 shares
of GLB common stock could change substantially before the
acquisition is consummated. If the price of GLB common stock
declines dramatically (to less than $8.00 per share), the
termination provision described immediately above could enable
Maple Leaf shareholders and warrant holders to obtain
additional cash consideration in an amount approximating the
lost value of GLB common stock. However, this would not apply
if all bank stocks included in the index declined on a basis
comparable to the decline in GLB's common stock value.
According to Section 8.1(g) of the Acquisition Agreement, the
bank stocks included in the index are all Ohio-headquartered
banks whose stocks are publicly traded on a national
securities exchange or on Nasdaq (either the Nasdaq National
Market or the Nasdaq SmallCap Market).
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<PAGE> 45
EXPENSES. Generally, each of GLB and Maple Leaf is responsible for its
own acquisition-related costs and expenses. However, we have agreed to share the
cost of the tax opinion to be provided by Maple Leaf's legal counsel. If the
Acquisition Agreement is terminated by Maple Leaf or GLB because of the material
breach by the other party of any representation, warranty, covenant, undertaking
or restriction contained in the Acquisition Agreement, and if the terminating
party is not in material breach of any representation, warranty, covenant,
undertaking or restriction contained in the Acquisition Agreement, then the
breaching party will be required to pay all costs and expenses of the
terminating party, including printing, mailing and related fees, as well as fees
for financial advisors, accountants and legal counsel.
EFFECTIVE TIME
When all conditions to completing the acquisition have been satisfied
(or waived), we will file a Certificate of Merger with the Secretary of State of
the State of Ohio. The acquisition will become effective when the Certificate of
Merger is filed with the Ohio Secretary of State. The Certificate of Merger will
provide for the merger of a subsidiary of GLB formed solely for the purpose of
accomplishing the acquisition, named "GLB Acquisition Subsidiary, Inc.," with
and into Maple Leaf. Maple Leaf will be the surviving corporation in that
merger, but it will then be a wholly owned subsidiary of GLB. The separate
corporate existence of "GLB Acquisition Subsidiary, Inc." will terminate at that
time. The Effective Time will occur as promptly as practicable after the date
all of the conditions to the acquisition are satisfied (or waived) or on such
other date as we may agree. GLB currently expects that the acquisition will be
completed during the second quarter of 1999, but delays in obtaining the
necessary regulatory approvals could delay completion of the acquisition.
INTERESTS OF DIRECTORS AND OFFICERS IN THE ACQUISITION THAT DIFFER FROM YOUR
INTERESTS
DIRECTORS AND OFFICERS. Mr. Richard T. Flenner, Jr. is the President
and Chief Executive Officer of GLB and Great Lakes Bank. He will continue to
serve as President and Chief Executive Officer of GLB and Great Lakes Bank after
the acquisition. The persons currently serving as directors of GLB will continue
to serve on the Board of Directors of GLB as the surviving entity. Ms. Betty L.
Kimbrew is President of Maple Leaf and Geauga Savings Bank and a director of
each of those companies. She will be appointed as a member of the Board of
Directors of GLB promptly after the acquisition. She will also serve as Senior
Vice President - Corporate Development of GLB after the acquisition under an
employment agreement having a term of one year. Mr. Howard Amster, a director of
each of Maple Leaf and Geauga Savings Bank and the largest shareholder of Maple
Leaf, will be nominated for election to the GLB Board of Directors at the 1999
Annual Meeting of GLB Shareholders, which is currently expected to be held in
April 1999.
EMPLOYMENT AND SEVERANCE ARRANGEMENTS. Geauga Savings Bank entered into
an employment agreement on January 1, 1997 with Ms. Betty L. Kimbrew, its
President. With an original term of three years, the employment agreement has
been renewed annually, extending the term of the agreement for one additional
year. In addition to base salary, the employment agreement provides for payment
of an annual bonus to Ms. Kimbrew, provided certain income goals stated in the
employment agreement are achieved. The employment agreement provides that 75% of
the annual bonus is payable in cash, and 25% in stock (at a discounted
valuation) of Geauga Savings Bank (or, since formation of Maple Leaf and the
subsequent completion in 1997 of the holding company reorganization of Geauga
Savings Bank, stock of Maple Leaf). Maple Leaf also adopted a restricted stock
bonus plan in 1998. Under the restricted stock bonus plan, shares of Maple Leaf
common stock have been awarded to employees of Maple Leaf and Geauga Savings
Bank, including Ms. Kimbrew and Mr. Lloyd V. Clemmer, Treasurer of Geauga
Savings Bank. The shares awarded under the restricted stock program become
vested over a three-year period, and are subject to partial or total forfeiture
if the employee's service is terminated before the end of the three-year period.
Maple Leaf intends to purchase the restricted stock awards from the
recipients thereof, at an aggregate cost of approximately $20,000, and no
further restricted stock awards will be made under the restricted stock bonus
plan. Maple Leaf has also accrued an expense of $25,000 for bonuses to be paid
in recognition of
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employees' performance in the 1998 fiscal year. The bonuses to be paid with
respect to the 1998 fiscal year will be paid in cash.
Total severance payments expected to be made to Mr. Clemmer, Geauga
Savings Bank's and Maple Leaf's Treasurer, are $50,000. Total severance payments
expected to be made to Ms. Kimbrew are $244,000, including severance of
$150,000, a payment of $25,000 pursuant to the terms of her employment agreement
and $69,000 in satisfaction of any contractual rights under her employment
agreement. These figures are exclusive of Mr. Clemmer's and Ms. Kimbrew's
portions of the anticipated $20,000 purchase price of restricted stock awards.
GLB has also agreed to a severance arrangement for other Maple Leaf and Geauga
Savings Bank employees. If the other employees are terminated by GLB within six
months after completion of the acquisition, they would be entitled to severance
payments in cash. The total payments under these severance arrangements for
other employees is not expected to exceed approximately $192,000.
Employees of GLB and Great Lakes Bank are and will remain "at will"
employees. Employees of Maple Leaf and Geauga Savings Bank who become employees
of GLB and Great Lakes Bank will also be "at will" employees, except that GLB
and Betty L. Kimbrew have entered into an employment agreement whereby she will
serve as Senior Vice President - Corporate Development upon completion of the
acquisition. Employees of Maple Leaf and Geauga Savings Bank who become
employees of GLB and Great Lakes Bank will also be eligible to participate in
GLB's and Great Lakes Bank's employee benefit plans on the same basis as
existing GLB and Great Lakes Bank employees. However, prior service with Maple
Leaf and Geauga Savings Bank generally will be credited to such persons for
eligibility and vesting purposes under the GLB and Great Lakes Bank plans.
INDEMNIFICATION AND DIRECTORS' AND OFFICERS' LIABILITY INSURANCE.
Indemnification of directors, officers and employees of Maple Leaf and Geauga
Savings Bank will be provided by GLB for the first four years after completion
of the acquisition. For up to three years after the Effective Time, GLB has
agreed to maintain the insurance policies of Maple Leaf covering directors' and
officers' liability for claims arising from factors or events that occurred
before the Effective Time. Maple Leaf has undertaken in the Acquisition
Agreement to ensure that its directors' and officers' liability insurance
coverage specifically includes coverage for liabilities under the securities
laws and liabilities arising out of the Acquisition Agreement.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
PRICE RANGE OF COMMON STOCK. Shares of GLB common stock are authorized
for trading on the Nasdaq SmallCap Market. On November 24, 1998, the last
trading day before we announced the acquisition, GLB common stock closed at $14
per share. Maple Leaf common stock and warrants to acquire Maple Leaf common
stock are not publicly traded and no established market for those securities
exists. Any trading that occurs in Maple Leaf common stock and warrants is the
result of privately negotiated transactions. The following table shows the high
and low sales prices of GLB common stock since public trading of GLB common
stock began.
<TABLE>
<CAPTION>
GLB COMMON STOCK PRICE
HIGH LOW
-------------- --------------
<S> <C> <C>
1998:
Second Quarter (from May 19, 1998)...................... $17.50 $13.25
Third Quarter........................................... $14.06 $11.00
Fourth Quarter.......................................... $14.75 $10.25
1999:
First Quarter (through _______________, 1999)........... $ $
</TABLE>
DIVIDENDS. Neither GLB nor Maple Leaf has paid any cash dividends or
made other cash distributions to its shareholders, and neither expects to
declare or pay any such cash dividends or other cash distributions for
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the foreseeable future. The ability of either GLB or Maple Leaf to pay dividends
to its shareholders is subject to bank regulatory restrictions. See "SUPERVISION
AND REGULATION - LIMITS ON DIVIDENDS AND OTHER PAYMENTS."
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material federal income
tax consequences of the acquisition to the existing shareholders and warrant
holders of Maple Leaf and to Maple Leaf and GLB. The following discussion is not
a complete analysis of all potential tax effects of the acquisition to
shareholders and warrant holders of Maple Leaf and to Maple Leaf and GLB. This
summary is based upon current law, which is subject to change.
Approximately 80% of the acquisition consideration received by the
holders of Maple Leaf's stock and warrants will be cash. GLB common stock will
comprise the remaining 20% of the consideration. This acquisition consideration
ratio of 80% cash - 20% stock fails to satisfy the "continuity of shareholder
interest" requirement for treatment of the acquisition as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code and the
administrative and judicial interpretation thereof. Therefore, for federal
income tax purposes, the acquisition is a so-called "taxable reverse subsidiary
merger." This means that the acquisition will be treated for federal income tax
purposes as a purchase by GLB of the Maple Leaf stock and warrants held by Maple
Leaf's shareholders and warrant holders. Since the acquisition will be treated
as a taxable purchase and sale transaction (despite the transaction's
implementation as a state-law merger), each Maple Leaf shareholder or warrant
holder will recognize gain or loss measured by the difference between (a) the
amount of cash received and the fair market value of the GLB common stock
received, and (b) the tax basis in the Maple Leaf shares or warrants. This gain
or loss will be capital gain or loss if the Maple Leaf shares or warrants were
held by such shareholder or warrant holder as a capital asset (e.g., held for
investment) at the time of the acquisition. Such capital gain or loss will
constitute long-term capital gain or loss if the holding period of such
shareholder or warrant holder for his or her Maple Leaf shares or warrants
exceeds 1 year at the time of the acquisition. Since the acquisition will
treated for federal income tax purposes as a purchase and sale transaction
between GLB as purchaser and the shareholders and warrant holders of Maple Leaf
as sellers, neither Maple Leaf nor GLB will recognize gain or loss as a result
of the acquisition, despite their participation in the transaction under state
merger law. Similarly, the acquisition will not cause GLB's existing
shareholders to recognize any gain or loss for federal income tax purposes.
Maple Leaf's warrants are to be exchanged for cash and GLB stock as a
part of the transaction. Holders of warrants have a basis in those warrants. If
the warrants were acquired by purchase, then the basis is the purchase price of
those warrants. If the warrants were received by reason of a distribution on
Maple Leaf Stock, then the basis of the original stock must be allocated between
that stock and the warrants in proportion to their respective fair market values
as of the date of the distribution. Warrants held as investment assets will
produce capital gain or loss upon their sale. If the warrants have been held
more than one year, they will produce long-term capital gain or loss. If the
warrants were received in a distribution on stock, the holder of the warrants is
entitled to add to his or her warrant holding period the prior period during
which he or she held the original stock. If the warrants were purchased, the
holding period begins on the date of purchase. If any Maple Leaf warrant holders
elected to exercise their warrants prior to the acquisition transaction and
exchange their warrants for Maple Leaf stock, the holding period for the Maple
Leaf stock does not include the period during which he or she held the warrant.
If a Maple Leaf shareholder dissents to the acquisition and receives
solely cash in exchange for such shareholder's shares, such cash will be treated
as having been received by such shareholder as a distribution in redemption of
such shareholder's shares, subject to the provisions and limitations of Section
302 of the Internal Revenue Code. The federal income tax consequences to a
dissenting Maple Leaf shareholder depend upon whether the receipt of cash in
redemption of such a shareholder's shares is treated as an "exchange" or as a
dividend pursuant to Section 302 of the Code. If the redemption is treated as an
exchange under Section 302(a)
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<PAGE> 48
of the Code, such shareholder will recognize gain or loss measured by the
difference between the amount of cash received and the tax basis of the shares
so redeemed. This gain or loss will be capital gain or loss if the shares were
held by such shareholder as a capital asset at the time of the redemption. Such
capital gain or loss will constitute long-term capital gain or loss if the
holding period of such shareholder for his or her Maple Leaf shares exceeds 1
year at the time of the redemption. If, on the other hand, the redemption is
treated as a dividend under Section 302(d) of the Code, the full amount of cash
received by such shareholder will be treated as ordinary income to the extent of
the current or accumulated earnings and profits per share of Maple Leaf.
Under the tests of Section 302 of the Code, the redemption of a
dissenting Maple Leaf shareholder's shares generally will be treated as a
dividend unless the redemption (i) results in a "complete termination" of such
shareholder's direct or indirect stock interest in Maple Leaf under Section
302(b)(3) of the Code, (ii) is "substantially disproportionate" with respect to
such shareholder under Section 302(b)(2) of the Code or (iii) is "not
essentially equivalent to a dividend" with respect to such shareholder under
Section 302(b)(1) of the Code. The characterization of the redemption of a
dissenting Maple Leaf shareholder's shares as an exchange or a dividend is
dependent upon the factual circumstances of each shareholder, and may involve
consideration of Maple Leaf shares owned by persons from whom ownership is
attributed to such dissenting shareholder under the rules of Section 318 of the
Code. Any dissenting shareholders are urged to consult their tax advisors in
this respect.
We have received an opinion of Maple Leaf's legal counsel concerning
the tax consequences of the acquisition. In summary terms, the opinion
concerning tax consequences states that, assuming that the acquisition is
consummated in accordance with the Acquisition Agreement, as amended:
(1) The acquisition will be treated for federal income tax purposes as
a taxable purchase by GLB of the stock and warrants of Maple Leaf from the Maple
Leaf shareholders and warrant holders.
(2) Each Maple Leaf shareholder and warrant holder will recognize gain
or loss as a result of the acquisition, measured by the amount of cash and fair
market value of the GLB common stock received less the basis in the Maple Leaf
shares and warrants. This gain or loss will be capital gain or loss if the Maple
Leaf shares or warrants were held by the holder thereof as a capital asset at
the time of the acquisition. Such capital gain or loss will constitute long-term
capital gain or loss if the holding period of such shareholder or warrant holder
for his or her Maple Leaf shares or warrants exceeds 1 year at the time of the
acquisition.
(3) Since the acquisition will be treated for federal income tax
purposes as a purchase and sale transaction between GLB as purchaser and the
shareholders and warrant holders of Maple Leaf as sellers, neither Maple Leaf
nor GLB will recognize gain or loss as a result of the acquisition, despite
their participation in the transaction under state merger law.
(4) Cash received by those Maple Leaf shareholders, if any, who
exercise dissenters' rights will be treated as a distribution in redemption of
the shares surrendered upon exercise of dissenters' rights, which may result in
realization by the dissenting shareholders of capital gain or loss or ordinary
income, depending upon each dissenting shareholder's particular situation.
THE FOREGOING IS A SUMMARY OF THE ANTICIPATED FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED ACQUISITION UNDER THE INTERNAL REVENUE
CODE. THE FOREGOING SUMMARY IS FOR GENERAL INFORMATION ONLY. IT DOES
NOT DISCUSS THE CONSEQUENCES OF STATE, LOCAL OR OTHER TAX LAWS OR
SPECIAL CONSEQUENCES TO PARTICULAR SHAREHOLDERS OF WARRANT HOLDERS
HAVING SPECIAL SITUATIONS. YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING SPECIFIC TAX CONSEQUENCES OF THE ACQUISITION TO YOU,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE AND LOCAL TAX
LAWS AND TAX CONSEQUENCES OF SUBSEQUENT SALES OF GLB COMMON STOCK.
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ACCOUNTING TREATMENT OF THE ACQUISITION
Upon consummation of the acquisition, GLB will account for the
transaction as a "purchase," in accordance with generally accepted accounting
principles. All of the assets and liabilities of Maple Leaf will be recorded in
GLB's consolidated financial statements at their estimated fair value at the
Effective Time. The amount by which the aggregate acquisition consideration paid
by GLB exceeds the fair value of the net assets acquired by GLB through the
acquisition will be recorded as goodwill. Based on preliminary purchase
accounting estimates, GLB currently expects that the acquisition will result in
identifiable intangibles and goodwill of approximately $13.78 million.
Identifiable intangibles and goodwill will be amortized on a straight-line basis
over an average of 15 years. GLB's consolidated financial statements will
include the operations of Maple Leaf after the Effective Time. The unaudited pro
forma financial statements included in this Prospectus/Proxy Statement reflect
the acquisition using the purchase method of accounting. See "UNAUDITED PRO
FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS."
RESALES OF GLB COMMON STOCK RECEIVED IN THE ACQUISITION
The GLB common stock that will be issued in the acquisition will be
freely transferable, except for shares issued to persons who are affiliates of
Maple Leaf. The term "affiliate" is defined in Rule 144 of the Securities Act. A
director or executive officer of Maple Leaf could be deemed to be an affiliate
of Maple Leaf. Affiliates may not sell, pledge, transfer or otherwise dispose of
the shares of GLB common stock issued to them in exchange for their shares of
Maple Leaf common stock and warrants unless the requirements of Rule 145(d) are
satisfied or unless the sale, pledge, transfer, or disposition is otherwise in
compliance with the Securities Act and the rules and regulations promulgated
thereunder.
This Prospectus/Proxy Statement does not cover any reoffers or resales
of GLB common stock received by affiliates of Maple Leaf.
GLB has undertaken in the Acquisition Agreement to ensure that the
375,000 shares of GLB common stock to be issued in the acquisition to Maple Leaf
shareholders and warrant holders are authorized by The Nasdaq Stock Market, Inc.
for trading on the Nasdaq SmallCap Market.
GLB'S ARTICLES OF INCORPORATION AND CODE OF REGULATIONS
The Articles of Incorporation of GLB in effect immediately prior to the
acquisition will be the articles of incorporation of GLB as the acquiring
corporation after the acquisition. The Code of Regulations of GLB in effect
immediately prior to the acquisition will be the regulations of GLB after the
acquisition.
YEAR 2000 COMPLIANCE
The Acquisition Agreement provides that GLB and Maple Leaf will
cooperate with each other to prepare for integration of their operations. When
all of the conditions to the acquisition are satisfied (or waived), the
Acquisition Agreement will allow GLB to compel Maple Leaf and Geauga Savings
Bank to take such actions as GLB believes to be necessary to ensure that Maple
Leaf and Geauga Savings Bank's mission-critical systems are Year 2000 compliant.
41
<PAGE> 50
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of Maple Leaf common stock are entitled to exercise dissenters'
rights under Section 1701.84 of the Ohio Revised Code. Warrant holders are not
entitled in their capacities as warrant holders to exercise dissenters' rights.
A shareholder of Maple Leaf will be entitled to relief as a dissenting
shareholder if and only if he or she complies strictly with all of the
procedural and other requirements of Section 1701.85 of the Ohio Revised Code. A
copy of Section 1701.85 of the Ohio Revised Code is attached hereto as Appendix
C. The following summary does not purport to be a complete statement of the
method of compliance with Section 1701.85. The following summary is qualified in
its entirety by reference to the copy of Section 1701.85 attached hereto as
Appendix C.
A Maple Leaf shareholder who wishes to perfect his rights as a
dissenting shareholder in the event the Acquisition Agreement is adopted:
(a) must have been a record holder of the Maple Leaf common stock as to
which he seeks relief as of the Maple Leaf Record Date;
(b) must not have voted his Maple Leaf common stock in favor of
adoption of the Acquisition Agreement; and
(c) must deliver to Maple Leaf, not later than ten days after the
Special Meeting, a written demand for payment of the fair cash value of the
shares as to which he seeks relief. This written demand must state the name of
the shareholder, his address, the number and class of shares as to which he
seeks relief, and the amount claimed as the fair cash value thereof.
A vote against adoption of the Acquisition Agreement will not satisfy
the requirements of a written demand for payment. Any written demand for payment
must be mailed or delivered to Maple Leaf Financial, Inc., 10800 Kinsman Road,
Newbury, Ohio 44065, Attention: Lloyd V. Clemmer, Jr., Corporate Secretary.
Because the written demand must be delivered within the ten-day period following
the Maple Leaf Special Meeting, Maple Leaf recommends that a shareholder using
the mails use certified or registered mail, return receipt requested, to confirm
that he has made a timely delivery.
If Maple Leaf sends the dissenting shareholder at the address specified
in his demand a request for the certificate(s) representing his shares, the
shareholder must deliver the certificate(s) within 15 days of the sending of
such request. Maple Leaf may endorse the certificate(s) with a legend to the
effect that the shareholder has demanded the fair cash value of the shares
represented by the certificate(s). Failure to deliver the certificate(s) within
15 days of the request terminates the shareholder's rights as a dissenting
shareholder. Maple Leaf must notify the shareholder of its election to terminate
his rights as a dissenting shareholder within 20 days after the lapse of the 15
day period.
Unless the dissenting shareholder and Maple Leaf agree on the fair cash
value per share of the Maple Leaf common stock, either may, within three months
after the service of the written demand by the shareholder, file a petition in
the Court of Common Pleas of Geauga County, Ohio. If the court finds that the
shareholder is entitled to be paid the fair cash value of any shares, the court
may appoint one or more appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value.
Fair cash value: (a) will be determined as of the day prior to Maple
Leaf Special Meeting, (b) will be the amount a willing seller and willing buyer
would accept or pay with neither being under compulsion to sell or buy, (c) will
not exceed the amount specified in the shareholder's written demand, and (d)
will exclude any appreciation or depreciation in market value resulting from the
acquisition. The court shall make a finding as to the fair cash value of a share
and render judgment against Maple Leaf for its payment with interest at such
42
<PAGE> 51
rate and from such date as the court considers equitable. The costs of
proceedings will be assessed or apportioned as the court considers equitable.
The rights of any dissenting shareholder will terminate if (a) he has
not complied with Section 1701.85, unless Maple Leaf by its Board of Directors
waives such failure, (b) Maple Leaf abandons or is finally enjoined or prevented
from carrying out, or the shareholders of Maple Leaf rescind their adoption of,
the acquisition, (c) the dissenting shareholder withdraws his written demand,
with the consent of Maple Leaf, by its Board of Directors, or (d) Maple Leaf and
the dissenting shareholder shall not have agreed upon the fair cash value per
share of the Maple Leaf common stock, respectively, and neither shall have
timely filed or joined in a petition in an appropriate court for a determination
of the fair cash value of the shares. For a discussion of the tax consequences
to a shareholder exercising dissenters' rights, see "TERMS OF THE ACQUISITION -
CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
Because a proxy that does not contain voting instructions will be voted
for adoption of the Acquisition Agreement, a shareholder who wishes to exercise
his dissenters' rights must either not sign and return his proxy or, if he signs
and returns his proxy, vote against or abstain from voting on the adoption of
the Acquisition Agreement.
43
<PAGE> 52
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated balance sheet as of
September 30, 1998, and the unaudited pro forma condensed consolidated
statements of income for the nine months ended September 30, 1998 and for the
year ended December 31, 1997, have been prepared to reflect the proposed
acquisition between GLB and Maple Leaf. The unaudited pro forma consolidated
balance sheet assumes the acquisition was consummated on September 30, 1998. The
unaudited pro forma condensed consolidated statements of income reflect the
consolidated historical results of operations of GLB and Maple Leaf for the year
ended December 31, 1997 and the nine months ended September 30, 1998, and the
adjustments which are described in the notes to the pro forma statements.
The pro forma adjustments are based on estimates made to reflect the
acquisition using the purchase method of accounting. Estimates of the fair value
of loans, investments, and deposits are subject to change when the effective
date occurs and a more thorough and exact evaluation can be made of the entire
balance sheet. Therefore, actual adjustments may differ from those made to the
unaudited pro forma financial statements. The unaudited pro forma financial
information is intended for informational purposes and is not necessarily
indicative of the future financial position of the consolidated company.
The combined company expects to achieve substantial cost savings in the
reduction of duplicate operations. These estimated savings are not reflected in
the pro forma statements of operations. However, GLB can give no assurance as to
actual cost savings in future operations. These pro forma financial statements
should be read in conjunction with the historical financial statements and
related notes of GLB and Maple Leaf included elsewhere in this Prospectus/Proxy
Statement.
44
<PAGE> 53
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------------------------------------------------------
PRO FORMA PRO FORMA
GLB MAPLE LEAF ADJUSTMENTS NOTE COMBINED
------------- ---------------- --------------- ---- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from banks.................... $ 2,839,803 $ 7,111,653 $ 9,951,456
Federal funds sold......................... 24,996,000 0 (18,000,000) 1(A) 6,996,000
------------ ---------------- ------------ ----------------
Total cash and cash equivalents...... 27,835,803 7,111,653 (18,000,000) 16,947,456
Investment securities available for sale... 2,062,548 0 2,062,548
Mortgage pool securities available for sale 0 16,915,636 0 1(C) 16,915,636
Investment securities held to maturity..... 2,014,386 0 2,014,386
Loans, net of allowance for loan losses.... 56,198,735 83,457,762 2,640,000 1(D) 142,296,497
Stock in FHLB Cincinnati, at cost.......... 451,100 2,183,300 2,634,400
Premises and equipment, net................ 2,651,215 185,619 2,836,834
Intangibles, net........................... 577,401 0 12,284,442 1(F) 12,861,843
Other assets............................... 514,031 1,657,829 2,171,860
------------ ---------------- ------------ ----------------
Total Assets......................... $ 92,305,219 $111,511,799 $(3,075,558) $200,741,460
========== =========== ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Non-interest bearing demand deposits....... $ 10,577,551 $ 1,313,785 $ 11,891,336
Interest bearing demand deposits........... 4,992,166 3,024,062 8,016,228
Savings accounts........................... 30,388,404 7,458,956 37,847,360
Certificates............................... 12,858,687 43,340,568 1,149,000 1(E) 57,348,255
------------ ---------------- ------------ ----------------
Total deposits....................... 58,816,808 55,137,371 1,149,000 115,103,179
Advances from the FHLB..................... 7,500,000 42,948,279 50,448,279
Reverse repurchase agreements.............. 0 3,000,000 3,000,000
Accrued expenses and other liabilities..... 732,155 1,701,591 2,433,746
------------ ---------------- ------------ ----------------
Total liabilities.................... 67,048,963 102,787,241 1,149,000 170,985,204
Shareholders' Equity:
Common stock and paid-in capital........... 24,487,480 3,978,452 (3,978,452) 1(B) 24,487,480
4,500,000 1(B) 4,500,000
Treasury stock............................. 0 (80,000) 80,000 1(B) 0
Accumulated other comprehensive income..... 47,279 272,013 (272,013) 1(B) 47,279
Retained earnings.......................... 721,497 4,554,093 (4,554,093) 1(B) 721,497
------------ ---------------- ------------ ----------------
Total shareholders' equity........... 25,256,256 8,724,558 (4,224,558) 29,756,256
------------ ---------------- ------------ ----------------
Total Liabilities and Shareholders'
Equity............................... $ 92,305,219 $ 111,511,799 $(3,075,558) $ 200,741,460
============ =========== =========== ===========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
<PAGE> 54
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------------------
PRO FORMA PRO FORMA
GLB MAPLE LEAF ADJUSTMENTS NOTE COMBINED
----------- ------------ ------------- ---- ------------
<S> <C> <C> <C> <C> <C>
Interest income............................ $ 4,243,292 $ 6,622,527 $ (534,652) 2 $ 10,331,167
Interest expense........................... 1,780,322 4,028,566 (287,250) 2 5,521,638
----------- ----------- ----------- ------------
Net interest income............... 2,462,970 2,593,961 (247,402) 4,809,529
Provision for loan losses.................. 90,000 42,124 132,124
----------- ----------- ------------
Net interest income after
provision for loan losses......... 2,372,970 2,551,837 (247,402) 4,677,405
Non-interest income........................ 491,602 203,163 694,765
Non-interest expense....................... 2,119,637 1,471,211 614,222 2 4,205,070
----------- ----------- ----------- ------------
Income before federal income taxes 744,935 1,283,789 (861,624) 1,167,100
Federal income tax expense (benefit)....... 288,154 444,106 (292,952) 2 439,308
----------- ----------- ----------- ------------
Net Income........................ $ 456,781 $ 839,683 $ (568,672) $ 727,792
=========== =========== =========== ============
</TABLE>
- --------------
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------
PRO FORMA PRO FORMA
GLB MAPLE LEAF ADJUSTMENTS NOTE COMBINED
----------- ------------ ------------- ---- ------------
<S> <C> <C> <C> <C> <C>
Interest income............................. $ 4,382,041 $ 7,694,124 $ (264,000) 2 $ 11,812,165
Interest expense............................ 1,938,275 4,797,259 (383,000) 2 6,352,534
----------- ----------- ------------ ------------
Net interest income................ 2,443,766 2,896,865 119,000 5,459,631
Provision for loan losses................... 97,000 317,380 414,380
----------- ----------- ------------ ------------
Net interest income after provision
for loan losses..................... 2,346,766 2,579,485 119,000 5,045,251
Non-interest income.......................... 551,852 196,171 748,023
Non-interest expense......................... 2,344,744 1,632,247 818,963 2 4,795,954
----------- ----------- ------------ ------------
Income before federal income taxes 553,874 1,143,409 (699,963) 997,320
Federal income tax expense (benefit)......... 209,917 388,307 (237,987) 2 360,237
----------- ----------- ------------ ------------
Net Income.......................... $ 343,957 $ 755,102 $ (461,976) $ 637,083
=========== =========== ============ ============
</TABLE>
- -------------
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
46
<PAGE> 55
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements are
based on the following adjustments and related assumptions. The actual purchase
accounting adjustments will be made on the basis of appraisals and evaluations
as of the effective time. The actual purchase accounting adjustments will
therefore differ from those presented in the unaudited pro forma condensed
financial statements.
Note 1: The purchase accounting adjustments to record the business combination
used in the preparation of the unaudited Pro Forma Condensed Balance Sheet are
summarized below (in actual dollars):
<TABLE>
<S> <C>
Consideration to be paid in cash.............. $ 18,000,000 (A)
GLB Bancorp, Inc. stock issued................ 375,000 (B)
Assumed GLB Bancorp, Inc. share price......... $ 12.00
-----------
$ 4,500,000
Total Purchase Price.......................... $ 22,500,000
Less historical net assets acquired........... $ 8,724,558
----------
Premium to allocate........................... $ 13,775,442
==========
Adjustments to fair market value of net assets
acquired
Securities.................................... $ 0 (C)
Loans......................................... 2,640,000 (D)
Deposits...................................... (1,149,000) (E)
Intangibles................................... 12,284,442 (F)
----------
$ 13,775,442
==========
</TABLE>
(A) Cash portion of price paid for Maple Leaf.
(B) 375,000 shares of GLB Bancorp, Inc. common stock to be the stock
portion of price paid for Maple Leaf Financial, Inc. In this scenario,
a stock price of $12.00 is assumed.
(C) Assumes the estimated fair market value and the carrying amount are
equal since the securities are analyzed monthly as part of the
Available for Sale portfolio.
(D) Assumes the estimated fair market value of the loan portfolio to be
higher than the carrying value at September 30, 1998.
(E) Assumes the estimated fair market value of the deposit liabilities to
be higher than the carrying value at September 30, 1998.
(F) Includes the identifiable intangibles and goodwill. The final amount
may differ from the estimates when the effective date arrives and a
final determination can be made of the fair market value of assets and
liabilities.
47
<PAGE> 56
Note 2: The purchase accounting adjustments and amortization periods related to
the business combination used in the preparation of the unaudited Pro Forma
Condensed Statements of Income are summarized below (in thousands), as well as
cost savings which could be realized in operating expenses through this
combination:
<TABLE>
<CAPTION>
AMORTIZATION NINE MONTHS ENDED YEAR ENDED
PERIOD SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------ ------------------ -----------------
<S> <C> <C> <C>
Adjustments increase (decrease) Pro Forma
combined net income as follows:
Interest Income:
Amortization of loan portfolio adjustment...... 10 years S/L $ (198,000) $ (264,000)
Reduction of interest earned on Federal Funds.. (336,652) 0
--------- ---------
Total................................... (534,652) (264,000)
Interest Expense:
Amortization of deposit liabilities adjustment. 3 years S/L (287,250) (383,000)
Non-Interest Expenses:
Amortization of goodwill from the combination.. 15 years S/L 614,222 818,963
Federal income tax expense (benefit) on pro forma
adjustments @34%................................. $ (292,952) $ (237,987)
</TABLE>
GLB'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GLB's principal asset is Great Lakes Bank common stock. Accordingly,
GLB's results of operations are primarily dependent upon the results of
operations of Great Lakes Bank. Great Lakes Bank conducts a general commercial
banking business, gathering deposits from the general public and applying those
funds to the origination of loans for commercial, consumer and residential
purposes.
GLB's profitability depends primarily on net interest income, which is
the difference between (a) interest income generated by interest-earning assets
(i.e., loans and investments) and (b) interest expense incurred on
interest-bearing liabilities (i.e., customer deposits and borrowed funds). Net
interest income is affected by the difference ("interest rate spread") between
rates of interest earned on interest-earning assets and rates of interest paid
on interest-bearing liabilities, as well as the relative amounts of
interest-earning assets and interest-bearing liabilities. If the total of
interest-earning assets approximates or exceeds the total of interest-bearing
liabilities, any positive interest rate spread will generate net interest
income. Financial institutions have traditionally used interest rate spreads as
a measure of net interest income. Another indication of an institution's net
interest income is its "net yield on interest-earning assets" or "net interest
margin," which is net interest income divided by average interest-earning
assets.
To a lesser extent, GLB's profitability is also affected by such
factors as the level of non-interest income and expenses, the provision for loan
losses, and the effective tax rate. Non-interest income consists primarily of
service charges and other fees and income from the sale of loans and investment
securities. Non-interest expenses consist of compensation and benefits,
occupancy related expenses, deposit insurance premiums paid to the FDIC and
other operating expenses.
GLB's management's discussion and analysis of earnings and related
financial data are presented herein to assist investors in understanding the
consolidated financial condition and results of operations of GLB for the fiscal
years ended December 31, 1997 and 1996 and for the nine-month period ended
September 30, 1998. This discussion should be read in conjunction with the
consolidated financial statements and related footnotes presented elsewhere
herein.
RESULTS OF OPERATIONS
48
<PAGE> 57
At the time of Great Lakes Bank's succession to the business of Great
Lakes Commerce Bank in July 1994, Great Lakes Commerce Bank was not a profitable
institution, as measured by net income for the most recent annual period. In the
years since, management has laid the foundation for continued growth in earnings
and assets, doing so on a conservative basis intended to improve financial
performance over time. During the process of building Great Lakes Bank into a
profitable institution, Great Lakes Bank has incurred considerable short-term
expense. All but one of Great Lakes Bank's original four offices have been
relocated since July 1994, and Great Lakes Bank expects to have nine banking
offices in Lake County by the end of the first quarter of 1999. Although branch
relocation and expansion has promoted asset and earnings growth, it has also
represented substantial near-term costs, most notably facilities and equipment
expense and compensation expense. These near-term costs will, in management's
opinion, have a long-term benefit for GLB and Great Lakes Bank. Branch
reconfiguration and de novo branch expansion have been and will be part of Great
Lakes Bank's strategy to solidify its position as a leading community bank,
capitalizing upon Great Lakes Bank's status as the only commercial bank
headquartered in Lake County.
For the period ended December 31, 1994 (from July 15, 1994 (inception)
to December 31, 1994), the $328,244 net loss was largely attributable to factors
already in place when new management took control in July 1994. Management's
efforts have produced a positive earnings trend since July 1994, with net income
of $37,060 for 1995 ($.07 per share), $211,943 for 1996 ($.39 per share) and
$343,957 for 1997 ($.58 per share). The improvement each year was primarily the
result of growth in the volume of loans, investments and deposits and the
corresponding net interest income associated with increased volumes. Also
affecting net income was an effective tax rate in 1997 of 37.9%, compared to
4.51% in 1996.
Net income for the nine-month period ended September 30, 1998 was
$456,781 ($.34 earnings per share, basic), an increase of $254,528, or 125.8%,
over the like period in 1997. The net income increase was due to the increase in
average loan balances and the sale of loans in the secondary market, plus
additional federal fund investment income. Return on average assets for the nine
month period ended September 30, 1998 was 0.75%, compared to 0.47% for the like
period in 1997. Return on average equity for the nine month period ended
September 30, 1998 was 3.95%, compared to 4.35% for the like period in 1997. The
effective tax rate for the nine month period ended September 30, 1998 was 37%,
compared to 37.8% for the like period in 1997.
Basic earnings per share was computed in accordance with Statement of
Financial Accounting Standards SFAS No. 128. This calculation was based on
1,340,516 and 595,764 weighted average shares outstanding for the nine month
periods ended September 30, 1998 and 1997, respectively. Diluted earnings per
share was based on 1,340,576 and 595,764 weighted average shares outstanding for
the nine month periods ended September 30, 1998 and 1997, respectively.
NET INTEREST INCOME
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997. Net interest income for the nine months ended September 30,
1998 was $2,462,970, an increase of $691,461, or 39.0%, over the like period in
1997. Interest income of $4,243,292 for the nine month period ended September
30, 1998 represents an increase of $1,096,779, or 34.9%, over the like period in
1997. The increase in interest income was due primarily to the increase in
federal fund balances from the net proceeds of GLB's initial public offering and
additional loan volume. Interest expense of $1,780,322 for the nine month period
ended September 30, 1998 increased by $405,318, or 29.5%, over interest expense
in the same period in 1997, due primarily to the increase in average deposit
balances.
1997 Compared to 1996. Net interest income for the year ended December
31, 1997 was $2.4 million, an increase of $534,461 or 28.0% over 1996 net
interest income. This increase was caused primarily by an increase in average
earning assets of $12.4 million between the years while average interest-bearing
liabilities grew by $10.8 million. At the same time, Great Lakes Bank's interest
rate spread decreased to 3.92% in 1997 from 4.07% in 1996. Great Lakes Bank's
net interest margin also decreased in 1997 to 4.62% from 4.72% in 1996. However,
the decrease in net interest spread and net interest margin was offset by an
increase in the volume of net earning assets. Great Lakes Bank's decrease in
interest rate spread and net interest margin was primarily a result of an
increase in long-term borrowings needed to support increased loan volumes, which
borrowings carry a higher interest cost than deposits.
49
<PAGE> 58
1996 Compared to 1995. Net interest income for the year ended December
31, 1996 was $1.9 million, an increase of $425,364 or 28.7% over 1995. This
increase was caused primarily by an increase in average earning assets of $8.7
million between the years while average interest-bearing liabilities grew by
$7.4 million. At the same time, Great Lakes Bank's interest rate spread
increased to 4.07% in 1996 from 4.02% in 1995. Great Lakes Bank's net interest
margin also increased in 1996 to 4.72% from 4.68% in 1995. The change in
interest rate spread and net interest margin in 1996 compared to 1995 was
principally the result of maturing investments that were used to fund loan
growth at a higher yield, with loan growth outpacing savings growth.
50
<PAGE> 59
Average Balances, Interest Rates and Yields. The following tables set
forth certain information relating to GLB's consolidated average
interest-earning assets and interest-bearing liabilities and reflects the
average yield on assets and average cost of liabilities for the years indicated
and for the nine months periods ended September 30, 1998 and 1997. Such yields
and costs are derived by dividing income or expense by the average daily balance
of assets or liabilities, respectively, for the periods presented. During the
periods indicated, non-accruing loans, if any, are included in the net loan
category.
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES FOR THE YEARS ENDED DECEMBER 31,
1997 1996
----------------------------------- -------------------------------------
AVERAGE INCOME/ EFFECTIVE AVERAGE INCOME/ EFFECTIVE
BALANCE EXPENSE YIELD/COST BALANCE EXPENSE YIELD/COST
------------ ---------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Mortgage-backed securities.................... $ 24,339 $ (619) -2.54% $ 41,225 $ 2,954 7.16%
Loans receivable:
Real estate mortgage (1)................... 27,004,160 2,087,781 7.73% 18,588,442 1,420,956 7.64%
Commercial & other (1)..................... 16,212,406 1,631,713 10.06% 11,169,811 1,069,009 9.57%
Consumer................................... 3,534,530 316,106 8.94% 2,982,556 266,723 8.94%
----------- ---------- ---- ---------- ---------- ----
Total Loans Receivable............... 46,751,096 4,035,600 8.63% 32,740,809 2,756,688 8.42%
Cash-Interest earning......................... 18,294 1,473 8.05% 9,778 512 5.23%
Securities:
FHLB Stock................................. 409,205 29,421 7.19% 106,701 8,738 8.19%
Securities held to maturity................ 1,112,064 69,087 6.21% 2,373,653 185,174 7.80%
----------- ---------- ---- ---------- ---------- ----
Total Securities..................... 1,521,269 98,508 6.48% 2,480,354 193,912 7.82%
Federal funds................................. 4,576,840 247,079 5.40% 5,170,828 279,733 5.41%
----------- ---------- ---- ---------- ---------- ----
Total Earnings Assets......................... 52,891,838 4,382,041 8.28% 40,442,994 3,233,799 8.00%
---------- ----------
Non interest-earning assets................... 6,248,155 5,595,085
----------- -----------
Total Assets............................... $59,139,993 $46,038,079
========== ===========
INTEREST-BEARING LIABILITIES:
Deposits:
DDA Interest Earning....................... $ 4,372,338 $ 90,704 2.07% $ 3,648,864 $ 80,312 2.20%
Savings accounts........................... 24,447,474 898,299 3.67% 21,587,952 771,858 3.58%
Certificates of deposit ................... 9,229,811 512,833 5.56% 7,085,051 387,788 5.47%
----------- ---------- ---- ----------- ---------- ----
Total Deposits....................... 38,049,623 1,501,836 3.95% 32,321,867 1,239,958 3.84%
Borrowings.................................... 6,410,417 436,439 6.81% 1,363,636 84,536 6.20%
----------- ---------- ---- ---------- ---------- ----
Total interest-bearing liabilities......... 44,460,040 1,938,275 4.36% 33,685,503 1,324,494 3.93%
---------- ----------
Non interest-bearing liabilities.............. 8,444,677 6,886,879
Shareholders' equity ......................... 6,235,276 5,465,697
---------- ---------
Total liabilities and stockholders' equity $59,139,993 $46,038,079
========== ==========
Net interest income and interest rate spread $ 2,443,766 3.92% $1,909,305 4.07%
========== ==========
Net interest margin(2)......................... 4.62% 4.72%
Ratio of Average Interest-Earning
Assets to Interest-Bearing Liabilities 118.96% 120.06%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES FOR THE YEARS ENDED DECEMBER 31,
1995
----------------------------------------
AVERAGE INCOME/ EFFECTIVE
BALANCE EXPENSE YIELD/COST
------------ ------------- -----------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Mortgage-backed securities.................... $ 57,370 $ 3,749 6.53%
Loans receivable:
Real estate mortgage (1)................... 10,294,494 798,300 7.75%
Commercial & other (1)..................... 7,105,441 733,206 10.32%
Consumer................................... 2,809,905 254,356 9.05%
---------- --------- ------
Total Loans Receivable............... 20,209,840 1,785,862 8.84%
Cash-Interest earning......................... 0 0 0.00%
Securities:
FHLB Stock................................. 0 0 0.00%
Securities held to maturity................ 5,738,121 369,815 6.44%
---------- --------- ------
Total Securities..................... 5,738,121 369,815 6.44%
Federal funds................................. 5,720,797 338,580 5.92%
---------- --------- ------
Total Earnings Assets......................... 31,726,128 2,498,006 7.87%
---------
Non interest-earning assets................... 4,912,388
----------
Total Assets............................... $36,638,516
===========
INTEREST-BEARING LIABILITIES:
Deposits:
DDA Interest Earning....................... $ 2,471,172 $ 51,213 2.07%
Savings accounts........................... 18,694,003 687,463 3.68%
Certificates of deposit ................... 5,150,757 275,389 5.35%
------------ --------- ----
Total Deposits....................... 26,315,932 1,014,065 3.85%
Borrowings.................................... 0 0 0.00%
---------- --------- ------
Total interest-bearing liabilities......... 26,315,932 1,014,065 3.85%
----------
Non interest-bearing liabilities.............. 5,606,730
Shareholders' equity ......................... 4,715,854
---------
Total liabilities and stockholders' equity $36,638,516
===========
Net interest income and interest rate spread $ 1,483,941 4.02%
============
Net interest margin(2)......................... 4.68%
Ratio of Average Interest-Earning
Assets to Interest-Bearing Liabilities 120.56%
</TABLE>
- --------------------
(1) Includes construction loans
(2) Net interest margin is net interest income divided by average interest
earning assets
51
<PAGE> 60
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
-------------------------------------- ---------------------------------------
AVERAGE INCOME/ EFFECTIVE AVERAGE INCOME/ EFFECTIVE
BALANCE EXPENSE YIELD/COST BALANCE EXPENSE YIELD/COST
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Mortgage-backed securities ...................... $ 0 $ 0 0% $ 32,461 $ (619) -2.54%
Loans receivable:
Real estate mortgage (1) ..................... 31,236,666 1,781,862 7.61% 25,479,259 1,480,540 7.75%
Commercial & other (1) ....................... 20,096,219 1,470,777 9.79% 15,359,014 1,178,133 10.26%
Consumer ..................................... 3,784,545 253,212 8.95% 3,420,008 229,909 8.99%
----------- ----------- ----------- ----------- ----------- ----------
Total Loans Receivable ............... 55,117,430 3,505,851 8.49% 44,258,281 2,888,582 8.71%
Cash-Interest earning ........................... 20,305 888 5.85% 18,306 1,178 8.61%
Securities:
FHLB Stock ................................... 435,452 23,612 7.25% 404,798 21,743 7.18%
Securities held to maturity .................. 1,178,270 49,679 5.64% 1,103,690 52,218 6.33%
Securities available for sale ................ 306,568 8,523 3.72% 0 0 0%
----------- ----------- ----------- ----------- ----------- ----------
Total Securities ..................... 1,920,290 81,814 5.70% 1,508,488 73,961 6.56%
Federal funds ................................... 16,973,817 654,739 5.16% 4,651,133 183,411 5.27%
----------- ----------- ----------- ----------- ----------- ----------
Total Earnings Assets ........................... 74,031,842 4,243,292 7.65% 50,468,669 3,146,513 8.32%
----------- ----------- ----------
Non interest-earning assets ..................... 6,860,709 6,152,055
----------- -----------
Total Assets ................................. $80,892,551 $56,620,724
=========== ===========
INTEREST-BEARING LIABILITIES:
Deposits:
DDA Interest Earning ......................... $ 4,961,031 $ 86,196 2.32% $ 4,180,482 $ 65,125 2.08%
Savings accounts ............................. 29,386,305 825,669 3.76% 23,391,643 641,903 3.67%
Certificates of deposit ...................... 11,579,212 487,940 5.63% 8,707,533 359,770 5.52%
----------- ----------- ----------- ----------- ----------- ----------
Total Deposits ....................... 45,926,548 1,399,805 4.08% 36,279,658 1,066,798 3.93%
Borrowings ...................................... 7,500,000 380,517 6.78% 6,046,297 308,206 6.82%
----------- ----------- ----------- ----------- ----------- ----------
Total interest-bearing liabilities ........... 53,426,548 1,780,322 4.46% 42,325,955 1,375,004 4.34%
----------- ----------- -----------
Non interest-bearing liabilities ................ 12,042,172 8,106,357
Shareholders' equity ............................ 15,423,831 6,188,412
----------- -----------
Total liabilities and stockholders' equity ... $80,892,551 $56,620,724
=========== ===========
Net interest income and interest rate spread .... $ 2,462,970 3.19% 1,771,509 3.98%
=========== ===========
Net interest margin(2) .......................... 4.44% 4.68%
Ratio of Average Interest-Earning
Assets to Interest-Bearing Liabilities 138.57% 119.24%
</TABLE>
- ----------------
(1) Includes construction loans
(2) Net interest margin is net interest income divided by average interest
earning assets
52
<PAGE> 61
Rate/Volume Analysis. The following tables analyze net interest income
in terms of changes in the volume of interest-earning assets and
interest-bearing liabilities, and changes in net interest income that are
attributable to changes in yields earned on interest-earning assets and rates
paid on interest-bearing liabilities. The table reflects the extent to which
changes in interest income and changes in interest expense are attributable to
changes in volume (changes in volume multiplied by the prior year rate) and
changes in rate (changes in rate multiplied by prior year volume). Changes
attributable to the combined impact of volume and rate have been allocated
proportionately to changes due to volume and changes due to rate.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------------------------- ----------------------------------------
1998 VS. 1997 1997 VS. 1996
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
--------------------------------------- ----------------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Loans receivable ....................... $ 688,634 $ (71,365) $ 617,269 $ 1,208,477 $ 70,435 $ 1,278,912
Investment securities .................. 15,102 (7,249) 7,853 (66,108) (29,296) (95,404)
Mortgage-backed securities ............. 619 0 619 (829) (2,744) (3,573)
Federal funds sold ..................... 475,241 (3,913) 471,328 (32,137) (517) (32,654)
Interest earning deposits with banks ... 150 (440) (290) 594 367 961
----------- ----------- ----------- ----------- ----------- -----------
Total interest income ............... 1,179,746 (82,967) 1,096,779 1,109,997 38,245 1,148,242
Interest expense attributable to:
Deposits ............................... 292,778 40,229 333,007 225,436 36,442 261,878
Borrowings ............................. 73,748 (1,437) 72,311 342,790 9,113 351,903
----------- ----------- ----------- ----------- ----------- -----------
Total interest expense .............. 366,526 38,792 405,318 568,226 45,555 613,781
Increase (decrease) in net interest income $ 813,220 $ (121,759) $ 691,461 $ 541,771 $ (7,310) $ 534,461
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 VS. 1995
INCREASE (DECREASE) DUE TO
---------------------------------------
VOLUME RATE TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Interest income attributable to:
Loans receivable ....................... $ 1,051,390 $ (80,564) $ 970,826
Investment securities .................. (282,546) 106,643 (175,903)
Mortgage-backed securities ............. (1,210) 415 (795)
Federal funds sold ..................... (31,035) (27,812) (58,847)
Interest earning deposits with banks ... 256 256 512
----------- ----------- -----------
Total interest income ............... 736,855 (1,062) 735,793
Interest expense attributable to:
Deposits ............................... 228,493 (2,600) 225,893
Borrowings ............................. 42,268 42,268 84,536
----------- ----------- -----------
Total interest expense .............. 270,761 39,668 310,429
Increase (decrease) in net interest income $ 466,094 $ (40,730) $ 425,364
=========== =========== ===========
</TABLE>
53
<PAGE> 62
PROVISION FOR LOAN LOSSES
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997. The provision for loan losses was $90,000 for the first nine
months of 1998, a $23,000 or 34.3% increase over the like 1997 period. The
provision for loan losses is based upon management's assessment of relevant
factors, including types and amounts of nonperforming loans, historical and
anticipated loss experience and current and projected economic conditions. The
increase in the provision for loan losses was principally a result of increased
loan volume, with net loan chargeoffs at $36,768 for the nine month period ended
September 30, 1998 and $10,391 for the nine month period ended September 30,
1997. Net loan chargeoffs as a percentage of net loans were 0.07% for the nine
month period ended September 30, 1998, and 0.02% for the nine month period ended
September 30, 1997. The increase in net loan chargeoffs was a result of two
specific loans and, in management's opinion, does not represent general
deterioration in the portfolio, as is demonstrated by the non-performing asset
ratios. The ratios of non-performing assets as a percentage of total assets were
0.09% at September 30, 1998 compared to 0.19% at September 30, 1997.
1997 Compared to 1996. The provision for loan losses was $97,000 in
1997, a $20,000 or 26.0% increase over 1996. The increase in the provision for
loan losses was principally a result of increased loan volume. Refer to Notes
1(d) and 3 of Notes to Consolidated Financial Statements for additional
information.
1996 Compared to 1995. The provision for loan losses was $77,000 in
1996, compared to $50,500 in 1995, an increase of $26,500 or 52.5% over 1995.
The increase in the provision for loan losses was principally a result of
increased loan volume. Refer to Notes 1(d) and 3 of Notes to Consolidated
Financial Statements for additional information.
NON-INTEREST INCOME
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997. Total non-interest income was $491,602 for the nine months
ended September 30, 1998, an increase of $132,407, or 36.9%, over the like 1997
period. The increase in non-interest income was largely due to gains on the sale
of loans in the secondary market, with gains for the nine month period ended
September 30, 1998 of $143,500, and increased service charges on demand
deposits. Great Lakes Bank sells residential loans in the secondary market and
delivers the loans shortly after funding. At September 30, 1998, Great Lakes
Bank had loan commitments to sell approximately $1,188,100 in the secondary
market.
1997 Compared to 1996. Total non-interest income was $551,852 for the
year ended December 31, 1997, an increase of $257,973 or 87.8% over 1996. The
$80,889 increase in loan fee income, an increase of 78.0% for the year,
accounted for the largest portion of the increase in other income. The increase
in loan fee income was largely attributable to interest points charged by Great
Lakes Bank on an increased volume of construction lending during 1997, which
amortizes typically within a six- to nine-month period. Other service charges
and fees increased $68,156 in the year ended December 31, 1997, an 87.6%
increase, principally as a result of new transaction fees imposed by Great Lakes
Bank for use of bank ATMs by customers of other financial institutions. Service
charges on demand accounts increased $33,959, or 30.7%, due to the growth in
Great Lakes Bank's demand deposit accounts ("DDA," or checking) during 1997 and
the accompanying growth in account-related fees, such as returned item fees.
During the periods discussed herein, as a general matter management
priced deposits at rates competitive with rates offered by the leading
commercial banks in Great Lakes Bank's market area, which rates tend to be
somewhat lower than rates offered by thrift institutions in that market area.
Great Lakes Bank generally does not impose service charges and fees to the same
extent as other local institutions. Although a wider range of service charges
and fees and higher service charges and fees would yield more income for each
dollar of deposits, imposing service charges and fees on a basis equivalent to
those imposed by many other area commercial banks might adversely affect deposit
growth. To promote deposit growth and provide cross-selling opportunities to
customers, Great Lakes Bank has not adopted an aggressive fee structure. Deposit
growth was generated by developing strong customer relationships, cross-selling
deposit relationships to loan customers and obtaining increased growth from
branch offices opened in recent years. Non-interest bearing DDA deposits grew
$1.9 million in 1997 to $8.3 million. Management intends to continue promoting
Great Lakes Bank's non-interest bearing deposit products in order to obtain
additional interest-free, lendable funds.
54
<PAGE> 63
Great Lakes Bank realized a total gain on sale of assets during 1997 of
$76,600, representing sale of loans to the FHLMC (the Federal Home Loan Mortgage
Corporation). In the past, the bank selectively retained fixed-rate loans in
order to increase its loan-to-deposit ratio. Although Great Lakes Bank has
retained fixed-rate mortgage loans in its portfolio, fixed-rate loans may be
sold in the secondary market to the FHLMC, with 0.25% servicing retained, or on
a servicing-released basis to other financial institutions. The proceeds of such
sales can be reinvested in additional lending. Management believes that the sale
of fixed-rate loans enhances asset/liability management. That is, retention of
long-term, fixed-rate mortgage loans in Great Lakes Bank's portfolio during
periods of rising interest rates would adversely affect net interest margins,
because the cost of liabilities would increase while earnings on assets remained
stable.
1996 Compared to 1995. Total non-interest income was $293,879 for the
year ended December 31, 1996, an increase of $44,259, or 17.7%, over 1995.
Substantially all of the increase was attributable to increases in loan fee
income and service charges on demand accounts. Loan fee income increased $12,726
during 1996, or 14.0%, due to interest points charged by Great Lakes Bank on an
increased volume of construction lending, which amortizes typically within a
six- to nine-month period. Service charges on demand accounts increased $24,265
during 1996, or 28.1%, due to growth in demand deposit accounts and the
accompanying growth in account-related fees, such as returned item fees. Great
Lakes Bank realized nominal gains on sales of assets during 1996, a period when
Great Lakes Bank was making the transition from originating loans to be held in
portfolio to originating loans for resale into the secondary loan market.
NON-INTEREST EXPENSE
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997. Non-interest expense for the nine months ended September 30,
1998 was $2,119,637, a $392,392 or 22.7% increase over the like period in 1997.
The increase in non-interest expense was the result of an increase in
professional fees, as well as an increase in compensation due to increased staff
to operate new branches.
1997 Compared to 1996. Total non-interest expense was $2.3 million in
1997, an increase of $440,503 or 23.1% over 1996. The larger components of
non-interest expense included compensation and related benefits, which increased
$219,749, or 23.1%. The increase in compensation and related benefits expense
was due principally to increases in staff, higher pension and insurance benefit
costs and normal merit raises. The $69,743 increase during 1997 in office
occupancy and equipment expense, an 18.7% increase, was attributable in
significant part to the remodeling of the Willoughby branch office and
relocation of the Wickliffe branch office in 1997. Office occupancy and
equipment expense is net of rental income earned on space leased in Great Lakes
Bank's main office to OsAir, Inc., which is controlled by a director of GLB. See
"BUSINESS OF GLB- PROPERTIES," and "MANAGEMENT OF GLB - CERTAIN RELATIONSHIPS
AND RELATED PARTY TRANSACTIONS."
The $56,046, or 93.5%, increase in data processing expense during 1997
reflects normal costs under the agreement entered into in 1995 with Great Lakes
Bank's new electronic data processing provider. Great Lakes Bank benefitted in
1996 from a one-time, new-customer credit from the current electronic data
processing provider. The data processing contract has a term of five years,
renewing automatically thereafter for two year terms unless cancelled.
Franchise taxes payable to the State of Ohio are calculated by
reference to the amount of shareholders' equity, and accordingly have increased
each year as shareholders' equity has grown. Professional fees increased with
additional legal expense incurred in connection with establishment of GLB as the
holding company for Great Lakes Bank in 1997. Other operating expenses increased
due primarily to asset growth year-to-year. The "deposit base intangible" and
goodwill assets that arose out of the July 1994 succession of Great Lakes Bank
to the business of Great Lakes Commerce Bank are being amortized over a period
of ten years, accounting for the decrease in the amortization of intangibles
expense category year-to-year. Refer to Note 5 of Notes to Consolidated
Financial Statements for additional information concerning the "deposit base
intangible" and goodwill assets.
1996 Compared to 1995. Total non-interest expense was $1.9 million in
1996, an increase of $262,350 or 16.0% over 1995. The increase resulted
primarily from increases in employee compensation and benefits of $108,358, or
12.8%, occupancy and equipment of $123,010, or 49.3%, and other operating
expense of $50,840, or 50.9%. The increase in compensation and benefits expense
resulted in part from normal merit increases. The relocation of the Painesville
branch office facility in mid-year
55
<PAGE> 64
1995 and opening of the Willoughby Hills office in 1996 contributed to increased
compensation and benefits expense and increased office occupancy and equipment
expense in 1996, due to relocation costs, costs related to establishing a new
branch office and costs associated with staffing of the new branch.
Great Lakes Bank benefitted in 1996 from a one-time, new-customer
credit from the current electronic data processing provider, resulting in a
$18,895 decrease in data processing expense in 1996. State franchise taxes
increased as a result of the growth in shareholders' equity year-to-year. Other
operating expenses increased due primarily to asset growth year-to-year.
FEDERAL INCOME TAXES
1997 Compared to 1996. Federal income tax expense was approximately
$210,000 in 1997, compared to $10,000 in 1996. During 1996, the Company
recognized a $76,418 tax benefit from the elimination of a valuation allowance
against a deferred tax asset related to net operating loss carryforwards that
were used in the 1996 tax return. Refer to Note 11 of Notes to Consolidated
Financial Statements for additional information.
1996 Compared to 1995. Federal income tax expense was $10,000 in 1996,
compared to $4,110 in 1995. During 1995, the Bank recognized a $16,968 tax
benefit from the change in the valuation allowance against a deferred tax asset
related to net operating loss carryforwards that were used in the 1995 tax
return. The tax benefit recognized in 1995 reduced the valuation allowance to
$76,418. Refer to Note 11 of Notes to Consolidated Financial Statements for
additional information.
FINANCIAL CONDITION
Assets. Total assets amounted to $67 million at December 31, 1997,
compared to $54 million at December 31, 1996, an increase of $12.6 million or
23.3%. The growth in assets is attributable almost entirely to growth in Great
Lakes Bank's loan portfolio. Loan growth has been most dramatic in residential
loans, which accounted for approximately one half of the total loan portfolio,
while commercial and construction loans also contributed to loan growth. Total
loans (net of allowance for loan losses) at December 31, 1997 were $53.1
million, compared to $38.6 million at December 31, 1996, while total deposits at
December 31, 1997 were $52.0 million, compared to $42.3 million at December 31,
1996. Total loan growth of $14.5 million, or 37.4%, outpaced deposit growth of
$9.8 million, or 23.1%. Accordingly, Great Lakes Bank employed FHLB advances
(loans from the Federal Home Loan Bank of Cincinnati), federal funds and
short-term lines of credit from financial institutions as additional funding
sources.
Cash equivalents (cash and amounts due from banks and federal funds
sold) declined by $2.5 million, or 24.2%, during 1997, to a total of $7.8
million. Increased lending activity accounted for the decrease in cash
equivalents. In the past, Great Lakes Bank selectively retained fixed-rate loans
in order to increase its loan-to-deposit ratio. Although Great Lakes Bank has
retained fixed-rate mortgage loans in its portfolio, fixed-rate loans may be
sold in the secondary market to the FHLMC, with 0.25% servicing retained, or on
a servicing-released basis to other financial institutions. Adjustable-rate
mortgage loans ordinarily are retained in the loan portfolio. Approximately
36.5% of the portfolio of conventional mortgage loans secured by 1-4 family
residences were adjustable rate at December 31, 1997. See, "BUSINESS OF GLB -
LENDING ACTIVITIES."
GLB's total assets were $92 million at September 30, 1998, compared to
$63 million at September 30, 1997, an increase of 46.2%. The increase was due
primarily to $17.9 million net proceeds from GLB's May 1998 initial public
offering. GLB contributed $1,500,000 of the net proceeds from the public
offering to Great Lakes Bank to support lending activities, investing the
remainder of the net proceeds in high quality, short-term, liquid investments
and available-for-sale investments. In addition, Great Lakes Bank realized a
$9.9 million increase in deposits, with continuing customer interest in the
passbook savings and business checking products. The net proceeds of the public
offering and the new deposits funded a net increase of $4.3 million in loan
growth.
Great Lakes Bank also sold its Willoughby Hills branch building in 1998
at a gain of $118,804. The branch was sold in a sale/leaseback transaction with
a family member of GLB's Chairman and Vice Chairman. See "MANAGEMENT OF GLB -
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS." The gain will be
recognized ratably over the life of the lease.
56
<PAGE> 65
Consequently, other liabilities have increased with this deferred gain
recognition, which liability will likewise be amortized over the life of the
lease.
Allowance for Loan Losses. The provision for loan losses represents a
charge to earnings for maintaining the allowance at a level management believes
is adequate. Management reviews the allowance monthly to ensure that the
allowance remains adequate to absorb potential losses identified by the
portfolio review process. Great Lakes Bank takes into account loan growth and
the level of delinquent and nonperforming loans in its review of the portfolio,
considering also such external factors as current and anticipated economic
conditions in the primary market area.
Great Lakes Bank's allowance for loan losses totaled $455,766 at
September 30, 1998, $402,534 at December 31, 1997 and $314,893 at December 31,
1996, representing 0.81% of total net loans at September 30, 1998, 0.75% of
total net loans at December 31, 1997 and 0.81% of total net loans at December
31, 1996. Great Lakes Bank's allowance represented 561.0% of nonperforming loans
at September 30, 1998, 349.0% of nonperforming loans at December 31, 1997, and
443.5% of nonperforming loans at December 31, 1996.
Although management believes that it uses the best information
available in providing for possible loan losses and believes that the allowance
was adequate at September 30, 1998, future adjustments to the allowance could be
necessary and net earnings could be affected if circumstances and/or economic
conditions differ substantially from the assumptions used in making the initial
determinations.
CAPITAL
Shareholders' equity increased to $25,256,256 at September 30, 1998,
due primarily to GLB's initial public offering completed in May 1998. This
capital increased common stock and paid-in capital, as well as increasing net
income with the earnings generated from the investment of those funds in federal
funds and available-for-sale investments.
As of September 30, 1998, Great Lakes Bank was in compliance with
applicable regulatory capital requirements, as shown in the following table (see
"SUPERVISION AND REGULATION - CAPITAL"):
<TABLE>
<CAPTION>
GREAT LAKES BANK MINIMUM NECESSARY TO BE MINIMUM NECESSARY TO BE
AT SEPTEMBER 30, 1998 WELL CAPITALIZED ADEQUATELY CAPITALIZED
--------------------- ------------------------ -----------------------
<S> <C> <C> <C>
Total Risk-Based Capital Ratio ... 17.02% 10.00% 8.00%
Tier 1 Risk-Based Capital Ratio... 16.10% 6.00% 4.00%
Leverage Ratio.................... 11.31% 5.00% 3.00%
</TABLE>
Based on capital levels at September 30, 1998, Great Lakes Bank
qualifies as a "well-capitalized" institution, the highest of five tiers under
applicable regulatory definitions. It is GLB's intention to operate Great Lakes
Bank as a well-capitalized institution within the meaning of applicable
regulatory definitions.
However, Great Lakes Bank could from time to time fall below the highest level.
LIQUIDITY
Like other financial institutions, Great Lakes Bank must ensure that
sufficient funds are available to meet deposit withdrawals, loan commitments and
expenses. Control of cash flow requires that Great Lakes Bank anticipate deposit
flows and loan payments. The primary sources of funds are deposits, principal
and interest payments on loans, proceeds of loan sales, federal funds and FHLB
borrowings. These funds are used principally to originate loans. Great Lakes
Bank has a nonbinding agreement with the FHLMC to sell $10 million fixed-rate
mortgage loans, with $ million sold as of , 1999.
At September 30, 1998, certificates of deposit represented 21.9% of
total deposits, while DDA (checking accounts) represented 26.5% and savings
accounts 51.7%. Of the total $12.9 million certificates of deposit at September
30, 1998, certificates totaling $5.7 million will mature in 1999, and
certificates totaling $3.6 million mature in 2000. Together, these
57
<PAGE> 66
figures represent 72.1% of the total certificates of deposit at September 30,
1998. Management believes that, consistent with experience, the majority of
maturing certificates of deposit will be renewed at market rates of interest.
Golden Passbook accounts, which provide for a higher return than a regular
passbook account, accounted for $24.7 million, or approximately 42.1%, of
deposits at September 30, 1998. Many of the large Golden Passbook deposits,
which are short term and adjust to changes in market interest rates, and many
large certificate of deposit accounts are held by insiders of GLB. Messrs.
Jerome T. and Richard M. Osborne are, individually and with affiliated companies
and immediate family members, Great Lakes Bank's most substantial depositors,
with total deposits of approximately $ million as of , 1999, $6.7 million
as of December 31, 1998, $5.1 million as of December 31, 1997 and $4.4 million
as of December 31, 1996.
Great Lakes Bank has used advances from the FHLB of Cincinnati as a
source of funds for its lending activity. The amount that may be obtained in the
form of advances from the FHLB is determined by a formula on a quarterly basis.
The formula is based upon the total amount of single-family mortgages in Great
Lakes Bank's portfolio, as reported in Great Lakes Bank's quarterly call report,
the percentage of Great Lakes Bank's total loan portfolio represented by
single-family mortgages and the amount of FHLB stock held by Great Lakes Bank.
At September 30, 1998, Great Lakes Bank had $7.5 million of outstanding FHLB
advances. As of , 1999, Great Lakes Bank could have obtained additional
advances from the FHLB of Cincinnati of approximately $ million. See
"SUPERVISION AND REGULATION - FEDERAL HOME LOAN BANKS."
FHLB advances are secured by a portion of the mortgage portfolio and
certain other assets. Likewise, most of Great Lakes Bank's short-term
investments are subject to pledge and therefore provide limited liquidity. In
addition to advances, Great Lakes Bank may obtain funds from the FHLB of
Cincinnati through a $1.5 million overnight line of credit. Great Lakes Bank
also has an agreement with a major regional bank for $400,000 of short-term
funds and relationships with other institutions for the purpose of obtaining
short-term overnight funds, or "fed funds."
As of September 30, 1998, Great Lakes Bank had commitments to fund
fixed-rate loans of $4,953,672, and $10,678,477 of variable-rate and
adjustable-rate loans, compared to commitments at December 31, 1997 to fund
approximately $1.8 million of fixed-rate loans and $6.9 million of variable-rate
and adjustable-rate loans. Included within these commitments at September 30,
1998 are unused commercial lines of credit of $2,338,917 and standby letters of
credit of $300,000. Management believes Great Lakes Bank has adequate resources
to meet its normal funding requirements.
ASSET/LIABILITY MANAGEMENT
Like other financial institutions, Great Lakes Bank is subject to
interest rate risk. Great Lakes Bank's interest-earning assets could mature or
reprice more rapidly than, or on a different basis from, its interest-bearing
liabilities (primarily borrowings and deposits with short- and medium-term
maturities) in a period of declining interest rates. Although having assets that
mature or reprice more frequently on average than liabilities will be beneficial
in times of rising interest rates, such an asset/liability structure will result
in lower net interest income during periods of declining interest rates.
Great Lakes Bank monitors its interest rate sensitivity position and
attempts to limit the exposure to interest rate risk. The bank's policy is that
the one-year cumulative interest rate sensitivity gap should generally be within
a range of negative 13% to positive 8%. As the following table illustrates, the
one-year gap was outside of this range as of September 30, 1998, with a positive
one-year gap of 37.35%. This is due largely to higher than normal amounts of fed
funds (short-term loans by Great Lakes Bank to other financial institutions) as
of September 30, 1998, which is in turn a result of sales of loans into the
secondary market and the investment of net proceeds raised in GLB's initial
public offering into fed funds. Great Lakes Bank is in the process of reducing
its one-year gap to a figure within the range set forth in the funds management
policy.
The following table illustrates the maturities or repricing of Great
Lakes Bank's assets and liabilities at September 30, 1998, based upon the
contractual maturity or contractual repricing dates of loans and the contractual
maturities of time deposits. Prepayment assumptions have not been applied to
fixed-rate mortgage loans. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as due in one
year or less. Allocation of deposits other than time deposits to the various
maturity and repricing periods is based upon management's best estimate, taking
into account, among other things, the proposed policy statement issued by
federal bank regulators on August 4, 1995.
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<PAGE> 67
<TABLE>
<CAPTION>
MATURING OR REPRICING PERIODS
-----------------------------------------------------------------------------
Within 4-12 1-5 Over 5
3 Months Months Years Years Total
-------- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Adjustable-rate mortgage loans .................. $ 676,501 $ 1,737,000 $ 7,472,000 $ 0 $ 9,885,501
Fixed-rate mortgage loans ....................... 0 0 530,000 20,184,000 20,714,000
Commercial loans ................................ 8,507,000 1,547,000 11,281,000 1,288,000 22,623,000
Consumer loans .................................. 1,547,000 139,000 1,110,000 636,000 3,432,000
Investments securities available for sale ....... 2,062,548 0 0 0 2,062,548
Investments securities held to maturity, at par . 0 1,500,000 500,000 456,100 2,456,100
Interest-bearing deposits in other banks ........ 48,957 0 0 0 48,957
Fed Funds ....................................... 24,996,000 0 0 0 24,996,000
------------ ------------ ------------ ------------ ------------
Total ..................................... $ 37,838,006 $ 4,923,000 $ 20,893,000 $ 22,564,100 $ 86,218,106
============ ============ ============ ============ ============
INTEREST-BEARING LIABILITIES:
Certificates of deposit ......................... $ 2,860,295 $ 5,348,248 $ 4,650,144 $ 0 $ 12,858,687
Money market .................................... 8,048 72,432 80,480 0 160,960
NOW accounts .................................... 0 0 3,864,965 966,241 4,831,206
Passbook accounts ............................... 0 0 24,310,723 6,077,681 30,388,404
FHLB Advances ................................... 0 0 7,500,000 0 7,500,000
------------ ------------ ------------ ------------ ------------
Total ...................................... $ 2,868,343 $ 5,420,680 $ 40,406,312 $ 7,043,922 $ 55,739,257
============ ============ ============ ============ ============
Interest Rate Sensitivity Gap ...................... $ 34,969,663 $ (497,680) $(19,513,312) $ 15,520,178 $ 30,478,849
Cumulative Interest Rate
Sensitivity Gap ................................ $ 34,969,663 $ 34,471,983 $ 14,958,671 $ 30,478,849
Cumulative Interest Rate Sensitivity
Gap as a Percent
Of Total Assets ................................. 37.88% 37.35% 16.21% 33.02%
</TABLE>
This analysis of interest-rate sensitivity has a number of limitations.
The "gap" analysis above is based upon assumptions concerning such matters as
when assets and liabilities will reprice in a changing interest rate
environment. Because these assumptions are no more than estimates, certain
assets and liabilities indicated as maturing or repricing within a stated period
might actually mature or reprice at different times and at different volumes
from those estimated. The actual prepayments and withdrawals experienced by
Great Lakes Bank in the event of a change in interest rates could deviate
significantly from those assumed in calculating the data shown in the table.
Certain assets, adjustable-rate loans for example, commonly have provisions that
limit changes in interest rates each time the interest rate changes and on a
cumulative basis over the life of the loan. Also, the renewal or repricing of
certain assets and liabilities can be discretionary and subject to competitive
and other pressures. The ability of many borrowers to service their debt could
diminish in the event of an interest rate increase. Therefore, the gap table
above does not and cannot necessarily indicate the actual future impact of
general interest movements on net interest income.
IMPACT OF INFLATION AND CHANGING PRICES
GLB's consolidated financial statements and related data herein have
been prepared in accordance with generally accepted accounting principles, which
require measurement of financial condition and results of operations in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation.
Because the primary assets and liabilities of GLB and Great Lakes Bank
are monetary in nature, changes in the general level of prices for goods and
service have a relatively minor impact on total expenses. Increases in operating
expenses such as salaries and maintenance are in part attributable to inflation.
However, interest rates have a far more significant effect than inflation on the
performance of financial institutions, including GLB. See " - ASSET/LIABILITY
MANAGEMENT."
YEAR 2000 READINESS DISCLOSURE
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<PAGE> 68
GLB is aware of the concern throughout the business community of
reliance upon computer software programs that do not properly recognize the year
2000 in date formats, commonly referred to as the "Year 2000 Problem." GLB, and
especially Great Lakes Bank, use and are dependent upon data processing systems
and software to conduct business. Like other businesses, GLB and Great Lakes
Bank's business depends upon products and services provided by others, whether
in the area of information technology or other areas such as security,
environmental systems, power and communications. Failure to address the Year
2000 Problem could cause service disruptions to customers, resulting in adverse
impacts to GLB's financial condition and results of operations.
Great Lakes Bank has established a Year 2000 planning and
implementation process, which is overseen by a Year 2000 Committee. The Year
2000 Committee includes senior management representation, and it reports monthly
to the Great Lakes Bank Board of Directors.
An assessment of Great Lakes Bank's software, hardware, environmental
and other computer-controlled systems has been completed. Mission-critical
systems relating both to information technology and other technology have been
identified and prioritized. A written testing plan providing for the testing of
all mission-critical systems has been completed.
Testing of Great Lakes Bank's internal mission-critical systems was
substantially completed at the end of 1998. All such equipment has tested
successfully or is in the process of being replaced by Year 2000-compliant
equipment. Great Lakes Bank currently anticipates completing necessary equipment
replacement by March 31, 1999. Concerning external mission-critical systems,
Great Lakes Bank has contacted all of its third-party vendors and software
providers to request these vendors demonstrate and represent that the products
provided to Great Lakes Bank are or will be Year 2000 compliant. Testing of
external mission-critical systems provided by third parties has also commenced.
Great Lakes Bank currently anticipates that testing of external mission-critical
systems will be substantially complete by June 30, 1999. Great Lakes Bank's
primary data processing function is undertaken pursuant to a contract with a
data processing firm that services banking institutions nationwide. The
electronic data processing firm has substantially completed Year 2000 testing
and has reported to Great Lakes Bank that the data processing firm's systems are
Year 2000 compliant. Great Lakes Bank expects to begin point-to-point testing in
February 1999 to verify that all internal and communication systems will
function correctly with the data processing system.
The Federal Reserve Bank of Cleveland provides certain services for
Great Lakes Bank, including electronic funds transfers and check processing.
Great Lakes Bank has been informed by the Cleveland Federal Reserve Bank that it
anticipates being Year 2000 compliant. Great Lakes Bank expects to begin
point-to-point testing in the first quarter of 1999 to ensure that all internal
and communications systems will function correctly with Federal Reserve Bank
systems.
Great Lakes Bank has also surveyed its largest dollar deposit and loan
customers to assess the risk posed by these parties and to determine their
readiness for Year 2000. Based on that survey, Great Lakes Bank anticipates that
there will not be significant Year 2000 risks created by large borrowers or
depositors.
GLB does not expect costs associated with prevention or remediation of
the Year 2000 Problem to be material. GLB and Great Lakes Bank's current
estimate of cost related to this issue is $37,000. This figure is subject to
change as the Year 2000 readiness project continues. In general, GLB does not
expect the Year 2000 Problem to affect materially GLB's financial condition or
results of operations.
The largest general risk to GLB and Great Lakes Bank concerning Year
2000 is the malfunction of the data processing system. If the data processing
system does not function properly, Great Lakes Bank is prepared to perform
functions manually. However, Great Lakes Bank has been assured by its
third-party data processing vendor that the data processing firm's systems are
Year 2000 compliant.
GLB expects that there may be additional risks in the form of temporary
and periodic failures in utilities and communications, as well as liquidity
problems caused by large cash withdrawals and reductions in balances on deposit.
GLB and Great Lakes Bank have identified critical business processes that may be
affected by the Year 2000 problem and are in the process of developing
contingency plans for each identified critical business process. The bank is
actively seeking alternative sources of cash and funds to replace possible
withdrawals, and is taking steps to ensure customer confidence in Great Lakes
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<PAGE> 69
Bank's ability to meet the Year 2000 challenge. Contingency plans for all
critical business processes are scheduled to be completed by March 31, 1999. GLB
and Great Lakes Bank are prepared to perform functions manually if short-term
failures in the primary data processing, utilities or communications systems
occur.
BUSINESS OF GLB
GLB was incorporated on March 5, 1997 for the purpose of becoming the
holding company for Great Lakes Bank. The holding company reorganization was
completed on September 12, 1997. GLB is a corporate entity legally separate and
distinct from Great Lakes Bank. However, a bank holding company is expected to
act as a source of financial strength to its subsidiary bank or banks, according
to policy of the Board of Governors of the Federal Reserve System. See
"SUPERVISION AND REGULATION -- REGULATION OF BANK HOLDING COMPANIES." The
principal source of GLB's income is dividends from its wholly owned subsidiary,
Great Lakes Bank. There are certain regulatory restrictions on the extent to
which the Bank may pay dividends or otherwise supply funds to GLB. See
"SUPERVISION AND REGULATION -- LIMITS ON DIVIDENDS AND OTHER PAYMENTS."
Currently, GLB has very limited operations independent of Great Lakes Bank.
GLB's independent operations consist principally of investments in a small
number of financial institutions or holding companies, which investments
represent less than 5% of the outstanding shares of those institutions or
holding companies.
Great Lakes Bank is the successor to the business of Great Lakes
Commerce Bank, which was chartered as an Ohio banking corporation in April 1957.
On July 18, 1994, Great Lakes Commerce Bank was acquired by an investment group
led by Jerome T. Osborne, Sr. and his son, Richard M. Osborne. At the time,
Great Lakes Commerce Bank had total assets of approximately $19 million and four
offices. By the end of 1997, GLB and Great Lakes Bank had grown to approximately
$67 million in total assets, opened two new offices and relocated three offices,
including the main office. At September 30, 1998, GLB had total assets of $92.3
million, total deposits of $58.8 million, shareholders' equity of $25.3 million,
a Tier 1 capital ratio of 16.10%, non-performing assets to total assets ratio of
0.09% and allowance for loan losses to total net loans ratio of 0.81%. At
September 30, 1998, GLB and Great Lakes Bank exceeded all regulatory capital
requirements.
Great Lakes Bank provides a focused core of banking services, primarily
for individuals and small to medium-sized businesses. Great Lakes Bank primarily
makes secured loans for residential and commercial real estate. Most of the
loans are secured by first mortgages or junior mortgages on various types of
real estate, including single-family residential, multi-family residential,
mixed use, commercial, developed and undeveloped real estate. Great Lakes Bank
generally does not offer commercial loans secured exclusively by accounts
receivable and inventory.
Great Lakes Bank offers a broad array of deposit products, including
checking and savings accounts and certificates of deposit. Although it attempts
to be competitive with other financial institutions, Great Lakes Bank generally
sets its interest rates on deposits based on those offered by the leading
commercial banks in the area, rather than those offered by the leading thrift
institutions.
Great Lakes Bank also maintains relationships with correspondent banks
and other independent financial institutions to provide other services as
requested by customers, including loan participations in circumstances in which
the requested loan amount exceeds Great Lakes Bank's legal lending limit.
MARKET AREA
Great Lakes Bank's primary service area is Lake County, Ohio, which is
contiguous to Cuyahoga County (which includes Cleveland) and Geauga County.
Great Lakes Bank is the only commercial bank headquartered in Lake County, Ohio.
According to Federal Deposit Insurance Corporation data, as of June 30, 1998
total deposits of commercial banks, savings banks and savings associations in
Lake County, Ohio were approximately $2.9 billion. On that date, total deposits
of commercial banks, savings banks and savings associations in Geauga County,
Ohio were approximately $950 million.
BUSINESS STRATEGY
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<PAGE> 70
GLB's business strategy includes:
EMPHASIS ON COMMUNITY BANKING. GLB maintains a strong commitment to
community banking. Great Lakes Bank's goal is to attract individuals and small
to medium-sized businesses as customers, demonstrating an active interest in
their individual and business banking needs. Management believes that a locally
managed institution is better able to serve the particular needs of local
customers, respond to requests in a more timely fashion and establish a loyal
customer base through personal attention of senior banking officers.
GROWTH THROUGH INTERNAL BRANCH EXPANSION. Since July 1994, Great Lakes
Bank's growth has been accomplished largely through internal growth, driven by
the relocation of existing offices and the opening of new offices.
GROWTH THROUGH SELECTED ACQUISITIONS. In addition to pursuit of
internal growth, management believes that external growth opportunities exist in
acquisitions of other community banks or branch offices.
SECURED LENDING. GLB's and Great Lakes Bank's lending philosophy
concentrates primarily on secured 1-4 family real estate and commercial real
estate lending. As of September 30, 1998, 1-4 family real estate loans comprised
49.3% of the total net loan portfolio, and commercial real estate loans
comprised 33.2%. As of September 30, 1998, 96.1% of Great Lakes Bank's loans
were secured loans, and 89.9% were secured by real estate. Although deposit and
lending operations have been largely confined to Lake County, the acquisition of
Maple Leaf and its subsidiary, Geauga Savings Bank, will allow GLB and Great
Lakes Bank to extend their community banking philosophy and deposit and lending
products and services to Geauga County as well.
COMPETITION
There are many bank, savings bank, savings association and credit union
offices located within Great Lakes Bank's primary market area. All of the
competitor bank, savings bank and savings association offices are branches of
larger institutions headquartered outside of Lake County. In addition to banks,
savings banks, savings associations and credit unions, Great Lakes Bank competes
with finance companies, insurance companies, mortgage companies, securities
brokerage firms, money market funds and other providers of financial services.
Many competitors are larger and have substantially greater resources than Great
Lakes Bank, which offer those competitors advantages such as the ability to
price services at lower, more attractive levels and the ability to provide
larger credit facilities than Great Lakes Bank is able to provide. Some of the
competitors offer products and services that are not offered by the bank. Some
of the competitors are not subject to the same kind and amount of regulatory
restrictions and supervision to which Great Lakes Bank is subject. Because Great
Lakes Bank is a community bank that is considerably smaller than other
commercial lenders in the area, Great Lakes Bank's legal lending limit does not
allow it to make commercial loans in amounts many competitors can offer. Great
Lakes Bank may from time to time accommodate loan volumes in excess of its
lending limit through the sale of participations in loans to other banks.
Being the only commercial bank headquartered in Lake County, Great
Lakes Bank seeks to take competitive advantage of its local orientation. It
competes for loans principally through responsiveness to customers and its
ability to communicate effectively with them and understand and address their
needs. Great Lakes Bank competes for deposits principally by offering customers
personal attention, a variety of banking services, attractive rates and
strategically located banking facilities. Great Lakes Bank seeks to provide high
quality banking service to professionals and small and mid-sized businesses, as
well as individuals, emphasizing quick and flexible responses to customer
demands.
LENDING ACTIVITIES
Great Lakes Bank makes loans principally in the Lake County, Ohio area.
Its primary lending activities are the origination of (i) conventional 1-4
family real estate loans and (ii) commercial loans, most of which are secured by
real estate located in the primary market area. These loan categories accounted
for approximately 82.5% of the loan portfolio at September 30, 1998. To a lesser
extent, Great Lakes Bank also makes construction loans and consumer loans,
including installment loans and second mortgages, and offers credit cards.
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<PAGE> 71
LOAN PORTFOLIO COMPOSITION AND ACTIVITY. The following tables sets
forth the composition of the loan portfolio in dollar amounts and in percentages
at December 31, 1997 and 1996 and at September 30, 1998, along with a
reconciliation to loans receivable, net.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------
1997 1996
--------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Type of loan:
1-4 family real estate ............................. $27,705,745 52.2% $20,260,138 52.4%
Commercial real estate and other ................... 15,763,306 29.7 11,563,397 29.9
Construction ....................................... 9,837,670 18.5 7,141,588 18.5
Consumer ........................................... 3,995,899 7.5 3,111,364 8.1
----------- ---- ----------- ----
Total loans ........................................... 57,302,620 107.9 42,076,487 108.9
Less:
Undisbursed loans in progress ...................... (3,752,865) -7.1 (2,996,388) -7.8
Unamortized loan origination fees, net ............. (49,770) -0.0 (131,535) -0.3
Allowance for loan losses .......................... (402,534) -0.8 (314,893) -0.8
----------- ---- ----------- ----
Net loans ............................................. $53,097,451 100% $38,633,671 100%
=========== === =========== ===
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
---------------------
AMOUNT PERCENT
------ -------
<S> <C> <C>
Type of loan:
1-4 family real estate ............................. $27,684,684 49.3%
Commercial real estate and other ................... 18,676,508 33.2
Construction ....................................... 12,030,020 21.4
Consumer ........................................... 3,436,398 6.1
----------- ---
Total loans ........................................... 61,827,610 110.0
Less:
Undisbursed loans in progress ...................... (5,088,426) -9.0
Unamortized loan origination fees, net ............. (84,683) -0.2
Allowance for loan losses .......................... (455,766) -0.8
----------- ---
Net loans ............................................. $56,198,735 100%
=========== ===
</TABLE>
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The following table presents maturity information for the loan
portfolio at December 31, 1997. The table does not include prepayments or
scheduled principal repayments. Adjustable-rate mortgage loans are shown as
maturing based on contractual maturities.
<TABLE>
<CAPTION>
1-4 COMMERCIAL
FAMILY REAL ESTATE
REAL ESTATE AND OTHER CONSTRUCTION CONSUMER TOTAL
----------- --------- ------------ -------- -----
<S> <C> <C> <C> <C> <C>
Amount Due:
Within 3 months ..... $ 0 $ 468,747 $ 971,500 $ 242,835 $ 1,683,082
3 months to 1 year .. 0 3,063,382 1,812,000 236,560 5,111,942
After 1 year:
1 to 3 years ........ 112,349 1,302,650 0 707,243 2,122,242
3 to 5 years ........ 1,088,194 1,323,935 0 725,183 3,137,312
5 to 10 years ....... 2,441,907 2,385,532 0 534,656 5,362,095
10 to 20 years ...... 7,647,289 7,118,435 1,083,390 1,542,507 17,391,621
Over 20 years ....... 16,416,006 100,625 5,970,780 6,915 22,494,326
----------- ----------- ----------- ----------- -----------
Total due after 1 year $27,705,745 $12,231,177 $ 7,054,170 $ 3,516,504 $50,507,596
----------- ----------- ----------- ----------- -----------
Total amount due ...... $27,705,745 $15,763,306 $ 9,837,670 $ 3,995,899 $57,302,620
=========== =========== =========== =========== ===========
</TABLE>
The following table shows the dollar amount of all loans due after
December 31, 1997 that have pre-determined interest rates and the dollar amount
of all loans due after December 31, 1997 that have floating or adjustable
interest rates.
<TABLE>
<CAPTION>
FLOATING OR
FIXED RATES ADJUSTABLE RATES TOTAL
----------- ---------------- -----
<S> <C> <C> <C>
1-4 family real estate ............................. $17,580,368 $10,125,377 $27,705,745
Commercial real estate and other ................... 4,647,581 11,115,725 15,763,306
Construction ....................................... 1,983,814 7,853,856 9,837,670
Consumer ........................................... 2,317,900 1,677,999 3,995,899
----------- ----------- -----------
Total .............................................. $26,529,663 $30,772,957 $57,302,620
=========== =========== ===========
</TABLE>
1-4 FAMILY REAL ESTATE LOANS. A significant portion of Great Lakes
Bank's lending consists of origination of conventional loans secured by 1-4
family real estate located within the primary market area. Residential real
estate loans are generally underwritten consistent with FNMA (Federal National
Mortgage Association) and FHLMC (the Federal Home Loan Mortgage Corporation)
secondary market standards, but exceptions are made on a case-by-case basis. In
the past, Great Lakes Bank selectively retained fixed-rate loans to increase its
loan-to-deposit ratio. Although the bank has retained fixed-rate mortgage loans
in its portfolio, it may sell fixed-rate loans in the secondary market to the
FHLMC with 0.25% servicing retained, or on a servicing-released basis to other
financial institutions. Adjustable-rate mortgage loans are ordinarily retained
in the loan portfolio. Approximately 32.3% of the portfolio of conventional
mortgage loans secured by 1-4 family real estate at September 30, 1998 was
adjustable rate.
Great Lakes Bank generally makes loans of up to 90% of the value of the
real estate and improvements securing such loans (the "loan-to-value" or "LTV"
ratio) on 1-4 family real estate. Great Lakes Bank generally does not lend in
excess of 80% of the appraised value or sales price (whichever is less) of the
property unless the borrower obtains private mortgage insurance on the amount of
the loan in excess of 80% LTV. The bank's typical debt-to-income ratio guideline
for residential real estate mortgage loan approval is 28% housing
expense-to-income, and 36% total debt-to-income. Residential real estate loans
are offered by Great Lakes Bank for terms of up to 30 years.
At September 30, 1998, there were no loans secured by residential real
estate with outstanding balances more than 90 days delinquent or nonaccruing.
COMMERCIAL REAL ESTATE AND OTHER LOANS. Great Lakes Bank is also active
in commercial lending. In Lake County, the primary service area, there are
numerous small and medium-sized business establishments, including light
industrial,
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manufacturing, retail and service businesses. Great Lakes Bank makes commercial
loans to these enterprises for general business purposes, most of which loans
are secured by real estate.
With loan-to-value ratios of up to 80%, Great Lakes Bank's commercial
loans ordinarily are secured by commercial real estate and are priced in
relation to the prime rate. Such loans generally have note terms of five to 15
years, amortizing over a term of 15 to 20 years. Although commercial loans
generally bear somewhat more risk than single-family residential mortgage loans,
commercial loans tend to be higher yielding, tend to have shorter terms and
generally provide for interest-rate adjustments as prevailing rates change.
Accordingly, commercial loans enhance a lender's interest rate risk management
and, in management's opinion, promote more rapid asset and income growth than a
loan portfolio comprised strictly of residential real estate mortgage loans. As
a result, Great Lakes Bank has been placing more emphasis on its commercial loan
products and expects to continue doing so in the future. On rare occasions,
Great Lakes Bank has made unsecured commercial loans, which are also typically
priced in relation to the prime rate and have maturities of up to one year.
Although a risk of nonpayment exists for all loans, certain specific
types of risks are associated with various types of loans. One of the primary
risks associated with commercial loans has to do with the quality of the
borrower's management. A majority of Great Lakes Bank's commercial loans are
secured by real estate. Risks associated with real estate loans in general
include fluctuating land values, changes in tax policies, the impact of national
and regional economic factors and concentration of loans within the market area.
Great Lakes Bank attempts to mitigate these risks by maintaining a close working
relationship with borrowers and by obtaining cross-collateralization and
personal guarantees. In the process of considering a commercial loan
application, Great Lakes Bank reviews the financial statements of the commercial
borrower, appraisals of the collateral and other documentation in order to
determine (i) whether there will be sufficient income to cover payments on the
proposed loan as well as other existing debt of the commercial loan applicant,
(ii) whether the collateral is of adequate liquidation value and (iii) whether
the applicant has a good payment history and is capable of performing the
requirements of the loan. Other reviews and analyses are undertaken as
appropriate, depending upon the complexity of the credit request.
At September 30, 1998, commercial loans that were more than 90 days
delinquent or nonaccruing totaled $81,244 in aggregate outstanding balances, or
0.4% of the commercial loan portfolio.
CONSTRUCTION LOANS. Great Lakes Bank originates several different types
of loans that it categorizes as construction loans, including (i) residential
construction loans to borrowers who will occupy the premises upon completion of
construction, (ii) residential construction loans to builders, (iii) commercial
construction loans and (iv) real estate acquisition and development loans.
Because of the complex nature of construction lending, these loans are generally
recognized as having a higher degree of risk than other forms of real estate
lending. Great Lakes Bank's fixed-rate and adjustable-rate construction loans
provide for the same interest rate terms on the construction loan and on the
permanent mortgage loan that follows completion of the construction phase,
provided that the borrower pays at origination of the loan an additional one
percentage point of the total loan amount in the case of fixed-rate construction
loans, and one-half percentage point in the case of adjustable-rate construction
loans.
Great Lakes Bank is active in lending on single-family residences to
borrowers who will occupy the home following completion of construction, or
"owner-built" construction. These loans are typically made with a six- to
nine-month construction term. Upon completion of construction, the loans convert
to permanent mortgage loans with regularly amortizing principal and interest
payments, usually over a fifteen- to thirty-year term. These owner-built
construction loans are made with both fixed and adjustable interest rates.
Great Lakes Bank also lends to builders for the construction of
single-family residences as models or under contract for sale. Builder
construction loans are typically six to nine months in duration, and are usually
made with adjustable interest rates from one to one and one-half percent above
Great Lakes Bank's prime rate.
Great Lakes Bank makes construction loans to individuals and businesses
for the purpose of constructing commercial properties. These loans are
ordinarily made with a six- to twelve-month construction term. Upon completion
of the project, commercial construction loans convert to permanent commercial
loans with regularly amortizing principal and interest payments, generally on
the same terms as a commercial real estate loan. Adjustable-rate commercial
construction loans generally are made with interest rates that adjust every
three to five years. Variable-rate commercial construction loans generally are
made with
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interest rates that vary according to changes in Great Lakes Bank's prime rate,
with interest rates ranging generally from one-half to one point over prime.
Great Lakes Bank also makes loans for the acquisition and development
of residential and commercial acreage. Acquisition and development loans are
made with adjustable rates that are one to two percent above the bank's prime
rate. These acquisition and development loans typically have terms of one to two
years.
At September 30, 1998, there were no construction loans with
outstanding balances more than 90 days delinquent or nonaccruing. At that date,
Great Lakes Bank's construction loans consisted of the following types:
<TABLE>
<CAPTION>
TOTAL DOLLAR AMOUNT AT PERCENT OF TOTAL
SEPTEMBER 30, 1998 CONSTRUCTION LOANS
<S> <C> <C>
TYPE OF CONSTRUCTION LOAN
Residential Construction (owner-built) .......... $ 6,894,620 57.3%
Builder Loans ................................... 3,177,900 26.4%
Commercial Construction ......................... 950,000 7.9%
Acquisition and Development ..................... 1,007,500 8.4%
----------- -----
Total Construction Loans ................. $12,030,020 100%
=========== =====
</TABLE>
CONSUMER LOANS. Great Lakes Bank offers several consumer loan products:
home equity loans, installment loans and credit cards. The bank does not
currently do any indirect lending.
Great Lakes Bank's home equity loan policy generally allows for a loan
of up to 80% of a property's appraised value less the principal balance of the
outstanding first mortgage loan. The interest rate generally ranges from prime
to one and one-half percentage points over the prime rate, depending on the size
of the loan. Home equity loans are repayable monthly, with the monthly payment
calculated as one and one-half percent of the outstanding balance. Great Lakes
Bank's home equity loans generally have terms of ten to fifteen years, with
borrowing permitted in the first five to ten years, respectively, and the last
five years being dedicated solely to repayment of the loan.
In addition to home equity loans, Great Lakes Bank also offers
installment loans for the purchase of automobiles and for other consumer
purposes. The bank lends for the purchase of both new and used automobiles,
generally requiring a minimum down payment of 15% from the borrower for a new
car purchase and a minimum of 20% down payment for a used car purchase.
Automobile loans are made with fixed interest rates with a term of two to five
years. Installment loans are made for other consumer purposes, generally on a
secured basis, with fixed interest rates and terms ranging from one to ten
years.
As a result of consumer demand, Great Lakes Bank makes small unsecured
loans to VISA customers. Great Lakes Bank also provides overdraft protection to
checking account depositors, but only if the checking account is linked to
another account from which the bank may debit funds to pay the overdraft.
Great Lakes Bank underwrites consumer loans in a manner designed to
assure compliance with applicable regulations and the bank's underwriting
standards. Payment history on applicants is very important on these smaller
loans, and is checked through in-house records as well as credit bureaus. On
automobile loans, the value of the collateral is checked through the N.A.D.A.
book (the "blue book") or another valuation service. The borrower's income must
be adequate to cover all of his or her debt payments and other monthly payment
obligations, including the proposed loan.
66
<PAGE> 75
At September 30, 1998, Great Lakes Bank had approximately $3.4 million
in its consumer loan portfolio, which was 6.1% of total net loans. No consumer
loans were over 90 days delinquent or nonaccruing on that date. As of September
30, 1998, the amount and percentage of consumer loans by type was as follows:
<TABLE>
<CAPTION>
TOTAL DOLLAR AMOUNT AT PERCENT OF TOTAL
SEPTEMBER 30, 1998 CONSUMER LOANS
<S> <C> <C>
TYPE OF CONSUMER LOAN
Home Equity Loans .................................... $ 633,696 18.4%
Home Equity Lines of Credit .......................... 1,318,526 38.3%
Automobile Loans ..................................... 802,100 23.3%
Boat Loans ........................................... 95,467 2.8%
Passbook Loans ....................................... 108,912 3.2%
Other Secured Consumer Loans ......................... 197,630 5.8%
Credit Cards and Other Unsecured Consumer Loans ...... 280,067 8.2%
---------- ---
Total ................................................ $3,436,398 100%
========== ===
</TABLE>
LOAN SOLICITATION AND PROCESSING. Loan originations are developed from
a number of sources, including continuing business with depositors, other
borrowers and real estate developers, solicitations by Great Lakes Bank
personnel and walk-in customers.
When a loan request is made, Great Lakes Bank reviews the application,
as well as credit bureau reports, appraisals, financial information,
verifications of income, and other documentation concerning the creditworthiness
of the borrower, as applicable to each loan type. The bank's underwriting
guidelines are set by senior management at the home office. Loan applications
are generally processed and underwritten at the home office. Residential real
estate loans are underwritten consistent with FNMA and FHLMC standards, but
exceptions are made on a case-by-case basis. Loan applications are generally
processed and underwritten at the home office.
At the time of an application for a residential mortgage loan, an
appraisal of the property and borrower credit report are ordered. In addition,
the borrower's employment, income and financial information are obtained and
verified. When all of the necessary information is received, the information is
reviewed and analyzed with reference to Great Lakes Bank's underwriting
worksheet, which includes pertinent data such as debt-to-income ratios, the
loan-to-value ratio, credit history highlights and details concerning funds
available for down payment and closing costs. Depending on the size of the loan
applied for, final approval is given by senior management, the Loan Committee or
the Executive Committee.
At the time of application for a commercial loan, the commercial loan
officer will obtain financial information of the borrower, including business
financial statements and, as appropriate, personal financial statements and
income tax records. In those circumstances in which real estate will serve as
collateral for the commercial loan, an appraisal is ordered as well. Credit
reports are obtained for individual borrowers, and Dun and Bradstreet reports
are ordered for business borrowers. If the borrower has had previous borrowings
from or deposit accounts with Great Lakes Bank, payment and balance histories
are reviewed as well. The commercial loan officer analyzes the financial
information and assesses the borrower's ability to repay the proposed loan. The
commercial loan officer will also generally visit the business location or, in
the case of real estate, inspect the property. The results of the commercial
loan officer's analysis and assessment are compiled into a standard written Loan
Request worksheet that is presented to the Loan Committee or Executive Committee
for approval. Individual officers have very limited authority to approve loans
without the approval of the Loan Committee or Executive Committee.
INCOME FROM LENDING ACTIVITIES. Great Lakes Bank earns interest and fee
income from its lending activities. The bank receives fees for originating
loans, which fees, net of origination costs, are amortized over the life of the
respective loan. Great Lakes Bank also receives loan fees related to existing
loans, including late charges. Income from loan origination and commitment fees
and discounts varies with the volume and type of loans and commitments made and
with competitive and economic conditions. Note 1(c) to the Consolidated
Financial Statements included herein contains a discussion of the manner in
which loan fees and income are recognized for financial reporting purposes.
67
<PAGE> 76
NONPERFORMING LOANS
A loan is considered by Great Lakes Bank to be nonperforming when it is
90 days or more delinquent or, if sooner, when the bank has determined that
repayment of the loan in full is unlikely. Late charges on residential mortgages
are assessed if a payment is not received by the 15th day after the due date.
Immediately thereafter, any borrower whose payment was not received by this time
is mailed a past due notice. The borrower will be contacted by telephone if the
delinquency continues to the 30th day. Late charges generally do not apply to
Great Lakes Bank's commercial loans. With payments generally due on the first of
each month, a commercial borrower will be contacted if a loan payment has not
been received by the tenth day of the month.
When an advanced stage of delinquency appears on a single-family loan
(generally about the 60th day of delinquency) and if repayment cannot be
expected within a reasonable amount of time or a repayment agreement has not
been entered into, Great Lakes Bank will contact an attorney and request that
the required notice of foreclosure or repossession proceedings be prepared and
delivered to the borrower in order that, if necessary, foreclosure proceedings
may be initiated promptly. Insofar as commercial loans are concerned, Great
Lakes Bank does not address advanced delinquencies and initiate foreclosure on
its collateral pursuant to a formula, to the same degree that it does in the
case of delinquent residential mortgage loans. Instead, the procedures for
addressing delinquencies in commercial loans can vary from one loan to the next,
depending on a variety of factors. As of September 30, 1998, $36,925 or 0.10% of
the total net loan portfolio was nonaccrual, consisting entirely of one
commercial loan. As of September 30, 1998, the ratio of nonperforming assets to
total assets was 0.09%. Generally, unless the property is a one- to four-family
residential dwelling and well collateralized, interest accrual ceases in 90 days
(but no later than the date of acquisition by foreclosure, voluntary deed or
other means) and the loan is classified as nonperforming.
Late charges on installment loans are assessed if a payment is not
received by the 10th day following the due date. Immediately thereafter, any
borrower whose payment was not received by this time is mailed a past due
notice. Credit card statement processing is undertaken by a third party under
contract with Great Lakes Bank. Past due notices are generated automatically,
depending on the stage of delinquency of the card holder, with charge-off
occurring after 120 days. As of September 30, 1998 no credit card loans were
nonperforming.
On September 30, 1998 Great Lakes Bank held no real estate and other
repossessed collateral acquired as a result of foreclosure, voluntary deed, or
other means. When the bank does obtain such real estate, it is classified as
"other real estate owned" until it is sold. When property is so acquired, it is
recorded at the lower of cost (the unpaid principal balance at the date of
acquisition) or fair value. Any subsequent write-down resulting therefrom is
charged to expense. All costs incurred from that date in maintaining the
property are expensed. "Other real estate owned" is appraised during the
foreclosure process, prior to the time of acquisition. Losses are recognized for
the amount by which the book value of the related mortgage loan exceeds the
estimated net realizable value of the property.
Not categorized as nonperforming loans are certain potential problem
loans that management believes are adequately secured and for which no material
loss is expected, but as to which certain circumstances could cause the
borrowers to be unable to comply with the existing loan repayment terms at some
future date. At September 30, 1998 potential problem loans totaled approximately
$592,218.
Great Lakes Bank had nonaccrual loans totaling $36,925 at September 30,
1998, $82,012 at December 31, 1997 and $71,346 at December 31, 1996. Interest
income that would have been recognized if such loans had performed in accordance
with contractual terms totaled $1,240 for the nine months ended September 30,
1998, $6,369 for the year ended December 31, 1997, and $1,235 for the year ended
December 31, 1996. No interest income was recognized on such loans during any of
the periods.
68
<PAGE> 77
The following table summarizes nonperforming assets by category.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
1-4 family real estate:
Nonaccrual ........................................................... $ 0 $ 70,047 $ 70,047
Past due 90 days or more(1) .......................................... 0 0 0
Commercial real estate and other:
Nonaccrual ........................................................... 36,925 11,965 0
Past due 90 days or more(1) .......................................... 44,319 31,916 0
Construction:
Nonaccrual ........................................................... 0 0 0
Past due 90 days or more(1) .......................................... 0 0 0
Consumer
Nonaccrual ........................................................... 0 0 1,299
Past due 90 days or more(1) .......................................... 0 1,406 0
----------- ----------- -----------
Total nonperforming loans ......................................... 81,244 115,334 71,346
Other real estate owned ................................................. 0 0 0
----------- ----------- -----------
Total nonperforming assets ........................................ $ 81,244 $ 115,334 $ 71,346
=========== =========== ===========
Loans outstanding, net .................................................. $56,198,735 $53,097,451 $38,633,671
Allowance for loan losses to total net loans ............................ 0.81% 0.75% 0.81%
Nonperforming loans to total loans, net ................................. 0.14% 0.22% 0.18%
Nonperforming assets to total assets .................................... 0.09% 0.17% 0.13%
Allowance for possible loan losses to nonperforming loans ............... 561.0% 349.0% 443.5%
</TABLE>
- ----------------------------
(1) Represents accruing loans delinquent greater than 90 days which are
considered to be well secured by management and in the process of
collection.
Impaired loans include all nonaccrual and restructured commercial real
estate and other commercial loans. Residential real estate and consumer loans
are excluded from the definition of an impaired loan. Loan impairment is
measured as the present value of expected future cash flows discounted at the
loan's initial interest rate, the fair value of the collateral of an impaired
collateral dependent loan or an observable market price. Interest income on
impaired loans is recognized on a cash-basis method. As of September 30, 1998,
the investment in loans for which impairment has been recognized totaled
$36,925. As of December 31, 1997, the investment in loans for which impairment
had been recognized totaled $43,881, with no impaired loans as of December 31,
1996. The total allowance for loan losses related to these impaired loans is
$1,846 as of September 30, 1998 and was $6,582 as of December 31, 1997.
ALLOWANCE FOR LOAN LOSSES. The amount of the allowance for loan losses
is based on management's analysis of risks inherent in the various segments of
the loan portfolio, management's assessment of known or potential problem
credits that have come to management's attention during the ongoing analysis of
credit quality, historical loss experience, current and anticipated economic
conditions and other factors. If actual circumstances and losses differ
substantially from management's assumptions and estimates, such allowance for
loan losses might not be sufficient to absorb all future losses, and net
earnings could be adversely affected. Loan loss estimates are reviewed
periodically, and adjustments, if any, are reported in earnings in the period in
which they become known. In addition, Great Lakes Bank maintains a portion of
the allowance to cover potential losses due to contingencies that have not been
specifically identified.
Although management believes that it uses the best information
available to make such determinations and that the allowance for loan losses is
adequate at September 30, 1998, future adjustments to the allowance may be
necessary, and net earnings could be affected, if circumstances or economic
conditions differ substantially from the assumptions used in making the initial
determinations. A downturn in the Northeast Ohio economy and employment could
result in increased levels of nonperforming assets and charge-offs, increased
provisions for loan losses and reductions in income. Additionally, as an
integral part of the examination process bank regulatory agencies periodically
review Great Lakes Bank's allowance for loan losses. The banking agencies could
require the recognition of additions to the allowance based on their judgment of
information available to them at the time of their examination.
69
<PAGE> 78
The following is a summary of Great Lakes Bank's loan loss experience
and selected ratios for the periods presented.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30,----------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Allowance for loan losses (beginning of period) .......... $ 402,534 $ 314,893 $ 238,853
Loans charged off:
1-4 family real estate ................................ 0 1,636 0
Commercial real estate and other ...................... 14,406 4,339 0
Construction .......................................... 0 0 0
Consumer .............................................. 25,130 6,023 12,318
----------- ----------- -----------
Total loans charged off ............................ 39,536 11,998 12,318
Recoveries of loans previously charged off:
1-4 family real estate ................................ 0 197 0
Commercial real estate and other ...................... 0 0 0
Construction .......................................... 0 0 0
Consumer .............................................. 2,768 2,442 11,358
----------- ----------- -----------
Total recoveries ................................... 2,768 2,639 11,358
----------- ----------- -----------
Net loans charged off .................................... 36,768 9,359 960
----------- ----------- -----------
Provision for loan losses ................................ 90,000 97,000 77,000
----------- ----------- -----------
Allowance for loan losses (end of period) ................ $ 455,766 $ 402,534 $ 314,893
=========== =========== ===========
Loans outstanding:
Average, net .......................................... $55,117,430 $46,751,096 $32,740,809
End of period, net .................................... $56,198,735 $53,097,451 $38,633,671
Ratio of allowance for loan losses to loans outstanding at
end of period ............................................ 0.81% 0.75% 0.81%
</TABLE>
The following table sets forth the allocation of Great Lakes Bank's
allowance for loan losses by category and the percent of loans in each category
to total loans receivable at the dates indicated. The portion of the loan
allowance allocated to each loan category does not represent the total available
for future losses that may occur within the loan category because the total loan
loss allowance is a valuation reserve applicable to the entire loan portfolio.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998 AT DECEMBER 31, 1997 AT DECEMBER 31, 1996
--- ---------------------- ------------------------ -------------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS TO LOANS TO LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
AT THE END OF PERIOD ALLOCATED TO:
Type of Loan:
1-4 family real estate $ 111,922 24.6% $ 107,617 26.7% $ 79,421 25.2%
Commercial real estate and other
Construction 254,271 55.8% 204,804 50.9% 154,261 49.0%
Consumer 24,683 5.4% 20,877 5.2% 17,733 5.6%
Total Loans 64,890 14.2% 69,236 17.2% 63,478 20.2%
---------- ---- ---------- ----- ---------- ---
$ 455,766 100% $ 402,534 100% $ 314,893 100%
========== ==== ========== ===== ========== ===
</TABLE>
CLASSIFIED ASSETS. FDIC regulations governing classification of assets
require nonmember commercial banks, including Great Lakes Bank, to classify
their own assets and to establish appropriate general and specific allowances
for losses, subject to FDIC review. These regulations are designed to encourage
management to evaluate assets on a case-by-case basis and to discourage
automatic classifications. Assets classified as watch, substandard or doubtful
must be evaluated by management to determine a reasonable general loss reserve,
which is included in total capital for purposes of the bank's risk-based capital
requirement but which is not included in Tier 1 capital or in capital under
generally accepted accounting principles. Assets classified as loss must either
be written off or reserved for by a specific allowance, which is not counted
toward capital for
70
<PAGE> 79
purposes of any of the regulatory capital requirements. As of September 30, 1998
assets classified as watch totaled $512,811, assets classified as substandard
totaled $75,799 and assets classified as doubtful totaled $3,608, for aggregate
classified assets of $592,218. There were no assets classified as loss as of
September 30, 1998.
INVESTMENTS
Investment securities provide a return on residual funds after lending
activities. Investments may be in interest-bearing deposits, U.S. Government and
agency obligations, state and local government obligations and
government-guaranteed, mortgage-backed securities, which are generally held to
maturity. Great Lakes Bank generally does not invest in securities that are
rated less than investment grade by a nationally recognized statistical rating
organization. A goal of GLB and Great Lakes Bank's investment policy is to limit
interest-rate risk. GLB's operations independent of Great Lakes Bank consist
principally of investments in a small number of financial institutions or
holding companies, which investments are treated as available for sale and
represent less than 5% of the outstanding shares of those institutions or
holding companies.
All securities-related activity is reported to the Board of Directors.
General changes in investment strategy are required to be reviewed and approved
by the Board. Senior management can purchase and sell securities in accordance
with GLB and Great Lakes Bank's stated investment policy.
The following table sets forth the carrying value of GLB's investment
portfolio at the dates indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED -----------------------------
SEPTEMBER 30, 1998 1997 1996
------------------ ------------ --------------
<S> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasury and other U.S. Government
agency obligations .................... $ 0 $ 0 $ 0
Equity securities ..................... 2,062,548 0 0
---------- ---------- ----------
Total ................................. 2,062,548 0 0
HELD TO MATURITY:
U.S. Treasury and other U.S. Government
agency obligations .................... $2,009,386 $1,614,300 $1,137,485
Equity securities ..................... 5,000 5,000 5,000
---------- ---------- ----------
Total ................................. 2,014,386 1,619,300 1,142,485
---------- ---------- ----------
TOTAL INVESTMENT SECURITIES ................ $4,076,934 $1,619,300 $1,142,485
========== ========== ==========
</TABLE>
At September 30, 1998, GLB's debt securities totaling $500,000 mature
in one year or less and $1,509,386 mature in one to five years.
SOURCE OF FUNDS
DEPOSIT ACCOUNTS. Savings deposits are a major source of funds. Great
Lakes Bank offers a number of alternatives for depositors designed to attract
both commercial and regular consumer checking and savings customers, including
regular and money market savings accounts, NOW accounts, and a variety of
fixed-maturity, fixed-rate certificates with maturities ranging from seven days
to 60 months. The bank also provides travelers' checks, official checks, money
orders, ATM services and IRA accounts. Great Lakes Bank offers a large-balance
deposit account product known as the "Golden Passbook Account," which may be
opened with a minimum balance of $2,500. At December 31, 1997, Golden Passbook
Accounts represented approximately $22.5 million, or approximately 43.2%, of
total deposit liabilities. At September 30, 1998 Golden Passbook Accounts
represented approximately $24.7 million, or approximately 42.1%, of total
deposit liabilities. Great Lakes Bank does not solicit or accept brokered
deposits.
Messrs. Jerome T. and Richard M. Osborne are, individually and with
affiliated companies and immediate family members, Great Lakes Bank's most
substantial depositors, with total deposits of approximately $ million as of ,
1999, $6.7 million as of December 31, 1998, $5.1 million as of December 31, 1997
and $4.4 million as of December 31, 1996.
71
<PAGE> 80
The distribution of deposit accounts by type and rate is set
forth in the following tables as of the indicated dates.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------------------------
1997 1996
-------------------------------------- --------------------------------------
Average Average
Amount Yield Percent Amount Yield Percent
----------- ---- ---- ----------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Demand deposit accounts ............ $13,088,994 2.07% 25.2% $10,979,586 2.20% 26.0%
Savings accounts ................... 27,926,967 3.67% 53.7% 23,371,968 3.58% 55.3%
----------- ---- ----------- ----
Total transaction accounts ...... 41,015,961 78.9% 34,351,554 81.3%
Certificates:
4.00% and less .................. 93,493 0.2% 238,341 0.6%
4.01% - 5.00% ................... 2,222,724 4.3% 3,192,395 7.5%
5.01% - 6.00% ................... 5,403,988 10.3% 2,956,980 7.0%
6.01% - 7.00% ................... 2,304,459 4.4% 515,360 1.2%
7.01% - 8.00% ................... 971,291 1.9% 997,899 2.4%
----------- ---- ----------- ----
Total certificates of deposit 10,995,955 5.56% 21.1% 7,900,975 5.47% 18.7%
----------- ---- ---- ----------- ---- ----
Total deposits ..................... $52,011,916 3.95% 100% $42,252,529 3.84% 100%
=========== ==== === =========== ==== ===
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 31,
--------------------------------------------------------------------------------
1998 1997
-------------------------------------- --------------------------------------
AVERAGE AVERAGE
AMOUNT YIELD PERCENT AMOUNT YIELD PERCENT
----------- ---- ---- ----------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Demand deposit accounts ............ $15,569,717 2.32% 26.5% $12,003,848 2.08% 24.6%
Savings accounts ................... 30,388,404 3.76% 51.7% 26,309,562 3.67% 53.9%
----------- ---- ----------- ----
Total transaction accounts ...... 45,958,121 78.2% 38,313,410 78.5%
Certificates:
4.00% and less .................. 84,344 0.1% 92,597 0.2%
4.01% - 5.00% ................... 1,800,663 3.1% 1,803,486 3.7%
5.01% - 6.00% ................... 7,720,575 13.1% 5,051,558 10.3%
6.01% - 7.00% ................... 2,248,051 3.8% 3,557,005 7.3%
7.01% - 8.00% ................... 1,005,054 1.7% 0 0.0%
----------- ---- ----------- ----
Total certificates of deposit.... 12,858,687 5.63% 21.8% 10,504,646 5.52% 21.5%
----------- ---- ---- ----------- ---- ----
Total deposits $ 58,816,808 4.08% 100% $ 48,818,056 3.93% 100%
============ ==== === ========== ==== ===
</TABLE>
The following table sets forth the amount of time deposits that are
$100,000 or more, including certificates of deposit, by time remaining until
maturity.
<TABLE>
<CAPTION>
MATURITY PERIOD AT SEPTEMBER 30, 1998
- --------------- ---------------------
<S> <C>
Three months or less............................ $ 1,193,554
Over three through six months................... 425,116
Over six through 12 months 1,070,806
Over 12 months.................................. 1,524,644
------------
Total...................................... $ 4,214,120
============
</TABLE>
BORROWINGS. Deposits and repayment of loan principal are the primary
source of funds for lending activities and other general business purposes.
However, when the supply of lendable funds or funds available for general
business purposes cannot meet the demand for loans or such general business
purposes, Great Lakes Bank can obtain funds through loans (advances) from the
FHLB of Cincinnati. Advances from the FHLB are made on a secured basis. FHLB
advances have terms of five years and require payments of interest only until
maturity. There is a substantial penalty for prepayment of advances. As
necessary, Great Lakes Bank uses FHLB advances to fund lending activities. See
"SUPERVISION AND REGULATION - FEDERAL HOME LOAN
72
<PAGE> 81
BANKS." As of , 1999 Great Lakes Bank had outstanding FHLB advances
totaling $ million, and approximately $ of the mortgage portfolio was
pledged to secure FHLB advances. Refer to Note 7 of Notes to Consolidated
Financial Statements for additional information regarding FHLB advances. Great
Lakes Bank also has arrangements to borrow additional short-term funds from
other commercial banks.
The following table sets forth the maximum amount of the Bank's FHLB
advances and other borrowings outstanding at any month end during the periods
shown, the average aggregate balances of FHLB advances and other borrowings for
such periods, and the weighted average interest rate of total borrowings for
such periods:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
SEPTEMBER 30, 1998 1997 1996
------------------ ---- ----
<S> <C> <C> <C>
Maximum amount outstanding:
FHLB advances .......................................... $7,500,000 $7,500,000 $5,000,000
Average amount of FHLB advances and
other borrowings outstanding ........................... 7,500,000 6,410,417 1,363,636
Weighted average interest rate of total
borrowings based on quarter-end balances ............... 6.78% 6.79% 6.80%
</TABLE>
The following table sets forth certain information as to FHLB advances
and other borrowings at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
SEPTEMBER 30, 1998 1997 1996
----------------------------- ------------------------------ ----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT INTEREST RATE AMOUNT INTEREST RATE AMOUNT INTEREST RATE
------ ------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
FHLB advances .......... $7,500,000 6.78% $7,500,000 6.78% $5,000,000 6.80%
--------- ---------- ----------
Total borrowings .... $7,500,000 $7,500,000 $5,000,000
========= ========= ==========
</TABLE>
73
<PAGE> 82
PROPERTIES
In July 1994 Great Lakes Commerce Bank's facilities consisted of its
main office and three of the branches identified in the table below. The main
office and two of the branches were subsequently relocated to locations GLB
believes to be more prominent, and the third branch was completely remodeled.
Great Lakes Bank has opened new branches in 1994, 1996 and 1998. Great Lakes
Bank plans to open additional branches in 1999 in Lake County.
The following table sets forth certain information regarding Great
Lakes Bank's offices. Each of the offices is equipped with drive-through teller
facilities as well as an automated teller machine ("ATM"). All branches offer
night-drop facilities as well. Drive-through teller facilities open at 7:30 a.m.
Monday through Saturday, and lobby facilities open at 9:00 a.m. Monday through
Saturday. Office hours end at 5:00 p.m. Monday through Thursday, 6:00 p.m. on
Friday and at noon on Saturday.
<TABLE>
<CAPTION>
OWNED APPROXIMATE
LOCATION /LEASED SQUARE FOOTAGE OTHER INFORMATION
- -------- ------- -------------- -----------------
<S> <C> <C> <C>
MAIN OFFICE: Owned 14,572 opened by Great Lakes Commerce Bank
7001 Center Street in 1957, relocated in 1994
Mentor, Ohio 44060
BRANCHES:
9365 Mentor Avenue Owned 2,064 opened in 1994
Mentor, Ohio 44060
1522 Mentor Avenue Leased (1) 2,706 opened by Great Lakes Commerce Bank
Painesville, Ohio 44077 in 1968, relocated in 1995
29933 Euclid Avenue Leased (2) 2,700 opened by Great Lakes Commerce Bank
Wickliffe, Ohio 44092 in 1969, relocated in 1997
38600 Lakeshore Boulevard Owned 2,100 opened by Great Lakes Commerce Bank
Willoughby, Ohio 40094 in 1959, remodeled 1997
28500 Chardon Road Leased (3) 3,268 opened in 1996
Willoughby Hills, Ohio 44094
7742 Lakeshore Boulevard Owned (4) 1,650 opened in August 1998
Mentor, Ohio 44060
34580 Lakeshore Boulevard Leased (5) 3,200 anticipated opening in February 1999
Eastlake, Ohio 44095
58 South Park Place Leased (6) 2,700 anticipated opening in February 1999
Painesville, Ohio 44077
</TABLE>
- ---------------------------
(1) This property had been leased by Great Lakes Bank from a company
controlled by Richard M. Osborne, but the property was subsequently
sold to an unrelated third party. Mr. Osborne is a substantial
shareholder, Vice Chairman and a director of the Company. Dated October
1, 1994, the lease has a term of ten years from the date of completion
of construction (which was completed in 1995), with annual rent at $12
per square foot, payable in monthly installments. Great Lakes Bank is
also responsible for real estate taxes, assessments and insurance on
the facility. The lease is renewable for an additional ten-year term,
with annual rental increased by ten percent (10%) from the original
annual rate.
(2) This property is leased by Great Lakes Bank from Richard M. Osborne, as
Trustee of the Richard M. Osborne Trust. Although Great Lakes Bank has
not obtained an independent appraisal supporting the fairness of the
lease terms, Great Lakes Bank believes that the terms and conditions of
the lease are at least as favorable to the bank as those that would
apply in the case of a lease with an unrelated third party. Dated May
1, 1997, the lease has a term of ten years, with annual rent of $31,200
($12 per square foot), payable in monthly installments. Great Lakes
Bank is also responsible for real estate taxes, assessments and
insurance on the facility. The lease is renewable for an additional
ten-year term, with an annual rent increase of ten percent (10%) from
the original annual rate. See "MANAGEMENT OF GLB - CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS."
(3) This property was sold by Great Lakes Bank in 1998 in a sale/leaseback
transaction with Collinwood Properties Co., LLC, a limited liability
company controlled by an affiliate of Michael Osborne. Michael Osborne
is the son of Jerome T. Osborne and the brother of Richard M. Osborne,
each of whom is a director of GLB. Jerome T. Osborne is the Chairman of
the Board and Richard M. Osborne is the Vice Chairman of the Board of
GLB. The branch property is leased by Great Lakes Bank from Collinwood
Properties Co., LLC. The lease is a ten-year lease with a renewal
option. Monthly rental is approximately $2,900, plus taxes and
utilities.
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(4) The $297,050 purchase price of the property was paid by GLB in the form
of the issuance of 23,764 shares of common stock (at $12.50 per share).
GLB acquired this property from an individual who holds an equity
interest in Turkey Vulture Fund XIII, Ltd. and is an investor with
Turkey Vulture Fund XIII, Ltd. in certain publicly held real estate
investment trusts. Turkey Vulture Fund XIII, Ltd. is an investment fund
managed by Director Richard M. Osborne (and of which he is the majority
owner).
(5) FDIC and Ohio Division of Financial Institutions branch approvals
obtained on or before October 9, 1998. The lease has a term of five
years, with a renewal option for an additional five-year term.
(6) The lessor of the property is Richard M. Osborne, as Trustee of the
Richard M. Osborne Trust. Great Lakes Bank obtained an independent
appraisal supporting the fairness of the lease terms. Pursuant to a
Lease Agreement dated March 1, 1998 by and between Mr. Osborne, as
trustee, and Great Lakes Bank, the annual base rent is $32,400 ($12 per
square foot). Great Lakes Bank is also responsible for real estate
taxes, assessments and insurance on the facility. The lease has a term
of ten years, renewable for an additional ten-year term with an annual
rental increase of ten percent (10%) from the original rental term.
Approvals of the FDIC and the Ohio Division of Financial Institutions
have been obtained for this new branch.
Great Lakes Bank is a member of the following ATM networks: MAC
(formerly "Green Machine" in Ohio), Money Station and Plus System, all of which
are ATM networks with members nationwide.
At December 31, 1998 the net book value of Great Lakes Bank's
investment in premises and equipment totaled $2.7 million. See Notes 1(g), 5 and
10 of the Notes to Consolidated Financial Statements for additional information
regarding premises and equipment.
Great Lakes Bank's electronic data processing functions are performed
under contract with an electronic data processing services firm that performs
such services for financial institutions nationwide.
LEGAL PROCEEDINGS
From time to time GLB and Great Lakes Bank are involved in various
legal proceedings that are incidental to their business. In the opinion of
management, no current legal proceedings are material to the financial condition
of GLB or Great Lakes Bank, either individually or in the aggregate.
PERSONNEL
As of December 31, 1998 GLB and Great Lakes Bank had 55 full-time
equivalent employees. None of the employees is represented by a collective
bargaining group. Management considers its relations with employees to be
excellent.
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<PAGE> 84
MANAGEMENT OF GLB
All directors of GLB are elected annually and hold office until the
following annual meeting or until their successors are elected and qualified.
The Board of Directors of GLB and the Board of Directors of Great Lakes Bank are
comprised of the same individuals, serving identical terms as directors of GLB
and Great Lakes Bank.
Except as may be noted herein, there are no family relationships among
any of the directors or executive officers. No such person was selected or
serves as director pursuant to any arrangement or understanding with any other
person. Except as may be disclosed herein, none of the directors and executive
officers of GLB serves as a director of any company that 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. None of the directors or
executive officers of GLB 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 similar minor offenses.
The directors and executive officers of GLB and Great Lakes Bank are:
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE POSITION WITH GLB AND GREAT LAKES BANK
---- --- -------------- --------------------------------------
<S> <C> <C> <C>
Richard T. Flenner, Jr 56 1994 Director, President and Chief Executive Officer
James V. Fryan 61 1995 Director
George C. Lott 65 1994 Director
George X. Mechir 81 1994 Director
Andrew L. Meinhold 48 - Executive Vice President and Secretary
Cheryl Jean Mihitsch 50 - Treasurer
Marian Rose Nathan 73 1994 Director
Jerome T. Osborne, Sr. 76 1994 Chairman of the Board and Director
Richard M. Osborne 53 1994 Vice Chairman of the Board and Director
Edward R. Pike 40 1994 Director
Thomas J. Smith 54 1994 Director
Joseph T. Svete 62 1994 Director
Thomas E. Wheeler 52 1994 Director
</TABLE>
EXECUTIVE OFFICERS
RICHARD T. FLENNER, JR. - Mr. Flenner has more than 35 years of
experience in the banking industry in northeastern Ohio. Mr. Flenner joined
Great Lakes Bank in 1994 after its succession to the business of Great Lakes
Commerce Bank. Prior to joining Great Lakes Bank, Mr. Flenner was Vice President
of Retail Lending for Liberty State Bank of Twinsburg, Ohio (now known as
Liberty Bank, N.A.). From 1983 to 1991 Mr. Flenner was employed by Peoples
Savings Bank of Ashtabula, Ohio, serving as Vice President of Retail Lending at
the time of its acquisition by the predecessor to FirstMerit Corporation in
1991. Mr. Flenner serves as a "Loaned Executive" to the Lake County United Way,
and he is a member of Leadership Lake County.
ANDREW L. MEINHOLD - Mr. Meinhold has over 20 years of banking
experience in the northeastern Ohio banking market. Prior to joining Great Lakes
Bank in December of 1994, Mr. Meinhold operated his own training and consulting
business, Highland View Associates, from June of 1993 to December of 1994. From
April of 1988 to June of 1993, Mr. Meinhold was employed by First County Bank of
Chardon, Ohio, serving as President at the time of his departure. Mr. Meinhold
was also employed by Peoples Savings Bank of Ashtabula, Ohio from January 1986
to April 1988 as Executive Vice President and Chief Operating Officer, and prior
to that was employed by Mentor Savings Bank in various capacities for ten years.
Mr. Meinhold was promoted in March 1998 from Senior Vice President to Executive
Vice President. Mr. Meinhold is a member of Leadership Lake County, the Mentor
Rotary Club and the Geauga County Revolving Loan Fund Committee. He also serves
as a Junior Achievement volunteer and is a member of the Geauga County Public
Library Board.
CHERYL J. MIHITSCH - Ms. Mihitsch joined Great Lakes Bank in May 1995
as Controller. Ms. Mihitsch has served in a variety of capacities with
northeastern Ohio banking institutions, ranging from teller in 1979 to her
current position as Treasurer.
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<PAGE> 85
At the same time, Ms. Mihitsch earned an accounting degree from Lake Erie
College, graduating in 1986. Until May of 1995, Ms. Mihitsch served as an
Accounting Department Supervisor at Security Federal Savings & Loan Association,
Mayfield Heights, Ohio, an institution that had total assets in excess of $400
million in 1995. During her nearly twenty years in banking, Ms. Mihitsch has had
responsibility for back office checking system operations, IRA and certificate
processing, staff training for new online computer operations, budgeting and
strategic planning, regulatory reporting and financial accounting and reporting.
As Treasurer of GLB, she is GLB's principal accounting and principal financial
officer. Ms. Mihitsch was previously President and Treasurer of Quota
International of Lake County, a women's service organization.
NONEMPLOYEE DIRECTORS
JAMES V. FRYAN - A director since April 1995, Mr. Fryan is the owner
and operator of the "Goodtime III" dinner and special occasion cruise ship
operating out of Cleveland, Ohio.
GEORGE C. LOTT - Following an approximately 35-year career in banking,
Mr. Lott retired in 1995 as Executive Vice President of Great Lakes Bank. He had
served as a director, and since 1987 as Senior Executive Vice President, of
Great Lakes Commerce Bank. Mr. Lott has been a director since that time. Mr.
Lott acts as internal auditor of Great Lakes Bank on a consulting basis.
GEORGE X. MECHIR - Mr. Mechir's career in banking began in 1962 with
Great Lakes Commerce Bank, where he served as President and Chief Executive
Officer at the time of his retirement. Mr. Mechir had also been a director of
Great Lakes Commerce Bank. Mr. Mechir is an attorney.
MARIAN ROSE NATHAN - Ms. Nathan is a retired attorney. Along with
certain other directors, Ms. Nathan is an investor in Turkey Vulture Fund XIII,
Ltd., an investment fund managed by Director Richard M. Osborne.
JEROME T. OSBORNE, SR. - Mr. Jerome T. Osborne, Sr. is the founder and
President of Osborne, Inc., a concrete company headquartered in Mentor, Ohio.
Richard M. Osborne, Vice Chairman, is Jerome T. Osborne's son. Mr. Jerome T.
Osborne, Sr. was a founder of Mentor Savings Bank, which was acquired by Chase
Manhattan Corporation in 1985. He had also been Chairman of the Board of State
Bank & Trust Company in Mentor, Ohio, acquired by BancOhio National Bank (now
part of National City Corporation) in 1982. Although Jerome T. Osborne, Sr. is
Chairman of the Board and Richard M. Osborne is Vice Chairman of the Board,
neither of them participates in day-to-day management of GLB or Great Lakes
Bank, and neither of them serves as an officer or receives any compensation
therefor. See " - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS."
RICHARD M. OSBORNE (Vice Chairman) - Mr. Richard M. Osborne is
President and Chief Executive Officer of OsAir, Inc., Mentor, Ohio ("OsAir"), a
company he founded in 1963. OsAir is a manufacturer of industrial gases for
pipeline delivery and a real property developer. Jerome T. Osborne, Sr.,
Chairman of the Board, is Richard M. Osborne's father. Richard M. Osborne has
been active in Ohio banking since 1977, serving as a director of or having a
substantial stake in other bank and thrift institutions that have since been
acquired by other institutions. From 1977 to 1981 Richard M. Osborne served as a
director of State Bank & Trust Company in Mentor, which was sold to BancOhio
National Bank (now part of National City Corporation) in 1982. He thereafter
served as Consulting Director of BancOhio National Bank, until 1984. From 1985
to 1990 Richard M. Osborne was a principal shareholder of Peoples Savings Bank
in Northeast Ohio, serving as Chairman at the time of its acquisition by First
Bancorporation of Ohio (now FirstMerit Corporation) in 1990. At the time of its
acquisition, Peoples Savings Bank had total assets of approximately $300
million.
Mr. Richard M. Osborne has been active in community affairs in Lake
County for many years. In 1987, he constructed and donated the Thomas J. Osborne
Library at the Phillips-Osborne School in Painesville, Ohio. In 1991, his
involvement was instrumental in the addition of a sports facility at Lake
Catholic High School. Richard M. Osborne is a member of the Independent Oxygen
Manufacturers Association and the National Welders' Supply Association.
Through certain entities, including Turkey Vulture Fund XIII, Ltd., an
affiliated investment fund managed by Mr. Richard M. Osborne (and of which he is
the majority owner), Mr. Richard M. Osborne is an active investor in numerous
other
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<PAGE> 86
companies, including real estate investment trusts, an insurance firm and, from
time to time, small and mid-sized bank and thrift institutions in Ohio and
elsewhere, occasionally acquiring substantial stakes in such companies. As a
result of these investments, Mr. Osborne is also:
(1) trustee, Chairman of the Board and Chief Executive Officer of
Meridian Point Realty Trust '83, a real estate investment
trust located in Mentor, Ohio;
(2) director and Chairman of the Board of Pacific Gateway
Properties, Inc., a real estate investment company located in
San Francisco;
(3) director of Ceres Group, Inc., an insurance holding company
located in Strongsville, Ohio (formerly known as Central
Reserve Life Corporation);
(4) director of USP Real Estate Investment Trust, a real estate
investment trust located in Cedar Rapids, Iowa; and
(5) director of NuMED Home Health Care, Inc., a home health care
provider headquartered in Clearwater, Florida.
Each of Meridian Point Realty Trust '83, Pacific Gateway Properties,
Inc., Ceres Group, Inc., USP Real Estate Investment Trust and NuMED Home Health
Care, Inc. has securities registered under the Securities Exchange Act of 1934.
Mr. Osborne had been a director of Brandywine Realty Trust, a real estate
investment trust located in Newtown Square, Pennsylvania, a director of Meridian
Point Realty Trust VIII, a real estate investment trust located in San
Francisco, California, and a director of TIS Mortgage Investment Company, a real
estate investment trust also located in San Francisco, California. Brandywine
Realty Trust and TIS Mortgage Investment Company have, and Meridian Point Realty
Trust VIII had, securities registered under the Securities Exchange Act of 1934.
OsAir, Turkey Vulture Fund XIII, Ltd. and certain other business
interests of Mr. Osborne conduct business in space leased from Great Lakes Bank
adjacent to Great Lakes Bank's main office. See " - CERTAIN RELATIONSHIPS AND
RELATED PARTY TRANSACTIONS."
Although Jerome T. Osborne, Sr. is Chairman of the Board and Richard M.
Osborne is Vice Chairman of the Board, neither of them participates in
day-to-day management of GLB or Great Lakes Bank, and neither of them serves as
an officer or receives any compensation therefor. See " - CERTAIN RELATIONSHIPS
AND RELATED PARTY TRANSACTIONS."
EDWARD R. PIKE - Mr. Pike, Jr. is the President of Ed Pike
Lincoln-Mercury, an automobile dealership located in Mentor, Ohio.
THOMAS J. SMITH - Mr. Smith is Chief Operations Manager of Liberty
Self-Stor, Ltd. Mr. Smith has more than 20 years of direct banking experience.
From July of 1994 to May of 1995, Mr. Smith served as Treasurer of Great Lakes
Bank. From 1988 to October of 1992 Mr. Smith was employed by Peoples Savings
Bank of Ashtabula, Ohio, most recently as Senior Vice President and Chief
Financial Officer. From 1972 to 1988 Mr. Smith was employed by AmeriTrust
Company, National Association (now part of Key Corp., Inc.) in various
accounting and corporate development positions. Mr. Smith is also a trustee and
President of Meridian Point Realty Trust '83 and NuMED Home Health Care, Inc.
Mr. Smith is a Certified Public Accountant and was employed by Peat Marwick (now
KPMG LLP) from 1968 to 1972.
JOSEPH T. SVETE - Mr. Svete is an attorney in private practice and
principal of the law firm Svete, McGee and Carrabine Co., LPA in Chardon, Ohio.
Along with certain other directors, Mr. Svete is an investor in Turkey Vulture
Fund XIII, Ltd., an investment fund managed by Director Richard M. Osborne.
THOMAS E. WHEELER - Thomas E. Wheeler is President of Component Repair
Technologies, Inc., an aircraft engine company located in Mentor, Ohio. Along
with certain other directors, Mr. Wheeler is an investor in Turkey Vulture Fund
XIII, Ltd., an investment fund managed by Director Richard M. Osborne.
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<PAGE> 87
REMUNERATION OF DIRECTORS
Directors do not receive cash compensation for their service as GLB
directors in addition to cash compensation they receive for their service as
directors of Great Lakes Bank. In 1997, directors other than Richard T. Flenner,
Jr., Thomas J. Smith and Richard M. Osborne, who received no cash compensation
for their service as directors, received the sum of $150 for each meeting of the
Board of Directors of Great Lakes Bank attended. See " - CERTAIN RELATIONSHIPS
AND RELATED PARTY TRANSACTIONS" for further information concerning limits on
compensation payable to Messrs. Jerome T. and Richard M. Osborne. In 1998 GLB
adopted a stock option plan pursuant to which an option to acquire 200 shares of
GLB common stock was granted to each of GLB's ten non-employee directors. The
exercise price of such options is $13 per share. See " - STOCK OPTION PLAN."
EXECUTIVE COMPENSATION
Since completion of the holding company reorganization of Great Lakes
Bank in September 1997, none of GLB's executive officers has received any cash
remuneration from GLB in addition to compensation received for service to Great
Lakes Bank. Because GLB's business is expected to consist for the foreseeable
future of acting merely as the holding company for Great Lakes Bank, it is
expected that no separate cash compensation will be paid to officers of GLB in
addition to compensation paid to them by Great Lakes Bank. However, GLB may
determine that separate cash compensation is appropriate in the future. Should
GLB acquire other businesses in the future and maintain those businesses as
separately capitalized subsidiaries, GLB may have officers and employees who are
not also officers and employees of and who are not separately compensated by
Great Lakes Bank.
The following table shows the annual compensation for services in all
capacities to Great Lakes Bank for the fiscal years ended December 31, 1998,
1997, and 1996 for the President and Chief Executive Officer. The President and
Chief Executive Officer's annual salary has been increased to $110,000 effective
upon completion of the acquisition. No executive officer of Great Lakes Bank
received compensation in excess of $100,000 during 1998. None of the executive
officers serves pursuant to an employment agreement.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------ ------------------------ ----------
($) (#)
($) RESTRICTED SECURITIES ($) ($)
NAME AND ($) ($) OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
------------------ ---- --------- ----- ------------ ------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard T. Flenner, Jr., 1998 $82,000 0 - (2) 0 5,000 0 0
President and Chief 1997 $68,000 0 - (2) 0 0 0 0
Executive Officer 1996 $60,000 0 - (2) 0 0 0 0
</TABLE>
- -------------------------------
(1) Includes amounts deferred at the election of the named executive officers
pursuant to the 401(k) Plan of the Bank.
(2) Perquisites and other personal benefits did not exceed the lesser of $50,000
or 10% of total salary and bonus.
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The following table provides information concerning grants of stock
options in 1998 under GLB's 1998 Stock Option and Incentive Plan to the
individual(s) named in the Summary Compensation Table.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO
UNDERLYING OPTIONS EMPLOYEES IN FISCAL EXERCISE OR BASE
NAME GRANTED (#) YEAR PRICE ($/SH ) EXPIRATION DATE
- ------------------------ -------------------- ------------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
Richard T. Flenner, Jr. 5,000 48.5% $13.50 November 18, 2008
</TABLE>
The following table shows the number of shares of GLB common stock
acquired during 1998 or acquirable upon exercise of options by the individual(s)
named in the Summary Compensation Table. The table also indicates the extent to
which such options were exercisable at December 31, 1998, as well as the
approximate value of such options based on the fair market value of the GLB
common stock at December 31, 1998.
<TABLE>
<CAPTION>
SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT FISCAL VALUE OF IN-THE-MONEY OPTIONS
SHARES YEAR END (#) AT FISCAL YEAR END ($)(1)
ACQUIRED ON VALUE -------------------------------- ---------------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------- ------------ ------------ ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard T.
Flenner, Jr. 0 $0 0 5,000 $0 $(7,500)
</TABLE>
- ----------------------------
(1) In general, a stock option is "in-the-money" when the stock's fair
market value exceeds the option exercise price. Value of unexercised
options equals the estimated fair market value of a share acquirable
upon exercise of an option at December 31, 1998, less the exercise
price, multiplied by the number of shares acquirable upon exercise of
the options. The GLB common stock is quoted on the Nasdaq SmallCap
Market. Solely for purposes of the preceding table and for no other
purpose, GLB has estimated the per share fair market value of the GLB
common stock at December 31, 1998 as $12. The foregoing figure is an
estimate only. The estimate does not necessarily reflect the price
shareholders may obtain upon sale of their stock or the price at which
shares of GLB common stock may be acquired, nor should such estimate be
taken to represent management or the Board of Directors' estimate of
the intrinsic value or fair market value of the shares of GLB common
stock.
Options granted under the 1998 Stock Option and Incentive Plan
generally become exercisable in five equal annual installments, the first twenty
percent becoming exercisable on the first anniversary of the date of grant. The
1998 Stock Option and Incentive Plan provides that options not yet exercisable
become exercisable in full if (i) a tender offer or exchange offer for shares of
GLB common stock is commenced or (ii) shareholders of GLB approve an agreement
whereby GLB will cease to be an independent company or whereby GLB agrees to a
sale of all or substantially all of its assets.
PENSION AND RETIREMENT PLAN INFORMATION
Great Lakes Bank's retirement plan for officers and employees provides
defined benefits based upon years of service, salary and other measures. The
plan is a noncontributory defined benefit pension plan covering all officers and
employees who become eligible for entry in the plan upon the basis of age and
one year of service. Retirement benefits under the retirement plan are computed
by a formula that takes into account such factors as compensation, years of
service and the Social Security taxable wage base. Normal retirement is at 65
years of age. Great Lakes Bank is in the process of terminating the defined
benefit retirement plan. See Note 9 of Notes to Consolidated Financial
Statements for additional information concerning the noncontributory defined
benefit pension plan.
In late 1997 Great Lakes Bank adopted a retirement plan under Internal
Revenue Code of 1986 Section 401(k). The "GLB 401(k) Salary Reduction Plan and
Trust" provides that participants may elect to defer up to 15% of their salary
for investment in various accounts designated by the participant. Deferred
salary is invested for the account of plan participants by the administrator of
the 401(k) plan. All employees over age 21 who have at least one year of service
(of 1,000 hours or more) are participants in the 401(k), although each
participant elects whether to defer salary under the 401(k) plan. Great Lakes
Bank may make discretionary matching contributions of up to 6% of a
participant's salary to the accounts of those participants who
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<PAGE> 89
defer salary under the 401(k) plan. Matching contributions vest ratably over a
five-year period, becoming fully vested upon death or disability of the
participant.
STOCK OPTION PLAN
Shareholders of GLB adopted the 1998 Stock Option and Incentive Plan at
the 1998 Annual Meeting of Shareholders. 28,000 shares of common stock have been
reserved for issuance under the Stock Option Plan. In addition, the Stock Option
Plan will include any shares surrendered to GLB in payment of the exercise price
of options or stock appreciation rights issued under the Stock Option Plan.
The purpose of the Stock Option Plan is to enhance and encourage the
recruitment and retention of those individuals on whom the continued success of
GLB depends; to provide the opportunity for directors, officers and employees to
realize capital appreciation in exchange for their contributions to GLB and
Great Lakes Bank; and to more thoroughly align the interests of directors,
officers and employees with the interests of shareholders generally. Options
granted under the Stock Option Plan will be granted only to persons affiliated
with GLB and Great Lakes Bank as directors, officers or employees.
The Stock Option Plan provides for awards in the form of stock options,
stock appreciation rights ("SARs"), other securities and property and restricted
stock. Each award will be made on such terms and conditions as the committee
administering the Stock Option Plan may determine. Generally, no award or any
right or interest therein is assignable or transferable except under certain
limited exceptions set forth in the Plan. The Stock Option Plan is administered
by the Stock Option Committee of the Board of Directors of GLB. In granting
awards under the Stock Option Plan, the Stock Option Committee considers
position and years of service, value of the participant's services to GLB and
Great Lakes Bank and the responsibilities of such individuals as directors,
officers and employees.
Options granted under the Stock Option Plan vest and become exercisable
in five equal annual installments, beginning with the first anniversary of the
date of grant. The term of stock options will not exceed 10 years from the date
of grant. The exercise price for the purchase of shares subject to a stock
option may not be less than 100% of the fair market value of the shares covered
by the option on the date of grant. No Incentive Stock Option (meaning a stock
option qualified under Section 422 of the Internal Revenue Code of 1986) may be
granted to any individual who, at the time such Incentive Stock Option is
granted, owns stock possessing more than ten percent of the total combined
voting power of all classes of stock of the Company unless (i) the exercise
price of the Incentive Stock Option is at least 110 percent of the common
stock's fair market value per share at the date of grant and (ii) the Incentive
Stock Option is not exercisable after the expiration of five years from the date
of grant. The aggregate fair market value (determined as of the time any
Incentive Stock Option is granted) of the shares of common stock with respect to
which Incentive Stock Options are exercisable for the first time by a recipient
of an Incentive Stock Option award in any calendar year may not exceed $100,000.
The Stock Option Plan provides for the grant of a stock option to
acquire 200 shares of common stock to each of GLB's non-employee directors. The
grant of these options to the non-employee and non-officer directors became
effective upon shareholder approval of the Plan on February 17, 1998. The
options are exercisable at the fair value of the shares of common stock as of
such date, as determined by the Stock Option Committee. Persons who are not
employees of GLB or Great Lakes Bank who become directors hereafter would
receive a similar grant of an option to acquire 200 shares (as the number of
shares may hereafter be adjusted to take account of stock splits and similar
transactions that represent an increase in outstanding shares or conversion or
exchange of shares), but no director will receive more than one grant of stock
options pursuant to this provision of the Stock Option Plan. Except for the
grant of the foregoing stock options to non-employee directors, no individuals
have been granted awards pursuant to the Stock Option Plan.
The Stock Option Committee may grant restricted stock, subject to such
restrictions as the Stock Option Committee may impose. Although no shares of
restricted stock have been awarded under the Stock Option Plan as of the date
hereof, the holder(s) of restricted stock may have all of the rights of a
shareholder, including the right to receive dividends and the right to vote the
shares. Unless otherwise determined by the Stock Option Committee, all unvested
shares of restricted stock are forfeited upon termination of service of the
recipient. The Stock Option Committee may, in its discretion, accelerate the
time at which any or all restrictions will lapse, or may remove any or all of
the restrictions. Restrictions may lapse separately or in combination
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<PAGE> 90
at such time or times, in such installments or otherwise as the Stock Option
Committee may deem appropriate. The Stock Option Committee may also grant
performance awards consisting of cash, stock, other securities or property to
participants under the Stock Option Plan based on the achievement of certain
performance goals during specified periods of time.
In the case of any merger, consolidation or combination of GLB in which
GLB is not the continuing company or its outstanding shares are converted into
or exchanged for different securities, cash or property, or any combination
thereof, any participant to whom a stock option or SAR has been granted will
have the right upon exercise of the option or SAR to an amount equal to the
excess of the market value on the date of exercise of the consideration
receivable in the merger, consolidation or combination with respect to the
shares covered or represented by the stock option or SAR over the exercise price
of the option or SAR, multiplied by the number of shares with respect to which
the option or SAR has been exercised. The restricted period with respect to an
award of restricted stock will lapse, and the stock will become fully vested,
after a change in control of GLB. A change in control will be deemed to occur
when (i) a person or group becomes the beneficial owner of shares of GLB
representing 25% or more of the total number of votes which may be cast for the
election of the Board of Directors of GLB (other than any person or group owning
25% or more of the common stock as of the date of adoption of the Stock Option
Plan), (ii) in connection with any tender or exchange offer (other than an offer
by GLB), merger or other business combination, sale of assets or contested
election, or combination of the foregoing, the persons who are Directors of GLB
cease to be a majority of the Board of Directors, or (iii) shareholders of GLB
approve a transaction pursuant to which GLB will cease to be an independent
company or pursuant to which substantially all of its assets will be sold. In
addition, unless the Stock Option Committee provides otherwise, in the event of
a tender or exchange offer (other than an offer made by GLB) or if the event
specified in clause (iii) above occurs, all outstanding stock options and SARs
not fully exercisable will become exercisable in full.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
ACQUISITION OF GREAT LAKES COMMERCE BANK. The acquisition of Great
Lakes Commerce Bank by Great Lakes Bank was approved by the Ohio Division of
Financial Institutions and by the FDIC. As is typically the case, the approvals
were conditioned on satisfaction of certain conditions prior to the acquisition.
In addition, FDIC approval was conditioned on the satisfaction of certain
non-standard conditions that were applicable both prior to the acquisition of
Great Lakes Commerce Bank and following completion of the acquisition.
The non-standard conditions contained in the FDIC's June 14, 1994
approval provide that neither Mr. Jerome T. Osborne, Sr. nor Mr. Richard M.
Osborne may (i) act as an executive officer or operating officer of Great Lakes
Bank, (ii) assume a title normally associated with executive or operating
officer status, or (iii) receive compensation from the bank (other than fees for
service on the board of directors, to the same extent other directors receive
such fees, and except that the bank may pay to the chairman of the board fees
for board service of up to $10,000 per year over that paid to other directors).
In addition, the non-standard conditions provide that Great Lakes Bank may not
extend to Richard M. Osborne or Jerome T. Osborne, Sr., to all other Osborne
family members, or to any financial interest of an Osborne family member, direct
or indirect credit representing, in the aggregate, more than 25.0% of tier 1
capital.
Mr. Richard M. Osborne receives no fees for his Board service, while
Mr. Jerome T. Osborne, Sr. receives fees for Board service on the same basis as
other directors. See " - Remuneration of Directors." Neither Mr. Jerome T.
Osborne, Sr. nor Mr. Richard M. Osborne serves as an executive or operating
officer or has a title as such. Furthermore, as of , 1999, aggregate loans to
Richard M. Osborne, Jerome T. Osborne, Sr., all other Osborne family members and
financial interests of Osborne family members were within the limits stated in
the non-standard condition. GLB believes that Great Lakes Bank is in compliance
with the terms of the non-standard conditions.
DEPOSIT AND LENDING RELATIONSHIPS. Great Lakes Bank has deposit and
lending relationships with certain GLB and bank directors, officers and
affiliates. All loans to directors, officers and their affiliates were made in
the ordinary course of business, on substantially the same terms (including
interest rates and collateral) as those prevailing at the time for comparable
transactions with other persons, and did not involve more than the normal risk
of collectability or present other unfavorable features. Refer to Note 10 of
Notes to Consolidated Financial Statements.
82
<PAGE> 91
Messrs. Jerome T. and Richard M. Osborne are, individually and with
affiliated companies and immediate family members, Great Lakes Bank's most
substantial depositors, with total deposits of approximately $______ million as
of _______________, 1999, $6.7 as of December 31, 1998, $5.1 million as of
December 31, 1997 and $4.4 million as of December 31, 1996.
83
<PAGE> 92
The following table provides information concerning extensions of
credit by GLB and Great Lakes Bank to Messrs. Jerome T. and Richard M. Osborne,
members of their family and their related interests. To the extent their
indebtedness exceeded $60,000 at any time during 1998, the following table also
provides information concerning indebtedness owed or owing by (i) directors and
executive officers, (ii) members of their immediate family (meaning any of the
following: spouse, parents, children, siblings, mothers and fathers-in-law, sons
and daughters-in-law and brothers and sisters-in-law), (iii) any corporation or
organization of which a director or executive officer directly or indirectly
beneficially owns ten percent (10%) or more of the outstanding equity securities
and (iv) any trust or other estate in which any director or executive officer
has a substantial beneficial interest or as to which such person serves as
trustee or in a similar capacity.
<TABLE>
<CAPTION>
LARGEST
AMOUNT
INTEREST BALANCE AT OUTSTANDING BALANCE AT
BORROWER TYPE OF LOAN RATE (1) 12/31/1998 IN 1998 / /1999
-------- ------------ -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Jerome T. Osborne, Sr., Director and Letter of Credit (2) 8.50% $ 36,058 $ 300,000 $
Chairman of the Board (2) Credit Card accounts (2) 14.90% (2) (2) (2)
Richard M. Osborne, Director and Vice Commercial Term Loan (Richard M. 11.00% $ 15,211 $ 17,018 $
Chairman of the Board Osborne Personal Guarantee) 7.375% $ 0 $ 650,000 $ 0
Residential Mortgage
2020 Train Ave., Inc. (affiliate of $250,000 Commercial Line of Credit 9.00% $ 2 $ 558 $
Richard M Osborne) Commercial Term Loan 9.00% $ 239,082 $ 350,000 $
OsAir, Inc. (affiliate of Richard M. Commercial Construction Loan (3) 8.00% $ 304,525 $ 304,525 $
Osborne)
Other affiliates of Richard M. Credit Card accounts (4) 14.90% (4) (4) (4)
Osborne (4)
Richard M. Osborne, Jr. (son of Home Equity Line of Credit 9.00% $ 0 $ 42,496 $ 0
Richard M. Osborne) Residential Mortgage (5) 7.125% $ 0 $ 247,078 $ 0
Commercial Term Loan (Junior
Properties, Ltd.) 9.00% $ 198,000 $ 198,000 $
Beth Osborne (daughter of Residential Mortgage 8.125% $ 98,131 $ 99,550 $
Richard M. Osborne) Residential Mortgage 6.25% $ 0 $ 115,134 $ 0
Residential Mortgage 7.625% $ 183,414 $ 185,000 $
Cynthia Wollant (granddaughter Construction Loan/Residential
of Jerome T. Osborne, Sr.) Mortgage 7.13% $ 0 $ 305,000 $ 0
Michael E. Osborne (grandson of Home Equity Line of Credit 6.75% $ 32,830 $ 32,830 $
Jerome T. Osborne, Sr.) Home Equity Line of Credit 6.75% $ 0 $ 20,000 $ 0
Residential Mortgage 7.375% $ 209,355 $ 210,000 $
George Lott, Jr. (son of George C. Residential Mortgage 10.00% $ 24,886 $ 27,899 $
Lott) Residential Mortgage 8.75% $ 38,002 $ 41,323 $
</TABLE>
- ----------------
84
<PAGE> 93
(1) The loans shown in the table bear interest at rates that may be fixed,
floating or adjustable. The rates shown in the table represent the
rates applicable at __________, 1999 or, for loans with no amounts
outstanding at that time, the most recent applicable interest rate.
(2) Letter of Credit outstanding with no funds drawn. Osborne, Inc., an
affiliate of Chairman Jerome T. Osborne, and Mr. Osborne's spouse have
four credit card accounts with Great Lakes Bank, with credit lines
ranging from $15,000 to $25,000.
(3) Represents Great Lakes Bank's 60% participation interest in a
$1,225,000 construction loan, on which loan funds are drawn from time
to time by the borrower during the construction phase. An unaffiliated
financial institution acquired a 40% participation interest in the
construction loan from Great Lakes Bank in 1998.
(4) Each of Lightning Oil, Liberty Self Stor and Heisley Hopkins, Inc.,
affiliates of Vice Chairman Richard M. Osborne, has a credit card
account with Great Lakes Bank, with credit lines ranging from $15,000
to $25,000.
(5) Loan sold by Great Lakes Bank to an unaffiliated institution in 1998.
85
<PAGE> 94
None of the foregoing loans is or has been nonperforming, nor have any
of such loans been restructured or subject to special mention due to potential
credit problems known to GLB or Great Lakes Bank. All such loans are current.
LEASES FOR BANK PROPERTY
Great Lakes Bank leases its property at 58 South Park Place,
Painesville, Ohio, from Richard M. Osborne, as Trustee of the Richard M. Osborne
Trust. Pursuant to an Indenture of Lease dated March 1, 1998 by and between Mr.
Osborne, as trustee, and the Bank, the annual base rent is $32,400 ($12 per
square foot). The bank is also responsible for real estate taxes, assessments
and insurance on the facility. The lease has a term of ten years. The lease is
renewable for an additional ten-year term with an annual rental increased by ten
percent (10%) from the original rental term. The bank obtained an independent
appraisal supporting the fairness of the lease terms. See "BUSINESS -
PROPERTIES."
Great Lakes Bank also leases its branch property at 29933 Euclid
Avenue, Wickliffe, Ohio, from Richard M. Osborne. Dated May 1, 1997, the
Indenture of Lease has a term of ten years, with rent at $12 per square foot,
payable in monthly installments. The bank is also responsible for real estate
taxes, assessments and insurance on the facility. The lease is renewable for an
additional ten-year term, with annual rental increased by ten percent (10%) from
the original annual rate. The bank did not obtain an independent appraisal
supporting the fairness of the lease terms. Nevertheless, in the opinion of
management, the terms and conditions of the lease are at least as favorable to
GLB and the bank as those that would apply in a lease with an unrelated third
party. See "BUSINESS - PROPERTIES."
In 1998 Great Lakes Bank sold the property at 28500 Chardon Road,
Willoughby Hills, Ohio to Collinwood Properties Co., LLC, a limited liability
company controlled by an affiliate of Michael Osborne, brother of Vice Chairman
Richard M. Osborne and son of Chairman Jerome T. Osborne. The bank leases the
property from Collinwood Properties Co., LLC under a September 16, 1998 Lease
Agreement having a term of ten years and an option to renew for an additional
ten years. Monthly rent paid by the bank is approximately $2,900, plus taxes and
utilities. The bank did not obtain an independent appraisal supporting the
fairness of the lease terms or the sale price. Nevertheless, in the opinion of
management, the terms and conditions of the sale and the leaseback transaction
are at least as favorable to GLB and the bank as those that would have applied
in a similar transaction with an unrelated third party. See "BUSINESS -
PROPERTIES."
Pursuant to an Indenture of Lease dated March 1, 1998, Great Lakes Bank
leases approximately 5,000 square feet of space at its main office facility to
OsAir, a company controlled by Richard M. Osborne, for $5,000 monthly. The bank
is responsible for real estate taxes and assessments. The term of the lease is
five years. GLB believes that the terms and conditions of the lease with OsAir
are consistent with and at least as favorable to GLB and Great Lakes Bank as the
rental terms that would apply to a lease with an unaffiliated third party.
86
<PAGE> 95
PRINCIPAL SHAREHOLDERS OF GLB
The following table indicates the beneficial ownership of GLB common
stock as of _______________, 1999 (i) by directors and executive officers of
GLB, (ii) by each person who is known by GLB to own beneficially more than 5%
of the outstanding shares of GLB common stock (showing his address as well),
and (iii) by all directors and executive officers of GLB as a group:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON PERCENT
STOCK OWNED OF COMMON
NAME BENEFICIALLY(1) STOCK (2)
- ----- --------------- ---------
<S> <C> <C>
Richard T. Flenner, Jr. ................................... 1,300 (3)
James V. Fryan ............................................ 30,040 (4) 1.41%
George C. Lott ............................................ 340 (4) (3)
George X. Mechir .......................................... 540 (4) (3)
Andrew L. Meinhold ........................................ 300 (3)
Cheryl Jean Mihitsch ...................................... 300 (3)
Marian Rose Nathan ........................................ 5,040 (4) (3)
Jerome T. Osborne, Sr. .................................... 167,329 (4) 7.84%
7954 Reynolds Road
Mentor, Ohio 44060
Richard M. Osborne ........................................ 329,836 (4) (5) 15.46%
7001 Center Street
Mentor, Ohio 44060
Edward R. Pike ............................................ 45,040 (4) (6) 2.11%
Thomas J. Smith ........................................... 2,240 (4) (3)
Joseph T. Svete ........................................... 17,040 (4) (3)
Thomas E. Wheeler ......................................... 30,040 (4) 1.41%
All directors and executive officers as a group (13 persons) 631,628 (6) 29.59%
</TABLE>
- ------------------------------
(1) For purposes of the above table, a person is considered to
"beneficially own" any shares with respect to which he or she exercises
sole or shared voting or investment power or of which he or she has the
right to acquire such beneficial ownership within 60 days. Unless
otherwise indicated, voting power and investment power are exercised
solely by the person named above or shared with members of his or her
household.
(2) Shares deemed to be outstanding for purposes of computing "Percent of
Common Stock" are calculated on the basis of the total number of
outstanding shares plus the number of shares a person or group has the
right to acquire within 60 days.
(3) Less than one percent.
(4) Includes 40 shares the director has the right to acquire upon exercise
of options granted in 1998 under GLB's 1998 Stock Option and Incentive
Plan. Under the 1998 Stock Option and Incentive Plan, options to
acquire 200 shares of GLB common stock were granted effective February
17, 1998 to each director of GLB who was not also an officer or
employee of GLB or Great Lakes Bank. The options vest and become
exercisable in five equal annual installments. The options have a term
of ten years.
(5) Includes shares that have been or may be pledged from time to time as
security for borrowings by Mr. Osborne or one or more of his
affiliates, including Turkey Vulture Fund XIII, Ltd., of which Mr.
Osborne is the sole manager. Turkey Vulture Fund XIII, Ltd. filed a
Schedule 13D, Amendment No. 5, beneficial ownership report on July 29,
1998 with the Securities and Exchange Commission with respect to its
ownership of shares of Central Reserve Life Corporation (now known as
Ceres Group, Inc.). According to that Schedule 13D filing and exhibits
thereto, Mr. Osborne has pledged 175,950 GLB shares to secure
borrowing(s) from an Ohio-based financial institution.
(6) Includes 37,500 shares over which Mr. Pike has the right to exercise
voting and investment power pursuant to a Limited Durable Power of
Attorney granted to him on November 3, 1994 by each of his five
brothers and sisters, each of whom owns 7,500 shares. The grantors of
the Limited Durable Powers of Attorney retain the right to take any
action Edward R. Pike as attorney in fact is authorized to take under
the Limited Durable Power of Attorney.
87
<PAGE> 96
MAPLE LEAF'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Because Maple Leaf has no significant operations independent of Geauga
Savings, the discussion herein concerns the financial condition and results of
operations of Geauga Savings, except as may be otherwise specifically indicated.
The reported results of Maple Leaf are dependent on a variety of
factors, including the general interest rate environment, competitive conditions
in the industry, government policies and regulations and conditions in the
markets for financial assets. Management of Maple Leaf is not aware of any
market or institutional trends, events or uncertainties that are expected to
have a material effect on liquidity, capital resources or operations except as
discussed herein. Also, management is not aware of any current recommendations
by its regulatory authorities that would have such effect if implemented.
FORWARD-LOOKING STATEMENTS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations of Maple Leaf contains certain
forward-looking statements, meaning statements that relate to present or future
trends or factors affecting the banking industry and specifically the
operations, markets and products of Maple Leaf and its subsidiary, Geauga
Savings. Because of a variety of factors, including but not limited to those
having to do with the economic environment (particularly in the market areas in
which Geauga Savings operates), competitive products and pricing, fiscal and
monetary policies of the U.S. Government, changes in government regulations
affecting financial institutions, including regulatory capital requirements,
changes in prevailing interest rates, asset/liability and credit risk
management, the financial and securities markets and the availability of and
costs associated with sources of liquidity, actual results could differ
materially from those set forth in forward-looking statements.
INTRODUCTION
Geauga Savings Bank is engaged principally in the business of
attracting deposits from the general public and using these deposits, loan
repayments, other borrowings and the proceeds from the sale of packaged loans to
make loans primarily for the purchase, financing and improvement of real estate.
Geauga Savings Bank also engages in consumer lending, and to a lesser extent, in
non-real estate commercial lending and other fee generating financial services.
Maple Leaf's profitability depends primarily on net interest income,
which is the difference between (a) interest income generated by
interest-earning assets (i.e., loans and investments) and (b) interest expense
incurred on interest-bearing liabilities (i.e., customer deposits and borrowed
funds). Net interest income is affected by the difference ("interest rate
spread") between rates of interest earned on interest-earning assets and rates
of interest paid on interest-bearing liabilities, as well as the relative
amounts of interest earning assets and interest-bearing liabilities. If the
total of interest-earning assets approximates or exceeds the total of
interest-bearing liabilities, any positive interest rate spread will generate
net interest income. Financial institutions have traditionally used interest
rate spreads as a measure of net interest income. Another indication of an
institution's net interest income is its "net yield on interest-earning assets"
or "net interest margin," which is net interest income divided by average
interest-earning assets.
To a lesser extent, Maple Leaf's profitability is also affected by such
factors as the level of non-interest income and expenses, the provision for loan
losses, and the effective tax rate. Non-interest income consists primarily of
service charges and other fees and income from the sale of loans and investment
securities. Noninterest expenses consist of compensation and benefits, occupancy
related expenses, deposit insurance premiums paid to the FDIC and other
operating expenses.
88
<PAGE> 97
Maple Leaf's management's discussion and analysis of earnings and
related financial data is presented herein to assist investors in understanding
the consolidated financial condition and results of operations of Maple Leaf for
the fiscal years ended December 31, 1997 and 1996 and for the nine-month period
ended September 30, 1998. This discussion should be read in conjunction with the
consolidated financial statements and related footnotes presented elsewhere
herein.
RESULTS OF OPERATIONS
Net income for the period ended December 31, 1997 was $755,102 ($23.91
per share, diluted), an increase of $212,810, or 39.24% over the like period in
1996. This increase in net income was primarily the result of growth in the
volume of loans, investments and deposits and the corresponding net interest
income associated with increased volumes. In addition, there was a lower
provision for loan loss in 1997 compared to 1996. The effective tax rate in 1997
was 33.9%, compared to 32.9% in 1996.
Net income for the nine-month period ended September 30, 1998 was
$839,683 ($26.68 per share, diluted), an increase of $276,689, or 49.15%, over
the like period in 1997. The net income increase was primarily due to the
increase in average loan balances and growth in the volume of loans. Return on
average assets for the nine month period ended September 30, 1998 was 1.04%,
compared to 0.82% for the like period in 1997. Return on average equity for the
nine month period ended September 30, 1998 was 13.94%, compared to 10.12% for
the like period in 1997. The effective tax rate for the nine month period ended
September 30, 1998 was 34.6%, compared to 33.6% for the like period in 1997.
Earnings per share was computed in accordance with Statement of
Financial Accounting Standards SFAS No. 128. This calculation was based on
31,467 and 31,710 diluted weighted average shares outstanding for the nine month
periods ended September 30, 1998 and 1997, respectively.
NET INTEREST INCOME
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997. Net interest income for the nine months ended September 30,
1998 was $2,593,961, an increase of $456,090, or 21.3%, over the like period in
1997. Interest income of $6,622,527 for the nine month period ended September
30, 1998 represents an increase of $1,044,892, or 18.7%, over the like period in
1997. The increase in interest income was due primarily to the increase in
average loan balances and growth in the volume of loans. Interest expense of
$4,028,566 for the nine month period ended September 30, 1998 increased by
$588,802, or 17.1%, over interest expense in the same period in 1997, due
primarily to the increase in the cost of reverse repurchase agreement borrowings
and a higher rate of interest paid on certificates of deposit.
1997 Compared to 1996. Net interest income for the year ended December
31, 1997 was $2,896,865, an increase of $417,431 or 16.8% over 1996 net interest
income. This increase was caused primarily by the higher volume of loans,
partially offset by increased interest expenses associated with increased
borrowings and higher rates paid on certificates of deposit. At the same time,
the Geauga Savings Bank's interest rate spread decreased to 2.6% in 1997 from
2.9% in 1996. Geauga Savings Bank's net interest margin also decreased in 1997
to 3.13% from 3.46% in 1996. Geauga Savings Bank's decrease in interest rate
spread and net interest margin was primarily a result of an increase in
long-term borrowings needed to support increased loan volumes.
1996 Compared to 1995. Net interest income for the year ended December
31, 1996 was $2,479,434, an increase of $565,254 or 29.5% over 1995. This
increase was caused primarily by the higher volume of loans while interest
expenses remained relatively flat. At the same time, the Geauga Savings Bank's
interest rate spread increased to 2.9% in 1996 from 2.6% in 1995. Geauga Savings
Bank's net interest margin also increased in 1996 to 3.46% from 3.1% in 1995.
89
<PAGE> 98
Average Balances, Interest Rates and Yields. The following tables set
forth certain information relating to Geauga Savings Bank's consolidated average
interest-earning assets and interest-bearing liabilities and reflects the
average yield on assets and average cost of liabilities for the years indicated
and for the nine months periods ended September 30, 1998 and 1997. Such yields
and costs are derived by dividing income or expense by the average daily balance
of assets or liabilities, respectively, for the periods presented. During the
periods indicated, non-accruing loans, if any, are included in the net loan
category.
AVERAGE BALANCES, INTEREST RATES AND YIELDS FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------- ----------------------------------------
AVERAGE INCOME/ EFFECTIVE AVERAGE INCOME/ EFFECTIVE
BALANCE EXPENSE YIELD/COST BALANCE EXPENSE YIELD/COST
------------ ---------- ------------ ---------- --------- ------------
INTEREST EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Mortgage Backed Securities................. $ 22,396,203 $ 1,431,362 6.39% $ 18,272,512 $ 1,219,599 6.67%
Loans Receivable:
Real Estate Mortgage..................... 64,416,746 5,575,243 8.65% 48,216,958 4,155,811 8.62%
Consumer................................. 2,012,241 242,339 12.04% 1,655,271 188,234 11.37%
Deferred Loan Fees....................... (643,986) 277,169 43.04% (526,940) 283,887 53.87%
------------ ----------- -------- ------------- ----------- -------
Total Loans Receivable.................. 65,785,001 6,094,751 9.26% 49,345,289 4,627,932 9.38%
Cash-Interest Earning...................... 3,600,198 168,011 4.67% 2,786,485 122,614 4.40%
----------- ---------- -------- ------------ ---------- -------
Total Earning Assets....................... 91,781,402 7,694,124 8.38% 70,404,286 5,970,145 8.35%
FHLB Stock................................. 1,430,162 1,094,289
Accrued Interest Receivable................ 727,366 552,801
Other Non Interest Earning Assets.......... 1,408,991 1,132,604
Allowance for Loan Losses.................. (739,373) (517,791)
------------ ------------
Total Assets......................... $ 94,608,548 $ 72,666,189
=========== ===========
INTEREST BEARING LIABILITIES:
Deposits:
DDA Interest Earning.................... 3,200,392 53,508 1.67% 3,164,145 56,894 1.80%
Savings Accounts........................ 6,033,883 223,185 3.70% 4,979,331 175,445 3.52%
Certificates of Deposits................ 38,993,850 2,411,751 6.18% 27,764,066 1,668,251 6.01%
----------- ----------- ------- ----------- ---------- -------
Total Deposits....................... 48,228,125 2,688,444 5.57% 35,907,542 1,900,590 5.29%
Borrowings................................. 36,275,202 2,106,698 5.81% 28,429,149 1,590,121 5.59%
Other interest expense..................... 2,118 0.04% 0 0.00%
-------------- ------------ ------ ---------------- ------------- -------
Total Interest Bearing Liabilities...... 84,503,327 4,797,260 5.68% 64,336,691 3,490,711 5.43%
DDA Non-Interest Earning................... 1,044,884 983,398
Other Non Interest Bearing Liabilities..... 1,532,317 1,321,757
Shareholders' Equity....................... 7,528,020 6,024,343
------------ ------------
Total Liabilities and Stockholders Equity $ 94,608,548 $ 72,666,189
=========== ===========
Net Interest Income and Interest Rate Spread $ 2,896,864 2.71% $ 2,479,434 3.05%
========== ==========
Net Interest Margin........................ 3.16% 3.52%
Ratio of Average Interest Earning Assets
to Interest Bearing Liabilities......... 108.61% 109.43%
<CAPTION>
1995
----------------------------------------
AVERAGE INCOME/ EFFECTIVE
BALANCE EXPENSE YIELD/COST
--------- --------- -----------
INTEREST EARNING ASSETS:
<S> <C> <C> <C>
Mortgage Backed Securities................. $ 15,223,373 $ 1,075,908 7.07%
Loans Receivable:
Real Estate Mortgage..................... 41,439,568 3,445,409 8.31%
Consumer................................. 1,641,057 180,405 10.99%
Deferred Loan Fees....................... (511,211) 232,439 45.47%
------------ ----------- -------
Total Loans Receivable.................. 42,569,414 3,858,253 9.06%
Cash-Interest Earning...................... 2,388,559 104,077 4.36%
----------- ---------- ------
Total Earning Assets....................... 60,181,346 5,038,238 8.37%
FHLB Stock................................. 935,738
Accrued Interest Receivable................ 483,032
Other Non Interest Earning Assets.......... 885,442
Allowance for Loan Losses.................. (436,933)
----------
Total Assets......................... $ 62,048,625
==========
INTEREST BEARING LIABILITIES:
Deposits:
DDA Interest Earning.................... 3,203,875 67,592 2.11%
Savings Accounts........................ 4,710,905 168,803 3.58%
Certificates of Deposits................ 24,220,609 1,470,626 6.07%
---------- ---------- -------
Total Deposits....................... 32,135,389 1,707,021 5.31%
Borrowings................................. 23,386,359 1,417,038 6.06%
Other interest expense..................... 0 0.00%
---------------- ------------- ------
Total Interest Bearing Liabilities...... 55,521,748 3,124,059 5.63%
DDA Non-Interest Earning................... 1,100,565
Other Non Interest Bearing Liabilities..... 1,217,151
Shareholders' Equity....................... 4,209,161
-----------
Total Liabilities and Stockholders Equity $ 62,048,625
==========
Net Interest Income and Interest Rate Spread $ 1,914,179 2.75%
=========
Net Interest Margin........................ 3.18%
Ratio of Average Interest Earning Assets 110.08%
to Interest Bearing Liabilities.........
</TABLE>
90
<PAGE> 99
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST RATES AND YIELDS FOR THE NINE MONTHS ENDING SEPTEMBER 30,
1998
-----------------------------------------------------------
AVERAGE INCOME/ EFFECTIVE
BALANCE EXPENSES YIELD/COST
<S> <C> <C> <C>
INTEREST EARNINGS ASSETS:
Mortgage Backed Securities................................ $ 19,883,596 $ 909,286 6.11%
Loans Receivable:
Real Estate Mortgage.................................... 77,101,229 5,076,481 8.80%
Consumer................................................ 2,744,323 246,846 12.03%
Deferred Loan Fees...................................... (839,805) 217,395 34.61%
------------ ------------ -------
Total Loans Receivable................................. 79,005,747 5,540,722 9.38%
Cash-Interest Earning..................................... 5,812,889 172,519 3.97%
------------ ------------ -------
Total Earning Assets...................................... 104,702,232 6,622,527 8.46%
FHLB Stock................................................ 1,833,680
Accrued Interest Receivable............................... 802,221
Other Non Interest Earnings Assets........................ 1,487,508
Allowance for Loan Losses................................. (909,532)
------------
Total Assets........................................ $107,916,109
============
INTEREST BEARING LIABILITIES:
Deposits:
DDA Interest Earning.................................... 3,174,196 34,357 1.45%
Savings Accounts........................................ 6,525,845 174,509 3.58%
Certificates of Deposit................................. 42,944,195 1,981,472 6.17%
------------ ---------- -------
Total Deposits...................................... 52,644,236 2,190,338 5.56%
Borrowings 44,238,279 1,838,228 5.56%
------------ ---------- -------
Total Interest Bearing Liabilities...................... 96,882,515 4,028,566 5.56%
DDA Non-Interest Earning.................................. 1,207,964
Other Non Interest Bearing Liabilities.................... 1,791,197
Shareholders' Equity...................................... 8,034,433
------------
Total Liabilities and Stockholders Equity........... $107,916,109
============
Net Interest Income and Interest Rates Spread............. $ 2,593,961 3.87%
============
Net Interest Margin....................................... 3.31%
Ratio of Average Interest Earnings Assets
to Interest Bearing Liabilities........................ 108.07%
<CAPTION>
1997
--------------------------------------------------------
AVERAGE INCOME/ EFFECTIVE
BALANCE EXPENSE YIELD/COST
<S> <C> <C> <C>
INTEREST EARNINGS ASSETS:
Mortgage Backed Securities................................ $ 21,631,871 $ 1,044,184 6.45%
Loans Receivable:
Real Estate Mortgage.................................... 62,337,377 4,014,089 8.61%
Consumer................................................ 1,907,133 174,320 12.22%
Deferred Loan Fees...................................... (613,629) 215,672 46.99%
------------- ----------- ------
Total Loans Receivable................................. 63,630,881 4,404,081 9.25%
Cash-Interest Earning..................................... 3,559,539 129,370 4.86%
------------ ---------- ------
Total Earning Assets...................................... 88,822,291 5,577,635 8.40%
FHLB Stock................................................ 1,404,930
Accrued Interest Receivable............................... 703,309
Other Non Interest Earnings Assets........................ 1,380,909
Allowance for Loan Losses................................. (702,823)
-------------
Total Assets........................................ $ 91,608,616
=============
INTEREST BEARING LIABILITIES:
Deposits:
DDA Interest Earning.................................... 3,228,485 41,310 1.71%
Savings Accounts........................................ 5,993,132 166,958 3.72%
Certificates of Deposit................................. 37,693,635 1,733,725 6.15%
----------- ---------- -------
Total Deposits...................................... 46,915,252 1,941,993 5.53%
Borrowings 34,828,279 1,497,771 5.75%
----------- ---------- -------
Total Interest Bearing Liabilities...................... 81,743,531 3,439,764 5.63%
DDA Non-Interest Earning.................................. 1,013,764
Other Non Interest Bearing Liabilities.................... 1,415,936
Shareholders' Equity...................................... 7,435,385
-------------
Total Liabilities and Stockholders Equity........... $ 91,608,616
=============
Net Interest Income and Interest Rates Spread............. $ 2,137,871 3.70%
============
Net Interest Margin....................................... 3.22%
Ratio of Average Interest Earnings Assets
to Interest Bearing Liabilities........................ 108.66%
</TABLE>
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<PAGE> 100
Rate/Volume Analysis. The following tables analyze net interest income
in terms of changes in the volume of interest-earning assets and
interest-bearing liabilities, and changes in net interest income that are
attributable to changes in yields earned on interest-earning assets and rates
paid on interest-bearing liabilities. The table reflects the extent to which
changes in interest income and changes in interest expense are attributable to
changes in volume (changes in volume multiplied by the prior year rate) and
changes in rate (changes in rate multiplied by prior year volume), as well as
changes attributable to the combined impact of changes in rate and changes in
volume (changes in volume multiplied by changes in rate).
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------
1998 VS. 1997
INCREASE (DECREASE) DUE TO
VOLUME RATE RATE/VOLUME TOTAL
------ ---- ----------- -----
<S> <C> <C> <C> <C>
Interest income attributable to:
Loans receivable........................ $ 1,064,141 $ 58,392 $ 14,110 $ 1,136,643
Investment securities................... 81,897 (23,728) (15,021) 43,148
Mortgage-backed securities.............. (84,390) (54,949) 4,441 (134,898)
---------- --------- -------- ----------
Total interest income................ 1,061,648 (20,285) 3,530 1,044,893
Interest expense attributable to:
Deposits................................ 237,144 9,982 1,219 248,345
Borrowings.............................. 404,672 (50,556) (13,659) 340,457
--------- --------- -------- --------
total interest expense............... 641,816 (40,574) (12,440) 588,802
Increase (decrease) in net interest income. $ 419,832 $ 20,289 $ 15,970 $ 456,091
======== ======= ======= ========
</TABLE>
PROVISION FOR LOAN LOSSES
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997. The provision for loan losses was $42,124 for the first nine
months of 1998, a $208,899 or 83.2% decrease over the like 1997 period. The
provision for loan losses is based upon management's assessment of relevant
factors, including types and amounts of nonperforming loans, historical and
anticipated loss experience and current and projected economic conditions. The
decrease in the provision for loan losses was principally a result of the
collection of loans classified as loss in 1997, for which the provision had been
previously increased. Net loan chargeoffs were $14,604 for the nine month period
ended September 30, 1998 and $18,278 for the nine month period ended September
30, 1997. Net loan chargeoffs as a percentage of net loans were 0.02% for the
nine month period ended September 30, 1998, and 0.02% for the nine month period
ended September 30, 1997. The decrease in net loan chargeoffs was a result of
increased collection efforts. The ratios of nonperforming assets as a percentage
of total assets were 0.6% at September 30, 1998 and 0.6% at September 30, 1997.
Refer to Notes 1 and 5 of Notes to Consolidated Financial Statements for
additional information.
1997 Compared to 1996. The provision for loan losses was $317,380 in
1997, a $183,727 or 137.5% increase over 1996. The increase in the provision for
loan losses was principally a result of increased loan volume. Refer to Notes 1
and 5 of Notes to Consolidated Financial Statements for additional information.
1996 Compared to 1995. The provision for loan losses was $133,653 in
1996, a $88,028 or 192.9% increase over 1995. The increase in the provision for
loan losses was principally a result of increased loan volume. Refer to Notes 1
and 5 of Notes to Consolidated Financial Statements for additional information.
NON-INTEREST INCOME
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997. Total non-interest income was $203,163 for the nine months
ended September 30, 1998, an increase of $84,773, or
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<PAGE> 101
71.6.%, over the like 1997 period. The increase in non-interest income was
largely due to an increase in FHLB stock dividends.
1997 Compared to 1996. Total non-interest income was $196,171 for the
year ended December 31, 1997, an increase of $17,901 or 10% over 1996. The
increase was due to an increase in the number of deposit accounts subject to
service charges and an increase in FHLB dividends.
1996 Compared to 1995. Total non-interest income was $178,270 for the
year ended December 31, 1996, an increase of $31,251 or 21.3%, over 1995. The
increase was due to an increase in service charge income and FHLB dividends.
NON-INTEREST EXPENSE
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997. Noninterest expense for the nine months ended September 30,
1998 was $1,468,919 a $311,285 or 26.89% increase over the like period in 1997.
The increase in non-interest expense was principally the result of increased
personnel costs due to the expansion in the volume of loans, together with
higher accounting and legal expenses incurred as a result of the creation of the
holding company structure in late 1997, partially offset by lower provision for
loan losses in 1998.
1997 Compared to 1996. Total non-interest expense was $1,632,247 in
1997, a decrease of $83,359 or 4.9% from 1996. This decrease is principally the
result of lower FDIC insurance premiums offset by higher salary expense.
1996 Compared to 1995. Total non-interest expense was $1,715,606 in
1996, an increase of $403,918 or 30.8% over 1995. The increase resulted
primarily from a one time assessment by the FDIC against all SAIF assessable
deposits, higher salary and employee benefit expense.
FEDERAL INCOME TAXES
1997 Compared to 1996. Federal income tax expense was approximately
$388,307 in 1997, compared to $266,153 in 1996. Refer to Note 9 of Notes to
Consolidated Financial Statements for additional information.
1996 Compared to 1995. Federal income tax expense was $266,153 in 1996,
compared to $244,928 in 1995. Refer to Note 9 of Notes to Consolidated Financial
Statements for additional information.
FINANCIAL CONDITION
Assets. Total assets amounted to $105 million at December 31, 1997,
compared to $82.2 million at December 31, 1996, an increase of $22.8 million or
27.7%. The growth in assets is attributable almost entirely to growth in Geauga
Savings Bank's loan portfolio. Geauga Savings Bank's loan portfolio consists
largely of residential loans, which accounts for 97.6% of its total loan
portfolio. Total loans (net of allowance for loan losses) at December 31, 1997
were $74.0 million, compared to $55.5 million at December 31, 1996, while total
deposits at December 31, 1997 were $54.4 million, compared to $43.2 million at
December 31, 1996. Total loan growth of $18.5 million, or 33.3%, outpaced
deposit growth of $11.2 million, or 26.1%. Accordingly, Geauga Savings Bank
employed FHLB advances (loans from the Federal Home Loan Bank of Cincinnati),
and reverse repurchase agreements from FNMA (Federal National Mortgage
Association) as additional funding sources.
Cash equivalents (cash and amounts due from banks and federal funds
sold) increased by $1.8 million, or 82%, during 1997, to a total of $4.0
million. The increase in cash was the result of loan repayments and higher cash
requirements to fund loans in the pipeline.
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<PAGE> 102
Geauga Savings Bank's total assets were $111.5 million at September 30,
1998, compared to $102.8 million at September 30, 1997, an increase of 8.4%. The
growth in assets is attributable almost entirely to growth in Geauga Savings
Bank's loan portfolio. In addition, Geauga Savings Bank realized a $2.7 million
increase in deposits. During the same period, total loans (net of allowance for
loan losses) were $83.4 million, or an increase of $13.5 million. This increase
in total loans was funded by the increase in deposits, FHLB advances, and
reverse repurchase agreements from FNMA.
Allowance for Loan Losses. The provision for loan losses represents a
charge to earnings for maintaining the allowance at a level management believes
is adequate. Management reviews the allowance monthly to ensure that the
allowance remains adequate to absorb potential losses identified by the
portfolio review process. Geauga Savings Bank takes into account loan growth and
the level of delinquent and nonperforming loans in its review of the portfolio,
considering also such external factors as current and anticipated economic
conditions in the primary market area.
Geauga Savings Bank's allowance for loan losses totaled $918,010 at
September 30, 1998, $890,591 at December 31, 1997 and $591,186 at December 31,
1996, representing 1.09% of total net loans at September 30, 1998, 1.20% of
total net loans at December 31, 1997 and 1.07% of total net loans at December
31, 1996. Geauga Savings Bank's allowance represented 137.6% of nonperforming
loans at September 30, 1998, 145.6% of nonperforming loans at December 31, 1997,
and 188.3% of nonperforming loans at December 31, 1996.
CAPITAL
Shareholders' equity increased to $8.7 million at September 30, 1998,
due primarily to increased retained earnings.
As of September 30, 1998, Geauga Savings Bank was in compliance with
applicable regulatory capital requirements, as shown in the following table (see
"SUPERVISION AND REGULATION - CAPITAL"):
<TABLE>
<CAPTION>
GEAUGA SAVINGS BANK MINIMUM NECESSARY TO BE MINIMUM NECESSARY TO BE
AT SEPTEMBER 30, 1998 WELL CAPITALIZED ADEQUATELY CAPITALIZED
--------------------- ---------------------------- ------------------------
<S> <C> <C> <C>
Total Risk-Based Capital Ratio 15.2% 10.0% 8.0%
Tier 1 Risk-Based Capital
Ratio........................ 13.9% 6.0% 4.0%
Leverage Ratio............... 7.4% 5.0% 3.0%
</TABLE>
As of September 30, 1998, Maple Leaf's ratio of total equity capital to
totals assets was 7.8%.
Based on capital levels at September 30, 1998, Geauga Savings Bank
qualifies as a "well-capitalized" institution, the highest of five tiers under
applicable regulatory definitions. It is Maple Leaf's intention to operate
Geauga Savings Bank as a well-capitalized institution within the meaning of
applicable regulatory definitions. However, Geauga Savings Bank could from time
to time fall below the highest level.
LIQUIDITY
Like other financial institutions, Geauga Savings Bank must ensure that
sufficient funds are available to meet deposit withdrawals, loan commitments and
expenses. Control of cash flow requires that Geauga Savings Bank anticipate
deposit flows and loan payments. The primary sources of funds are deposits,
principal and interest payments on loans, federal funds and FHLB borrowings.
These funds are used principally to originate loans.
At September 30, 1998, certificates of deposit represented 74.1% of
total deposits, while DDA (checking accounts) represented 7.9%, savings accounts
13.5% and IRA and KEOGH accounts 4.5% Of the
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<PAGE> 103
total $40.8 million certificates of deposit at September 30, 1998, certificates
totaling $26.4 million mature in 1999, and certificates totaling $7.5 million
mature in 2000. Together, these figures represent 83.1% of the total
certificates of deposit at September 30, 1998. Management believes that,
consistent with experience, the majority of maturing certificates of deposit
will be renewed at market rates of interest.
Geauga Savings Bank has used advances from the FHLB of Cincinnati and
borrowings from FNMA through the use of reverse repurchase agreements as sources
of funds for its lending activity. The amount that may be obtained in the form
of advances from the FHLB is determined by a formula on a quarterly basis. The
formula is based upon, a percentage of advances to total assets, the total
amount of single-family mortgages in Geauga Savings Bank's portfolio, as
reported in Geauga Savings Bank's quarterly call report, the percentage of
Geauga Savings Bank's total loan portfolio represented by single-family
mortgages and the amount of FHLB stock held by Geauga Savings Bank. At September
30, 1998, Geauga Savings Bank had $42.9 million of outstanding FHLB advances. As
of September 30, 1998, Geauga Savings Bank could have obtained additional
advances from the FHLB of Cincinnati of approximately $9.0 million. See
"SUPERVISION AND REGULATION - FEDERAL HOME LOAN BANKS."
FHLB advances are secured by a portion of the mortgage portfolio and
certain other assets. Likewise, most of Geauga Savings Bank's short-term
investments are subject to pledge and therefore provide limited liquidity. In
addition to FHLB advances, Geauga Savings Bank borrows funds through the use of
reverse repurchase agreements from FNMA. The reverse repurchase agreements
outstanding at September 30, 1998 were $3.0 million, and are collateralized by
Geauga Savings Bank's FHLMC mortgage-backed participation certificates. Upon
maturity of the reverse repurchase agreements, Geauga Savings Bank agrees to
purchase the related participation certificates back from FNMA. Refer to Note 8
of Notes to Consolidated Financial Statements for additional information.
Geauga Savings Bank also has a $425,000 line of credit with a
commercial bank bearing interest at the federal funds rate and a $3,000,000 line
of credit with the FHLB. There was no balance on these lines of credit at
September 30, 1998.
As of September 30, 1998, Geauga Savings Bank had commitments to fund
approximately $5.1 million of variable-rate and adjustable-rate loans, compared
to commitments at December 31, 1997 to fund approximately $4.4 million of
variable-rate and adjustable-rate loans. Included within these commitments at
September 30, 1998 are unused lines of credit of $1.1 million. Management
believes Geauga Savings Bank has adequate resources to meet its normal funding
requirements.
ASSET/LIABILITY MANAGEMENT
Like other financial institutions, Geauga Savings Bank is subject to
interest rate risk. Geauga Savings Bank's interest-earning assets could mature
or reprice more rapidly than, or on a different basis from, its interest-bearing
liabilities (primarily borrowings and deposits with short- and medium-term
maturities) in a period of declining interest rates. Although having assets that
mature or reprice more frequently on average than liabilities will be beneficial
in times of rising interest rates, such an asset/liability structure will result
in lower net interest income during periods of declining interest rates.
Geauga Savings Bank monitors its interest rate sensitivity position and
attempts to limit the exposure to interest rate risk. The bank's policy is that
the static one-year cumulative interest rate sensitivity gap should generally be
within a range of negative 15% to positive 15%. As the following table
illustrates, the one-year gap was inside of this range as of September 30, 1998,
with a positive one-year gap of 9.92%.
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<PAGE> 104
The following table illustrates the maturities or repricing of Geauga
Savings Bank's assets and liabilities at September 30, 1998, based upon the
contractual maturity or contractual repricing dates of loans and the contractual
maturities of time deposits. Prepayment assumptions have not been applied to
fixed-rate mortgage loans. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as due in one
year or less. Allocation of deposits other than time deposits to the various
maturity and repricing periods is based upon management's best estimate, taking
into account, among other things, the proposed policy statement issued by
federal bank regulators on August 4, 1995.
<TABLE>
<CAPTION>
MATURING OR REPRICING PERIODS AS OF SEPTEMBER 30, 1998
WITHIN 4 - 12 1 -5 OVER 5
3 MONTHS MONTHS YEARS YEARS TOTAL
-------- ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
INTEREST EARNINGS ASSETS:
Adjustable Rate Mortgage Loans........... $ 7,570,741 $ 24,489,807 $ 21,895,116 $ 0 $ 53,955,664
Fixed Rate Mortgage Loans................ 160,763 202,083 359,948 11,992,756 12,715,550
Commercial Loans......................... 21,456 243,265 1,076,186 14,164,470 15,505,377
Consumer Loans........................... 62,236 158,105 1,110,360 1,731,222 3,061,923
Mortgage Pool Securities................. 11,030,100 1,394,084 128,714 4,362,738 16,915,636
Interest Bearing Deposits in Other Banks. 6,665,370 0 0 0 6,665,370
---------- -------------- -------------- -------------- -----------
Total............................. $25,510,666 $ 26,487,344 $24,570,324 $ 32,251,186 $108,819,520
========== =========== ========== ========== ===========
INTEREST BEARING LIABILITIES
Certificates of Deposit.................. 4,753,584 $ 21,151,825 $ 17,435,160 $ 0 $ 43,340,569
Money Market............................. 338,544 0 0 0 338,544
NOW Accounts............................. 4,241,194 0 0 0 4,241,194
Passbook Accounts........................ 7,458,956 0 0 0 7,458,956
FHLB Advances............................ 0 0 5,150,259 37,798,020 42,948,279
Reverse Repurchase Agreements............ 3,000,000 0 0 0 3,000,000
---------- -------------- -------------- -------------- -----------
Total............................. $19,792,278 $ 21,151,825 $ 22,585,419 $ 37,798,020 $101,327,542
========== =========== =========== =========== ===========
Interest Rate Sensitivity GAP.............. 5,718,388 5,335,519 1,984,905 (5,546,834) 7,491,978
Cumulative Interest Rate Sensitivity GAP... 5,718,388 11,053,907 13,038,812 7,491,978
Cumulative Interest Rate Sensitivity GAP
as a percentage of Total Assets... 5.13% 9.92% 11.70% 6.72%
</TABLE>
This analysis of interest-rate sensitivity has a number of limitations.
The "gap" analysis above is based upon assumptions concerning such matters as
when assets and liabilities will reprice in a changing interest rate
environment. Because these assumptions are no more than estimates, certain
assets and liabilities indicated as maturing or repricing within a stated period
might actually mature or reprice at different times and at different volumes
from those estimated. The actual prepayments and withdrawals experienced by
Geauga Savings Bank in the event of a change in interest rates could deviate
significantly from those assumed in calculating the data shown in the table.
Certain assets, adjustable-rate loans for example, commonly have provisions that
limit changes in interest rates each time the interest rate changes and on a
cumulative basis over the life of the loan. Also, the renewal or repricing of
certain assets and liabilities can be discretionary and subject to competitive
and other pressures. The ability of many borrowers to service their debt could
diminish in the event of an interest rate increase. Therefore, the gap table
above does not and cannot necessarily indicate the actual future impact of
general interest movements on net interest income.
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<PAGE> 105
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (which is referred to
hereinafter as "FASB") issued Statement of Financial Accounting Standards, SFAS
No. 130, "Reporting Comprehensive Income" which is effective for fiscal years
beginning after December 15, 1997. Components of comprehensive income are net
income and all other non-owner changes in equity. SFAS No. 130 requires an
entity to report other accumulated comprehensive income separately from retained
earnings and additional paid-in capital in the financial statements in the
equity section. The Corporation's comprehensive income for the nine months ended
September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
---------- ---------
<S> <C> <C>
Net income................................................. $839,683 $562,994
Other comprehensive income:
Unrealized gain on securities available for sale.. $ 34,484 $ 79,593
Accumulated comprehensive income........................... $874,167 $642,587
</TABLE>
FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" with an effective date for years beginning after
December 15, 1997. It redefines how operating segments are determined and
requires disclosure of certain financial and descriptive information about a
corporation's operating segments. It also requires that comparative information
from earlier periods be restated to conform to the requirements of this
standard. The adoption of this statement is not expected to result in additional
disclosures for Maple Leaf.
FASB issued SFAS No. 132, "Employers' Disclosure about Pensions and
Other Postretirement Benefits," which is effective for fiscal years beginning
after December 15, 1997. This Statement provides for standardized disclosures of
benefit plans, dropping some information that is no longer useful (amending FASB
Statements No. 87, 88, and 106), and requiring additional information on changes
in benefit obligations and fair values of plan assets that will facilitate
financial analysis. This is expected to result in additional disclosures in
Maple Leaf's year-end financial statements.
FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" with an effective date for all fiscal quarters of fiscal
years beginning after June 15, 1999. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize derivatives as either assets or liabilities at
fair value, with gains or losses determined depending on the intended use of the
derivative and its resulting designation. SFAS No. 133 will not be applied
retroactively to prior period financial statements. Maple Leaf adopted SFAS No.
133 as of July 1, 1998 and reclassified mortgage pool participation certificates
with a book value of $3,769,661 from held-to-maturity to available-for-sale. The
market value of these securities was $3,926,416, which resulted in an unrealized
gain of $156,755 before applicable taxes.
IMPACT OF INFLATION AND CHANGING PRICES
Maple Leaf's consolidated financial statements and related data herein
have been prepared in accordance with generally accepted accounting principles,
which require measurement of financial condition and results of operations in
terms of historical dollars, without considering changes in the relative
purchasing power of money over time due to inflation.
Because the primary assets and liabilities of Maple Leaf and Geauga
Savings Bank are monetary in nature, changes in the general level of prices for
goods and service have a relatively minor impact on total expenses. Increases in
operating expenses such as salaries and maintenance are in part attributable to
inflation.
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<PAGE> 106
However, interest rates have a far more significant effect than inflation on the
performance of financial institutions, including Maple Leaf. See " -
ASSET/LIABILITY MANAGEMENT."
YEAR 2000 READINESS DISCLOSURE
Maple Leaf is aware of the concern throughout the business community of
reliance upon computer software programs that do not properly recognize the year
2000 in date formats, commonly referred to as the "Year 2000 Problem." Maple
Leaf, and especially Geauga Savings Bank, use and are dependent upon data
processing systems and software to conduct business. Like other businesses,
Maple Leaf and Geauga Savings Bank's business depends upon products and services
provided by others, whether in the area of information technology or other areas
such as security, environmental systems, power and communications. Failure to
address the Year 2000 Problem could cause service disruptions to customers,
resulting in adverse impacts to Maple Leaf's financial condition and results of
operations.
Geauga Savings Bank has established a Year 2000 planning and
implementation process. An assessment of Geauga Savings Bank's software,
hardware, environmental and other computer-controlled systems has been
completed. Mission-critical systems relating both to information technology and
other technology have been identified and prioritized. A written testing plan
providing for the testing of all mission-critical systems has been completed.
Testing of Geauga Savings Bank's internal mission-critical systems was
substantially completed at the end of 1998 with favorable results. Management of
Maple Leaf anticipates that all data processing applications will be converted
to systems maintained by GLB subsequent to the Merger and prior to January 1,
2000.
In the event the Merger would not be approved by stockholders, Maple
Leaf would continue the Year 2000 testing and implementation activities.
Management has been informed that the data center which processes its core data
processing systems is currently in the testing phase of its Year 2000 readiness
plan and that the service provider anticipates achieving Year 2000 readiness by
June 30, 1999.
BUSINESS OF MAPLE LEAF
GENERAL
Maple Leaf was incorporated on May 6, 1997 for the purpose of becoming
the holding company for Geauga Savings Bank. The holding company reorganization
was completed on November 6, 1997. Maple Leaf is a corporate entity legally
separate and distinct from Geauga Savings Bank. At the present time, the sole
source of Maple Leaf's income is dividends from its wholly owned subsidiary,
Geauga Savings Bank. There are certain regulatory restrictions on the extent to
which Geauga Savings Bank may pay dividends or otherwise supply funds to Maple
Leaf. See "SUPERVISION AND REGULATION -- LIMITS ON DIVIDENDS AND OTHER
PAYMENTS." Currently, Maple Leaf has no operations independent of Geauga Savings
Bank.
Geauga Savings Bank was incorporated as an Ohio-chartered, permanent
stock building and loan association on November 2, 1982 under the name "Geauga
Savings Association." With shareholder approval, Geauga Savings Bank converted
to an Ohio-chartered savings bank effective July 7, 1992. Prior to the charter
conversion, Geauga Savings' principal federal regulator was the Office of Thrift
Supervision ("OTS"). As a result of the conversion, Geauga Savings' principal
federal regulator is the Federal Deposit Insurance Company ("FDIC"). Geauga
Savings is also subject to regulation by the Ohio Division of Financial
Institutions. Subsequent to the reorganization described above, Maple Leaf
became a unitary, non-diversified savings and loan holding company subject to
the supervision of the OTS.
Through its subsidiary, Geauga Savings, Maple Leaf is engaged
principally in the business of making one (1) to four (4) family residential
loans, small business loans, automobile loans, equipment loans,
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<PAGE> 107
commercial real estate and personal loans. Geauga holds most of its loans in its
own portfolio because these loans do not conform with the standards for sale of
such loans through the Federal Home Loan Mortgage Corporation ("Freddie Mac").
However, in cases in which its loans do conform with Freddie Mac's standards,
Geauga sometimes, for competitive reasons, will sell such loans through various
correspondent banking and financial institution relationships, in which case,
Geauga will obtain an origination fee. Loan funds are obtained from deposits,
FHLB advances, and reverse repurchase agreements from FNMA. In addition to
originating and purchasing loans, Geauga Savings invests in U.S. Government and
agency obligations and mortgage-backed securities.
Geauga Savings conducts its principal business activities through its
home office located at 10800 Kinsman Road, Newbury, Ohio and its full service
branch office in the Harrington Square Shopping Center located in Middlefield,
Ohio. In addition to its banking offices, Geauga Savings also utilizes
independent loan brokers located throughout Geauga County and Cuyahoga County,
Ohio.
At September 30, 1998, Maple Leaf had total assets of $111.5 million,
total deposits of $55.1 million, shareholders' equity of $8.7 million, a Tier 1
capital ratio of 7.4%, non-performing assets to total assets ratio of 0.6% and
an allowance for loan losses to total loans ratio of 1.08%. At September 30,
1998, Maple Leaf and Geauga Savings Bank exceeded all regulatory capital
requirements.
LENDING ACTIVITIES
GENERAL. The principal lending activity of Geauga Savings is the
origination of primarily adjustable-rate mortgage loans, and to a lesser extent
conventional fixed-rate and adjustable-rate mortgage loans for the acquisition
or construction of one- to four-family residences located in the primary markets
of Geauga Savings. Geauga Savings is also approved to originate mortgage loans
insured by the Federal Housing Administration and guaranteed by the Veterans
Administration, but has only originated a few such loans, substantially all of
which have been sold in the secondary market with servicing released. Geauga's
secondary lending activities are the origination of consumer loans (secured and
unsecured), including automobile, home improvement, credit card and home equity
line of credit loans, as well as small business loans, including lines of credit
and term loans. In addition to single family residential real estate lending and
consumer lending, and to a much lesser extent, Geauga also originates loans
secured by multi-family properties, including mortgage loans on condominiums and
apartment buildings, and by nonresidential properties, including retail, office
and other types of business facilities. Geauga Savings' total net loans at
September 30, 1998 totaled approximately $83.4 million which represented
approximately 74.8% of total assets.
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<PAGE> 108
LOAN PORTFOLIO COMPOSITION. The following table sets forth certain
information concerning the composition of the loan portfolio of Geauga Savings
at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------
1997 1996
------------------------ -------------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Type of loan:
1-4 family real estate............................ $56,174,747 75.95% $45,421,213 81.80%
Commercial real estate and other.................. 12,277,575 16.60% 6,425,417 11.58%
Construction...................................... 7,994,643 10.81% 4,876,683 8.79%
Consumer.......................................... 2,439,638 3.30% 1,903,948 3.43%
Undisbursed loans in progress..................... (3,316,046) -4.49% (1,962,486) -3.53%
------------ -------- ------------ --------
Total loans ......................................... 75,570,557 102.17% 56,664,775 102.07%
Less:
Unamortized loan origination fees, net............ (719,611) -0.97% (554,437) -1.00%
Allowance for loan losses......................... (890,591) -1.20% (591,186) -1.07%
------------ ------- ----------- -------
Net loans............................................ $ 73,960,355 100% $ 55,519,152 100%
=========== ======= =========== =======
<CAPTION>
AT SEPTEMBER 30, 1998
----------------------------
AMOUNT PERCENT
------ -------
<S> <C> <C>
Type of loan:
1-4 family real estate.............................. $ 61,817,243 74.07%
Commercial real estate and other.................... 15,559,111 18.64%
Construction........................................ 9,068,723 10.87%
Consumer............................................ 2,825,475 3.39%
Undisbursed loans in progress....................... (4,033,253) -4.83%
------------ --------
Total loans ........................................... 85,237,299 102.13%
Less:
Unamortized loan origination fees, net.............. (861,527) -1.03%
Allowance for loan losses........................... (918,010) -1.10%
----------- -------
Net loans.............................................. $ 83,457,762 100%
=========== =======
</TABLE>
The following table presents maturity information for the loan
portfolio at December 31, 1997. The table does not include prepayments or
scheduled principal repayments. Adjustable rate mortgage loans are shown as
maturing based on contractual maturities.
<TABLE>
<CAPTION>
1-4 COMMERCIAL
FAMILY REAL ESTATE
REAL ESTATE AND OTHER CONSTRUCTION CONSUMER TOTAL
----------- --------- ------------ -------- -----
<S> <C> <C> <C> <C> <C>
Amount Due:
Within 3 months.............. $ 43,797 $ 0 $ 82,030 $ 61,775 $ 187,602
3 months to 1 year........... 162,495 139,275 0 129,615 431,385
After 1 year:
1 to 3 years................. 1,184,345 981,772 0 1,072,117 3,238,234
3 to 5 years................. 888,144 350,216 0 307,385 1,545,745
5 to 10 years................ 3,227,522 7,312,991 170,733 141,841 10,853,087
10 to 20 years............... 48,968,666 3,427,838 4,488,644 786,674 57,671,822
Over 20 years................ 1,636,968 0 0 5,714 1,642,682
----------- -------------- -------------- ------------ ------------
Total due after 1 year......... $ 55,905,645 $ 12,072,817 $ 4,659,377 $ 2,313,731 $ 74,951,570
----------- ----------- ----------- ----------- -----------
Total amount due............... $ 56,111,937 $ 12,212,092 $ 4,741,407 $ 2,505,121 $ 75,570,557
=========== =========== =========== =========== ===========
</TABLE>
100
<PAGE> 109
The following table shows the dollar amount of all loans due after
December 31, 1997 that have pre-determined interest rates and the dollar amount
of all loans due after December 31, 1997 that have adjustable interest rates.
<TABLE>
<CAPTION>
FIXED RATES ADJUSTABLE RATES TOTAL
----------- ---------------- -----
<S> <C> <C> <C>
1-4 family real estate.......................... $ 9,323,172 $ 46,788,766 $ 56,111,938
Commercial real estate and other................ 6,714,215 5,497,876 12,212,091
Construction.................................... 584,311 4,157,096 4,741,407
Consumer........................................ 2,505,121 0 2,505,121
----------- ------------ ------------
Total.................................. $ 19,126,819 $ 56,443,738 $ 75,570,557
============ ============ ============
</TABLE>
REAL ESTATE LOANS -- RESIDENTIAL. The primary lending activity of
Geauga Savings is the origination of conventional loans for the acquisition or
construction of one- to four-family residential properties located within the
primary markets of Geauga Savings. Each of such loans is secured by a mortgage
or deed of trust on the underlying real estate and improvements thereon.
FDIC regulations and Ohio law limit the amount Geauga Savings may lend
in relationship to the appraised value of the real estate and improvements
thereon at the time of loan origination. In accordance with such regulations,
Geauga Savings makes loan on single-family residences up to 85% of the value of
the real estate improvements (the "Loan-to-Value Ratio" or "LTV"). Although
Geauga Savings makes loans in excess of an 85% LTV, most of such loans are
insured by a third party to reduce exposure to an 85% LTV or less. Generally,
Geauga Savings requires private mortgage insurance and/or charges premium
interest rates for loans over 80% LTV. See "-- Non-accrual, Past Due and
Restructured Loans."
Geauga Savings offers fixed-rate loans and adjustable-rate mortgage
loans ("ARMs") with initial interest rate adjustment periods generally of one
year, three years or five years. The new rate of interest at each adjustment
date is determined by adding a stated margin to an index identified at the time
the loan is originated: the longer the period before adjustment, the higher the
rate of interest to compensate Geauga Savings for the increased exposure to risk
resulting from interest-rate fluctuations during the fixed-rate period. The
maximum adjustment at each adjustment date for one-year ARMs is usually 3.85%,
with a maximum adjustment of 8% over the life of the loan. The maximum
adjustment at each adjustment date for three-year ARMs is usually 3.35%, with a
maximum adjustment of 8% over the life of the loan.
Residential mortgage loans offered by Geauga Savings are usually for
terms of 10 to 30 years. With the exception of Geauga's 30-year fixed-rate loan,
all of Geauga's residential mortgage loans have a maximum maturity of 17 years.
Due to the long-term nature of an investment in mortgage loans, such loans could
have an adverse effect upon the net interest margin of a lender if such loans do
not reprice as quickly as the lender's cost of funds. See "MAPLE LEAF'S
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." Experience during recent years demonstrates that, as a result of
prepayments in connection with refinancing and sales of the underlying
properties, residential loans generally remain outstanding for periods that are
substantially shorter than the stated maturity of such loans.
Geauga Savings also originates single family second mortgage real
estate loans. Second mortgage loans are generally fixed rate amortizing loans
with maturities of ten to fifteen years. At September 30, 1998, Geauga Savings
had approximately $2.1 million of second mortgage loans.
At September 30, 1998, Geauga Savings had a total of approximately
$66.7 million real estate loans of which approximately $54.0 million are
adjustable rate loans (approximately 80.9%) and approximately $12.7 million
(approximately 19.1%) are fixed rate loans.
101
<PAGE> 110
REAL ESTATE LOANS -- COMMERCIAL. Geauga Savings originates loans
secured by other real estate, including multifamily dwellings, land and lots for
single-family homes, land for commercial uses, and office, retail and other
types of facilities.
Nonresidential real estate loans are made primarily as ten-year
balloons with amortization generally between twenty and twenty-five years,
resulting in a final balloon payment due at the end of the ten-year term. Such
loans are typically made at a maximum 80% LTV. Such loans typically are subject
to a prepayment penalty of 4%, decreasing gradually during the life of the loan.
To enable Geauga Savings to monitor the loans, Geauga Savings requests rent
rolls and financial statements.
Because of the relatively larger loan amounts and effects of general
economic conditions on the successful operation of income-producing properties,
loans secured by multifamily dwellings and commercial facilities generally are
regarded as having a higher degree of risk than loans secured by one- to
four-family dwellings. If the cash flow on income-producing property is reduced,
for example as leases are not obtained or renewed, the borrower's ability to
repay may be impaired. Geauga Savings endeavors to reduce such risk by
evaluating the credit history and past performance of the borrower, the location
of the real estate, the quality of the management constructing and operating the
property, the debt service ratio, the quality and characteristics of the income
stream generated by the property and appraisals confirming the property's
valuation.
Geauga Savings also offers business loans including lines of credit,
term loans and SBA loans to individuals, which are not material.
REAL ESTATE LOANS - CONSTRUCTION. Geauga Savings offers residential
construction loans both to owner-occupants and to homebuilders. Geauga Savings
also originates construction loans for nonresidential properties and also lends
for the development of raw land. As of September 30, 1998, Geauga Savings had
approximately $5.5 million of construction loans, none of which were
nonperforming.
Construction loans generally involve greater underwriting and default
risks than do loans secured by mortgages on properties with finished structures.
This is largely due to the concentration of principal in a limited number of
loans and borrowers and the effects of general economic conditions on real
estate developments, developers, managers and builders. In addition,
construction loans are more difficult to evaluate and monitor.
Loan funds are advanced upon the security of the project under
construction, which is more difficult to value before the completion of
construction. Moreover, because of uncertainties inherent in estimating
construction costs, the accurate evaluation of the LTVs and the total loan funds
required to complete a project is difficult. In the event a default on a
construction loan occurs and foreclosure follows, Geauga Savings would have to
take control of the project and attempt either to arrange for completion of
construction or dispose of the unfinished project. Almost all of Geauga Savings'
construction loans are secured by properties in Geauga Savings' primary market.
Geauga Savings has not foreclosed on any construction loans during the three
year period ended December 31, 1997.
Generally, construction loans have terms ranging up to 12 months. After
the loan's initial construction period, the loan then converts to an amortizing
permanent loan which amortizes over the original loan term less the construction
period. Construction loans can be originated under any of the company's existing
permanent loan programs and generally a slightly higher interest rate is charged
to compensate for the additional risk.
102
<PAGE> 111
CONSUMER LOANS. Geauga Savings makes various types of consumer loans,
including loans made to depositors secured by their savings deposits, automobile
loans, home equity lines of credit, and unsecured personal loans. On September
30, 1998, consumer loans totaled approximately $2.8 million. Of this amount
approximately $1.3 million are adjustable rate equity lines of credit loans
secured by second liens on single family homes. Approximately $1.3 million are
automobile loans originated through local automobile dealers and direct loans to
Geauga Savings customers. The remaining amount (approximately $0.2 million) is
made up of loans made to depositors secured by their savings deposits, and other
secured and unsecured personal loans.
<TABLE>
<CAPTION>
TOTAL DOLLAR AMOUNT AT PERCENT OF TOTAL
SEPTEMBER 30, 1998 CONSUMER LOANS
---------------------- ------------------
<S> <C> <C>
TYPE OF CONSUMER LOAN:
Home Equity Lines of Credit............................. $ 1,360,436 48.1%
Automobile Loans........................................ 1,247,038 44.1%
CD Loans................................................ 196,296 6.9%
Other Secured Consumer Loans............................ 1,187 0.0%
Other Unsecured Consumer Loans.......................... 20,518 0.7%
----------- ------
Total Consumer Loans........................... $ 2,825,475 100%
=========== ======
</TABLE>
Equity lines of credit loans secured by single family homes are made at
an adjustable rate of interest tied to the prime lending rate, as reported in
the Wall Street Journal. Substantially all other consumer loans are made on the
basis of a fixed rate of interest. Consumer loans may entail greater risks than
residential loans, particularly consumer loans that are unsecured or are secured
by rapidly depreciating assets such as automobiles. Repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment of the
outstanding loan balance. For second mortgages, amounts due on prior mortgages
have a prior claim. The risk of default on consumer loans increases during
periods of recession, higher unemployment and other adverse economic conditions
that limit the borrower's ability to repay.
LOAN SOLICITATION AND PROCESSING. Geauga's primary lending focus is
first mortgage real estate loans secured by single family homes. This type of
lending is originated from two primary sources: (i) through Geauga's branch
system and local loan originators and (ii) through correspondent and broker
relationships. Second mortgage real estate loans and equity lines of credit
loans, both secured by single family homes, are originated through the branch
system.
After single family real estate loans, Geauga's secondary lending focus
in terms of volume is multifamily residential real estate loans, commercial real
estate loans and business loans collectively referred to as commercial loans or
business purpose loans. These loans are originated by Geauga's five loan
originators. At September 30, 1998 Geauga had approximately $12.2 million of
these types of loans representing approximately 11.6% of total assets.
Loan applications for permanent mortgage loans are taken by loan
personnel. Geauga Savings generally obtains a credit report, verification of
employment and other documentation concerning the credit worthiness of the
borrower. Each appraisal of the fair market value of the real estate that will
be used as security for the loan is generally prepared by an independent fee
appraiser approved by the Loan Committee of Geauga Savings. An environmental
history of the property is obtained to determine whether prior possibly
environmentally hazardous uses existed. An environmental study is conducted if
the appraiser or management has reason to believe that an environmental problem
might exist.
For multifamily and nonresidential mortgage loans, a personal guarantee
is generally required. Geauga Savings also obtains information with respect to
prior projects completed by the borrower. Upon the completion of the appraisal
and the receipt of information on the borrower, the application for a loan is
submitted either to a Loan Committee or its designees or the Boards of Directors
of Geauga Savings for approval or denial.
103
<PAGE> 112
If a mortgage loan application is approved, a title insurance policy or
title report is obtained on the real estate that will secure the mortgage loan.
Borrowers are required to carry fire and casualty insurance and flood insurance,
if applicable, and to name Geauga Savings as loss payee.
The procedure for approval of construction loans is the same as the
approval procedure for permanent first mortgage loans secured by single family
home loans, except that building plans, construction specifications and
estimates of construction costs are analyzed.
Consumer loans are underwritten on the basis of the borrower's credit
history and analysis of the borrower's income and expenses, ability to repay the
loan and the value of the collateral, if any.
Small business loans are underwritten on the basis of the borrower's
historic income and expenses, projections of future cash flows, and credit
history, as well as on the value of the collateral, if any.
Most Geauga Savings loans carry provisions that the entire balance of
the loan is due upon sale of the property securing the loan.
LOAN ORIGINATIONS, PURCHASES AND SALES. Geauga Savings has been
actively originating new 30-year, 20-year and 15-year fixed-rate and
adjustable-rate loans. Virtually all residential fixed-rate loans made by Geauga
Savings (excluding second mortgages) are originated on documentation that will
permit a possible sale of such loans to FNMA, FHLMC or other secondary mortgage
market participants. When mortgage loans are sold to FNMA, FHLMC or other
secondary mortgage market participants, Geauga Savings sells both the loan and
its servicing into the secondary market. Fixed-rate loans not sold in the
secondary market and generally all of the ARMs originated by Geauga Savings are
primarily held in Geauga Savings' held-to-maturity portfolio.
Geauga Savings sold approximately $939 thousand of whole loans during
the 1997 fiscal year, compared to sales of approximately $79 thousand of whole
loans in 1996. Management believes secondary market activities will increase as
single family lending increases and as total investments continue to shrink in
terms of a percentage of total assets.
The following table sets forth certain information in respect of loan
originations, repayments and sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED -------------------------------------------------
(IN THOUSANDS) SEPTEMBER 30, 1998 1997 1996 1995
------------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
LOAN ORIGINATIONS, REPAYMENTS AND SALES:
Beginning Balance.......................... $ 75,570 $ 56,674 $ 45,212 $ 40,974
Loans Originated........................... 23,888 32,116 25,806 13,579
Principal Payments......................... 14,220 13,220 14,344 9,341
----------- ---------- ---------- ---------
Ending Balance............................. $ 85,238 $ 75,570 $ 56,674 $ 45,212
=========== ========== ========== =========
</TABLE>
LENDING LIMIT. Ohio law imposes a lending limit on the aggregate amount
that an institution may lend to one borrower. In summary terms, the amount that
an institution may lend to one borrower is an amount equal to 15% of the
institution's total capital for risk-based capital purposes, plus any loan
reserves not already included in total capital (the "Lending Limit Capital"). An
institution may lend to one borrower an additional amount not in excess of 10%
of the institution's capital, provided the additional amount is fully secured by
certain forms of "readily marketable collateral." Real estate is not considered
"readily marketable collateral." In applying this limit, the regulations require
that loans to certain related or affiliated borrowers be aggregated. Geauga
Savings has no outstanding loans or related borrowing arrangements in excess of
its lending limit as of September 30, 1998.
104
<PAGE> 113
LOAN ORIGINATION AND OTHER FEES. Geauga Savings realizes loan
origination fee and other fee income from its lending activities. Geauga Savings
also realizes income from late payment charges, default interest, application
fees, and fees for other miscellaneous services.
Loan origination fees and other fees are a volatile source of income,
varying with the volume of lending, loan repayments and general economic
conditions. All nonrefundable loan origination fees and certain direct loan
origination costs are deferred and recognized in accordance with SFAS No. 91 as
an adjustment to yield over the life of the related loan.
DELINQUENT LOANS, NONPERFORMING ASSETS AND CLASSIFIED ASSETS. When a
borrower fails to make a required payment on a loan, Geauga Savings attempt to
cause the deficiency to be cured by contacting the borrower. In most cases,
deficiencies are cured promptly.
Geauga Savings attempt to minimize loan delinquencies through the
assessment of late charges and interest rate increases and adherence to its
established collection procedures. After a mortgage loan payment is 15 days
delinquent, a late charge of 5% of the amount of the payment is usually
assessed, and Geauga Savings will contact the borrower by mail or phone to
request payment. In certain limited instances, Geauga Savings may modify the
loan or grant a limited moratorium on loan payments to enable the borrower to
reorganize his or her financial affairs. If the loan continues in delinquent
status for 90 days or more, Geauga Savings generally will initiate foreclosure
proceedings. In some cases, Geauga will initiate foreclosure proceedings earlier
than 90 days if the circumstances merit such action.
Real estate acquired by Geauga Savings as a result of foreclosure or by
deed in lieu of foreclosure is classified as "real estate owned" until it is
sold. When property is so acquired, it is recorded at the lower of the loan's
unpaid principal balance or fair value at the date of foreclosure less estimated
selling expenses. Periodically, real estate owned is reviewed to ensure that
fair value less estimated costs to sell is not less than carrying value, and any
allowance resulting therefrom is charged to earnings as a provision for losses
on real estate acquired through foreclosure. Costs to develop or improve real
estate are capitalized; costs of holding real estate are expensed.
The following table reflects the amount of loans in delinquent status
as of September 30, 1998:
<TABLE>
<CAPTION>
30-59 DAYS 60-89 DAYS 90 DAYS OR MORE
--------------------- --------------------- ---------------
(DOLLARS IN THOUSANDS) Number Amount Number Amount Number Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans............................ 5 $ 312 5 $ 517 5 $ 647
Consumer Loans............................... 24 311 1 11 3 20
--- -------- --- -------- --- --------
Total........................................ 29 $ 623 6 $ 528 8 $ 667
======== ======== ========
Percent of Total to Net Loans................ .75% .63% .80%
</TABLE>
All delinquent loans are reviewed on a regular basis and are placed on
nonaccrual status when the loans are 90 days or more past due. Interest accrued
and unpaid at the time a loan is placed on nonaccrual status is charged against
interest income via increases to reserve for uncollected interest. Subsequent
payments are recorded as a reduction to the reserve for uncollected interest
until the loan is brought current or delinquent less than 90 days and management
feels that the collectability of future interest payments is reasonably
probable.
105
<PAGE> 114
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS. The following schedule
summarizes nonaccrual, past due and restructured loans:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------------
1998 1997 1996
------------- ---------- -----------
<S> <C> <C> <C>
1-4 family real estate:
Nonaccrual .................................................. $ 647,000 $ 1,287,000 $ 307,000
Past due 90 days or more(1) ................................. 0 0 0
Commercial real estate and other:
Nonaccrual .................................................. 0 0 0
Past due 90 days or more(1) ................................. 0 0 0
Construction:
Nonaccrual .................................................. 0 0 0
Past due 90 days or more(1) ................................. 0 0 0
Consumer
Nonaccrual .................................................. 20,000 3,000 5,000
Past due 90 days or more(1) ................................. 0 0 0
----------- ----------- -----------
Total nonperforming loans ................................ 667,000 1,290,000 312,000
Other real estate owned ........................................ 0 0 0
----------- ----------- -----------
Total nonperforming assets ............................... $ 667,000 $ 1,290,000 $ 312,000
=========== =========== ===========
Loans outstanding, net ......................................... $83,457,762 $73,960,355 $55,519,152
Allowance for possible loan losses to total loans .............. 1.09% 1.19% 1.05%
Nonperforming loans to total loans ............................. .79% 1.72% .55%
Nonperforming assets to total assets ........................... .60% 1.23% .38%
Allowance for possible loan losses to nonperforming loans ...... 1.38% .69% 1.89%
<FN>
_______________________
(1) Represents accruing loans delinquent greater than 90 days which are considered to be well secured by management and
in the process of collection.
</TABLE>
HIGH LOAN-TO-VALUE LOANS. At December 31, 1997, there are approximately
$92,433 of loans not otherwise identified above which are included on
management's watch list. These loans were included on management's watch list
due to the fact that the loans have a loan to value ratio greater than or equal
to 80% and do not carry any private mortgage insurance or because of a history
of slow payments. There were no loans included on management's watch list due to
doubt as to the borrower's ability to comply with the present repayment terms
which were not identified above. These loans and their potential loss exposure
have been considered in management's analysis of the adequacy of the allowance
for loan losses.
SUMMARY OF LOAN LOSS EXPERIENCE AND CHARGE-OFFS. Regulations of the
FDIC and the Division require that institutions classify their assets on a
regular basis. Problem assets are classified as "substandard," "doubtful" or
"loss." "Substandard" assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. "Doubtful" assets have
the same weaknesses as "substandard" assets, with the additional characteristics
that (1) the weaknesses make collection or liquidation in full on the basis of
currently existing facts, conditions and values questionable and (2) there is a
high possibility of loss. An asset classified "loss" is considered uncollectible
and of such little value that is continuance as an asset of the institution is
not warranted. The regulations also provide for a "special mention" category,
consisting of assets that do not currently expose an institution to a sufficient
degree of risk to warrant classification but which possess credit deficiencies
or potential weaknesses deserving management's close attention.
Generally, Geauga Savings classifies as "substandard" all loans that
are delinquent more than 90 days, real estate owned ("REO"), loans to facilitate
workouts and the sale of REO and other loans if the credit problems of the
borrowers have caused management to have doubts as to the ability of the
borrowers to comply with present loan repayment terms.
106
<PAGE> 115
The aggregate amount of Geauga Savings' classified assets at September
30, 1998, was as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) AT SEPTEMBER 30, 1998
---------------------
<S> <C>
Special mention.................................... $ 0
Substandard........................................ 950
Doubtful........................................... 0
Loss............................................... 0
---------
Total classified assets................... $ 950
=========
</TABLE>
Federal examiners are authorized to classify an institution's assets.
If an institution does not agree with an examiner's classification of an asset,
the institution may appeal this determination to the Regional Director of the
FDIC. Geauga Savings had no disagreements with the examiners regarding the
classification of assets at the time of the last examination.
FDIC regulations require that Geauga Savings establish prudent accrual
allowances for loan losses. If an asset or portion thereof is classified as
loss, the institution must either establish specific allowances for losses in
the amount of 100% of the portion of the asset classified loss, or charge off
such amount.
ALLOWANCE FOR LOAN LOSSES. Geauga's business strategy focuses on
increasing its loan portfolio while prudently maintaining its security
portfolios. Most of the increases in the loan portfolio are from real estate
loans. Management expects that an increase in loans will increase delinquencies.
However, management is aware that increased delinquencies in real estate loans
does not necessarily mean an increase in loan losses. Net charge-offs on real
estate loans have been consistently minor over this period, as have net
charge-offs on consumer loans as indicated in the table below. Although
management feels that the credit risk is acceptable and that the loan loss
reserves are adequate, loan activity is monitored closely and loan loss reserve
amounts relative to the company's loan activity is being reviewed.
The Board of Directors of Geauga Savings reviews on a quarterly basis
the allowance for loan losses as it relates to a number of relevant factors,
including but not limited to trends in the level of nonperforming assets and
classified loans, current and anticipated economic conditions in the primary
lending areas, past loss experience, possible losses arising from specific
problem assets and loan concentrations by collateral type and to single
borrowers. To a lesser extent, management considers loan underwriting,
off-balance sheet items, loan renewals and modifications and management
expertise in collection practices. Although the Board of Directors and
management believe that they use the best information available to determine the
allowances for loan losses, unforeseen market conditions could result in
adjustments, and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. At September 30, 1998, Geauga Savings' allowance for loan losses
totaled $918,010.
107
<PAGE> 116
The following table sets forth an analysis of the allowance for loan
losses and charge-offs of Geauga Savings for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, -----------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Allowance for loan losses (beginning of period) ........................... $ 890,591 $ 591,186 $ 461,990
Loans charged off:
1-4 family real estate ................................................. 0 0 0
Commercial real estate and other ....................................... 0 0 0
Construction ........................................................... 0 0 0
Consumer ............................................................... 17,664 19,565 5,627
----------- ----------- -----------
Total loans charged off ............................................. 17,664 19,565 5,627
Recoveries of loans previously charged off:
1-4 family real estate ................................................. 0 0 0
Commercial real estate and other ....................................... 0 0 0
Construction ........................................................... 0 0 0
Consumer ............................................................... 2,959 1,590 1,170
----------- ----------- -----------
Total recoveries .................................................... 2,959 1,590 1,170
----------- ----------- -----------
Net loans charged off ..................................................... 14,705 17,975 4,457
----------- ----------- -----------
Provision for loan losses ................................................. 42,124 317,380 133,653
----------- ----------- -----------
Allowance for loan losses (end of period) ................................. $ 918,010 $ 890,591 $ 591,186
=========== =========== ===========
Loans outstanding:
Average ................................................................ $79,005,747 $65,785,001 $49,345,289
End of period .......................................................... $84,313,746 $74,781,280 $56,056,280
Ratio of allowance for loan losses to loans outstanding at end of
period .................................................................... 1.09% 1.19% 1.05%
</TABLE>
108
<PAGE> 117
The following tables set forth an analysis of reserves for loan loss
allocations of Geauga for the periods indicated:
<TABLE>
<CAPTION>
RESERVE FOR LOAN LOSS ALLOCATION
SEPTEMBER 30, 1998
----------------------------------------------------------------------------------------
BALANCE RESERVE CLASSIFIED ECONOMIC TOTAL PERCENT
------------ ----------- ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Residential/Construction ....... $66,859,370 $ 515,252 $ 45,689 $ 100,289 $ 661,230 0.77%
Commercial/SBA ................. 15,322,654 189,763 0 22,984 212,747 0.25%
Consumer ....................... 3,512,309 35,124 3,641 5,268 44,033 0.05%
----------- ----------- ----------- ----------- ----------- -------
Total ................. $85,694,333 $ 740,139 $ 49,330 $ 128,541 $ 918,010 1.07%
=========== =========== =========== =========== =========== =======
<CAPTION>
RESERVE FOR LOAN LOSS ALLOCATION
DECEMBER 31, 1997
---------------------------------------------------------------------------------------
BALANCE RESERVE CLASSIFIED ECONOMIC TOTAL PERCENT
----------- ----------- ----------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Residential/Construction ....... $60,229,626 $ 465,243 $ 119,326 $ 90,344 $ 674,913 0.89%
Commercial/SBA ................. 12,277,575 152,337 0 18,416 170,753 0.22%
Consumer ....................... 3,792,817 37,928 1,308 5,689 44,925 0.06%
----------- ----------- ----------- ----------- ----------- --------
Total ................. $76,300,018 $ 655,508 $ 120,634 $ 114,449 $ 890,591 1.17%
=========== =========== =========== =========== =========== ========
<CAPTION>
RESERVE FOR LOAN LOSS ALLOCATION
DECEMBER 31, 1996
---------------------------------------------------------------------------------------
BALANCE RESERVE CLASSIFIED ECONOMIC TOTAL PERCENT
------------ ----------- ------------ ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Residential/Construction........ $ 47,515,432 $ 363,973 $ 31,031 $ 66,816 $ 461,820 0.81%
Commercial/SBA.................. 6,583,046 83,358 0 9,875 93,233 0.16%
Consumer........................ 2,666,360 26,664 5,469 4,000 36,133 0.06%
------------ ----------- ------------ ----------- ----------- --------
Total.................. $ 56,764,838 $ 473,995 $ 36,500 $ 80,691 $ 591,186 1.03%
============ =========== ============ =========== =========== ========
</TABLE>
The following schedule is a breakdown of the allowance for loan losses
allocated based on type of loan and related ratios:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998 AT DECEMBER 31, 1997 AT DECEMBER 31, 1996
---------------------------- ------------------------------ --------------------------------
PERCENT OF LOANS PERCENT OF LOANS PERCENT OF LOANS
ALLOWANCE IN EACH CATEGORY ALLOWANCE IN EACH CATEGORY ALLOWANCE IN EACH CATEGORY
AMOUNT TO TOTAL LOANS AMOUNT TO TOTAL LOANS AMOUNT TO TOTAL LOANS
---------- -------------- --------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Residential real estate......... $ 661,230 0.77% $ 674,913 0.89% $ 461,820 0.81%
Commercial real estate.......... 212,747 0.25% 170,753 0.22% 93,233 0.16%
Consumer........................ 44,033 0.05% 44,925 0.06% 36,133 0.06%
---------- ------- ---------- ------ ---------- ------
Total........................... $ 918,010 1.07% $ 890,591 1.17% $ 591,186 1.03%
========== ======= ========== ====== ========== ======
</TABLE>
INVESTMENT ACTIVITIES
Geauga purchases securities for the held-to-maturity portfolio and
available-for-sale portfolio for purposes of earning interest income, to provide
liquidity and as a substitute for available and acceptable loan products.
Geauga's continuing business strategy has been to increase its loan portfolio
and decrease its security portfolios. As the company becomes more successful in
originating loan products, securities as a percentage of total assets will
continue to decrease. Geauga primarily invests in mortgage-backed securities.
Geauga Savings does not make any investments in securities that are rated less
than investment grade by a nationally recognized statistical rating
organization. A goal of Geauga Savings' investment policy is to manage interest
rate risk.
All securities-related activity is reported to the Board of Directors
of Geauga Savings. General changes in investment strategy are required to be
reviewed and approved by the Geauga Savings Board of Directors.
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<PAGE> 118
Geauga Savings' senior management can purchase and sell securities on behalf of
Geauga Savings in accordance with Geauga Savings' stated investment policy.
MORTGAGE-BACKED AND RELATED SECURITIES. In the ordinary course of
business, Geauga Savings purchases mortgage-backed securities for both its
Held-to-Maturity portfolio and its Available-for-Sale portfolio. Mortgage-backed
securities generally entitle Geauga Savings to receive the cash flows from an
identified pool of mortgages underlying the securities. Freddie Mac ("FHLMC"),
Ginnie Mae ("GNMA") and Fannie Mae ("FNMA") mortgage-backed securities owned by
Geauga Savings are each guaranteed or insured by the respective agencies as to
principal and interest.
Geauga Savings may also invest in collateralized mortgage obligations
("CMOs"), securities that are backed by pools of mortgages that are, in most
instances, insured or guaranteed by FNMA or FHLMC. A CMO investor has no
ownership interest in the mortgages themselves, except to the extent the
mortgages serve as collateral for the CMO security. Payment streams from the
mortgages serving as collateral are reconfigured with the varying terms and
timing of payment to the CMO investor. Though they can be used for hedging and
investment, CMOs can expose investors to higher risk of loss than direct
investments in mortgage-backed pass-through securities, particularly with
respect to price and average life sensitivity in such securities. The Federal
Financial Institutions Examination Council ("FFIEC") has developed methods of
measuring the suitability of CMOs and other mortgage derivative products
intended for financial institution portfolios. CMOs that do not meet the
standards of the FFIEC test are deemed "high-risk." Geauga has not purchased any
CMO that fails the FFIEC stress test at date of purchase. At September 30, 1998,
Geauga did not own any CMOs.
At September 30, 1998, mortgage-backed securities totaled approximately
$16.9 million (approximately 15.2% of total assets). Of this amount,
approximately $4.7 million pay a fixed rate of interest and approximately $12.1
million are adjustable rate.
In accordance with Statement of Financial Accounting Standards No. 115
("SFAS 115"), the mortgage-backed securities, CMOs and other U.S. government
agency-backed securities designated as being held for sale are carried on Geauga
Savings' balance sheet at estimated fair value, with unrealized gains and/or
losses carried as an adjustment to shareholders' equity, net of applicable
taxes. At September 30, 1998, all of Geauga Savings' mortgage-backed securities
were classified available for sale.
See " - ASSET/LIABILITY MANAGEMENT" and "MAPLE LEAF'S MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND MARKET RISK." The following table sets forth certain information
regarding Geauga Savings' mortgage-backed securities, CMOs and other U.S.
government agencies securities at the dates indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED -----------------------------------
SEPTEMBER 30, 1998 1997 1996
------------------ ----------- ----------
<S> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasury and other U.S.
Government obligations .................... $ 0 $ 0 $ 0
Mortgage-backed securities ................ 16,915,636 19,359,151 17,623,794
HELD TO MATURITY:
U.S. Treasury and other U.S. ..............
Government obligations .................... $ 0 $ 0 $ 0
Mortgage-backed securities ................ 0 4,512,285 4,260,202
----------- ----------- -----------
TOTAL INVESTMENT SECURITIES ................. $16,915,636 $23,871,436 $21,883,996
=========== =========== ===========
</TABLE>
110
<PAGE> 119
The following table reflects the earliest repricing date of the
mortgage-backed securities as of September 30, 1998, all of which are available
for sale:
<TABLE>
<CAPTION>
DUE IN ONE YEAR DUE AFTER ONE YEAR DUE AFTER FIVE YEARS
OR LESS THROUGH FIVE YEARS THROUGH TEN YEARS
--------------------------- --------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
AMOUNT AVERAGE YIELD AMOUNT AVERAGE YIELD AMOUNT AVERAGE YIELD
----------- ------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities ..... $13,200,480 7.00% $ 1,824,043 8.23% $ 785,213 9.23%
<CAPTION>
DUE AFTER TEN YEARS
-----------------------
WEIGHTED
AMOUNT AVERAGE YIELD TOTAL
----------- ------------- -----------
<S> <C> <C> <C>
Mortgage-backed securities ... $ 1,105,900 9.07% $16,915,636
</TABLE>
111
<PAGE> 120
Mortgage-backed securities and collateralized mortgage obligations have
various stated maturities through June 1, 2028. The estimated weighted-average
maturity of this segment of the portfolio is 25.4 years.
DEPOSITS AND BORROWINGS
GENERAL. Geauga Savings derives funds for its lending and investment
activities from a number of sources, including FHLB advances and reverse
repurchase agreements, core deposits and brokered deposits, income on earning
assets, service charges, gains on sale of assets, and equity capital.
Loan payments are a relatively stable source of funds, while deposit
inflows and outflows fluctuate in response to general interest rates and money
market conditions. Geauga Savings' market area is largely rural and semi-rural,
and as a consequence loan demand exceeds readily available core deposits with
some frequency. FHLB advances and reverse repurchase agreements compensate for
reductions in the availability of funds from other sources. FHLB advances and
reverse repurchase agreements also provide funds at a favorable rate, without
associated deposit insurance and personnel costs. For these reasons, Geauga
Savings places substantial reliance on FHLB advances, reverse repurchase
agreements and sources of funds other than core deposits for Geauga Savings'
lending and investment activities.
DEPOSITS. Historically, core deposits have been attracted from within
Geauga Savings' primary market areas through the offering of a broad selection
of deposit instruments, including checking accounts (both interest bearing and
noninterest bearing), regular passbook savings accounts, statement savings
accounts, money market demand accounts, and term certificate of deposit accounts
including individual retirement accounts ("IRAs"). Interest rates paid, maturity
terms, service fees and withdrawal penalties for the various types of accounts
are established periodically by management of Geauga Savings based on Geauga
Savings' liquidity requirements, growth goals and local competition. Geauga
Savings also purchases deposits from brokers to fund strong loan demand. At
September 30, 1998 Geauga Savings had $8.3 million in brokered deposits.
At September 30, 1998, Geauga Savings' certificates of deposit totaled
$40.8 million, or 74.1% of total deposits. Of such amount, approximately $25.9
million in certificates of deposits mature within one year. Based on experience
and Geauga Savings' prevailing pricing strategies, management believes that a
substantial percentage of such certificates will renew with Geauga Savings at
maturity. If there is a significant deviation from historical experience, Geauga
Savings can use borrowings from the FHLB or reverse repurchase agreements from
FNMA as an alternative to this source of funds. The following table sets forth
the dollar amount of deposits in the various types of savings programs offered
by Geauga Savings at the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------------- ----------------------------- ---------------------------
AVERAGE AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) RATE AMOUNT PERCENT RATE AMOUNT PERCENT RATE AMOUNT PERCENT
-------- ------ ------- ------- ------ ------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money-market and Passbook ....... 3.58% $ 7,458 13.5% 3.65% $ 6,408 11.8% 3.5% $ 5,113 11.8%
NOW and Demand .................. 1.45% 4,339 7.9% 1.61% 4,440 8.2% 1.76% 4,130 9.7%
Certificates of Deposits:
1 year or less .................. 6.08% 25,904 47.0% 6.09% 26,211 48.2% 5.93% 25,133 58.2%
1 to 3 years .................... 6.10% 13,082 23.7% 6.32% 13,027 23.9% 6.17% 6,456 14.9%
3 or more years ................. 6.87% 4,354 7.9% 6.78% 4,338 7.9% 6.88% 2,331 5.4%
Total Deposits .................. 5.42% $55,137 100.0% 5.55% $54,424 100.0% 5.33% $43,163 100.0%
======= ======= =======
</TABLE>
112
<PAGE> 121
The following tables set forth rate and maturity information for Geauga
Savings' certificates of deposit.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------------------------------
1997 1996
------------------------------------------- ----------------------------------------------
Average Average
Amount Yield Percent Amount Yield Percent
----------- ----- ------- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C>
Demand deposit accounts ......... $ 4,438,594 1.67% 8.2% $ 4,130,507 1.80% 9.6%
Savings accounts ................ 6,408,210 3.70% 11.8% 5,113,329 3.52% 11.8%
----------- ----- ------------- ----
Total transaction accounts ... 10,846,804 20.0% 9,243,836 21.4%
Certificates:
4.00% and less ............... $ 0 0.0% $ 0 $ 0
4.01% - 5.00% ................ 0 0.0% 376,011 0.9%
5.01% - 6.00% ................ 6,877,999 12.6% 19,129,250 44.3%
6.01% - 7.00% ................ 36,656,102 67.3% 13,579,222 31.5%
7.01% - 8.00% ................ 22,484 0.0% 821,179 1.9%
8.01% - 9.00% ................ 20,234 0.0% 13,550 0.0%
----- ------------- ----
Total certificates of
deposit ................ 43,576,819 6.18% 80% 33,919,212 6.01% 78.6%
----------- ----- ----- ------------- ----- ----
Total deposits .................. $54,423,623 5.57% 100% $ 43,163,048 5.29% 100%
=========== ===== ===== ============= ===== ====
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------------------------------------------------
1998 1997
---------------------------------------------- ----------------------------------------
AVERAGE AVERAGE
AMOUNT YIELD PERCENT AMOUNT YIELD PERCENT
----------- --------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Demand deposit accounts ......... $ 4,337,847 1.45% 7.9% $ 4,091,723 1.71% 7.8%
Savings accounts ................ 7,458,956 3.58% 13.5% 6,143,677 3.72% 11.7%
----------- ------- ------------- ------
Total transaction accounts ... 11,796,803 21.4% 10,235,400 19.5%
Certificates:
4.00% and less ............... $ 0 0.0% $ 0 0.0%
4.01% - 5.00% ................ 171,410 0.4% 0 0.0%
5.01% - 6.00% ................ 19,923,102 36.1% 7,492,377 14.3%
6.01% - 7.00% ................ 23,224,102 42.1% 34,622,740 66.1%
7.01% - 8.00% ................ 21,954 0.0% 22,484 0.0%
8.01% - 9.00% ................ 0 0.0% 20,234 0.0%
------- ------------- ------
Total certificates of
deposit ................ 43,340,568 6.17% 78.6% 42,157,835 6.15% 80.5%
----------- ----- ------- ------------- ---- ------
Total deposits .................. $55,137,371 5.56% 100% $ 52,393,235 5.53% 100%
=========== ===== ======= ============= ==== ======
</TABLE>
The following table sets forth the amount of time deposits that are
$100,000 or more, including certificates of deposit, by time remaining until
maturity.
<TABLE>
<CAPTION>
MATURITY PERIOD AT SEPTEMBER 30, 1998
--------------- ----------------------
<S> <C>
Three months or less .......................... $ 0
Over three through six months ................. 243,000
Over six through 12 months .................... 300,000
Over 12 months ................................ 412,000
--------
Total .................................... $955,000
========
</TABLE>
BORROWINGS. Geauga Savings primarily borrows from the FHLB of
Cincinnati and will also borrow via reverse repurchase agreements, generally
through the Federal National Mortgage Association ("FNMA"). At September 30,
1998, Geauga had total FHLB advances of approximately $40.0 million and $3.0
million of reverse repurchase agreement with FNMA, with a maturity date of
December 16, 1998. The FHLB advances
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<PAGE> 122
include $35.5 million of long-term, callable fixed-rate advances at interest
rates ranging between 4.6% and 5.2%, $6.5 million of monthly adjustable rate
advances with interest rates of approximately 5.6%, and $1.0 million of
fixed-rate advances with a rate of 6.2%.
The following is a schedule of reverse repurchase agreements and
Federal Home Loan Bank advances for the periods indicated:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) SEPTEMBER 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------ ----------------- -----------------
<S> <C> <C> <C>
Balance at period end....................... $ 45,948 $ 41,098 $ 30,798
Average balance during the year............. $ 44,238 $ 36,275 $ 28,429
Maximum month-end balance during year....... $ 45,948 $ 41,098 $ 30,798
Average interest rate during the year....... 5.56% 5.81% 5.59%
Average interest rate at period end......... 5.22% 5.90% %
</TABLE>
INTEREST RATE SWAPS, CAPS AND FLOORS. Geauga Savings does not use
interest rate swaps, caps or floors, but is authorized to do so at the direction
of the Asset Liability Committee.
Interest rate caps serve to hedge Geauga's short-term borrowings and
deposits. The interest rate caps have cap rates, also referred to as strike
rates based on three month London Interbank Banking Rate ("LIBOR"). When LIBOR
increases above the cap rate, Geauga Savings receives interest on the difference
between the LIBOR and the cap rate on the national principal amount, if LIBOR
does not increase beyond the cap rate, Geauga Savings does not receive any
payments. Geauga Savings' interest expense is reduced by the interest received
on the interest rate caps.
Counterparties to the above financial instruments expose Geauga Savings
to credit-related losses in the event of non-performance. However, Geauga
Savings deals with primary dealers only and does not anticipate nonperformance
by the counterparty.
COMPETITION
Geauga Savings competes for deposits with other savings banks and
savings associations, commercial banks and credit unions and with the issuers of
commercial paper and other securities, such as shares in money market mutual
funds. The primary factors in competing for deposits are terms, interest rates
and convenience of office location. In making loans, Geauga Savings competes
with other savings banks and savings associations, commercial banks, consumer
finance companies, credit unions, leasing companies, mortgage brokers and other
lenders. Geauga Savings competes for loan organizations primarily through the
interest rates and loan fees it charges and through the efficiency and quality
of services it provides to borrowers. Competition is affected by, among other
things, the general availability of lendable funds, general and local economic
conditions, current interest rate levels and other factors which are not readily
predictable.
TAXATION
FEDERAL TAXATION. Maple Leaf and Geauga Savings are subject to the
federal tax laws and regulations that apply to corporations generally. Maple
Leaf's tax year is the same as its fiscal year, December 31. Maple Leaf files a
consolidated return with its wholly owned subsidiary Geauga Savings for federal
tax purposes.
Prior to the enactment of the Small Business Jobs Protection Act (the
"Act"), which was signed into law on August 21, 1996, certain thrift
institutions were allowed deductions for bad debts under methods more favorable
than those granted to other taxpayers. Qualified thrift institutions could
compute deductions for bad debts using either the specific charge-off method of
Section 166 of the Code or one of two reserve methods of Section 593 of the
Code. The reserve methods under Section 593 of the Code permitted a thrift
institution annually to elect to deduct bad debts under either (i) the
"percentage of taxable income" method applicable only
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<PAGE> 123
to thrift institutions, or (ii) the "experience" method that also was available
to small banks. Under the "percentage of taxable income" method, a thrift
institution generally was allowed a deduction for an addition to its bad debt
reserve equal to 8% of its taxable income (determined without regard to this
deduction and with additional adjustments). Under the "experience" method, a
thrift institution was generally allowed a deduction for an addition to its bad
debt reserve equal to the greater of (i) an amount based on its actual average
experience for losses in the current and five preceding taxable years, or (ii)
an amount necessary to restore the reserve to its balance as of the close of the
base year. A thrift institution could elect annually to compute its allowable
addition to bad debt reserves for qualifying loans either under the experience
method or the percentage of taxable income method. For tax years ended 1995,
Maple Leaf used the percentage of taxable income method for computing its
taxable bad debt deduction.
The Act eliminated the percentage of taxable income method of
accounting for bad debts by thrift institutions, effective for taxable years
beginning after December 31, 1995. Thrift institutions that are treated as small
banks are allowed to use the experience method applicable to such institutions,
while thrift institutions that are treated as large banks are required to use
the specific charge off method.
A thrift institution required to change its method of computing
reserves for bad debt will treat such change as a change in the method of
accounting, initiated by the taxpayer and having been made with the consent of
the Secretary of the Treasury. Section 481(a) of the Code requires certain
amounts to be recaptured with respect to such change. Generally, the amounts to
be recaptured will be determined solely with respect to the "applicable excess
reserves" of the taxpayer. The amount of the applicable excess reserves will be
taken into account ratably over a six-taxable year period, beginning with the
first taxable year beginning after December 31, 1995, subject to the residential
loan requirement described below. In the case of a thrift institution that is
treated as a large bank, the amount of the institution's applicable excess
reserves generally is the excess of (i) the balances of its reserve for losses
on qualifying real property loans (generally loans secured by improved real
estate) and its reserve for losses on nonqualifying loans (all other types of
loans) as of the close of its last taxable year beginning before January 1,
1996, over (ii) the balances of such reserves as of the close of its last
taxable year beginning before January 1, 1988 (i.e., the "pre-1988 reserves").
For taxable years that begin after December 31, 1995, and before
January 1, 1998, if a thrift meets the residential loan requirement for a tax
year, the recapture of the applicable excess reserves otherwise required to be
taken into account as a Code Section 481(a) adjustment for the year will be
suspended. A thrift meets the residential loan requirement if, for the tax year,
the principal amount of residential loans made by the thrift during the year is
not less than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996. A residential loan is a
loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by
residential or church property and certain mobile homes), but only to the extent
that the loan is made to the owner of the property. Maple Leaf has provided
deferred taxes of approximately $297,123 and will be permitted to amortize the
recapture of the bad debt reserve over a six year period commencing in fiscal
1998.
The tax returns of Geauga Savings have been closed without audit
through the tax year ended 1997. In the opinion of management, any examination
of open returns would not result in a deficiency that could have a material
adverse effect on the financial condition of Maple Leaf or Geauga Savings.
OHIO TAXATION. Geauga Savings is a "financial institution" for State of
Ohio tax purposes. As such, it is subject to the Ohio corporate franchise tax on
"financial institutions," which is imposed annually at a rate of 1.5% of book
net worth as determined in accordance with generally accepted accounting
principles. For tax year 1999, however, the franchise tax on financial
institutions will be 1.4% of the book net worth and for tax year 2000 and years
thereafter the tax will be 1.3% of the book net worth. As a "financial
institution," Geauga Savings is not subject to any tax based upon net income or
net profits imposed by the State of Ohio.
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<PAGE> 124
PERSONNEL
As of September 30, 1998, Geauga Savings had 32 full-time equivalent
employees. Geauga Savings believes that relations with its employees are good.
Geauga Savings offers health, disability, life, dependent care benefits and
qualified retirement program among other benefits. None of the employees of
Geauga Savings is represented by a collective bargaining unit.
MANAGEMENT OF MAPLE LEAF WHO WILL SERVE AS
DIRECTORS OR EXECUTIVE OFFICERS OF GLB
Certain members of the Management of Maple Leaf will serve as directors
or executive officers of GLB after the acquisition. The Acquisition Agreement
provides that the President of Maple Leaf, Ms. Betty L. Kimbrew, will be
appointed immediately after the merger to the GLB Board of Directors. In
addition to her service as a director of GLB, Betty L. Kimbrew will serve as
Senior Vice President - Corporate Development of GLB after the acquisition
pursuant to an employment agreement. For a description of the terms of Ms.
Kimbrew's employment with GLB, see "TERMS OF THE ACQUISITION - INTERESTS OF
DIRECTORS AND OFFICERS IN THE ACQUISITION THAT DIFFER FROM YOUR INTERESTS." Mr.
Howard Amster, who is a director of Maple Leaf and its largest shareholder, will
be appointed or nominated for election to the GLB Board of Directors at GLB's
1999 Annual Meeting of Shareholders. The principal occupation and other
information for Ms. Kimbrew and Mr. Amster is set forth below.
BETTY L. KIMBREW - Ms. Kimbrew has more than 35 years experience in the
banking industry in northeastern Ohio. Ms. Kimbrew has served as President and
Managing Officer of Geauga since December, 1988 and President of Maple Leaf from
its inception in 1997. Ms. Kimbrew was in charge of Loans and Bank
Administration for Geauga as Vice President and Secretary between August, 1988
and December, 1988 and was Secretary and Assistant Vice President of Geauga
between March, 1985 and August, 1988. Ms. Kimbrew is 53 years old. She has been
a director of Geauga since December, 1988.
HOWARD AMSTER - Mr. Amster is an Investment Consultant at Everen
Securities, Inc. formerly known as Kemper Securities, Inc., an investment
banking firm. Mr. Amster is 51 years old. He has been a director of Geauga since
November, 1988, and a director of Maple Leaf since its inception in 1997.
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<PAGE> 125
PRINCIPAL SHAREHOLDERS OF MAPLE LEAF
The following table indicates the beneficial ownership of Maple Leaf
Class A common stock and Class B common stock as of ______________, 1999 (i) by
directors and executive officers of Maple Leaf, (ii) by each person who is
known by Maple Leaf to own beneficially more than 5% of the outstanding shares
of Maple Leaf Class A common stock and Class B common stock (showing his or her
address as well), and (iii) by all directors and executive officers of Maple
Leaf as a group:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON PERCENT
STOCK OWNED OF COMMON
NAME BENEFICIALLY (1) 1991 WARRANTS (2) 1996 WARRANTS (2) STOCK (3)
- ---- ---------------- ----------------- ----------------- -----------
<S> <C> <C> <C> <C>
Howard M. Amster, Director........................ 3,856 (4) 1,200 (4) 4,776 48.21%
23811 Chagrin Blvd., Suite 200
Beachwood, Ohio 44122
Sonia Amster...................................... 828 0 0 5.74%
2201 Acacia Drive, No. 425
Lyndhurst, Ohio 44124
Robert M. Bloom, Director......................... 204 (5) 0 120 2.23%
Cosmo Bordonaro, Director......................... 734 372 672 11.50%
7906 Sherman Road
Chesterland, Ohio 44026
Lloyd V. Clemmer, Jr., Treasurer and Secretary.... 52 (6) 0 20 (6) (7)
William Costaras, Director........................ 1,088 400 400 12.40%
22674 Halburton Road
Beachwood, Ohio 44122
Jay A. Goldblatt, Director........................ 76 (8) 112 40 1.56%
Tamra Gould....................................... 974 1,496 1,200 21.45%
25812 Fairmount Boulevard
Beachwood, Ohio 44122
Harold Inlow, Director............................ 0 0 0 0.00%
Betty L. Kimbrew, Director and President.......... 448 320 80 5.72%
10800 Kinsman Road
Newbury, Ohio 44065-9744
John C. Loring, Director.......................... 166 112 180 3.11%
Dennis E. Prots, Director......................... 148 (9) 0 40 1.30%
Pubco Corporation................................. 1,956 372 2,796 29.13%
3830 Kelley, Avenue
Cleveland, Ohio 44114
Worth Wollpert, Director.......................... 340 0 0 2.36%
All directors and executive officers as a group (11 persons) 7,112 2,516 6,328 68.59%
<FN>
_________________
(1) For purposes of the above table, a person is considered to
"beneficially own" any shares with respect to which he or she exercises
sole or shared voting or investment power or of which he or she has the
right to acquire such beneficial ownership within 60 days. Unless
otherwise indicated, voting power and investment power are exercised
solely by the person named above or shared with members of his or her
household.
(2) Represents the number of shares of Class A or Class B common stock of
Maple Leaf Financial, Inc. acquirable upon exercise of 1991 Warrants
and 1996 Warrants. Each warrant represents the right to acquire one
share of Class A common stock and one share of Class B common stock.
There are 2,504 1991 Warrants outstanding and 5,986 1996 Warrants
outstanding, representing the right to acquire an aggregate of 16,980
shares of Class A and Class B common stock. Although the 1991 Warrants
and the 1996 Warrants are exercisable by their terms within 60 days,
the warrant holders identified in the table above have executed an
agreement in the form attached hereto as Appendix D, which provides
that the holders of the warrants will not exercise their warrants prior
to completion of the acquisition. The 1991 Warrants are exercisable at
the price of $312.50 per share. The 1996 Warrants are exercisable at
the price of $412.50 per share. The 8,844 shares acquirable upon
exercise of 1991 and 1996 Warrants held by directors and executive
officers as a group represent approximately 52.08% of all shares
acquirable upon exercise of issued and outstanding warrants.
</TABLE>
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<TABLE>
<S> <C>
(3) Shares deemed to be outstanding for purposes of computing "Percent of
Common Stock" are calculated on the basis of the total number of
outstanding shares plus the number of shares a person or group has the
right to acquire within 60 days.
(4) Does not include shares or warrants held by Mr. Amster's spouse, Tamra
Gould. Mr. Amster disclaims beneficial ownership of all such shares and
warrants. The 1,200 1991 warrants are owned by the Howard M. Amster
Charitable Remainder Unitrust U/A dated April 22, 1998, in which Mr.
Amster has a life interest.
(5) Mr. Bloom disclaims beneficial ownership of twenty-eight shares held by
his spouse as custodian for their children, which shares are not
included in the table above.
(6) Held by the Lloyd Clemmer Family Trust.
(7) Less than one percent (1%).
(8) Mr. Goldblatt disclaims beneficial ownership of Common Stock and
warrants to acquire Common Stock held by Pubco Corp. and a Pubco Corp.
employee benefit plan in which Mr. Goldblatt is a participant, the
ownership of which is disclosed separately in the above table.
(9) Mr. Prots disclaims beneficial ownership of four shares held by him as
custodian for his minor son, which shares are not included in the table
above.
</TABLE>
SUPERVISION AND REGULATION
The following discussion is qualified in its entirety by reference to
the particular statutory and regulatory provisions discussed. Changes in
applicable law or in the policies of various regulatory authorities could have a
material effect on the business and prospects of GLB, Maple Leaf, Great Lakes
Bank and Geauga Savings Bank.
GLB is a bank holding company within the meaning of the Bank Holding
Company Act of 1956. As such, GLB is subject to regulation, supervision and
examination by the Board of Governors of the Federal Reserve System, acting
primarily through the Federal Reserve Bank of Cleveland. GLB is required to file
annual reports with the Federal Reserve Board and to provide the Federal Reserve
Board such additional information as the Federal Reserve Board may require.
Great Lakes Bank is an Ohio-chartered commercial bank. As an FDIC member
institution, the deposits of Great Lakes Bank are insured to a maximum of
$100,000 per depositor through the Bank Insurance Fund administered by the FDIC.
As a state-chartered, non-member bank, Great Lakes Bank is primarily regulated
by the FDIC and the Ohio Division of Financial Institutions.
Maple Leaf is a savings association holding company within the meaning
of the Home Owners' Loan Act. As such, Maple Leaf is subject to regulation,
supervision and examination by the Office of Thrift Supervision. Geauga Savings
Bank is an Ohio-chartered savings bank. As an FDIC member institution, the
deposits of Geauga Savings Bank are insured to a maximum of $100,000 per
depositor through the Savings Association Insurance Fund administered by the
FDIC. Like Great Lakes Bank, Geauga Savings Bank is primarily regulated by the
FDIC and the Ohio Division of Financial Institutions.
GLB, Great Lakes Bank, Maple Leaf and Geauga Savings Bank are subject
to federal and state banking laws. These federal and state laws are intended to
protect depositors, not shareholders. Federal and state laws applicable to
financial institution holding companies and their financial institution
subsidiaries regulate the range of permissible business activities, investments,
reserves against deposits, capital levels, lending activities and practices, the
nature and amount of collateral for loans, establishment of branches, mergers,
dividends and a variety of other important matters.
Great Lakes Bank and Geauga Savings Bank are subject to detailed,
complex and sometimes overlapping federal and state statutes and regulations in
their routine banking operations. These statutes and regulations include but are
not limited to state usury and consumer credit laws, 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 and
the Community Reinvestment Act.
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Great Lakes Bank and Geauga Savings Bank are subject to Federal Reserve
Board regulations that require depository institutions to maintain reserves
against their transaction accounts (principally NOW and regular checking
accounts). Great Lakes Bank and Geauga Savings Bank are in compliance with this
requirement. Because required reserves are commonly maintained in the form of
vault cash or in a noninterest-bearing account (or pass-through account) at a
Federal Reserve Bank, the effect of the reserve requirement is to reduce an
institution's earning assets.
The Federal Deposit Insurance Corporation Improvement Act of 1991
expanded significantly the authority of federal agencies to regulate the
activities of federally chartered and state-chartered financial institutions and
their holding companies. The Federal Reserve Board and the FDIC have extensive
authority to prevent and to remedy unsafe and unsound practices and violations
of applicable laws and regulations by institutions and their holding companies.
The agencies may assess civil money penalties, issue cease and desist or removal
orders, seek injunctions, and publicly disclose such actions. In addition, the
Superintendent of the Ohio Division of Financial Institutions possesses
enforcement powers to address violations of Ohio banking law by Ohio-chartered
banks and savings banks.
REGULATION OF BANK HOLDING COMPANIES
Bank holding companies and their activities are subject to extensive
regulation by the Federal Reserve Board. The Bank Holding Company Act requires
every bank holding company to obtain the prior approval of the Federal Reserve
Board before (i) directly or indirectly acquiring ownership or control of any
voting shares of another bank or bank holding company if, after such
acquisition, the acquiring company would own or control more than 5% of the
shares of the other bank or bank holding company (unless the acquiring company
already owns or controls a majority of such shares); (ii) acquiring all or
substantially all of the assets of another bank or bank holding company; or
(iii) merging or consolidating with another bank holding company. The Federal
Reserve Board will not approve any acquisition, merger or consolidation that
would have a substantially anticompetitive result, unless the anticompetitive
effects of the proposed transaction are clearly outweighed by a greater public
interest in meeting the convenience and needs of the community to be served. The
Federal Reserve Board also considers capital adequacy and other financial and
managerial factors in its review of acquisitions and mergers.
With certain exceptions, the Bank Holding Company Act also prohibits a
bank holding company from acquiring or retaining direct or indirect ownership or
control of more than 5% of the voting shares of any company that is not a bank
or bank holding company, or from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks, or providing
services for its subsidiaries. The principal exceptions to these prohibitions
involve certain non-bank activities that, by statute or by Federal Reserve Board
regulation or order, have been determined to be activities closely related to
the business of banking or of managing or controlling banks. In making this
determination, the Federal Reserve Board considers whether the performance of
such activities by a bank holding company can be expected to produce benefits to
the public, such as greater convenience, increased competition or gains in
efficiency in resources, that will outweigh the risks of possible adverse
effects such as decreased or unfair competition, conflicts of interest or
unsound banking practices.
Some of the activities determined by Federal Reserve Board 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. GLB currently has no plans to engage in these activities.
It is Federal Reserve Board policy that bank holding companies serve as
a source of strength for their subsidiary banking institutions. The Federal
Reserve Board considers the adequacy of a bank holding company's capital on
essentially the same risk-adjusted basis as capital adequacy is determined by
the FDIC at
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the bank subsidiary level. In the case of a bank holding company with less than
$150 million in total consolidated assets, the Federal Reserve Board's
regulations provide that the capital adequacy requirements will generally be
applied on a bank-only basis (rather than on a consolidated basis). In general,
bank holding companies are required to maintain a minimum ratio of total capital
to risk-weighted assets of 8% and Tier 1 capital (consisting principally of
shareholders' equity) of at least 4%. Bank holding companies are also subject to
a leverage ratio requirement. The minimum required leverage ratio for the
highest rated companies is 3%. The minimum required leverage ratio for all other
bank holding companies is 4% or higher. See " - CAPITAL."
Subsidiary banks of a bank holding company are subject to restrictions
imposed by the Federal Reserve Act on extensions of credit to the bank holding
company or its subsidiaries, on investments in their securities and on the use
of their securities as collateral for loans to any borrower. These regulations
and restrictions could limit GLB's ability to obtain funds from Great Lakes Bank
for GLB's cash needs, including funds for payment of dividends, interest and
operating expenses. Further, under the Bank Holding Company Act and regulations
of the Federal Reserve Board, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services. For
example, Great Lakes Bank generally may not require a customer to obtain other
services from the bank or GLB as a condition to an extension of credit to the
customer, and may not require that customer to promise not to obtain other
services from a competitor.
Prior approval of the Superintendent of the Ohio Division of Financial
Institutions is necessary to acquire control of an Ohio-chartered bank. Banks
and bank holding companies located in Ohio or any other state are authorized
under Ohio law to acquire an Ohio-chartered bank, provided that the acquiring
bank or bank holding company would not control (i) more than 10% of total bank,
savings bank and savings association deposits nationwide and (ii) more than 30%
of total bank, savings bank and savings association deposits in Ohio. The
Superintendent of the Ohio Division of Financial Institutions may nevertheless
approve an acquisition resulting in the acquiring bank or bank holding company
controlling more than 30% of total bank, savings bank and savings association
deposits in Ohio if the Superintendent determines that the anticompetitive
effects of the acquisition are clearly outweighed in the public interest by the
probable effect of the transaction. As of June 30, 1998, the deposits of each of
Geauga Savings Bank and Great Lakes Bank represented less than 1% of total bank,
savings bank and savings association deposits in Ohio.
REGULATION OF THRIFT HOLDING COMPANIES
Because Maple Leaf owns one and only one savings bank - Geauga Savings
Bank - and because Geauga Savings Bank satisfies the "qualified thrift lender"
test described hereinafter, Maple Leaf is eligible under the Home Owners' Loan
Act for treatment as a unitary thrift holding company. Maple Leaf has elected to
be treated as a unitary thrift holding company, rather than being subject to
Bank Holding Company Act regulation and supervision as a bank holding company.
In marked contrast to bank holding companies and to other forms of thrift
holding companies, there are generally no restrictions under the Home Owners'
Loan Act on the activities of a unitary thrift holding company, provided the
subsidiary institution maintains its "qualified thrift lender" status. In
addition, a unitary thrift holding company is not subject to any capital
maintenance requirements under federal law (although its subsidiary savings bank
or savings association is).
If Maple Leaf were to acquire control of another institution (other
than through merger or other business combination with Geauga Savings Bank),
Maple Leaf would become a bank holding company if the other institution is a
bank, or a multiple thrift holding company if the newly acquired institution is
a savings and loan association or savings bank. In either event Maple Leaf would
lose its status as a unitary holding company and become subject to activities
restrictions as a result. In very general terms, no multiple thrift holding
company or subsidiary thereof that is not a savings institution may commence or
continue any business activity other than: (i) furnishing or performing
management services for a subsidiary savings institution; (ii) conducting an
insurance agency or escrow business; (iii) holding, managing, or liquidating
assets owned by or acquired from a subsidiary savings institution; (iv) holding
or managing properties used or occupied by a subsidiary
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savings institution; (v) acting as trustee under deeds of trust; (vi) activities
authorized by regulation as of March 5, 1987 to be engaged in by multiple thrift
holding companies; or (vii) activities authorized by the Federal Reserve Board
as permissible for bank holding companies, unless the Director of the Office of
Thrift Supervision by regulation prohibits or limits such activities for thrift
holding companies. Activities described in clause (vii) also must be approved in
advance by the Director of the Office of Thrift Supervision.
Moreover, if the savings bank or savings association subsidiary of a
unitary thrift holding company fails to satisfy the qualified thrift lender test
discussed hereinafter, then the unitary holding company becomes subject to the
activities restrictions applicable under the Home Owners' Loan Act to multiple
thrift holding companies. Unless the subsidiary institution requalifies under
the qualified thrift lender test within one year, the holding company must
register as a bank holding company. The activities restrictions applicable to
bank holding companies under the Bank Holding Company Act of 1956 are generally
more confining than the activities restrictions applicable under the Home
Owners' Loan Act to multiple thrift holding companies.
Maple Leaf is subject to examination by the Office of Thrift
Supervision and the enforcement authority of the Office of Thrift Supervision.
Maple Leaf is also required to file periodic reports with the Office of Thrift
Supervision. If the Office of Thrift Supervision determines that the
continuation of a particular activity by a thrift holding company constitutes a
serious threat to the financial condition of its subsidiary institution(s), the
Office of Thrift Supervision may impose restrictions on the holding company.
These restrictions could include limiting the payment of dividends, transactions
with affiliates or any other activities deemed to pose a serious threat to the
subsidiary institutions.
Without prior approval of the Director of the Office of Thrift
Supervision, thrift holding companies generally are prohibited from acquiring
(i) control of any other savings institution or savings and loan holding company
or substantially all the assets thereof or (ii) more than 5% of the voting
shares of a savings institution or holding company thereof that is not a
subsidiary. Without the prior approval of the Director, no director or officer
of a thrift holding company or person owning or controlling by proxy or
otherwise more than 25% of such company's stock may acquire control of any
savings institution, other than a subsidiary savings institution, or of any
other thrift holding company.
The Director of the Office of Thrift Supervision may approve an
acquisition resulting in the formation of a multiple thrift holding company
controlling savings institutions in more than one state if and only if (i) the
multiple thrift holding company involved controls a savings institution that
operated a home or branch office located in the state of the institution to be
acquired as of March 5, 1987; (ii) the acquiror is authorized to acquire control
of the savings institution pursuant to the emergency acquisition provisions of
the Federal Deposit Insurance Act; or (iii) the statutes of the state in which
the institution to be acquired is located specifically permit institutions to be
acquired by the state-chartered institutions or thrift holding companies located
in the state where the acquiring entity is located (or by a holding company that
controls such state-chartered savings institutions).
Amended by the Financial Institutions Reform, Recovery, and Enforcement
Act of 1989, the Bank Holding Company Act of 1956 specifically authorizes the
Federal Reserve Board to approve an application by a bank holding company to
acquire control of a savings institution. That 1989 legislation also authorized
a bank holding company controlling a savings institution to merge or consolidate
the assets and liabilities of the savings institution with, or transfer assets
and liabilities to, any subsidiary bank that is a member of the Bank Insurance
Fund with the approval of the appropriate federal banking agency and the Federal
Reserve Board. As a result of these provisions, there have been a number of
acquisitions of savings institutions by bank holding companies in recent years.
Acquisition of control of an Ohio-chartered savings bank or its holding
company is generally subject also to approval by the Superintendent of the Ohio
Division of Financial Institutions.
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From time to time Congress considers legislation that would limit
thrift holding companies, including unitary savings and loan holding companies,
to the same activities as other financial institution holding companies and
permit financial institution holding companies generally to engage in commercial
activities and expanded securities and insurance activities. Maple Leaf cannot
predict whether or in what form these proposals will become law. Although such
legislation may change the activities in which Maple Leaf and Geauga Savings are
authorized to engage, neither anticipates that the current activities of Maple
Leaf or Geauga Savings will be materially affected by the new legislation.
In order for Maple Leaf to maintain its advantaged status as a unitary
thrift holding company, Geauga Savings Bank must continue to satisfy the
qualified thrift lender ("QTL") test under federal law. Under the QTL test, 65%
of an institution's "portfolio assets" (total assets less goodwill and other
intangibles, property used to conduct business and certain liquid assets) must
consist of qualified thrift investments on a monthly average basis in 9 out of
every 12 months. The term "qualified thrift investments" generally means
investments related to domestic residential real estate and manufactured housing
and includes credit card, student and small business loans, and stock issued by
any FHLB, the FHLMC or FNMA.
Although the preceding QTL test remains effective, it is no longer the
exclusive QTL Test. With the enactment on September 30, 1996 of the Economic
Growth and Regulatory Paperwork Reduction Act of 1996, including the Deposit
Insurance Funds Act of 1996 set forth in Subtitle G thereof, Congress created an
alternative QTL test, under which an institution may also be treated as a
qualified thrift lender if the institution qualifies as a "domestic building and
loan association" under the Internal Revenue Code. That is, at least 60% of the
institution's assets (on a tax basis) must consist of specified assets
(generally loans secured by residential real estate or deposits, educational
loans, cash and certain governmental obligations).
An institution that fails to meet the QTL test will not be eligible for
new FHLB advances. With qualified thrift investments of approximately 70% of
portfolio assets at September 30, 1998, Geauga Savings Bank is in compliance
with the original and the alternative QTL tests.
FEDERAL DEPOSIT INSURANCE
The FDIC insures deposits of federally insured banks, savings banks and
savings associations and safeguards the safety and soundness of the banking
industry. Two separate insurance funds are maintained and administered by the
FDIC. In general, bank deposits are insured through the Bank Insurance Fund.
Deposits in savings associations are insured through the Savings Association
Insurance Fund. Deposits in savings banks that, like Geauga Savings Bank, had
converted from savings associations to savings banks generally are also insured
through the Savings Association Insurance Fund. The insurance fund conversion
provisions of federal law do not prohibit a SAIF member from converting to a
bank charter, as long as the resulting bank remains a SAIF member, nor do they
prohibit merger with a bank, as long as the bank continues to pay the SAIF
insurance assessments on the deposits acquired. Exit and entrance fees must be
paid to the FDIC in full conversions.
As FDIC member institutions, deposits in Great Lakes Bank and in Geauga
Savings Bank are insured to a maximum of $100,000 per depositor. The banks are
required to pay semiannual deposit insurance premium assessments to the FDIC. In
general terms, each institution is assessed insurance premiums according to how
much risk to the insurance fund the institution represents. Well-capitalized
institutions with few supervisory concerns are assessed lower premiums than
other institutions. Currently, insurance fund assessments range from zero for
well-capitalized institutions to 0.27% of deposits for institutions that are not
(with a statutory minimum of $2,000 paid by all institutions). Great Lakes
Bank's current assessment rate is the statutory minimum of $2,000 annually.
Geauga Savings Bank's current assessment rate is .0582% annually ($32,000).
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines that the institution has engaged or is
engaging in unsafe or unsound practices, is in an unsafe or
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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.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996
enacted on September 30, 1996 provides that, beginning with semi-annual periods
after December 31, 1996, Bank Insurance Fund deposits will also be assessed to
pay interest on the bonds issued in the late 1980s by the Financing Corporation
("FICO BONDS"). The FICO Bonds were issued for the purpose of recapitalizing the
now defunct Federal Savings and Loan Insurance Corporation, which had been the
principal insurer of savings association deposits. For purposes of the
assessments to pay interest on the FICO Bonds, Bank Insurance Fund deposits will
be assessed at a rate of 20% of the assessment rate applicable to Savings
Association Insurance Fund deposits until December 31, 1999. After the earlier
of December 31, 1999 or the date on which the last savings association ceases to
exist, full pro rata sharing of FICO assessments will begin. Great Lakes Bank
expects that the assessment to pay interest on the FICO Bonds will not have a
material effect on GLB or Great Lakes Bank.
INTERSTATE BANKING AND BRANCHING
The Reigle-Neal Interstate Banking and Branching Efficiency Act was
enacted in 1994 to ease restrictions on interstate banking. The Riegle-Neal Act
allows the Federal Reserve Board to approve an application by an adequately
capitalized and adequately managed bank holding company to acquire a bank
located in a state other than the acquiring company's home state without regard
to whether the transaction is prohibited by the laws of any state. The Federal
Reserve Board may not approve the acquisition of a bank that has not been in
existence for the minimum time period (up to five years) specified by the
statutory law of the acquired, or "target," bank's state. The Riegle-Neal Act
also prohibits the Federal Reserve Board from approving an application if the
applicant (and its depository institution affiliates) controls or would control
more than 10% of the insured deposits in the United States or 30% or more of the
deposits in the target bank's home state or in any state in which the target
bank maintains a branch. The Riegle-Neal Act does not affect the authority of
states to limit the percentage of total insured deposits in the state that may
be held or controlled by a bank or bank holding company if the limitation does
not discriminate against out-of-state banks or bank holding companies.
Individual states may also waive the 30% statewide concentration limit contained
in the Riegle-Neal Act.
Although the Interstate Act provided that states had a certain period
of time following enactment of the Interstate Act to "opt-out" of the interstate
branching provisions, Ohio did not exercise the right to opt out of the
interstate branching provisions of the Interstate Act. Branching between states
may be accomplished by merging commonly controlled banks located in different
states into one legal entity. Branching may also be accomplished by establishing
de novo branches or acquiring branches in another state. A branch of an
out-of-state bank operating in another state, or "host state," is subject to the
law of the host state regarding community reinvestment, fair lending, consumer
protection (including usury limits) and establishment of branches.
The Riegle-Neal Act authorizes the FDIC to approve interstate branching
de novo by state-chartered banks solely in states that specifically allow for
such branching. The FDIC recently adopted regulations under the Riegle-Neal Act
to prohibit an out-of-state bank from using the new interstate branching
authority primarily for the purpose of deposit production. These regulations
include guidelines to ensure that interstate branches operated by an
out-of-state bank in a host state are reasonably helping to meet the credit
needs of the communities serve by the out-of-state bank.
CAPITAL
The Federal Reserve Board and the FDIC employ similar risk-based
capital guidelines in their examination and regulation of bank holding companies
and financial institutions. If capital falls below the
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minimum levels established by the guidelines, the bank holding company, bank or
savings bank may be denied approval to acquire or establish additional banks or
non-bank businesses or to open new facilities. Failure to satisfy applicable
capital guidelines could subject a banking institution to a variety of
enforcement actions by federal regulatory authorities, including the termination
of deposit insurance by the FDIC and a prohibition on the acceptance of
"brokered deposits."
In the calculation of risk-based capital, assets and off-balance sheet
items are assigned to broad risk categories, each with an assigned weighting
(0%, 20%, 50% and 100%). Most loans are assigned to the 100% risk category,
except for first mortgage loans fully secured by residential property, which
carry a 50% rating. Most investment securities are assigned to the 20% category,
except for municipal or state revenue bonds, which have a 50% risk-weight, and
direct obligations of or obligations guaranteed by the United States Treasury or
United States Government agencies, which have a 0% risk-weight. Off-balance
sheet items are also taken into account in the calculation of risk-based
capital, with each class of off-balance sheet item being converted to a balance
sheet equivalent according to established "conversion factors." From these
computations, the total of risk-weighted assets is derived. Risk-based capital
ratios therefore state capital as a percentage of total risk-weighted assets
and off-balance sheet items. The ratios established by guideline are minimums
only.
Current risk-based capital guidelines require all bank holding
companies and banks to maintain a minimum risk-based total capital ratio equal
to 8% and a Tier 1 capital ratio of 4%. Intangibles other than readily
marketable mortgage servicing rights are generally deducted from capital. Tier 1
capital includes common shareholders' equity, qualifying perpetual preferred
stock (within limits and subject to certain conditions, particularly if the
preferred stock is cumulative preferred stock), and minority interests in equity
accounts of consolidated subsidiaries, less intangibles. Tier 2 capital
includes: (i) the allowance for loan losses up to 1.25% of risk-weighted assets;
(ii) any qualifying perpetual preferred stock exceeding the amount includable in
Tier 1 capital; (iii) hybrid capital instruments; (iv) perpetual debt; (v)
mandatory convertible securities and (vi) subordinated debt and intermediate
term preferred stock of up to 50% of Tier 1 capital. Total capital is the sum of
Tier 1 and Tier 2 capital, less reciprocal holdings of other banking
organizations, capital instruments and investments in unconsolidated
subsidiaries.
The FDIC has added a market risk component to the capital requirements
of nonmember banks and savings banks. The market risk component could require
additional capital for general or specific market risk of trading portfolios of
debt and equity securities and other investments or assets. The FDIC's
evaluation of an institution's capital adequacy takes account of a variety of
other factors as well, including interest rate risks to which the institution is
subject, the level and quality of an institution's earnings, loan and investment
portfolio characteristics and risks, risks arising from the conduct of
nontraditional activities and a variety of other factors. Accordingly, the
FDIC's final supervisory judgment concerning an institution's capital adequacy
could differ significantly from the conclusions that might be drawn from the
absolute level of an institution's risk-based capital ratios. Therefore,
institutions generally are expected to maintain risk-based capital ratios that
exceed the minimum ratios discussed above. This is particularly true for
institutions contemplating significant expansion plans and institutions that are
subject to high or inordinate levels of risk. Moreover, although the FDIC does
not impose explicit capital requirements on holding companies of institutions
regulated by the FDIC, the FDIC can take account of the degree of leverage and
risks at the holding company level. If the FDIC determines that the holding
company (or another affiliate of the institution regulated by the FDIC) has an
excessive degree of leverage or is subject to inordinate risks, the FDIC may
require the subsidiary institution(s) to maintain additional capital or the FDIC
may impose limitations on the subsidiary institution's ability to support its
weaker affiliates or holding company.
The Federal Reserve Board and the FDIC have also established a minimum
leverage ratio of 3%. However, for bank holding companies and financial
institutions seeking to expand and for all but the most highly rated banks and
bank holding companies, the Federal Reserve Board and the FDIC expect an
additional cushion of at least 100 to 200 basis points. The leverage ratio
represents Tier 1 capital as a percentage of total assets, less intangibles. At
September 30, 1998, GLB, Great Lakes Bank and Geauga Savings Bank were in
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compliance with all regulatory capital requirements. As a unitary thrift holding
company, Maple Leaf is not subject to capital maintenance requirements.
In order to resolve the problems of undercapitalized institutions and
to prevent a recurrence of the banking crisis of the 1980s and early 1990s, the
Federal Deposit Insurance Corporation Improvement Act of 1991 established a
system known as "prompt corrective action." Under the prompt corrective action
provisions and implementing regulations, every institution is classified into
one of five categories, depending on (i) its total risk-based capital ratio,
Tier 1 risk-based capital ratio and leverage ratio and (ii) certain subjective
factors. The categories are: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." A financial institution's operations can be significantly
affected by its capital classification. For example, an institution that is not
"well capitalized" generally is prohibited from accepting brokered deposits and
offering interest rates on deposits higher than the prevailing rate in its
market, and the holding company of any undercapitalized institution must
guarantee, in part, certain aspects of the institution's capital plan. Financial
institution regulatory agencies generally are required to appoint a receiver or
conservator shortly after an institution enters the category of weakest
capitalization. The Federal Deposit Insurance Corporation Improvement Act of
1991 also authorizes the regulatory agencies to reclassify an institution from
one category into a lower category if the institution is in an unsafe or unsound
condition or engaging in an unsafe or unsound practice. Undercapitalized
institutions are required to take certain specified actions in order to increase
their capital or otherwise decrease the risks to the federal deposit insurance
funds.
The following table illustrates the capital and prompt corrective
action guidelines applicable to Great Lakes Bank and Geauga Savings Bank, as
well as their total risk-based capital ratios, Tier 1 capital ratios and
leverage ratios as of September 30, 1998.
<TABLE>
<CAPTION>
AT MINIMUM NECESSARY TO BE MINIMUM NECESSARY TO BE
SEPTEMBER 30,1998 WELL CAPITALIZED ADEQUATELY CAPITALIZED
<S> <C> <C> <C>
GREAT LAKES BANK:
Total Risk-Based Capital Ratio...... 17.02% 10.00% 8.00%
Tier 1 Risk-Based Capital Ratio..... 16.10% 6.00% 4.00%
Leverage Ratio...................... 11.31% 5.00% 3.00%
GEAUGA SAVINGS BANK:
Total Risk-Based Capital Ratio...... 15.2% 10.00% 8.00%
Tier 1 Risk-Based Capital Ratio..... 13.9% 6.00% 4.00%
Leverage Ratio...................... 7.4% 5.00% 3.00%
</TABLE>
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
The ability of GLB to obtain funds for the payment of dividends and for
other cash requirements is dependent on the amount of dividends that may be
declared by Great Lakes Bank. Ohio bank law provides that dividends may be paid
from undivided profits only, and an Ohio-chartered bank may not declare a
dividend without the approval of the Ohio Division of Financial Institutions if
the total of dividends and distributions declared in a calendar year exceeds the
total of the bank's net income for that year combined with its retained net
income for the preceding two years. State-chartered banks' ability to pay
dividends may be affected by capital adequacy guidelines of their primary
federal bank regulatory agency as well. See " - CAPITAL ADEQUACY AND PROMPT
CORRECTIVE ACTION." The ability of Maple Leaf to obtain funds for the payment of
dividends and for other cash requirements is likewise dependent on the amount of
dividends that may be declared by Geauga Savings Bank. Moreover, regulatory
authorities are authorized to prohibit banks and bank holding companies from
paying dividends if payment of dividends would constitute an unsafe and unsound
banking practice.
The Federal Reserve Board's policy statement governing payment of cash
dividends provides that a bank holding company should not pay cash dividends on
common stock unless (i) the organization's net income
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for the past year is sufficient to fully fund the dividends and (ii) the
prospective rate of earnings retention appears consistent with the
organization's capital needs, asset quality and overall financial condition. For
small bank holding companies (those with less than $150 million in assets), the
FRB's position is that such companies should not pay dividends so long as they
have a debt-to-equity ratio of 1:1 or greater. GLB intends to comply with this
Federal Reserve Board policy.
As of ______________, 1999, Great Lakes Bank could declare aggregate
cash dividends of approximately $________ million without obtaining regulatory
approvals, and Geauga Savings Bank could declare total cash dividends of
approximately $________ million without obtaining regulatory approval.
Great Lakes Bank obtained special dividend authorization from the Ohio
Division of Financial Institutions under Ohio Revised Code ss.1107.15(C). The
special dividend of approximately $6 million will be effected immediately before
completion of the acquisition. The purpose of the special dividend is to
supplement GLB's cash assets in order that GLB may fund the cash portion of the
acquisition consideration without having to rely on borrowings from one or more
third parties.
TRANSACTIONS WITH AFFILIATES
Although neither Great Lakes Bank nor Geauga Savings Bank is a member
bank of the Federal Reserve System, under the Federal Deposit Insurance Act they
are required to comply with Sections 23A and 23B of the Federal Reserve Act
(pertaining to transactions with affiliates) in the same manner and to the same
extent as member banks. An affiliate of a bank is any company or entity that
controls, is controlled by or is under common control with the bank. Generally,
Sections 23A and 23B of the Federal Reserve Act (i) limit the extent to which a
bank or its subsidiaries may engage in "covered transactions" with any one
affiliate to an amount equal to 10% of such institution's capital and surplus,
limiting the aggregate of covered transactions with all affiliates to 20% of
capital and surplus, and (ii) require that all such transactions be on terms
substantially the same, or at least as favorable to the institution or
subsidiary, as those provided to a non-affiliate. The term "covered transaction"
includes making loans, purchasing assets, issuing a guarantee and other similar
types of transactions.
Great Lakes Bank's and Geauga Savings Bank's authority to extend credit
to executive officers, directors and greater than 10% shareholders, as well as
entities such persons control, is subject to Sections 22(g) and 22(h) of the
Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other
things, these laws require insider loans to be made on terms substantially
similar to those offered to unaffiliated individuals, place limits on the amount
of loans a bank may make to such persons based, in part, on the bank's capital
position, and require certain approval procedures to be followed. Under Section
22(h), loans to an executive officer, director, or greater than 10% shareholder
(a "principal shareholder") of a bank, and certain affiliated entities of
either, together with all other outstanding loans to such persons and affiliated
entities, may not exceed the bank's loans-to-one-borrower limit, which in
general terms is 15% of tangible capital but can be higher in certain
circumstances. Section 22(h) also prohibits loans in excess of the greater of 5%
of capital or $25,000 to directors, executive officers and principal
shareholders, and their respective affiliates, unless the loans are approved in
advance by a majority of the board of directors, with any "interested" director
not participating in the voting. A violation of these restrictions could result
in the assessment of substantial civil monetary penalties, the imposition of a
cease and desist order or other regulatory sanctions. Recent regulations now
permit executive officers and directors to receive the same terms through
benefit or compensation plans that are available to other employees, as long as
the director or executive officer is not given preferential treatment compared
to the other participating employees.
COMMUNITY REINVESTMENT ACT
Under the Community Reinvestment Act of 1977 and implementing
regulations of the banking agencies, a financial institution has a continuing
and affirmative obligation (consistent with safe and sound operation) to
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meet the credit needs of its entire community, including low- and
moderate-income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions, nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community. The CRA requires that bank
regulatory agencies conduct regular CRA examinations and provide written
evaluations of institutions' CRA performance. The CRA also requires that an
institution's CRA performance rating be made public. CRA performance evaluations
are based on a four-tiered rating system: Outstanding, Satisfactory, Needs to
Improve and Substantial Noncompliance.
At the most recent CRA examination of Great Lakes Bank, concluded in
June 1996, Great Lakes Bank received a CRA performance rating of "Satisfactory."
At the most recent CRA examination of Geauga Savings Bank, concluded in August
1996, Geauga Savings Bank received a CRA performance rating of "Outstanding."
Although CRA examinations occur on a regular basis, CRA performance evaluations
are used principally in the evaluation of regulatory applications submitted by
an institution. CRA performance evaluations are considered in evaluating
applications for such things as mergers, acquisitions and applications to open
branches. Over the twenty years that the CRA has existed, and particularly in
the last few years, institutions have faced increasingly difficult regulatory
obstacles and public interest group objections in connection with their
regulatory applications, including institutions that have received the highest
possible CRA ratings.
FEDERAL HOME LOAN BANKS
The Federal Home Loan Banks serve as credit sources for their members.
As members of the FHLB of Cincinnati, Great Lakes Bank and Geauga Savings Bank
are required to maintain an investment in the capital stock of the FHLB of
Cincinnati in an amount calculated by reference to the member institution's
assets and the amount of loans, or "advances," from the FHLB. Great Lakes Bank
is in compliance with this requirement, with an investment in FHLB of Cincinnati
stock of $451,000 at September 30, 1998. Likewise, Geauga Savings Bank is in
compliance, with an investment in FHLB of Cincinnati stock of $2,183,300 at
September 30, 1998.
Great Lakes Bank obtains funds from the FHLB of Cincinnati pursuant to
a "Blanket Agreement for Advances and Security Agreement." See "BUSINESS OF GLB
- - SOURCE OF FUNDS." At origination or renewal of a loan or advance, the Federal
Home Loan Banks are required to obtain and maintain a security interest in one
or more of the following kinds of collateral: fully disbursed, whole mortgage
loans on improved residential property or securities representing a whole
interest in such loans; securities issued, insured or guaranteed by the United
States Government or an agency thereof; deposits in any FHLB; or other real
estate-related collateral (up to 30% of the member's capital) acceptable to the
FHLB, if the collateral has a readily ascertainable value and the FHLB can
perfect its security interest.
Each FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances from the FHLB. The standards take into account a member's performance
under the Community Reinvestment Act and its record of lending to first-time
home buyers.
STATE BANKING REGULATION
As Ohio-chartered institutions, Great Lakes Bank and Geauga Savings
Bank are subject to regular examination by the Ohio Division of Financial
Institutions. State banking regulation affects the internal organization of
Great Lakes Bank and Geauga Savings Bank as well as their savings, mortgage
lending, investment and other activities. State banking regulation may contain
limitations on an institution's activities that are in addition to limitations
imposed under federal banking law. State banking regulation also contains many
provisions that are consistent with federal banking law, such as provisions of
Ohio banking law limiting loans by either of Great Lakes Bank or Geauga Savings
Bank to any one borrower to 15% of unimpaired capital
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and surplus, plus 10% of unimpaired capital and surplus if the additional amount
is fully secured by certain forms of "readily marketable collateral." Real
estate is not considered "readily marketable collateral."
The Ohio Division of Financial Institutions may initiate supervisory
measures or formal enforcement actions, and if the grounds provided by law
exist, the Ohio Division of Financial Institutions may place an Ohio-chartered
financial institution in conservatorship or receivership. Whenever the
Superintendent of the Division considers it necessary or appropriate, the
Superintendent may also examine the affairs of any holding company or any
affiliate of an Ohio-chartered financial institution.
Ohio-chartered savings banks are required to maintain at least 60% of
assets in housing-related and other specified investments. At September 30,
1998, Geauga Savings Bank was in compliance with this requirement. Geauga
Savings Bank is also required by Ohio law to maintain certain reserve and net
worth levels. Currently, Ohio-chartered savings banks are required to establish
and maintain a reserve for the absorption of bad debts and other losses in an
amount at least equal to 3% of the institutions's savings account balance. For
purposes of complying with this reserve requirement, savings banks are able to
include the amount of any permanent stock issued and outstanding, contributed
surplus, undivided profits, specific loss or valuation reserves and any other
nonwithdrawable accounts. In addition, Ohio-chartered savings banks that are
rated a "composite one" (the highest rating under the Uniform Financial
Institutions Rating System) are required to establish and maintain a ratio of
net worth to total assets of not less than 3%. All other Ohio-chartered savings
banks are required to have a ratio of net worth to total assets of not less than
4%. Net worth consists of common stockholders' equity, noncumulative perpetual
preferred stock, minority interests in the equity capital accounts of
consolidated subsidiaries and subordinated debentures. At September 30, 1998,
Geauga Savings Bank was in compliance with applicable reserve and net worth
requirements. Ohio-chartered savings banks are also required to pay to the
Superintendent an annual supervisory fee of two hundred fifty dollars, plus an
assessment calculated by reference to the savings bank's total assets.
Finally, Ohio law restricts the ability of Ohio-chartered savings banks
to invest in, among other things, (i) commercial real estate loans (including
commercial construction real estate loans) up to 20% of total assets; (ii) land
acquisition and development loans to any one person, firm or corporation of up
to 2% of total savings bank assets; (iii) consumer loans, commercial paper and
corporate debt securities up to 20% of total assets; (iv) commercial business
loans up to 10% of total assets; and (v) capital stock, obligations and other
securities of service corporations up to 15% of total assets. Ohio law also sets
forth the maximum loan-to-value ratios with respect to various types of loans.
MONETARY POLICY
The earnings of financial institutions are affected by the policies of
regulatory authorities, including monetary policy of the Federal Reserve Board.
An important function of the Federal Reserve System is regulation of aggregate
national credit and money supply. The Federal Reserve Board accomplishes these
goals with measures such as open market dealings in securities, establishment of
the discount rate on bank borrowings and changes in reserve requirements against
bank deposits. These methods are used in varying combinations to influence
overall growth and distribution of financial institutions' loans, investments
and deposits, and they also affect interest rates charged on loans or paid on
deposits. Monetary policy is 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. Federal Reserve
Board monetary policy has had a significant effect on the operating results of
financial institutions in the past, and it can be expected to influence
operating results in the future.
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BANK REGULATORY DEVELOPMENTS
The laws and regulations affecting banks and bank holding companies
have changed significantly over recent years. Additional changes can be expected
in the future. Like administrations before it, the current administration has
considered consolidation of bank regulatory responsibilities now administered by
four separate banking agencies. Over the same time period, Congress has proposed
additional restrictions on the powers of bank holding companies, thrift holding
companies and their affiliates, as well as expanded powers for bank holding
companies, thrift holding companies and their affiliates, including securities-
and insurance-related powers.
DESCRIPTION OF GLB CAPITAL STOCK
The authorized capital stock of GLB consists of 10,000,000 shares of
common stock, without par value, and 2,000,000 shares of preferred stock, also
without par value. As of _______________, 1999 there were 2,133,906 shares of
common stock outstanding, 28,000 shares reserved for issuance under GLB's stock
option plan, and no shares of preferred stock outstanding. The authorized shares
of GLB capital stock may be issued and sold without further shareholder action,
provided that the issuance and sale is made in compliance with the corporate
governance documents of GLB and the Ohio General Corporation Law. The following
summary of GLB's capital stock is subject to and qualified in its entirety by
the provisions of applicable law and by GLB's Amended and Restated Articles of
Incorporation, as amended, and Code of Regulations. As of _________ ___, 1999,
GLB had __________ shareholders of record.
COMMON STOCK
Holders of GLB common stock are entitled to one vote per share on any
matter submitted to a vote of shareholders. Cumulative voting is prohibited in
the election or removal of directors. The holders of common stock are entitled
to receive ratably such dividends, if any, as may be declared from time to time
by the Board of Directors out of funds legally available therefor. The common
stock is not redeemable, does not have any conversion rights and is not subject
to call. Holders of common stock have no preemptive rights to maintain their
respective percentage of ownership in future offerings or sales of stock by GLB.
The shares of GLB common stock outstanding are, and the shares of GLB common
stock to be issued in the Merger will when issued be, fully paid and
nonassessable.
PREFERRED STOCK
There is no preferred stock outstanding. Under the Articles of
Incorporation, the Board of Directors is authorized to establish the number of
shares of preferred stock to be issued, and to fix the attributes of the shares,
including the dividend rate, the dividend payment dates, whether the dividends
will be cumulative, the redemption price, the sinking fund requirements,
liquidation preference and conversion rights.
TRANSFER AGENT
The transfer agent for GLB common stock is National City Bank.
CERTAIN ANTITAKEOVER MATTERS
GLB's Articles of Incorporation and Code of Regulations contain certain
provisions that could deter or render more difficult and costly attempts to gain
control of GLB or its assets, even in cases in which shareholders believe a
change in control to be in their best interests. Management believes these
provisions are in the long term best interests of GLB and its shareholders.
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ARTICLES OF INCORPORATION PROVISIONS. Authorized but unissued shares of
GLB common stock may be issued hereafter by the Board of Directors without
further shareholder approval. Accordingly, in the event of a potential change in
control that is not supported by the Board of Directors, the authorized but
unissued common stock could be issued by the Board of Directors to one or more
parties who concur with the Board of Directors' opposition to the potential
change in control.
GLB's Articles of Incorporation authorize the Board of Directors to
issue shares of preferred stock in one or more series with powers, preferences,
rights, restrictions, limitations, and other qualifications that could adversely
affect the voting and other rights of GLB common stock, and to do so without
further shareholder approval. When in the judgment of the Board of Directors the
action will be in the best interest of the shareholders and GLB, the preferred
stock could be used for the purpose or with the effect of creating impediments
to or frustrating the attempts of persons seeking to gain control of GLB. As a
means to oppose a hostile takeover bid, shares of preferred stock could, like
the authorized but unissued shares of common stock, be privately placed with
purchasers selected by the Board of Directors.
The existence of authorized but unissued capital stock could have the
effect of discouraging unsolicited takeover attempts or delaying, deferring or
preventing a change in control of GLB. In the event of a potential takeover or
other change in control, this could have an adverse impact on shareholders who
wish to receive the premium for stock that is commonly paid in connection with
changes in control. The issuance of new shares could be used to dilute the stock
ownership of a person or entity seeking to obtain control of GLB, should the
Board of Directors consider the change in control not to be in the best
interests of the shareholders and GLB. The Board of Directors is not aware of
any attempt or effort by any person to accumulate the securities of GLB or to
obtain control of GLB.
CODE OF REGULATIONS PROVISIONS. GLB's Code of Regulations also contains
provisions that could have an antitakeover effect. The Code of Regulations
requires that notice in writing of proposed shareholder nominations for the
election of directors be timely given to the Secretary of GLB prior to the
meeting. To be timely, a shareholder's notice of nomination for election of a
director must be received by the Secretary at least 30 days prior to the
meeting. The shareholder's notice of nomination must contain certain information
about the non-incumbent nominee, including name, age, business and residence
addresses, principal occupation, the number of shares of GLB beneficially owned
by the nominee and such other information as would be required to be included in
a proxy statement soliciting proxies for election of the nominee, as well as
certain information about the nominating shareholder. If the officer presiding
at a meeting determines that a person was not nominated in accordance with the
foregoing procedures, the nominee would not be eligible for election as a
director.
In addition, the Code of Regulations provides that special meetings of
shareholders may be called at any time by the Chairman of the Board, the
President, a Vice President or shareholders holding of record 25% or more of all
outstanding shares, but a special meeting relating to a change in control or
amendment of the articles of incorporation must be called by a majority of the
Board of Directors or by holders of record of not less than one half of the
outstanding shares.
OHIO CONTROL SHARE ACQUISITION ACT. Contained in Section 1701.831 of
the Ohio General Corporation Law, the Control Share Acquisition Act requires
prior shareholder approval for transfers of corporate control. The Control Share
Acquisition Act provides generally that acquisitions of voting securities
resulting in the acquiring shareholder owning 20%, 33 1/3%, or 50% of the
outstanding voting securities of an issuing public corporation must be approved
in advance by the holders of a majority of the outstanding voting shares
represented at a meeting at which a quorum is present, and by a majority of the
portion of the outstanding voting shares represented at such meeting that
excludes the voting shares owned by the acquiring shareholder or certain other
"interested shareholders." The Control Share Acquisition Act was intended to
protect shareholders of Ohio corporations from coercive tender offers. In
general, an issuing public corporation is any Ohio corporation that has 50 or
more shareholders, provided the corporation has its principal place of
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business, its principal offices, assets with substantial value or a substantial
percentage of its assets in Ohio. GLB is an issuing public corporation.
In the case of GLB's proposed acquisition of Maple Leaf, the term
"interested shares" would include shares held by GLB, by officers of Maple Leaf
or by any employee of Maple Leaf who is also a director of Maple Leaf. GLB owns
no shares of Maple Leaf common stock or warrants to acquire Maple Leaf common
stock. In addition, "interested shares" would include those shares acquired by
any person: (i) after the first date of public disclosure (November 25, 1998) of
the acquisition and prior to the record date for the Maple Leaf Special Meeting,
provided such person has paid over $250,000 for such purchased shares or such
purchased shares represents greater than .05% of the outstanding shares of Maple
Leaf, and (ii) that transfers such shares for valuable consideration after the
record date established by the directors, if accompanied by voting power. The
Control Share Acquisition Act may be made inapplicable to a company by its
corporate governance documents, but those of GLB do not so provide. In contrast,
Maple Leaf's Code of Regulations provides that the Ohio Control Share
Acquisition Act shall not apply to a control share acquisition of Maple Leaf.
OHIO MERGER MORATORIUM ACT. Chapter 1704 of the Ohio Revised Code,
known as the Merger Moratorium Act, prevents an issuing public corporation from
entering into a business combination transaction with an interested shareholder
for a period of three years after the date of the transaction in which the
person became an interested shareholder. If the business combination or the
interested shareholder's share acquisition had been approved by the directors,
the three-year moratorium would not apply. In general, an interested shareholder
is one who can vote or direct the voting of 10% or more of the issuing public
corporation's stock in the election of directors.
The Merger Moratorium Act generally does not apply to issuing public
corporations that (i) do not have a class of voting securities traded on a
national securities exchange, (ii) do not have a class of voting securities
registered under Section 12(g) of the Securities Exchange Act of 1934 or (iii)
are not required to file periodic reports and information pursuant to Section
15(d) of the Securities Exchange Act of 1934. Since May 1998, the GLB common
stock has been registered under Section 12(g) of the Securities Exchange Act of
1934, and GLB is required to file periodic reports pursuant to the Securities
Exchange Act of 1934.
Each of the Control Share Acquisition Act and the Merger Moratorium Act
provides that an issuing public corporation may elect not to be subject to those
statutes by a specific statement to that effect in the corporation's Articles of
Incorporation or, in the case of the Control Share Acquisition Act only, by a
statement to that effect in the corporation's code of regulations. GLB's
Articles of Incorporation and Code of Regulations make no such election.
Accordingly, the Control Share Acquisition Act and Merger Moratorium Act could
apply to changes in control and business combination transactions involving GLB.
OHIO "ANTI-GREENMAIL" STATUTE. Under Ohio Revised Code Section
1707.043, a public corporation formed in Ohio may recover profits that a
shareholder makes from a sale of the corporation's securities occurring within
eighteen months after making a proposal to acquire control or publicly
disclosing the possibility of a proposal to acquire control. The corporation may
not, however, recover from a person who proves either (i) that his sole purpose
in making the proposal was to succeed in acquiring control of the corporation
and there were reasonable grounds to believe that he would acquire control of
the corporation or (ii) that his purpose was not to increase any profit or
decrease any loss in the stock. Also, the corporation may not obtain any
recovery unless the aggregate amount of the profit realized by such person
exceeds $250,000. Any shareholder may bring an action on behalf of the
corporation if a corporation refuses to bring an action to recover these
profits. The party bringing such an action may recover his attorneys' fees if
the court having jurisdiction over such action orders recovery of any profits.
An Ohio corporation may elect not to be covered by the "anti-greenmail" statute
with an appropriate amendment to its articles of incorporation. GLB has not
taken any corporate action to opt out of the "anti-greenmail" statute.
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REGULATORY APPROVAL OF ACQUISITIONS. Approval of the Federal Reserve
Board and the Ohio Division of Financial Institutions is necessary for a company
to acquire control of an Ohio bank or bank holding company. The requirement for
regulatory approval could delay efforts to obtain control of GLB.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION
Under Ohio law, a director's liability to GLB or its shareholders for
damages is limited to those situations in which it is proved by clear and
convincing evidence that the director's action or failure to act involved an act
or omission undertaken with deliberate intent to cause injury to GLB or
undertaken with reckless disregard for the best interests of GLB, as well as in
those situations involving unlawful loans, asset distributions, dividend
payments or share repurchases. As a result, shareholders might be unable to
recover monetary damages against directors for actions that constitute gross
negligence or that are in violation of directors' fiduciary duties, although it
might be possible to obtain injunctive or other equitable relief in such
actions. If equitable remedies are not available to shareholders for any
particular case, shareholders might not have an effective remedy against the
challenged conduct.
GLB's Articles of Incorporation and Code of Regulations provide that
directors, officers, employees and agents shall be indemnified to the extent
permitted by law. Under the Ohio General Corporation Law, a corporation is
required to pay a director's expenses as incurred in defending an action, suit
or proceeding against him or her, provided the director agrees to repay such
expenses if he or she is determined to have acted with reckless disregard for
the corporation's best interests or with deliberate intent to cause injury to
the corporation and provided the director cooperates with the corporation
concerning the action, suit or proceeding. Likewise, the Ohio General
Corporation law allows a corporation to indemnify directors, officers, employees
and agents for actions taken on behalf of the corporation, regardless of whether
the corporation's governing instruments specifically provide for
indemnification. No indemnification is allowed, however, if the person seeking
indemnification is held by a final judgment to have acted in a grossly negligent
manner, knowingly contrary to or with reckless disregard for the best interests
of GLB.
The indemnification rights set forth in the Articles of Incorporation
and in the Ohio General Corporation Law 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. GLB may also provide for greater indemnification than that set forth in
the Articles of Incorporation if the Board of Directors chooses to do so.
GLB 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, regardless of whether GLB would have had the power to
indemnify against such liability. GLB is not aware of any pending or threatened
action, suit or proceeding involving any of its directors or officers for which
indemnification from GLB may be sought. GLB has purchased and maintains
directors' and officers' liability insurance.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
GLB or to an affiliate of GLB pursuant to the Articles of Incorporation, Code of
Regulations or otherwise, GLB has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. Accordingly, it is possible that the indemnification provisions
would not apply to liabilities arising under the Securities Act of 1933 unless
the person to be indemnified is successful on the merits of the claim or
proceeding.
Consistent with the Ohio General Corporation Law, GLB's Articles of
Incorporation contain a special provision dealing with transactions in which an
officer or director is interested. If certain procedures set forth in the Ohio
General Corporation Law are followed or if the transaction is determined to be
fair, no contract, action or transaction between GLB and one or more of its
directors or officers will be void or voidable merely
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because it is between or affects GLB and one or more of its directors or
officers (or between GLB and another person or entity in which a director or
officer has a personal or financial interest or in which he or she is an officer
or director), or merely because one or more interested directors or officers
participate in or vote at the meeting of directors (or committee thereof) that
authorizes such contract, action or transaction. The procedures to be followed
are: (i) full disclosure of the facts of the director's or officer's
relationship or interest must be made to the Board of Directors, and a majority
of the disinterested directors must approve the contract, action or transaction
or (ii) the contract, action or transaction must be approved at a meeting of
shareholders held for such purpose by a majority vote of shareholders not
interested in the contract, action or transaction.
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COMPARISON OF GLB AND MAPLE LEAF CAPITAL STOCK
If the acquisition is consummated, shareholders of Maple Leaf will
become shareholders of GLB, except for any holders of Maple Leaf common stock
who perfect dissenters' rights. GLB is a corporation organized under and
governed by the Ohio General Corporation Law and GLB's Articles of Incorporation
and Code of Regulations. Maple Leaf is also governed by the Ohio General
Corporation Law and by Maple Leaf's Articles of Incorporation and Code of
Regulations.
The rights of a holder of Maple Leaf common stock are similar in most
respects to the rights of a holder of GLB common stock. Certain of the most
significant similarities and differences are summarized below. This summary is
qualified in its entirety by reference to the Ohio General Corporation Law,
GLB's Articles of Incorporation and Code of Regulations, and Maple Leaf's
Articles of Incorporation and Code of Regulations.
CLASSES OF COMMON STOCK
GLB has one authorized class of common stock. The rights and privileges
of each issued and outstanding shares of GLB common stock are identical to those
of every other outstanding share of GLB common stock.
By contrast, Maple Leaf has two authorized classes of common stock:
Class A and Class B. Class A and Class B common stock have equal rights to
dividends and distributions from Maple Leaf, but Class A shares have one vote
per share on any matter submitted to a vote of shareholders and Class B shares
have twenty votes per share. An amendment of the Articles of Incorporation that
might adversely affect the Class A or Class B common stock would generally
require approval of the majority of the voting power of each class voting
separately. Similarly, issuance of additional shares of Class B shares (except
by exercise of outstanding warrants) would require approval of the majority of
the voting power of each class voting separately. On other matters submitted to
a vote of shareholders, Class A and Class B stock generally would vote together
as one class. Transfers of Class B shares are restricted by Maple Leaf's
Articles of Incorporation, whereas transfers of Class A shares are not. Shares
of Class B common stock transferred to a person who is not a "permitted
transferee" would become Class A shares as a result of such transfer. Permitted
transferees generally include immediate and extended family members of the
transferor, a trust for the benefit of any such persons, a corporation,
partnership or limited liability company a majority of whose voting power is
controlled by any such persons or the transferor's estate. A holder of Class B
shares may pledge such shares without violating the foregoing transfer
restrictions. Each share of Class B common stock is convertible into one share
of Class A common stock at any time at the option of the holder thereof.
VOTING RIGHTS
CUMULATIVE VOTING AND PREEMPTIVE RIGHTS. Each holder of GLB common
stock has the right to cast one vote for each share owned on all matters
submitted to a vote of shareholders. Each holder of Maple Leaf Class A common
stock has the right to cast one vote for each share owned on all matters
submitted to a vote of shareholders. Each holder of Maple Leaf Class B common
stock has the right to cast twenty votes for each share owned on all matters
submitted to a vote of shareholders. No holder of shares of any class of capital
stock of GLB or Maple Leaf is entitled to vote cumulatively. No holder of shares
of any class of capital stock of GLB or Maple Leaf is entitled to preemptive
rights.
DIRECTOR NOMINATIONS AND NEW BUSINESS. GLB's Code of Regulations
requires that notice in writing of proposed shareholder nominations for the
election of directors must be received by the Secretary of GLB at least 30 days
prior to the meeting, whereas Maple Leaf's Code of Regulations requires at least
60 days' prior notice. The shareholder's notice of nomination must contain
certain information about the non-incumbent nominee, including name, age,
business and residence addresses, principal occupation, the class and number of
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shares beneficially owned by the nominee and such other information as would be
required to be included in a proxy statement soliciting proxies for election of
the nominee, as well as certain information about the nominating shareholder. If
the officer presiding at the meeting determines that a person was not nominated
in accordance with the foregoing procedures, such nominee will not be eligible
for election as a director.
Maple Leaf's Code of Regulations further provides that new business
proposed by a shareholder to be taken up at a meeting must be stated in writing
and filed with the Secretary of Maple Leaf at least five days before the
meeting. GLB's Code of Regulations contains no comparable provision.
SPECIAL MEETINGS. GLB's Code of Regulations provides that special
meetings of shareholders may be called at any time by the Chairman of the Board,
the President, a Vice President or shareholders holding of record 25% or more of
all outstanding shares, but that special meetings relating to a change in
control or amendment of the articles of incorporation may only be called by a
majority of the Board of Directors or by holders of record of not less than one
half of the outstanding shares. Maple Leaf's Code of Regulations provides that
special meetings of shareholders may be called at any time by the Chairman of
the Board, the President, a Vice President or shareholders holding of record 50%
or more of all outstanding shares entitled to vote at the meeting.
MERGERS, CONSOLIDATIONS, DISSOLUTIONS, COMBINATIONS AND OTHER
TRANSACTIONS. Ohio law requires that a merger, consolidation, dissolution,
disposition of all or substantially all of a corporation's assets, and a
"majority share acquisition" or "combination" involving issuance of shares with
one-sixth or more of the voting power of the corporation be adopted by the
affirmative vote of the holders of shares entitled to exercise at least
two-thirds of the voting power of the corporation on such proposal, unless the
articles of incorporation specify a different proportion (but not less than a
majority). The Articles of Incorporation of each of GLB and Maple Leaf modifies
this voting requirement, generally allowing such actions to be taken by majority
vote of shareholders. Adoption by the affirmative vote of the holders of
two-thirds of any class of shares, unless otherwise provided in the articles,
may also be required if the rights of holders of that class are affected in
certain respects by the merger or consolidation.
The Ohio Control Share Acquisition Act provides that acquisitions of
voting securities resulting in the acquiring shareholder owning 20%, 33 1/3%, or
50% of the outstanding voting securities of an issuing public corporation must
be approved in advance by shareholders. The Control Share acquisition Act was
intended to protect shareholders of Ohio corporations from coercive tender
offers. The Control Share Acquisition Act may be made inapplicable to a company
by its corporate governance documents, but those of GLB do not so provide. In
contrast, Maple Leaf's Code of Regulations provides that the Ohio Control Share
Acquisition Act shall not apply to a control share acquisition of Maple Leaf.
See, "DESCRIPTION OF GLB CAPITAL - STOCK CERTAIN ANTITAKEOVER MATTERS."
AMENDMENT TO GOVERNING DOCUMENTS
The GLB and Maple Leaf Articles of Incorporation generally may be
amended by a vote of a majority of the voting power of each such company. Under
the Ohio General Corporation Law and the Articles of Incorporation of each of
GLB and Maple Leaf, amendments that might adversely affect holders of
outstanding shares of preferred stock could require a separate vote of holders
of preferred stock. However, no authorized shares of preferred stock of either
GLB or Maple Leaf have been issued or are outstanding.
Directors may not amend the code of regulations of an Ohio corporation.
GLB's Code of Regulations provides for amendment at a meeting by shareholders
holding a majority of the voting power, or amendment without a meeting by
unanimous written consent. Maple Leaf's Code of Regulations provides for
amendment by majority vote of shareholders at a meeting, or by a majority of the
voting power by written consent in lieu of a meeting. In addition, any
amendments of Maple Leaf's Code of Regulations regarding the authorized number
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<PAGE> 144
and classification of directors, nomination of or removal of directors, or
amendment to the Maple Leaf's Regulations, must be approved by shareholders
holding at least two-thirds of the voting power of Maple Leaf.
DIRECTORS
NUMBER; CLASSIFICATION. GLB's Code of Regulations provides that the
number of directors shall be no fewer than five and no more than twelve, each
director serving a term of one year. Maple Leaf's Code of Regulations provides
that the number of directors shall be no fewer than six and no more than twelve,
but directors are divided into three classes, each class serving a term of three
years. The respective terms of the three classes of directors of Maple Leaf are
staggered so that the term of one and only one class expires each year, at which
time members of that class are elected to a three-year term. The Code of
Regulations of each of GLB and Maple Leaf allows the Board of Directors to
appoint up to two additional directors, provided that the total number of
directors may not exceed twelve. GLB currently has eleven directors, and the
Board of Directors of GLB expects to appoint Betty L. Kimbrew, President of
Maple Leaf, as a director of GLB upon completion of GLB's acquisition of Maple
Leaf.
REMOVAL OF DIRECTORS. Maple Leaf's Code of Regulations provides that a
director may be removed by a vote of shareholders if and only if the director
has been convicted of a felony or if the director has been adjudged by a court
of competent jurisdiction to be liable for negligence or misconduct in the
performance of his duties. GLB's Code of Regulations does not contain a
provision addressing director removal. Therefore, removal of directors of GLB
would be governed by the general provisions of the Ohio General Corporation Law,
which provide that any and all directors may be removed without cause by
shareholders exercising a majority of the voting power, and directors may be
removed by the Board of Directors for cause. For this purpose, "cause" means the
director to be removed has been found by a court to be of unsound mind, or the
director has been adjudged bankrupt or he has failed to accept his appointment
as a director.
INDEMNIFICATION. The Code of Regulations of Maple Leaf and the Code of
Regulations of GLB provide for essentially the same indemnification for their
directors, officers, employees, and agents.
DIVIDENDS
The Ohio General Corporation Law provides that a corporation may not
pay any dividend or distribution to holders of shares of any class in violation
of the rights of the holders of shares of any other class, or when the
corporation is insolvent or there is reasonable grounds to believe that such
dividend or distribution would render the corporation insolvent. The ability of
GLB and Maple Leaf to pay cash dividends to their respective shareholders is
largely dependent on the amount of dividends that may be declared and paid to
each of them by their respective subsidiaries. There are a number of statutory
and regulatory requirements applicable to the payment of dividends by banks,
savings banks and bank holding companies. See "SUPERVISION AND REGULATION -
LIMITS ON DIVIDENDS AND OTHER PAYMENTS." Neither GLB nor Maple Leaf has paid
cash dividends, and neither has any plans to declare or pay cash dividends in
the immediate future.
REPURCHASES
Under Ohio law, a corporation may by action of its board of directors
purchase or redeem its own shares if authorized to do so by the articles of
incorporation or under certain other circumstances, but the corporation may not
do so if immediately thereafter its assets would be less than its liabilities
plus its stated capital, if any, or if the corporation is insolvent or would be
rendered insolvent by such a purchase or redemption. GLB's and Maple Leaf's
Articles of Incorporation permit their respective Boards of Directors to
authorize the repurchase or redemption of shares to the extent permitted by law.
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<PAGE> 145
PREFERRED STOCK
The Articles of Incorporation of each of GLB and Maple Leaf authorize a
class of preferred stock and allow the Board of Directors of each such company
to issue such shares in one or more series and with such rights and preferences
as the respective Boards of Directors may determine. Neither GLB nor Maple Leaf
has issued any shares of preferred stock.
LEGAL MATTERS
The validity of the shares of GLB Common Stock to be issued by GLB
under the Acquisition Agreement has been passed upon for GLB by its counsel,
Grady & Associates. Ulmer & Berne LLP has also passed upon certain federal tax
matters relating to the acquisition on behalf of Maple Leaf and GLB.
EXPERTS
The consolidated financial statements of GLB Bancorp, Inc., as of
December 31, 1997 and 1996, and for each of the years in the three-year period
ended December 31, 1997, have been included herein in reliance upon the report
of KPMG LLP, independent certified public accountants, appearing elsewhere
herein and upon the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Maple Leaf Financial, Inc. as
of December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997 have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, independent public accountants, given on the
authority of such firm as experts in auditing and accounting.
Representatives of PricewaterhouseCoopers LLP are expected to be
present at the Maple Leaf Meeting. Such representatives will have the
opportunity to make a statement if they desire to do so and are expected to be
available to respond to appropriate questions.
WHERE YOU CAN FIND MORE INFORMATION
GLB is subject to the informational requirements of the Securities
Exchange Act of 1934, and in accordance therewith is required to file reports,
proxy statements, and other information with the Securities and Exchange
Commission. GLB has filed with the Securities and Exchange Commission a
Registration Statement on Form S-4 under the Securities Act of 1933, covering
the GLB securities to be issued to Maple Leaf shareholders in the acquisition.
As permitted by the rules and regulations of the Securities and Exchange
Commission, this Prospectus/Proxy Statement omits certain information, exhibits
and undertakings contained in the Registration Statement. Reference is made to
the Registration Statement and to the exhibits thereto for further information.
Statements contained herein concerning such documents are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement. Each such statement is
qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto, as well as the
reports, proxy statements and other information filed with the Securities and
Exchange Commission by GLB under the Securities Exchange Act of 1934, may be
inspected and copied at the public reference facilities maintained by the
Securities and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Securities and Exchange Commission located at the Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material may also be
obtained at prescribed rates from the Public Reference Section of the Securities
and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Securities and Exchange Commission maintains an Internet worldwide web site that
contains reports, proxy and
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<PAGE> 146
information statements and other information regarding issuers that, like GLB,
file electronically with the Securities and Exchange Commission. The address of
that site is http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by GLB under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 after the date of this Prospectus/Proxy
Statement and prior to the date of the Maple Leaf Special Meeting shall be
deemed to be incorporated by reference in this Prospectus/Proxy Statement and to
be a part hereof from the date of filing such documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus/Proxy Statement to the extent that a statement contained herein or in
any other subsequently filed document which is also incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement, as so modified or superseded, shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus/Proxy Statement.
The information relating to GLB contained in this Prospectus/Proxy Statement
should be read together with the information in the documents incorporated by
reference.
Documents, if any, incorporated by reference will be available (without
exhibits, unless such exhibits are specifically incorporated by reference into
this Prospectus/Proxy Statement) without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus/Proxy Statement is
delivered, upon written or oral request. Requests for such documents should be
directed to Andrew L. Meinhold, Executive Vice President and Secretary, GLB
Bancorp, Inc., 7001 Center Street, Mentor, Ohio 44060 (telephone (440) 974-
0000). GLB will send the requested documents by first-class mail within one
business day of the receipt of the request. In order to ensure timely delivery
of the documents, any request should be made by February ____, 1999. Persons
requesting copies of exhibits to such documents that are not specifically
incorporated by reference in such documents will be charged the costs of
reproduction and mailing of such exhibits.
FORWARD-LOOKING STATEMENTS
This Prospectus/Proxy Statement contains certain forward-looking
statements with respect to the financial condition, results of operations and
business of GLB following the consummation of the acquisition, including
statements relating to the cost savings and other advantages that are expected
to be realized from the acquisition, the expected impact of the acquisition on
GLB's financial performance and earnings estimates for the resulting company.
These forward-looking statements involve certain risks and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities: (1) expected cost savings from the acquisition cannot
be fully realized or realized within the expected time frame; (2) greater than
expected deposit attrition, customer loss or revenue loss following the
acquisition; (3) competitive pressures in the banking industry increase
significantly; (4) greater than expected costs or difficulties related to
regulatory requirements attendant to the consummation of the acquisition or the
integration of the businesses of GLB and Maple Leaf; (5) changes in the interest
rate environment reduce margins; (6) general economic conditions, either
nationally or regionally, are less favorable than expected, resulting in a
deterioration in credit quality, among other things; (7) legislation or
regulatory requirements or changes adversely affect the businesses in which the
combined company would be engaged; (8) changes in business conditions and
inflation; and (9) changes in the securities markets. The forward-looking
earnings estimates included in this Prospectus/Proxy Statement have not been
examined or compiled by the independent public accountants of GLB or Maple Leaf
nor have such accountants applied any procedures thereto. Accordingly, such
accountants do not express an opinion or any other form of assurance on them.
Further information on other factors that could affect the financial results of
GLB after the acquisition is included in the Securities and Exchange Commission
filings incorporated by reference herein.
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<PAGE> 147
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY GLB OR MAPLE LEAF. THIS PROSPECTUS/PROXY STATEMENT DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT OR THE SOLICITATION OF A
PROXY IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER,
SOLICITATION OF AN OFFER, OR PROXY SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS/PROXY STATEMENT, NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED
PURSUANT TO THIS PROSPECTUS/PROXY STATEMENT SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH HEREIN OR IN THE AFFAIRS OF GLB OR MAPLE LEAF OR ANY OF THEIR RESPECTIVE
SUBSIDIARIES SINCE THE DATE OF THIS PROSPECTUS/PROXY STATEMENT.
ALL INFORMATION CONTAINED OR INCORPORATED IN THIS PROSPECTUS/PROXY
STATEMENT WITH RESPECT TO GLB WAS SUPPLIED BY GLB AND ALL INFORMATION CONTAINED
OR INCORPORATED IN THIS PROSPECTUS/PROXY STATEMENT WITH RESPECT TO MAPLE LEAF
WAS SUPPLIED BY MAPLE LEAF. ALTHOUGH NEITHER GLB NOR MAPLE LEAF HAS ANY
KNOWLEDGE THAT WOULD INDICATE THAT ANY STATEMENTS OR INFORMATION RELATING TO THE
OTHER PARTY CONTAINED HEREIN IS INACCURATE OR INCOMPLETE, NEITHER GLB NOR MAPLE
LEAF CAN WARRANT THE ACCURACY OR COMPLETENESS OF SUCH STATEMENTS OR INFORMATION
AS THEY RELATE TO THE OTHER PARTY.
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GLB BANCORP, INC. AND SUBSIDIARY
FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
AND
AS OF OR FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(UNAUDITED)
F-1
<PAGE> 149
GLB BANCORP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report ............................................................ F-3
Financial Statements as of or for the years ended December 31, 1997 and 1996:
Consolidated Statements of Financial Condition ................................. F-4
Consolidated Statements of Operations .......................................... F-5
Consolidated Statements of Changes in Shareholders' Equity ..................... F-6
Consolidated Statements of Cash Flows .......................................... F-7
Notes to Consolidated Financial Statements .............................................. F-8
Unaudited Financial Statements as of or for the nine month period ended
September 30, 1998 and September 30, 1997:
Consolidated Statements of Financial Condition .................................F-21
Consolidated Statements of Earnings ............................................F-22
Consolidated Statements of Cash Flows ..........................................F-23
Notes to Unaudited Consolidated Financial Statements ....................................F-24
</TABLE>
F-2
<PAGE> 150
INDEPENDENT AUDITORS' REPORT
The Board of Directors
GLB Bancorp Inc.
Mentor, Ohio:
We have audited the accompanying consolidated statements of financial
condition of GLB Bancorp, Inc. and Subsidiary as of December 31, 1997 and 1996,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1997. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GLB Bancorp,
Inc. and Subsidiary as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 17 to the consolidated financial statements, the
Corporation changed its method of accounting for goodwill.
KPMG Peat Marwick LLP
Indianapolis, Indiana
February 6, 1998, except note 18,
which is as of March 18, 1998
F-3
<PAGE> 151
<TABLE>
<CAPTION>
GLB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
ASSETS
<S> <C> <C>
Cash and due from banks..................................... $ 2,562,597 2,956,282
Federal funds sold.......................................... 5,264,000 7,373,000
----------- -----------
Total cash and cash equivalents................... 7,826,597 10,329,282
Investment securities held to maturity (market value of
$1,619,438 and $1,148,460)................................ 1,619,300 1,142,485
Loans, net of allowance for loan losses..................... 53,097,451 38,633,671
Stock in Federal Home Loan Bank of Cincinnati, at cost...... 427,700 398,500
Premises and equipment, net................................. 2,645,930 2,581,695
Intangibles, net............................................ 531,923 578,974
Other assets................................................ 482,106 372,733
----------- -----------
Total assets...................................... $66,631,007 54,037,340
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing demand deposits.................... 8,288,832 6,396,864
Interest bearing demand deposits....................... 4,800,162 4,582,722
Savings accounts....................................... 27,926,967 23,371,968
Certificate accounts................................... 10,995,955 7,900,975
----------- -----------
Total deposits.................................... 52,011,916 42,252,529
Advances from the Federal Home Loan Bank.................. 7,500,000 5,000,000
Accrued expenses and other liabilities.................... 690,878 745,555
----------- -----------
Total liabilities................................. 60,202,794 47,998,084
Shareholders' equity:
Common stock, no par value; 10,000,000 shares authorized;
596,742 and 593,142 shares issued and outstanding...... 1,491,855 1,482,855
Additional paid-in capital................................ 4,671,642 4,635,642
Accumulated earnings (deficit)............................ 264,716 (79,241)
----------- -----------
Total shareholders' equity........................ 6,428,213 6,039,256
----------- -----------
Total liabilities and shareholders' equity........ $66,631,007 54,037,340
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
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GLB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ---------- ----------
Interest income:
<S> <C> <C> <C>
Loans............................................... $ 4,035,600 2,756,688 1,785,862
Federal funds sold.................................. 247,079 279,733 338,580
Investment securities............................... 99,362 197,378 373,564
----------- ---------- ----------
Total interest income....................... 4,382,041 3,233,799 2,498,006
----------- ---------- ----------
Interest expense:
Deposits............................................ 1,501,836 1,239,958 1,014,065
FHLB advance........................................ 436,439 84,536 --
----------- ---------- ----------
Total interest expense...................... 1,938,275 1,324,494 1,014,065
----------- ---------- ----------
Net interest income................................... 2,443,766 1,909,305 1,483,941
Provision for loan losses............................. 97,000 77,000 50,500
----------- ---------- ----------
Net interest income after provision for loan losses... 2,346,766 1,832,305 1,433,441
----------- ---------- ----------
Other income:
Service charges on demand deposits.................. 144,691 110,732 86,467
Loan fees........................................... 184,605 103,716 90,990
Other service charges and fees...................... 145,956 77,800 75,216
Loss on sale of investment securities............... -- -- (3,053)
Gain on sale of assets.............................. 76,600 1,631 --
----------- ---------- ----------
Total other income.......................... 551,852 293,879 249,620
----------- ---------- ----------
Other expenses:
Compensation and related benefits................... 1,171,529 951,780 843,422
Office occupancy and equipment, net................. 442,478 372,735 249,725
Professional fees................................... 72,516 53,540 47,013
Advertising......................................... 65,438 49,833 39,134
Amortization of intangibles......................... 87,097 96,074 107,141
Ohio franchise tax.................................. 85,630 66,512 57,045
Data processing..................................... 116,003 59,957 78,852
Office supplies and printing........................ 71,036 70,907 58,275
FDIC deposit insurance.............................. 4,597 2,000 42,197
Credit card processing.............................. 55,311 30,267 19,291
Other operating expense............................. 173,109 150,636 99,796
----------- ---------- ----------
Total other expenses........................ 2,344,744 1,904,241 1,641,891
----------- ---------- ----------
Income before federal income taxes.................... 553,874 221,943 41,170
Federal income tax expense (benefit):
Current............................................. 214,305 15,619 4,110
Deferred............................................ (4,388) (5,619) --
----------- ---------- ----------
Net income............................................ $ 343,957 211,943 37,060
=========== ========== ==========
Earnings per share basic and diluted.................. $ 0.58 0.39 0.07
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 153
GLB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
ADDITIONAL ACCUMULATED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Balance at beginning of year as previously reported...... $1,137,500 3,412,500 (747,005) 3,802,995
Adjustment for change in the method of accounting for
goodwill............................................... -- -- 418,761 418,761
---------- ---------- --------- ----------
Balance at December 31, 1994 as adjusted................. 1,137,500 3,412,500 (328,244) 4,221,756
Issuance of 55,000 shares of common stock................ 137,500 412,500 -- 550,000
Net income............................................... -- -- 37,060 37,060
---------- ---------- --------- ----------
Balance at December 31, 1995............................. 1,275,000 3,825,000 (291,184) 4,808,816
Issuance of 83,142 shares of common stock................ 207,855 810,642 -- 1,018,497
Net income............................................... -- -- 211,943 211,943
---------- ---------- --------- ----------
Balance at December 31, 1996............................. 1,482,855 4,635,642 (79,241) 6,039,256
Issuance of 3,600 shares of common stock................. 9,000 36,000 -- 45,000
Net income............................................... -- -- 343,957 343,957
---------- ---------- --------- ----------
Balance at December 31, 1997............................. $1,491,855 4,671,642 264,716 6,428,213
========== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 154
GLB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 343,957 211,943 37,060
Adjustments required to reconcile net income to
net cash provided by operating activities
Amortization of intangibles................. 87,097 96,074 107,141
Depreciation................................ 170,350 139,010 81,186
Premium amortization and discount accretion,
net....................................... 986 (42,166) (65,327)
Net deferred loan origination fees.......... (81,765) (19,678) 27,557
Loss on sale of securities.................. -- -- 3,053
Gain on sale of loans....................... (76,600) -- --
Provision for loans losses.................. 97,000 77,000 50,500
Gain on disposal of premises and
equipment................................. -- -- (15,000)
Origination of mortgage servicing rights.... (40,046) -- --
(Increase) decrease in other assets......... (109,373) (36,460) 271,749
Increase (decrease) in accrued expenses and
other liabilities......................... (54,677) 317,981 (60,941)
------------ ------------ ------------
Net cash provided by operating activities........ 336,929 743,704 436,978
------------ ------------ ------------
Cash flows from investing activities:
Purchases of investment securities............. (1,515,234) (102,235) (2,076,551)
Maturities and payments of investment
securities.................................. 1,037,433 3,307,158 1,315,284
Proceeds from sales of investment securities... -- -- 1,188,376
Proceeds from sale of loans.................... 2,388,347 -- --
Purchase of FHLB stock......................... (29,200) (398,500) --
Origination of loans, net of principal
collected................................... (16,790,762) (12,645,598) (11,305,439)
Purchases of premises and equipment............ (241,255) (815,771) (270,010)
Disposals of premises and equipment............ 6,670 457,957 15,000
------------ ------------ ------------
Net cash used in investing activities............ (15,144,001) (10,196,989) (11,133,340)
------------ ------------ ------------
Cash flows from financing activities:
Cash proceeds from issuance of common stock.... 45,000 1,018,497 550,000
Net increase in deposits....................... 9,759,387 6,574,181 7,838,513
Cash proceeds from FHLB advance................ 2,500,000 5,000,000 --
------------ ------------ ------------
Net cash provided by financing activities........ 12,304,387 12,592,678 8,388,513
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents.................................... (2,502,685) 3,139,393 (2,307,849)
Cash and cash equivalents at beginning of year... 10,329,282 7,189,889 9,497,738
------------ ------------ ------------
Cash and cash equivalents at end of year......... $ 7,826,597 10,329,282 7,189,889
------------ ------------ ------------
Supplemental disclosure of cash flow
information -- Interest paid................... $ 1,913,732 1,310,396 990,783
Income taxes paid.............................. 25,000 -- --
Transfer of securities to available for sale... -- -- 1,191,429
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 155
GLB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of GLB
Bancorp, Inc. (the "Corporation") and its wholly-owned subsidiary, Great Lakes
Bank, an Ohio-chartered bank (the "Bank"). All significant intercompany
transactions and balances have been eliminated in consolidation.
On September 12, 1997, the Bank consummated its reorganization into the
holding company form of organization and thereby became a wholly-owned
subsidiary of the Corporation, which had previously been formed as a
wholly-owned subsidiary of the Bank. The reorganization was effected by means of
a merger of GLB Interim Bank ("Interim"), formerly an Ohio-chartered bank which
was wholly-owned by the Corporation, with and into the Bank pursuant to an
Agreement and Plan of Reorganization and Merger, dated March 18, 1997. The
accompanying consolidated financial statements present the financial position
and results of operations of the Corporation as if this transaction had occurred
at the beginning of the earliest period presented.
As a result of the merger, all of the previously issued and outstanding
shares of the Bank's common stock were automatically converted on a one-for-one
basis, into an equal number of issued and outstanding shares of Corporation
common stock. As a result of the foregoing, the stockholders of the Bank became
stockholders of the Corporation and the Bank became a wholly-owned subsidiary of
the Corporation.
The Bank is the successor by merger to Great Lakes Commerce Bank, which
was chartered as an Ohio banking corporation on April 27, 1957. Great Lakes Bank
was formed pursuant to an amended Agreement and Plan of Merger agreement
executed on January 11, 1994. Regulatory approval was obtained on July 15, 1994,
and at such time, the Bank commenced operations under new ownership. The
acquisition was accounted for by the purchase method. Accordingly, the cost of
acquisition was allocated to the assets acquired and liabilities assumed based
upon their respective fair values.
The Bank is engaged primarily in providing deposit and lending services
to individuals and small to medium-sized businesses within Lake County, Ohio.
The Bank offers its banking services through its main office and branches
located in Mentor, Painesville, Wickliffe, Willoughby and Willoughby Hills,
Ohio. The deposit products offered by the Bank include checking and savings
accounts and certificates of deposit. The Bank's lending services focus
primarily on secured lending both for commercial real estate and single-family
lending. The Bank is subject to competition from other financial institutions
and is regulated by certain federal agencies and undergoes periodic examinations
by those regulatory authorities.
(a) Basis of Presentation
The financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and the reported amounts of revenues and expenses for the reporting period.
Actual results could differ from those estimates.
(b) Investment Securities
Investment securities are classified into one of three categories: held
to maturity, available for sale, or trading. All of the Corporation's investment
securities are held to maturity and are carried at amortized cost, as adjusted
for the amortization of premiums and accretion of discounts using a level yield
method. The Corporation has the ability and positive intent to hold these
securities to maturity.
F-8
<PAGE> 156
GLB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1995, the Corporation reclassified $1,191,429 of investment
securities held to maturity to investment securities available for sale. The
reclassification was in accordance with the Financial Accounting Standards Board
(FASB) issuing a special report, "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities," that
permitted this one-time reassessment. The aforementioned securities were
subsequently sold by the Corporation in December 1995. Gains or losses on
dispositions are based on net proceeds and the carrying value of securities
sold, using the specific identification method.
(c) Loans
Loans receivable are carried at unpaid principal balances, less the
allowance for loan losses and net deferred loan origination fees. Interest on
loans is credited to income as earned. The accrual of interest on loans is
discontinued when, in the opinion of management, there is an indication that the
borrower may be unable to meet payments as they become due. Upon such
discontinuance, all unpaid accrued interest is reversed. Loans are returned to
an accrual status when both principal and interest are current and the loan is
determined to be performing in accordance with the applicable loan terms.
Impaired loans include all nonaccrual and restructured commercial real
estate and other commercial loans. Residential real estate and consumer loans
are excluded from the definition of an impaired loan. Loan impairment is
measured as the present value of expected future cash flows discounted at the
loan's initial interest rate, the fair value of the collateral of an impaired
collateral dependent loan or an observable market price. Interest income on
impaired loans is recognized on a cash-basis method.
Loan origination fees and certain direct loan origination costs are
deferred, and the net amounts are amortized as an adjustment of the related
loan's yield using the effective yield method over the contractual life of the
related loans.
(d) Allowance for Loan Losses
The allowance for loan losses is maintained at a level adequate to
absorb probable losses. Management determines the adequacy of the allowance
based upon the review of individual credits, recent loss experience, current
economic conditions, the risk characteristics of the various categories of
loans, and other pertinent factors. Loans deemed uncollectible are charged to
the allowance. Provisions for loan losses and recoveries on loans previously
charged off are added to the allowance.
(e) FHLB Stock
Federal law requires a member institution of the Federal Home Loan Bank
system to hold common stock of its district FHLB according to a predetermined
formula. This investment is stated at cost, which represents redemption value,
and may be pledged to secure FHLB advances.
(f) Interest on Savings
Interest on savings deposits is accrued and charged to expense monthly
and is paid or credited in accordance with the terms of the respective accounts.
F-9
<PAGE> 157
GLB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(g) Premises and Equipment
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are computed
principally on the straight-line method over the estimated useful lives of the
assets.
(h) Federal Income Taxes
The Corporation and the Bank file consolidated tax returns.
The Corporation accounts for income taxes under the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the enactment
date.
(i) Cash and Cash Equivalents
The Corporation considers all highly liquid debt instruments with
purchased maturities of three months or less to be cash equivalents. For the
purpose of presentation in the statements of cash flows, cash and cash
equivalents are defined as those amounts included in the statements of financial
condition captions "Cash and due from banks" and "Federal funds sold."
(j) Earnings Per Share
In February 1997, the FASB issued Statement of Financial Accounting
Standard Nos. 128, Earnings Per Share ("FAS 128") and 129, Disclosure of
Information About Capital Structure ("FAS 129"). FAS 128 provides computation,
presentation, and disclosure requirements for earnings per share. Adoption of
the Standards did not have a material impact on the Corporation's financial
position or results of operations.
Basic and diluted earnings per share for 1997, 1996 and 1995 were
computed by dividing net earnings by the weighted average number of common
shares outstanding (595,942, 548,089 and 496,250 for 1997, 1996 and 1995,
respectively). There are no dilutive securities.
(k) Reclassifications
Certain amounts in the 1996 and 1995 financial statements have been
reclassified to conform with the 1997 presentation.
F-10
<PAGE> 158
GLB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) INVESTMENT SECURITIES
A summary of investment securities held to maturity at December 31,
1997 and 1996, follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
<S> <C> <C> <C>
1997:
United States government and agency
obligations...................... $1,614,300 138 -- 1,614,438
Equity securities................... 5,000 -- -- 5,000
---------- ----- --- ---------
$1,619,300 138 -- 1,619,438
========== ===== === =========
1996:
United States government and agency
obligations...................... 1,137,485 5,975 -- 1,143,460
Equity securities................... 5,000 -- -- 5,000
---------- ----- --- ---------
$1,142,485 5,975 -- 1,148,460
========== ===== === =========
</TABLE>
There were no sales of investment securities for the years ended
December 31, 1997 and 1996. Gross realized losses from the sale of investment
securities totaled $3,053 for the year ended December 31, 1995.
The scheduled maturities of investment debt securities held to maturity
at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ---------
<S> <C> <C>
Due in one year or less..................................... $ 600,121 600,063
Due from one year to five years............................. 1,014,179 1,014,375
---------- ---------
$1,614,300 1,614,438
========== =========
</TABLE>
The carrying value of securities pledged to secure public deposits and
for other purposes required by law amounted to approximately $700,000 and
$800,000 at December 31, 1997 and 1996, respectively.
(3) LOANS AND ALLOWANCE FOR LOAN LOSSES
The components of loans at December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Residential real estate.................................... $27,705,745 20,260,138
Commercial real estate and other........................... 15,763,306 11,563,397
Consumer................................................... 3,995,899 3,111,364
Construction............................................... 9,837,670 7,141,588
----------- ----------
57,302,620 42,076,487
Undisbursed loans in progress.............................. (3,752,865) (2,996,388)
Unamortized loan origination fees, net..................... (49,770) (131,535)
Allowance for loan losses.................................. (402,534) (314,893)
----------- ----------
Net loans.................................................. $53,097,451 38,633,671
=========== ==========
</TABLE>
F-11
<PAGE> 159
GLB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
An analysis of the change in the allowance for loan losses for the
years ended December 31, 1997, 1996 and 1995, follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year......................... $314,893 238,853 187,023
Provision for loan losses............................ 97,000 77,000 50,500
Charge-offs.......................................... (11,998) (12,318) (3,950)
Recoveries........................................... 2,639 11,358 5,280
-------- ------- -------
Balance at end of year............................... $402,534 314,893 238,853
======== ======= =======
</TABLE>
There were two loans totaling $82,000 on nonaccrual status at December
31, 1997 and two loans totaling $71,000 on nonaccrual status at December 31,
1996.
As of December 31, 1997, the investment in loans for which impairment
has been recognized totaled $43,881. The total allowance for credit losses
related to these impaired loans was $6,582 as of December 31, 1997. There were
no impaired loans as of December 31, 1996 and 1995.
The Bank had commitments to fund loans at fixed and variable rates
totaling approximately $1,786,352 and $6,917,693, respectively, at December 31,
1997 and $919,413 and $6,927,744, respectively, at December 31, 1996. In
management's opinion, these commitments will be funded through normal
operations.
(4) PREMISES AND EQUIPMENT
A summary of premises and equipment, less accumulated depreciation and
amortization, at December 31, 1997 and 1996, follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Land........................................................ $ 780,900 780,900
Buildings................................................... 1,344,391 1,278,835
Leasehold improvements...................................... 19,403 13,706
Furniture, fixtures, and equipment.......................... 878,771 718,721
---------- ---------
3,023,465 2,792,162
Less accumulated depreciation and amortization.............. (377,535) (210,467)
---------- ---------
$2,645,930 2,581,695
========== =========
</TABLE>
(5) INTANGIBLES
Intangible assets at December 31, 1997 and 1996, consist of the
following:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Goodwill.................................................... $ 440,801 440,801
Deposit base intangible..................................... 395,416 395,416
Mortgage servicing rights................................... 40,046 --
Less accumulated amortization............................... (344,340) (257,243)
--------- --------
$ 531,923 578,974
========= ========
</TABLE>
F-12
<PAGE> 160
GLB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The excess of purchase price over the fair value of net assets of the
acquired Bank discussed in note 1 is classified as goodwill. Goodwill is
amortized using the straight-line method over ten years, the estimated period to
be benefited. Amortization expense amounted to $44,080 for each of the years
ended December 31, 1997, 1996 and 1995.
The deposit base intangible relates to the business combination
discussed in note 1. The deposit base intangible is being amortized over ten
years, the estimated period to be benefited, based on the present value of cash
flows. Amortization expense amounted to $42,888, $51,994 and $63,061 for the
years ended December 31, 1997, 1996 and 1995, respectively.
Amortization for mortgage servicing rights amounted to $129 for the
year ended December 31, 1997.
On a periodic basis, the Corporation reviews its intangible assets for
events or changes in circumstances that may indicate that the carrying amount of
the assets may not be recoverable.
(6) DEPOSITS
The aggregate amount of time deposits of $100,000 or more totaled
approximately $2,791,000 and $1,632,000 at December 31, 1997 and 1996,
respectively, and the related interest expense was approximately $102,400,
$60,000 and $42,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. Following is a summary of certificate accounts by remaining
maturities at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
1997..................................................... $ -- 5,562,739
1998..................................................... 6,544,896 886,164
1999..................................................... 591,343 59,781
2000..................................................... 3,426,860 1,115,489
2001..................................................... 420,453 276,802
2002 and thereafter...................................... 12,403 --
----------- ----------
Total certificate accounts............................... $10,995,955 7,900,975
=========== ==========
</TABLE>
(7) ADVANCES FROM THE FEDERAL HOME LOAN BANK (FHLB)
A summary of FHLB advances at December 31, 1997 and 1996, follows:
<TABLE>
<CAPTION>
AMOUNT
------------------------
MATURITY INTEREST RATE 1997 1996
-------- ------------- ---------- ----------
<S> <C> <C> <C>
2001........................................ 6.8% $5,000,000 5,000,000
2002........................................ 6.75% 2,500,000 --
---------- ----------
$7,500,000 5,000,000
========== ==========
</TABLE>
FHLB advances are secured by a blanket lien on first mortgage loans
with balances totaling 150 percent of such advances. The FHLB stock also serves
as collateral for the advances.
F-13
<PAGE> 161
GLB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) EMPLOYEE BENEFIT PLAN
The Corporation has a noncontributory defined benefit pension plan that
covers all employees who have reached age 21 and completed 1,000 hours of
service during their anniversary year. The Corporation's funding policy is to
make contributions to the plan equal to the minimum contribution required by the
Employee Retirement Income Security Act of 1974.
The actuarially determined net periodic pension cost for the years
ended December 31, 1997, 1996 and 1995, includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Service cost -- benefit earned during the period... $ 53,990 25,135 28,819
Interest cost on projected benefit obligation...... 22,444 15,175 17,807
Actual return on plan assets....................... 13,908 (15,595) (7,950)
Net deferral....................................... (24,442) 6,445 (3,026)
-------- -------- -------
Net periodic pension cost.......................... $ 65,900 31,160 35,650
======== ======== =======
</TABLE>
Assumptions used in determining the net periodic pension cost for 1997,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 6.75% 7.25% 6.25%
Weighted average rate of compensation increase.............. 4.00% 5.16% 4.96%
Long-term rate of return.................................... 7.75% 7.75% 7.75%
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the financial statements as of December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Actuarial present value of benefit obligation:
Vested....................................... $ 246,826 168,202 150,649
Nonvested.................................... 55,244 30,640 15,044
--------- --------- ---------
Total accumulated benefit obligation........... $ 302,070 198,842 165,693
========= ========= =========
Projected benefit obligation................... 469,851 309,579 243,558
Fair value of plan assets...................... (184,414) (145,729) (116,875)
--------- --------- ---------
Unfunded projected benefit obligation.......... 285,437 163,850 126,683
Unrecognized net transition gain............... (160,663) (52,199) (27,255)
Additional minimum liability................... -- 5,150 21,987
--------- --------- ---------
Accrued pension cost........................... $ 124,774 116,801 121,415
========= ========= =========
</TABLE>
F-14
<PAGE> 162
GLB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) COMMITMENTS AND CONTINGENT LIABILITIES
The Corporation has entered into two lease agreements which expire
between 2005 and 2007, covering the rental of buildings and equipment. The
following is a schedule by years of approximate future minimum rental payments,
exclusive of any maintenance, utilities, or real estate taxes, required under
operating leases that have initial or remaining noncancelable lease terms in
excess of one year.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997...................................................... $ 63,672
1998...................................................... 63,672
1999...................................................... 63,672
2000...................................................... 63,672
2001...................................................... 63,672
--------
Total minimum lease payments................................ $318,360
========
</TABLE>
Rental expense for all operating leases was approximately $76,500,
$76,300 and $32,300 for the years ended December 31, 1997, 1996 and 1995,
respectively.
The Corporation is a party to litigation and claims arising in the
normal course of business. Management, after consultation with legal counsel,
believes that the liabilities, if any, arising from such litigation and claims
will not be material to the Corporation's financial position.
(10) RELATED PARTIES
The Bank has entered into transactions with its directors, significant
shareholders, and executive officers of the Corporation and their affiliates
(related parties). Such transactions were made in the ordinary course of
business on substantially the same terms and conditions, including interest
rates and collateral, as those which have been made or would be made for
comparable transactions with other customers and did not, in the opinion of
management, involve more than normal credit risk or present other unfavorable
features. The following is a schedule of the aggregate amount of loans to such
related parties at December 31, 1997:
<TABLE>
<S> <C>
Aggregate amount of loans at beginning of year.............. $ 852,323
Loans originated during the year............................ 1,314,019
Repayments made during the year............................. (749,344)
----------
Aggregate amount of loans at end of year.................... $1,416,998
==========
</TABLE>
The Bank had $6,217,020 and $4,764,502 in deposits of such related
parties at December 31, 1997 and 1996, respectively.
F-15
<PAGE> 163
GLB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) FEDERAL INCOME TAXES
The accompanying financial statements reflect federal income taxes at
amounts different from those computed by applying the U.S. federal income tax
statutory rates to income before federal income taxes. The reasons for these
differences are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- -------------------- -------------------
PERCENT PERCENT PERCENT
OF PRETAX OF PRETAX OF PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
-------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Computed expected tax
expense...................... $193,856 35.00% $77,680 35.00% $14,407 35.00%
Increase (decrease) in taxes
resulting from:
Benefit of lower tax bracket
rate...................... (5,538) (1.00) (8,402) (3.78) (853) (2.07)
Goodwill amortization........ 14,987 2.71 14,987 6.75 14,987 36.41
Change in valuation
allowance................. -- -- (76,418) (34.43) (16,968) (41.22)
Other........................ 6,612 1.19 2,153 .97 (7,463) (18.14)
-------- ------ ------- ------ ------- ------
Actual tax expense............. $209,917 37.90% $10,000 4.51% $ 4,110 9.98%
======== ====== ======= ====== ======= ======
</TABLE>
The net tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996, are:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets
Deferred loan fees........................................ $ 17,444 25,133
Pension expense........................................... 46,337 39,712
Noncompete agreement...................................... 26,067 28,333
Excess book over tax bad debt reserve..................... 117,925 84,945
Other..................................................... 2,237 7,998
-------- --------
Total gross deferred tax assets............................. 210,010 186,121
Deferred tax liabilities
Deposit base intangible................................... 69,865 84,447
Depreciation.............................................. 80,923 52,872
Securities gains, net of accretion........................ -- 4,267
Deferred loan costs....................................... 22,792 35,992
FHLB stock dividend....................................... 12,852 2,924
Mortgage servicing rights................................. 13,571 --
-------- --------
Total gross deferred tax liabilities........................ 200,003 180,502
-------- --------
Net deferred tax asset...................................... $ 10,007 5,619
======== ========
</TABLE>
Under Statement 109, a valuation allowance is established to reduce the
deferred tax asset if it is more likely than not that the related tax benefit
will not be realized. In management's opinion, it is more likely than not that
the tax benefits will be realized; consequently, no valuation allowance has been
established as of December 31, 1997 or 1996.
As of December 31, 1995, the Corporation had net operating loss
carryforwards of approximately $408,000 for income tax purposes, all of which
were utilized in the 1996 tax year. For financial reporting
F-16
<PAGE> 164
GLB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purposes, the Corporation had a valuation allowance of $76,418 as of December
31, 1995 which was eliminated during 1996. The valuation allowance decreased
$16,968 from $93,386 during 1995.
(12) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These instruments are currently limited to commitments to extend
credit and standby letters of credit. These instruments possess credit risk
characteristics which are essentially the same as that involved in extending
loans to customers and are subject to the Bank's normal credit policies.
The Bank's maximum potential obligation to extend credit for financial
instruments with off-balance sheet risk at December 31, 1997 and 1996, was:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Commitments to extend credit............................... $8,082,921 7,778,633
Standby letters of credit.................................. 621,124 68,524
---------- ---------
$8,704,045 7,847,157
========== =========
</TABLE>
(13) CONCENTRATIONS OF CREDIT
Most of the Bank's business activity is with customers located within
the Northeast Ohio market area and, as such, is impacted by economic conditions
in the region. As a result of its loan underwriting and collateral requirements,
the Bank believes it has no significant concentrations of credit risk in its
loan portfolio as of December 31, 1997 and 1996. The Bank also has no exposure
to highly leveraged transactions and no foreign credits in its loan portfolio.
(14) REGULATORY CAPITAL
The Bank, as a state chartered bank, is subject to the dividend
restrictions set forth by the State Division of Banks. Under such restrictions,
the Bank may not, without the prior approval of the State Division of Banks,
declare dividends in excess of the sum of the current year's earnings (as
defined) plus the retained earnings (as defined) from the prior two years; as of
December 31, 1997, the Bank could declare dividends without the approval of the
State Division of Banks.
The Bank is subject to risk-based capital and leverage guidelines
issued by the Board of Governors of the Federal Reserve Systems ("FRB"). These
guidelines are used to evaluate capital adequacy and include the required
minimums shown below.
<TABLE>
<CAPTION>
MINIMUM
REQUIRED 1997 1996
-------- -------- -------
(DOLLARS IN THOUSANDS AT YEAR-END)
<S> <C> <C> <C> <C>
Tier I capital (1)................................... $5,937 5,460
Total capital (2).................................... 6,340 5,775
Tier 1 capital ratio................................. 4.00% 12.96 15.55
Total capital ratio (2).............................. 8.00 13.84 16.45
Leverage ratio (3)................................... 3.00+ 10.12 12.01
</TABLE>
- ---------------
(1) As set forth in guidelines issued by the U.S. federal bank regulators.
(2) Total capital includes Tier 1 and Tier 2.
(3) Tier 1 capital divided by adjusted average assets.
F-17
<PAGE> 165
GLB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
To be "well capitalized" under federal bank regulatory agency
definitions, a depository institution must have a Tier 1 ratio of at least 6%, a
combined Tier 1 and Tier 2 ratio of at least 10%, and a leverage ratio of at
least 5% and not be subject to a directive, order, or written agreement to meet
and maintain specific capital levels. The regulatory agencies are required by
law to take specific prompt actions with respect to institutions that do not
meet minimum capital standards. As of December 31, 1997 and 1996, the Bank was
"well capitalized."
Under the framework, the Bank's capital levels do not allow the Bank to
accept brokered deposits without prior approval from regulators.
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures About
Fair Value of Financial Instruments, requires the Corporation to disclose the
estimated fair value of its on- and off-balance sheet financial instruments. The
estimated fair value amounts have been determined by the Bank using available
market information and appropriate valuation methodologies; however,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts the Bank could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
Certain financial instruments and all nonfinancial instruments are
excluded from the fair value disclosure requirements of Statement 107.
Therefore, the fair values presented below should not be construed as the
underlying value of the Corporation.
As of December 31, 1997 and 1996, the carrying amount and estimated
fair values of the Corporation's financial instruments were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks..................... $2,562,597 2,562,597 2,956,282 2,956,282
Federal funds sold.......................... 5,264,000 5,264,000 7,373,000 7,373,000
Investment securities....................... 1,619,300 1,619,438 1,142,485 1,148,460
Loans....................................... 53,097,451 53,183,294 38,633,671 39,062,000
Financial liabilities:
Noninterest bearing deposits................ 8,288,832 8,288,832 6,396,864 6,396,864
Interest bearing deposits................... 43,723,084 43,809,117 35,855,665 35,892,469
Advances from the Federal Home Loan Bank.... 7,500,000 7,500,000 5,000,000 5,000,000
</TABLE>
Cash and due from banks; Federal funds sold. The carrying amount is a
reasonable approximation of fair value because of the short maturity of these
instruments.
Investment securities. Estimated fair value for investment securities
is based on quoted market prices.
Loans. For variable rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying values. The
fair value of fixed rate loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
F-18
<PAGE> 166
GLB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Noninterest bearing and interest bearing deposits. The fair values
disclosed for demand deposits and savings accounts is the amount payable on
demand at the reporting date (i.e., their carrying amounts). The fair values for
fixed-maturity certificates of deposit is estimated using a discounted cash flow
calculation that applies interest rates currently offered on certificates of
similar remaining maturities.
Advances from the Federal Home Loan Bank. The carrying amount is a
reasonable approximation of fair value.
As of December 31, 1997 and 1996, the estimated fair values of the
Corporation's off-balance sheet instruments approximated the committed amount of
$8,082,921 and $7,778,633, respectively, for commitments to extend credit and
$621,124 and $68,524, respectively, for letters of credit. The committed amount
is a reasonable approximation of fair value because of the short remaining terms
of the agreements which primarily comprise variable rate loan commitments and
letters of credit.
(16) PARENT COMPANY FINANCIAL INFORMATION
Following is condensed parent company financial information of the
Corporation as of and for the four months ended December 31, 1997:
CONDENSED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash...................................................... $ 20,401
Investment in Bank........................................ 6,403,971
Other assets.............................................. 3,841
----------
$6,428,213
==========
Shareholders' Equity
Common stock.............................................. 1,491,855
Paid-in capital........................................... 4,671,642
Accumulated earnings...................................... 264,716
----------
$6,428,213
==========
</TABLE>
CONDENSED STATEMENT OF EARNINGS
<TABLE>
<S> <C>
Dividend from Bank.......................................... $ 50,000
Interest expense............................................ (2,124)
Operating expenses.......................................... (32,475)
--------
15,401
Income tax benefit.......................................... 3,841
--------
Income before equity in undistributed earnings of Savings
Bank...................................................... 19,242
Equity in undistributed earnings of Bank.................... 324,715
--------
Net earnings................................................ $343,957
========
</TABLE>
F-19
<PAGE> 167
GLB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
<S> <C>
Net cash flows from operating activities:
Net earnings.............................................. $ 343,957
Adjustments to reconcile net cash provided by operating
activities:
Equity in undistributed earnings of Bank............... (324,715)
Increase in other assets............................... (3,841)
---------
Net cash used by operating activities....................... (328,556)
---------
Cash flows from financing activities --
Net proceeds from issuance of common stock................ 5,000
---------
Net increase in cash........................................ 20,401
Cash and cash equivalents at beginning of period............ --
---------
Cash and cash equivalents at end of period.................. $ 20,401
=========
</TABLE>
(17) ACCOUNTING CHANGE
In 1997, the Corporation changed its method of accounting for goodwill
from an unacceptable method to an acceptable method under Accounting Principles
Board Opinion No. 16. The Corporation previously expensed goodwill in 1994
during the year of acquisition of the Bank. The Corporation retroactively
restated its consolidated financial statements to appropriately record and
amortize goodwill. The accumulated deficit as of December 31, 1994 was decreased
by $418,761 and net income was decreased $44,080 each year in the three year
period ended December 31, 1997 related to the restatement.
(18) SUBSEQUENT EVENT
On February 17, 1998, the shareholders authorized the issuance of
2,000,000 shares of Serial Preferred Stock, without par value. The shareholders
also increased the number of authorized shares of Common Stock, without par
value, from 500,000 to 10,000,000 shares, which has been disclosed within the
consolidated statements of financial condition.
On February 17, 1998, the shareholders adopted a Stock Option and
Incentive Plan (the "Plan") for officers, employees and non-employee directors.
28,000 shares of Common Stock have been reserved for issuance under the Plan. In
addition, the Plan will include any shares surrendered to the Company in payment
of the exercise price of options or stock appreciation rights issued under the
Plan.
On March 17, 1998, the Board of Directors authorized a 2 for 1 common
stock split whereby one additional share of common stock was issued on March 18,
1998 for every share owned of record as of March 17, 1998. In the accompanying
financial statements all share and per share amounts have been retroactively
restated to reflect the stock split.
F-20
<PAGE> 168
GLB BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In actual dollars, unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
ASSETS
<S> <C> <C>
Cash and due from banks $ 2,839,803 $ 2,408,793
Federal Funds sold 24,996,000 3,660,000
Total Cash and Cash Equivalents 27,835,803 6,068,793
Investment Securities Available for Sale 2,062,548 0
Investment Securities Held to Maturity 2,014,386 1,105,110
Loans, net of allowance for loan losses 56,198,735 51,879,569
Stock in Federal Home Loan Bank of Cincinnati, cost 451,100 420,100
Premises and equipment, net 2,651,215 2,645,631
Intangibles, net 577,401 513,750
Other assets 514,031 510,598
Total Assets $92,305,219 $63,143,551
Liabilities and Shareholders' Equity
Liabilities
Non-interest bearing demand deposits $10,577,551 $ 7,467,954
Interest bearing demand deposits 4,992,166 4,535,894
Savings accounts 30,388,404 26,309,562
Certificates 12,858,687 10,504,646
Total Deposits 58,816,808 48,818,056
Advances from the Federal Home Loan Bank 7,500,000 7,500,000
Accrued expenses and other liabilities 732,155 543,986
Total Liabilities 67,048,963 56,862,042
Shareholders' Equity
Common Stock, no par value,
10,000,000 shares authorized; 2,133,906 and
596,342 shares issued and outstanding 5,334,765 1,490,855
Additional Paid-In Capital 19,152,715 4,667,642
Accumulated Other Comprehensive Income 47,279 0
Retained Earnings 721,497 123,012
Total Shareholders' Equity 25,256,256 6,281,509
Total Liabilities and Shareholders' Equity $92,305,219 $63,143,551
</TABLE>
See accompanying notes to unaudited, consolidated financial statements.
F-21
<PAGE> 169
GLB BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In actual dollars, except per share amounts, unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT. 30,
1998 1997
Interest Income:
<S> <C> <C>
Loans $3,505,851 $ 2,888,582
Federal funds sold 652,997 183,411
Investment securities 84,444 74,520
Total Interest Income 4,243,292 3,146,513
Interest Expense:
Deposits 1,399,805 1,066,798
Borrowings 380,517 308,206
Total Interest Expense 1,780,322 1,375,004
Net Interest Income 2,462,970 1,771,509
Provision for loan losses 90,000 67,000
Net Interest Income After Provision 2,372,970 1,704,509
Non-Interest Income:
Service charges on demand deposits 119,875 102,649
Loan fees 117,534 148,196
Other service charges and fees 110,693 109,177
Gain/(loss) on sale of loans 143,500 (827)
Total Non-Interest Income 491,602 359,195
Non-Interest Expense:
Compensation and related benefits 1,014,181 846,952
Office occupancy and equipment, net 369,702 330,370
Professional fees 165,674 57,378
Advertising 54,052 54,221
Amortization of intangibles 76,994 65,224
Ohio franchise tax 70,525 64,907
Data processing 104,895 84,047
Office supplies and printing 74,235 49,671
FDIC deposit insurance 4,761 3,252
Credit Card processing 34,371 45,433
Other operating expense 150,247 125,790
Total Non-Interest Expense 2,119,637 1,727,245
Income Before Federal Income Taxes 744,935 336,459
Federal Income Tax Expense 288,154 134,206
Net Income $ 456,781 $ 202,253
Earnings per share basic and diluted $ 0.34 $ 0.34
</TABLE>
See accompanying notes to unaudited, consolidated financial statements
F-22
<PAGE> 170
GLB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In actual dollars, unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 456,781 $ 202,253
Adjustments required to reconcile net income to net
cash provided by operating activities:
Amortization of intangibles 76,994 65,224
Depreciation 143,656 125,178
Premium amortization and discount accretion, net 4,020 (58)
Net deferred loan origination fees 34,913 (45,456)
Origination of loans held for sale (4,526,480) 0
Proceeds from sale of loans held for sale 4,669,980 0
(Gain)/loss on sale of loans (143,500) 827
Provision for loan losses 90,000 67,000
(Increase) in other assets (154,397) (137,865)
(Decrease) in accrued expenses and other liabilities (77,527) (201,569)
Net cash provided by operating activities: 574,440 75,534
Cash flows from investing activities:
Purchases of investment securities available for sale (2,015,269) 0
Purchases of investment securities held to maturity (1,999,106) (500,000)
Maturities and payments of securities held to maturity 1,600,000 537,433
Purchase of FHLB stock (23,400) (21,600)
Origination of loans, net of principal collected (3,226,197) (13,268,269)
Purchases of premises and equipment (522,679) (189,114)
Disposals of premises and equipment 492,542 0
Net cash used in investing activities: (5,694,109) (13,441,550)
Cash flows from financing activities:
Cash proceeds from issuance of common stock 19,915,000 40,000
Payments for public offering expenses (1,591,017) 0
Net increase in deposits 6,804,892 6,565,527
Cash proceeds from FHLB advances 0 2,500,000
Net cash provided by financing activities 25,128,875 9,105,527
Net increase/(decrease) in cash and cash equivalents 20,009,206 (4,260,489)
Cash and cash equivalents at beginning of period 7,826,597 10,329,282
Cash and cash equivalents at end of period $ 27,835,803 $ 6,068,793
</TABLE>
See accompanying notes to unaudited, consolidated financial statements
F-23
<PAGE> 171
GLB BANCORP, INC.
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. BASIS OF PRESENTATION
GLB Bancorp, Inc. is a one-bank holding company that owns all of the outstanding
common stock of Great Lakes Bank (the Bank). The Corporation, a consolidation of
the holding company and the bank, was incorporated under Ohio law in March 1997
with the reorganization of the Bank completed in September 1997.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with instructions to Form 10-QSB. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. However, such information reflects
all adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair statement of results for the
interim periods.
The results of operations and cash flows reported for the period ended September
30, 1998 are not necessarily indicative of the results to be expected for the
year ending December 31, 1998. The unaudited consolidated financial statements
and notes included herein should be read in conjunction with the audited
consolidated financial statements and notes for the year ended December 31,
1997, contained in the Corporation's 1997 Annual Report and the Corporation's
most recent filing of it's registration statement on May 12, 1998. The
registration statement was filed as part of a public offering to sell 1,300,000
shares of Common Stock with an additional option to sell 195,000 shares of
Common Stock to cover over-allotments.
Note 2. EARNINGS PER SHARE
Earnings per share was computed in accordance with Statement of Financial
Accounting Standards SFAS No. 128. This calculation was based on 1,340,516 and
595,764 weighted average shares outstanding for the nine month periods ended
September 30, 1998 and 1997, respectively.
Note 3. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards, SFAS No. 130, "Reporting Comprehensive Income"
which is effective for fiscal years beginning after December 15, 1997.
Components of comprehensive income are net income and all other non-owner
changes in equity. SFAS No. 130 requires an entity to report other accumulated
comprehensive income separately from retained earnings and additional paid-in
capital in the financial statements in the equity section. The Corporation's
comprehensive income for the nine months ended September 30, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
----------- ----------
<S> <C> <C>
Net income................................................. $ 456,781 $ 202,253
Other comprehensive income:
Unrealized gain on securities available for sale......... $ 47,279 $ 0
Accumulated comprehensive income........................... $ 504,060 $ 202,253
</TABLE>
The FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" with an effective date for years beginning
after December 15, 1997. It redefines how operating segments are determined and
requires disclosure of certain financial and descriptive information about a
corporation's operating segments. It also requires that comparative information
from earlier periods be restated
F-24
<PAGE> 172
to conform to the requirements of this standard. At the present time, the
Corporation has not fully analyzed the effect of the adoption of SFAS No. 131 on
its consolidated financial statements.
The FASB issued SFAS No. 132, "Employers' Disclosure about Pensions and
Other Postretirement Benefits," which is effective for fiscal years beginning
after December 15, 1997. This Statement provides for standardized disclosures of
benefit plans, dropping some information that is no longer useful (amending FASB
Statements No. 87, 88, and 106), and requiring additional information on changes
in benefit obligations and fair values of plan assets that will facilitate
financial analysis. This is expected to result in additional disclosures in the
Corporation's year-end financial statements.
The FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" with an effective date for all fiscal quarters of fiscal
years beginning after June 15, 1999. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize derivatives as either assets or liabilities at
fair value, with gains or losses determined depending on the intended use of the
derivative and its resulting designation. SFAS No. 133 will not be applied
retroactively to prior period financial statements. At the present time, the
Corporation has not fully analyzed the effect or timing of the adoption of this
statement on the Corporation's consolidated statements.
In October 1998 the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after Securitization of Mortgage Loans Held
for Sale by a Mortgage Banking Enterprise." SFAS No. 134 is effective for the
first fiscal quarter beginning after December 15, 1998. This statement amends
SFAS No. 65 to require that after the securitization of mortgage loans held for
sale, an entity engaged in mortgage banking activities must classify the
resulting mortgage-backed securities or other retained interests based on its
ability and intent to sell or hold those investments. After the securitization
of a mortgage loan held for sale, any retained mortgage-backed securities must
be classified in accordance with the provisions of SFAS No. 115. However, a
mortgage banking enterprise must classify as trading any retained
mortgage-backed securities that it commits to sell before or after the
securitization process. At the present time, the Corporation has not fully
analyzed the effect of the adoption of SFAS No. 134 on its consolidated
financial statements. However, management does not believe that the adoption of
SFAS No. 134 will have a significant impact on the Corporation's consolidated
financial statements.
F-25
<PAGE> 173
MAPLE LEAF FINANCIAL, INC. AND SUBSIDIARY
FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
AND
AS OF OR FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(UNAUDITED)
F-26
<PAGE> 174
MAPLE LEAF FINANCIAL, INC. AND SUBSIDIARY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants F-28
Financial Statements as of or for the years ended December 31, 1997 and 1996:
Consolidated Balance Sheets F-29
Consolidated Statements of Income F-30
Consolidated Statements of Changes in Stockholders' Equity F-31
Consolidated Statements of Cash Flows F-32
Notes to Consolidated Financial Statements F-33-34
Unaudited Financial Statements as of or for the nine month periods ended
September 30, 1998 and September 30, 1997:
Consolidated Balance Sheets F-45
Consolidated Statements of Income F-46
Consolidated Statements of Changes in Stockholders' Equity F-47
Consolidated Statements of Cash Flows F-48
Notes to Unaudited Consolidated Financial Statements F-49-50
</TABLE>
F-27
<PAGE> 175
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Maple Leaf Financial, Inc.
We have audited the accompanying consolidated balance sheets of Maple Leaf
Financial, Inc., formerly Geauga Savings Bank, (the "Company") as of December
31, 1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Maple Leaf
Financial, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its consolidated cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/Coopers & Lybrand LLP
Cleveland, Ohio
March 23, 1998
F-28
<PAGE> 176
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
----- ----
<S> <C> <C>
Cash and overnight deposits $ 313,358 $ 356,583
Interest bearing deposits 3,690,863 1,858,890
-------------- -----------------
Total cash and cash equivalents 4,004,221 2,215,473
Certificates of Deposit - 198,000
Investment securities
Held to maturity (fair value of $4,702,495 and $4,451,994) 4,512,285 4,260,202
Available for sale, at fair value 19,359,151 17,623,794
Loans receivable, (net of allowance of $890,591 and $591,186) 73,960,355 55,519,152
Premises and equipment 146,791 122,510
Federal Home Loan Bank stock 1,532,600 1,251,400
Accrued interest receivable 750,183 616,663
Prepaid expenses and other assets 812,419 455,871
-------------- -----------------
Total assets $ 105,078,005 $ 82,263,065
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 54,423,623 43,163,048
Reverse repurchase agreements 13,000,000 6,200.000
FHLB advances 28,098,279 24,598,279
Advance payments by borrowers for taxes and insurance 367,689 281,482
Accrued interest payable 886,005 680,622
Deferred tax liability 2,994 32,209
Accounts payable and accrued expenses 377,384 210,482
-------------- -----------------
Total liabilities 97,155,974 75,166,122
-------------- -----------------
Stockholders' equity
Common stock, no par value, 18,000 shares authorized; 7,365 and
7,345 shares issued in 1997 and 1996 3,993,192 3,981,915
Net unrealized holding losses on available for sale securities 237,529 178,820
Retained earnings 3,714,410 2,959,308
-------------- -----------------
Treasury stock, 66 shares at cost 7,945,131 7,120,043
-------------- -----------------
Total stockholders' equity (23,100) (23,100)
-------------- -----------------
Total liabilities and stockholders' equity 7,922,031 7,096,943
-------------- -----------------
$ 105,078,005 $ 82,263,065
============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 177
CONSOLIDATED STATEMENTS OF INCOME
December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ -------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 6,094,751 $ 4,627,932 $ 3,858,253
FHLMC mortgage-backed participation certificates 1,431,362 1,219,599 1,075,908
Other securities 168,011 122,614 104,077
------------- ------------ -------------
Total interest income 7,694,124 5,970,145 5,038,238
Interest expense:
Deposits 2,688,443 1,900,590 1,707,020
Federal Home Loan Bank advances 1,590,092 1,201,993 1,001,634
Reverse repurchase agreements 516,606 388,128 415,404
Other interest expense 2,118
------------- ------------ -------------
Total interest expense 4,797,259 3,490,711 3,124,058
------------- ------------ -------------
Net interest income 2,896,865 2,479,434 1,914,180
Provision for loan losses 317,380 133,653 45,625
------------- ------------ -------------
Net interest income after provision for loan losses 2,579,485 2,345,781 1,868,555
Non-interest income:
Service charges on deposit accounts 92,251 84,634 77,482
Other income 103,920 93,636 69,537
------------- ------------ -------------
Total non-interest income 196,171 178,270 147,019
Non-interest expense:
Salaries and employee benefits 798,042 698,521 638,810
Premises, equipment and occupancy 193,162 181,214 141,784
Other operating expenses 641,043 835,871 531,094
------------- ------------ -------------
Total non-interest expense 1,632,247 1,715,606 1,311,688
------------- ------------ -------------
Income before income taxes 1,143,409 808,445 703,886
Provision for federal income tax:
Current 447,765 251,701 194,136
Deferred (59,458) 14,452 50,792
------------- ------------ -------------
388,307 266,153 244,928
------------- ------------ -------------
Net income $ 755,102 $ 542,292 $ 458,958
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 178
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
NET UNREALIZED
HOLDING GAINS ON
SHARES COMMON RETAINED AVAILABLE FOR SALE
ISSUED STOCK EARNINGS SECURITIES
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 4,343 $ 1,998,688 $ 2,417,016 $ 129,564
Issuance of additional common stock 3,002 1,983,227
Net income 542,292
Net income unrealized holding gains
on available for sale securities
(net of taxes) 49,256
------------ ----------- ----------- -------------
Balances at December 31, 1996 7,345 3,981,915 2,959,308 178,820
Issuance of additional common stock 20 11,277
Net income 755,102
Net income unrealized holding gains
on available for sale securities
(net of taxes) 58,709
------------ ----------- ----------- -------------
Balances at December 31, 1997 7,365 $ 3,993,192 $ 3,714,410 $ 237,529
============ =========== =========== =============
<CAPTION>
TREASURY
STOCK TOTAL
---------- -----------
<S> <C> <C>
Balances at December 31, 1995 $ (23,100) $ 4,522,168
Issuance of additional common stock 1,983,227
Net income 542,292
Net income unrealized holding gains
on available for sale securities
(net of taxes) 49,256
---------- -----------
Balances at December 31, 1996 (23,100) 7,096,943
Issuance of additional common stock 11,277
Net income 755,102
Net income unrealized holding gains
on available for sale securities
(net of taxes) 58,709
---------- -----------
Balances at December 31, 1997 $ (23,100) $ 7,922,031
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 179
CONSOLIDATED STATEMENT OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income $ 755,102 $ 542,292 $ 458,958
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of premiums and accretion of discounts on investments, net 99,828 95,889 80,425
Provision for loan losses 317,380 133,653 45,625
Deferral and amortization of net deferred loan origination expenses 164,673 57,084 (6,394)
Depreciation and amortization 61,576 65,626 47,872
Deferred income taxes (59,458) 14,452 50,792
Increase in accrued interest receivable, prepaid expenses and other assets (491,165) (145,305) (343,690)
Increase (decrease) in accrued interest payable, accounts,
payable and accrued expenses 372,285 34,950 192,290
Common stock issued to officer 11,277 7,847 8,002
Loss on disposal of fixed assets 6,289 -- --
FHLB Dividends (102,600) (75,860) (63,300)
------------ ------------ ------------
Net cash provided by operating activities 1,135,187 730,628 470,580
Investing activities:
Repayments on and sales proceeds from FHLMC MBS:
Available for sale 8,710,317 3,945,614 1,067,917
Held to maturity 722,180 1,247,994 1,677,734
Purchase of FHLMC MBS:
Available-for-sale (10,434,250) (12,325,483) (2,134,993)
Held-to-maturity (996,562) -- --
Proceeds from maturities of investment securities 198,000 198,000 990,000
Purchase of investment securities -- -- (594,000)
Proceeds from loan repayments 13,219,737 14,346,921 9,340,656
Loans originated (32,142,994) (25,803,838) (13,579,298)
Purchases of premises and equipment (91,049) (41,237) (99,691)
Purchases of Federal Home Loan Bank stock (178,600) (202,440) --
Net increase in advance payments by borrowers 86,207 66,316 12,958
------------ ------------ ------------
Net cash used in investing activities (20,907,014) (18,568,153) (3,318,717)
Financing activities:
Net increase in demand, savings, and NOW account deposits 1,602,969 701,585 (647,528)
Proceeds from issuance of time deposits 16,027,260 19,466,690 11,807,214
Payments for maturing time deposits (6,369,654) (9,955,922) (8,642,644)
Proceeds from FHLB advances 7,500,000 7,650,259 8,400,000
Repayments of FHLB advances (4,000,000) (787,900) (8,588,350)
Proceeds from reverse repurchase agreements 13,000,000 13,763,259 7,551,856
Repayments of reverse repurchase agreements (6,200,000) (15,115,115) (6,000,000)
Private placement of common stock -- 1,975,380 --
Net cash provided by financing activities ------------ ------------ ------------
21,560,575 17,698,236 3,880,548
------------ ------------ ------------
Increase in cash and cash equivalents 1,788,748 (139,289) 1,032,411
Cash and cash equivalents at beginning of year 2,215,473 2,354,762 1,322,351
------------ ------------ ------------
Cash and cash equivalents at end of year $ 4,004,221 $ 2,215,473 $ 2,354,762
============ ============ ============
Supplemental disclosure of cash flow information:
Amortized cost of the held to maturity portfolio transferred to the $ 1,860,643
available-for-sale portfolio
Cash paid during the year for: $ 4,591,876 $ 3,516,644 2,965,856
Interest 305,200 195,275 195,568
Taxes
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 180
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed
in preparation of these financial statements. The policies conform to
generally accepted accounting principles and general practice for
financial institution. Certain amounts in prior years's financial
statements have been reclassified to conform with the current year's
presentation.
ORGANIZATION: The Maple Leaf Holding Company (the "Company") was
organized in the state of Ohio as a Registered Bank Holding Company.
The Company, upon receiving necessary shareholder and regulatory
approval, merged Geauga Savings Bank ("Geauga") into Company effective
November 1997. The merger was executed through a one for one exchange
of the Company's shares and was account for as a pooling of interests.
The accompanying consolidated financial statements included solely the
accounts of Geauga Savings Bank through October 1997 and the combined
accounts from November 1997 through December 31, 1997. Geauga is a
state savings bank chartered under the laws of the State of Ohio and is
under supervision of the state of Ohio Department of Commerce, Division
of Savings and Loan Associations. Geauga is also a member of the
Federal Home Loan Bank ("FHLB") system. Geauga maintains insurance on
deposit accounts with the Federal Deposit Insurance Corporation
("FDIC") through the Savings Association Insurance Fund ("SAIF").
Geauga is engaged principally in the operations of originating loans
and maintaining deposits for customers in Northeast Ohio.
PRINCIPALS OF CONSOLIDATION: The consolidated financial statements of
Maple Leaf Financial, Inc. include the accounts of its wholly-owned
subsidiary, Geauga Savings Bank. All significant intercompany balances
and transactions have been eliminated in consolidation.
CASH FLOWS: For the purposes of reporting cash flows, cash and cash
equivalents include cash on hand, interest bearing deposits at banks,
and federal funds sold. Generally, federal funds are held for one day.
INVESTMENT SECURITIES AND MORTGAGE-BACKED PARTICIPATION CERTIFICATES:
Debt and equity securities are classified as held-to-maturity or
available-for-sale. The Company does not maintain a trading account.
Securities classified as held-to-maturity are measured at amortized or
historical cost, securities available-for-sale and trading at fair
value. Adjustment to fair value of the securities available-for-sale,
in the form of unrealized holding gains and losses, is excluded from
earnings and reported net of applicable income tax in a separate
component of stockholders' equity. Gains or losses on the sales of
investment securities are recognized by the specific identification
method.
LOANS RECEIVABLE: Most of the Company's lending activity is within
northeastern Ohio. The Company does not have significant concentrations
of loans in any one industry. Interest on loans is recognized as income
as it accrues during the period the loans are outstanding in accordance
with the loan terms. The Company does not accrue interest on loans if,
in the opinion of management, its recoverability becomes doubtful.
Loans held for sale, if any, are stated at the lower of cost or market.
Loan origination and commitment fees and certain direct loan
origination costs are being deferred and the net amount amortized as an
adjustment of the related loan yield over the contractual life of the
related loans. Unamortized fees related to loans sold or prepaid are
credited to income in the year the related loans are sold or repaid.
F-33
<PAGE> 181
USE OF SIGNIFICANT ACCOUNTING ESTIMATES: The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and related notes. Actual
results could differ from these estimates.
LOAN AND LOAN LOSSES: The allowance for loan losses is determined by
management based upon historical loan loss experience and estimates of
possible losses in the current loan portfolio.
A loan is considered impaired, based on current information and events,
if it is probable that the Bank will be unable to collect the scheduled
payments of principal or interest when due according to the contractual
terms of the loan agreement. The measurement of impaired loans is
generally based on the present value of expected future cash flows
discounted at the historical effective interest rate, except that all
collateral-dependent loans are measured for impairment based on the
fair value of the collateral.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is provided on both the double
declining balance method and the straight-line method over the
estimated useful lives of the assets. Gains and losses on routine
dispositions are included in income. Maintenance and repairs are
charged to expenses as incurred, while renewals and betterments are
capitalized.
FEDERAL INCOME TAXES: The Company follows the asset and liability
method of accounting for income taxes. Deferred income taxes are
recognized for the tax consequences of "temporary differences" by apply
enacted statutory tax rates to differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities.
RECLASSIFICATIONS: Certain items in the 1996 financial statements have
been reclassified to conform to the 1997 presentation.
2. PRIVATE PLACEMENT OF COMMON STOCK AND WARRANTS
During 1996, the Board of Directors and stockholders approved a private
offering of units of common stock and warrants to a group of the
Company's directors, officers and stockholders to raise capital. The
Company offered to sell 3,000 units at a cost of $660 per unit and
during 1996, 2,993 units were sold at an aggregate price of $1,975,380.
Each unit consisted of one share of the Company Common Stock, par value
$350 per share, plus two warrants, no value associated with the
warrants, to purchase additional common shares. Each warrant entitles
the holder to purchase one common share at $825 and expires March 1,
2004. No warrants were exercised during 1996 and 1997.
In connection with a 1991 private offering, 1,252 units were sold. Each
unit consists of one share of the Company Common Stock, par value $350
per share, plus two warrants to purchase additional common shares, each
warrant to entitle the holder to purchase one common share at $625 and
to expire July 1, 2001. No warrants from this private offering were
exercised during 1997 and 1996.
3. CERTIFICATES OF DEPOSIT:
The carrying values and estimated market values of certificates of
deposit are classified as held to maturity.
All investment securities mature within one year or less. There were no
sales of investment securities in 1997 or 1996 prior to maturity. There
were no certificates of deposit at December 31, 1997.
F-34
<PAGE> 182
4. INVESTMENT SECURITIES:
Investment securities consist of Federal Home Loan Mortgage Corporation
(FHLMC) and Federal National Mortgage Association (FNMA)
mortgage-backed participation certificates as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------------------------------------------------------
GROSS UNREALIZED GROSS UNREALIZED
CLASSIFICATION ADJUSTED COST GAINS LOSSES MARKET VALUE CARRYING VALUE
-------------- ------------- ---------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Held to maturity $4,512,285 $ 190,313 $ 103 $ 4,702,495 $ 4,512,285
Available for sale 18,999,258 360,315 422 19,359,151 19,359,151
----------- ----------- ----------- ------------ ------------
Total $23,511,543 $ 550,628 $ 525 $ 24,061,646 $ 23,871,436
=========== =========== =========== ============ ============
1996
-----------------------------------------------------------------------------------------------------------------
GROSS UNREALIZED GROSS UNREALIZED
CLASSIFICATION ADJUSTED COST GAINS LOSSES MARKET VALUE CARRYING VALUE
-------------- ------------- ---------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Held to maturity $4,260,202 $ 192,111 $ 319 $ 4,451,994 $ 4,260,202
Available for sale 17,352,854 273,898 2,958 17,623,794 17,623,794
----------- ----------- ---------- ------------ ------------
Total $21,613,056 $ 466,009 $ 3,277 $ 22,075,788 $ 21,883,996
=========== =========== ========== ============ ============
</TABLE>
The adjusted cost and market value of the mortgage backed securities at
December 31, 1997, by contractual maturity, are show below. Expected
maturities will differ from contractual maturities based on the
issuers' rights to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
-------------------------------- -------------------------------
ADJUSTED MARKET ADJUSTED MARKET
COST VALUE COST VALUE
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Due after one year through five $ 182,472 $ 187,748
years $ 301,742 $ 305,083 187,575 193,265
Due after five years through ten years 18,697,516 19,054,068 4,142,238 4,321,482
----------- ------------ ------------ ------------
Due after ten years
Total $18,999,258 $ 19,359,151 $ 4,512,285 $ 4,702,495
=========== ============ ============ ============
</TABLE>
The adjustable rate mortgage-backed participation certificates listed
above mature as principal payments are received on the related
mortgages. Maturities range from 2000 through 2027. During 1997 and
1996, there were no sales of mortgage-backed securities prior to
maturities.
F-35
<PAGE> 183
5. LOANS RECEIVABLE:
<TABLE>
<CAPTION>
1997 1996
----------- --------------
<S> <C> <C>
SBA $ 165,041 $ 104,313
Mortgage 69,008,334 52,005,651
Construction 7,994,643 4,876,683
Installment loans to individuals 1,594,583 1,498,030
Commercial 124,003 142,584
----------- --------------
78,886,603 58,627,261
Less:
Loans in process 3,316,046 1,962,486
Net deferred loan fees 719,611 554,437
----------- --------------
Total loans 74,850,946 56,110,338
Less allowance for loan losses 890,591 591,186
----------- --------------
Loans receivable, net $73,960,355 $ 55,519,152
=========== ==============
</TABLE>
An analysis of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1997 1996
----------- --------------
<S> <C> <C>
Balance at beginning of the year $ 591,186 $ 461,990
Provision for loan losses 317,380 133,653
Net recovery and charge offs (17,975) (4,457)
----------- --------------
Balance at end of the year $ 890,591 $ 591,186
========== ==============
</TABLE>
6. PREMISES AND EQUIPMENT:
<TABLE>
<CAPTION>
Premises and equipment at December 31 are as follows:
1997 1996
----------- --------------
<S> <C> <C>
Equipment $ 402,371 $ 360,214
Leasehold improvements 152,521 120,110
----------- --------------
554,892 480,324
Less accumulated depreciation and amortization (408,101) (357,814)
----------- --------------
$ 146,791 $ 122,510
========== ==============
</TABLE>
7. DEPOSITS:
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------- --------------
<S> <C> <C>
Non-interest bearing $ 1,812,990 $ 1,091,126
NOW and money market accounts 2,625,605 3,039,381
Savings deposits 6,408,210 5,113,329
Time deposits 43,576,818 33,919,212
----------- --------------
$54,423,623 $ 43,163,048
=========== =============
</TABLE>
F-36
<PAGE> 184
The weighted average interest rates expense on deposits during 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----- ----
<S> <C> <C>
NOW and money market accounts 1.61% 1.76%
Savings deposits 3.65% 3.50%
Time deposits 5.74% 5.56%
</TABLE>
Time deposits at December 31, 1997 mature during the years ending
December 31 as follows:
1998 $ 26,211,280
1999 11,143,016
2000 1,884,719
2001 2,615,206
2002 1,722,597
-------------
Total $ 43,576,818
=============
The aggregate amount of time deposits of $100,000 or more at December
31, 1997 and 1996 was $1,045,989 and $929,605, respectively. Interest
expense related to time deposits of $100,000 or more was $61,740 and
$58,576 for the years ended December 31, 1997 and 1996, respectively.
Interest expense on deposits for the years ended December 31, is
detailed as follows:
<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
NOW and money market accounts $ 53,508 $ 56,894
Savings deposits 223,184 174,445
Time deposits 2,411,751 1,669,251
------------ ------------
$ 2,688,443 $ 1,900,590
============ ============
</TABLE>
F-37
<PAGE> 185
8. BORROWED FUNDS:
The following borrowed funds are outstanding at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
FHLB advances:
CURRENT RATE MATURITY
<S> <C> <C> <C>
5.3000% - August 21, 1997 $ - $ 2,500,000
5.3000% - August 15, 1997 - 500,000
5.3000% - November 23, 1997 - 1,000,000
5.7500% - November 15, 2013 122,000 122,000
5.6500% - November 15, 2013 1,185,000 1,185,000
6.1000% - March 21, 2014 308,000 308,000
6.1000% - March 21, 2014 317,000 317,000
5.7000% - September 23, 2014 29,480 29,480
5.7000% - September 23, 2014 336,540 336,540
6.0422% - October 4, 2004 750,000 750,000
6.0500% - November 8, 2004 2,000,000 2,000,000
5.9914% - May 24, 2004 1,000,000 -
6.0500% - November 4, 2004 1,500,000 1,500,000
5.9500% - December 18, 2015 5,900,000 5,900,000
5.7101% - May 24, 2014 - 1,000,000
6.0600% - January 29, 2016 2,000,000 2,000,000
5.6500% - July 12, 1999 4,150,259 4,150,259
6.200% - November 1, 2001 1,000,000 1,000,000
6.0188% - March 21, 2007 4,000,000 -
6.0188% - March 21, 2007 3,500,000 -
------------- --------------
Total FHLB Advances $ 28,098,279 $ 24,598,279
============= ==============
Reverse repurchase agreements:
5.7900% $ 10,000,000 -
5.8800% 3,000,000 -
5.6800% - 6,200,000
------------- --------------
Total reverse
repurchase agreements $ 13,000,000 $ 6,200,000
=============== ==============
</TABLE>
The Company participates in a program offered by the FHLB in which it
can obtain renewable advanced from the FHLB up to specified dollar
amounts. To collateralize these advances, the FHLB has a security
interest in up to 100% of the Company's residential real estate
mortgage loans in an amount equaling 150% of the advances outstanding
in 1997 and 1996.
The Company also borrows funds through the use of reverse repurchase
agreements. The reverse repurchase agreements outstanding at December
31, 1997 are issued by FNMA and the agreements for 1996 are issued by
the FNMA and are collateralized by the Company's FHLMC mortgage-backed
participation certificates. Upon maturity of the reverse repurchase
agreements, the Company agrees to purchase the related participation
certificates back from the FNMA.
The maximum and average amounts of reverse repurchase agreements
outstanding were $13,000,000 and $9,126,667 in 1997 and $7,563,259 and
$6,856,939, respectively, in 1996.
The terms of Maple Leaf Financial, Inc.'s master repurchase agreement
with the Federal Home Loan Mortgage Corp. (FHLMC) requires collateral
equal to 105% of the outstanding transactions. FHLMC
F-38
<PAGE> 186
adjustable rate mortgage pools are currently provided as collateral on
the reverse repurchase agreements. Because these pools reduce monthly
by the amount of principal paid, margin calls are received monthly.
Margin calls may be met by available funds, reported as restricted
cash, or additional securities at least equal in market value to the
margin deficit. These funds are maintained in a margin account which
earn interest at a rate equal to the reverse repurchase rate on the
outstanding transactions.
The Company also has a $425,000 line of credit with a commercial bank
bearing interest at the bank's federal funds rate and a $1,000,000 line
of credit with the Federal Home Loan Bank. There was no balance at
December 31, 1997 and 1996.
9. INCOME TAXES:
Deferred taxes result from timing differences in the recognition of
certain items of income and expense for income tax and financial
reporting purposes. Principal items are the bad debt reserve deduction,
Federal Home Loan Bank stock dividends and deferred loan fees, as shown
below:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Gain on securities $ 122,364 $ 92,120
Depreciation 1,956 3,628
FHLB stock 126,654 91,688
Tax loan loss reserve 110,164 102,538
---------- ----------
Total deferred tax liability 361,138 289,974
Deferred tax assets:
Provision for loan losses 310,428 201,003
Deferred loan fees 45,314 56,762
Vacation not used by March 15, 1998 2,402 -
---------- ----------
Total deferred tax assets 358,144 257,765
---------- ----------
Net deferred tax liability $ (2,994) $ (32,209)
========= ==========
</TABLE>
On August 21, 1996, The Small Business Job Protection Act was signed
into law which repeals the favorable tax bad debt deduction method
available to savings banks. The Bank was required to change its tax bad
debt method to the specific charge off method under Internal Revenue
Code Section 585 effective for fiscal year ending December 31, 1996.
It is anticipated that the change in method will result in taxable
income of approximately $404,065 representing the excess of the Bank's
tax bad debt reserve that arose in tax years beginning before December
31, 1987 (base year amount). Generally, the income will be recognized
for tax purposes ratably over a six year period. A deferred tax
liability has been established for the effect of this new regulation.
F-39
<PAGE> 187
The deferred federal income tax expense is comprised of:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Deferred loan fees collected, net of amortization $ 11,447 $ 33,293
Federal Home Loan bank stock dividends collected, net of redemptions 34,884 25,792
Change in timing of tax versus book depreciation (1,673) (2,441)
Bad debt deduction in excess of book expense (100,282) (42,192)
Other (December 31, 1996 Adjustment) (3,835) -
------------ -----------
Deferred federal income tax expense $ (59,459) $ 14,452
============= ===========
</TABLE>
10. RELATED PARTY TRANSACTIONS:
The Company had no loans with officers, directors, entities in which
directors are involved or affiliated, and principal stockholders and
their associates at December 31, 1997.
An analysis of changes in the balances of these related party loans for
the year ended December 31, 1996 follows:
<TABLE>
<S> <C>
Balance at beginning of the year $ 2,927
Add new loans originated -
Less loan repayments 2,927
--------
Balance at end of the year $ -
========
</TABLE>
Effective November 1997, a related party, began serving as a
safekeeping agent for the Company. The safekeeping agent charges no
fees to the Company for these services. Fees for this service would be
approximately $7,000.
11. LEASES:
All operations are conducted in leased facilities. Lease terms range
from one to five years and may be extended under renewal options up to
an additional five years. Generally, under the terms of the leases, the
Company pays all taxes, assessments, insurance, and other expenses
incidental and necessary to the operations and maintenance of the
leased facilities. All leases are considered operating leases.
The following is a schedule by year of minimum future payments on
non-cancelable leases as of December 31, 1997:
<TABLE>
<S> <C> <C>
1998 $ 41,159
1999 15,701
2000 1,020
2001 425
----------
Total minimum lease payments $ 58,305
==========
</TABLE>
Total rent expense amounted to $57,492 and $49,156 in 1997 and 1996,
respectively.
F-40
<PAGE> 188
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments consist primarily of
commitments to extend credit.
These instruments involve, to varying degrees, elements recognized in
the consolidated balance sheets. The contract or notional amount of
these instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
Commitments to extend credit are agreements to lend to a customer
provided there is no violation of any condition established in the
agreements. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Because many of
the commitments are expected to expire without being drawn upon, the
total amounts do not necessarily represent future cash requirements.
The Company evaluates each customer's creditworthiness on an individual
basis, and the amount of collateral obtained, if any, is based on this
evaluation. Collateral held varies, but may include real estate and
equipment. The Company, generally uses the same credit policies in
making commitments as it does for on-balance sheet instruments.
Lines of credit whose contract amounts represent credit risk of
$1,180,326 and $412,772 of variable rate commitments to extend credit
at December 31, 1997 and 1996, respectively. In management's opinion,
these commitments represent normal banking transactions no losses are
anticipated to result therefrom.
The Bank also has an employment contract with the President of the Bank
for a three year term ending on December 31, 1999. This contract
specifies term of employment, duties of employee, compensation,
benefits and other general provisions.
13. OTHER OPERATING EXPENSES:
Other operating expenses for the years ended December 31 include:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Advertising $ 59,024 $ 49,014
Professional and legal fees 68,855 88,566
Service bureau 88,520 90,746
Office supplies 40,180 36,700
Telephone 42,414 31,911
Franchise tax 93,461 49,800
Federal insurance premiums 7,630 298,722
Other 240,959 190,412
----------- -----------
$ 641,043 $ 835,871
=========== ===========
</TABLE>
14. REGULATORY ENVIRONMENT:
Geauga is a State Chartered Savings Bank supervised by, and subject to
periodic examination by, the FDIC and the Ohio Division of Savings and
Loans and Savings Banks. Geauga is also subject to the rules and
regulations of the FDIC and the State of Ohio. The monetary policies of
the regulatory authorities, including the Federal Reserve Board have a
significant effect on the operating results of Geauga, and the effects
of future monetary policies cannot be predicted.
F-41
<PAGE> 189
15. REGULATORY MATTERS:
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken,
could have a material effect on the Company's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, Maple must meet specific capital guidelines
that involve quantitative measures of Maple's assets, liabilities and
certain off-balance-sheet items as calculated under regulatory
accounting practices. Maple's capital amounts and classification are
also subject to quantitative judgments by regulators about components,
risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy required the Company to maintain minimum amounts and rations
(set forth in the table on the following page) of total and Tier I
capital to risk-weighted assets, and of Tier I capital to average
assets. Management believes, as of December 31, 1997, that Maple meets
all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation ("FDIC") categorized the Company as
adequately capitalized under the regulatory framework for prompt
corrective action. To be categorized as adequately capitalized Maple
must maintain minimum total risk-based, Tier risk-based, and Tier I
leverage ratios as set forth in the table. In management's opinion,
there are no conditions or events since the FDIC's notification that
have changed Maple's categorization as "adequately capitalized".
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL ADEQUACY UNDER PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
--------------------- --------------------- ------------------------
AS OF DECEMBER 31, 1997: AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Risk based
Total Capital (to Risk Weighted Assets) $ 8,294 15.12% $ 4,387 8.00% $ 5,484 10.00%
Tier I Capital (to Risk Weighted $ 7,606 13.87% $ 2,193 4.00% $ 3,290 6.00%
Assets) $ 7,606 7.30% $ 4,166 4.00% $ 5,208 5.00%
Tier I Capital (to Average Assets)
</TABLE>
16. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS:
Disclosures of fair value information about certain financial
instruments, whether or not recognized in the consolidated balance
sheets are provided as follows: Instruments for which quoted market
prices are not available are valued based on estimates using present
value or other valuation techniques whose results are significantly
affected by the assumptions used, including discount rates and future
cash flows. Accordingly, the values so derived, in many cases, may not
be indicative of amounts that could be realized in immediate settlement
of the instrument. Also, certain financial instruments and all
non-financial instruments are excluded from these disclosure
requirements. For these and other reasons, the aggregate fair value
amounts presented below are not intended to represent the underlying
value of the Bank.
The following methods and assumptions were used to estimate
the fair values of each class of financial instrument presented:
F-42
<PAGE> 190
INVESTMENT SECURITIES: Fair values are based on quoted prices, or for
certain fixed maturity securities not actively traded estimated values
are obtained from independent pricing services.
NET LOANS AND FHLMC MORTGAGE-BACKED PARTICIPATION CERTIFICATION: Fair
value for loans with interest rates that fluctuate as current rates
change are generally valued at carrying amounts with an appropriate
discount for any credit risk. Fair values of other types of loans are
estimated by discounting the future cash flows using the current rates
for which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities.
CASH AND DUE FROM BANKS: The carrying amount is considered a reasonable
estimate of fair value.
ACCRUED INTEREST RECEIVABLE: The carrying amount is considered a
reasonable estimate of fair value.
DEPOSITS: The carrying amount is considered a reasonable estimate of
fair value for demand and savings deposits and other variable rate
deposit accounts. The fair values for fixed maturity certificates of
deposit and other time deposits are estimated using the rates currently
offered for deposits on similar remaining maturities.
ACCRUED INTEREST PAYABLE: The carrying amount is considered a
reasonable estimated of fair value.
COMMITMENTS TO EXTEND CREDIT: The fair value of commitments to extend
credit is estimated using the fees currently charged to enter into
similar arrangements, taking into account the remaining terms of the
agreements, the creditworthiness of the counterparties, and the
difference, if any, between current interest rates and the committed
rates.
The estimated fair values of the Company's financial instruments based
on the assumptions described above are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------
CARRYING AMOUNT FAIR VALUE
--------------- --------------
<S> <C> <C>
Financial Assets:
FHLMC mortgage-backed participation certification $ 23,871,436 $ 24,223,000
Interest bearing deposits 3,670,863 3,670,863
Net loans 73,960,355 75,996,000
Cash and overnight deposits 313,358 313,358
Accrued interest receivable 750,182 750,182
Financial liabilities:
Deposits 54,423,623 55,140,000
Unrecognized financial instruments:
Commitments to extend credit 4,496,338 4,496,338
</TABLE>
17. DEPOSIT INSURANCE FUNDS ACT OF 1996:
On September 30, 1996, the Deposit Insurance Fund Act of 1996 which
includes provisions to recapitalize SAIF was signed into law. It
provides for the eventual merger of the thrift fund with the Bank
Insurance Fund ("BIF"), and reallocates payment of the annual Financing
Corporation ("FICO") bond obligation.
As part of the package, the Federal Deposit Corporation ("FDIC")
imposed a one time assessment of 65.7 basis points to be applied
against all SAIF assessable deposits as of March 31, 1995, which will
F-43
<PAGE> 191
bring SAIF up to the statutorily prescribed 1.25% designated reserve
ratio. The special assessment, which was paid in 1996, was included as
a $219,854 pretax charge to operating expense.
Effective January 1, 1997, SAIF members will have the same risk-based
assessment schedule as BIF members. All SAIF and BIF institutions will
be responsible for sharing the cost of interest payments on the FICO
bonds. The cost will be an annualized charge of 1.3 basis for BIF
deposits and 6.4 basis points for SAIF deposits. The annual cost of
interest payments in 1997 was $7,630, net of a $20,837 refund.
F-44
<PAGE> 192
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and 1997 (Unaudited)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
Cash and overnight deposits $ 446,083 $ 273,799
Interest bearing deposits 6,665,570 1,678,198
------------- -------------
Total cash and cash equivalents 7,111,653 1,951,997
Investment securities
Held to maturity (fair value of $0 and $4,857,568) 0 4,665,973
Available for sale, at fair value 16,915,636 22,684,755
Loans receivable, (net of allowance of $918,010 and $823,930) 83,457,762 69,947,746
Premises and equipment 185,619 160,631
Federal Home Loan Bank stock 2,183,300 1,505,100
Accrued interest receivable 772,259 798,047
Prepaid expenses and other assets 885,570 1,117,533
------------- -------------
Total assets $ 111,511,799 $ 102,831,782
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 55,137,371 $ 52,393,235
Reverse repurchase agreements 3,000,000 13,000,000
FHLB advances 42,948,279 28,098,279
Advance payments by borrowers for taxes and insurance 218,809 202,817
Accrued interest payable 796,989 716,815
Deferred tax liability 408,794 357,078
Accounts payable and accrued expenses 276,999 312,752
------------- -------------
Total liabilities 102,787,241 95,080,976
Stockholders' equity
Preferred Stock, no par value, authorized and unissued 10,000 shares 0 0
Common Stock, Class A, no par value, authorized 18,000 shares,
issued 7,310 shares 1,989,226 3,993,192
Common Stock, Class B, no par value, authorized 18,000 shares, 1,989,226
issued 7,310 shares
Treasury Stock, Class A, 100 shares (40,000) (23,100)
Treasury Stock, Class B, 100 shares (40,000)
Retained earnings 4,554,093 3,522,301
Accumulated other comprehensive income 272,013 258,413
------------- -------------
Total stockholders' equity 8,724,558 7,750,806
------------- -------------
Total liabilities and stockholders' equity $ 111,511,799 $ 102,831,782
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE> 193
CONSOLIDATED STATEMENTS OF INCOME
September 30, 1998 and 1997 (Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 1997
----------- -----------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 5,540,722 $ 4,404,081
FHLMC mortgage-backed participation certificates 909,286 1,044,184
Other securities 172,519 129,370
----------- -----------
Total interest income 6,622,527 5,577,635
Interest expense:
Deposits 2,190,338 1,941,993
Federal Home Loan Bank advances 1,444,260 1,174,168
Reverse repurchase agreements 393,968 323,603
----------- -----------
Total interest expense 4,028,566 3,439,764
----------- -----------
Net interest income 2,593,961 2,137,871
Provision for loan losses 42,124 251,023
----------- -----------
Net interest income after provision
for loan losses 2,551,837 1,886,848
Non-interest income:
Service charges on deposit accounts 64,908 68,709
Other income 138,255 49,681
----------- -----------
Total non-interest income 203,163 118,390
Non-interest expense:
Salaries and employee benefits 698,584 590,028
Premises, equipment and occupancy 138,358 126,407
Other operating expenses 634,269 441,199
----------- -----------
Total non-interest expense 1,471,211 1,157,634
----------- -----------
Income before income taxes 1,283,789 847,604
Provision for federal income tax:
Current 416,147 336,874
Deferred 27,959 (52,264)
----------- -----------
Net income $ 839,683 $ 562,994
=========== ===========
Other comprehensive income, net of tax:
Net unrealized (losses) gains on securities (68,044) 79,593
Cumulative effect of change in accounting principle 102,528 --
----------- -----------
Other comprehensive income 34,484 79,593
----------- -----------
Comprehensive income $ 874,167 $ 642,587
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-46
<PAGE> 194
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY for the
nine months ended September 30, 1998 and 1997 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK, NO PAR VALUE ACCUMULATED
-------------------------------------------------------- OTHER
SHARES SHARES RETAINED COMPREHENSIVE
ISSUED CLASS A ISSUED CLASS B EARNINGS INCOME
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 7,345 3,981,915 -- -- 2,959,308 178,820
Issuance of additional common stock 20 11,277 -- -- -- --
Net income -- -- -- -- 755,102 --
Net unrealized gains on securities -- -- -- -- -- 58,709
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1997 7,365 3,993,192 -- -- 3,714,410 237,529
Issuance of additional common stock 11 8,360 -- -- -- --
Stock dividend -- (2,000,776) 7,376 2,000,776 -- --
Purchase of treasury stock -- -- -- -- -- --
Retirement of treasury stock (66) (11,550) (66) (11,550) -- --
Net income -- -- -- -- 839,683 --
Net unrealized gains on securities -- -- -- -- -- 34,484
----------- ----------- ----------- ----------- ----------- -----------
Balances at September 30, 1998 7,310 1,989,226 7,310 1,989,226 $ 4,554,093 $ 272,013
=========== =========== =========== =========== =========== ===========
<CAPTION>
TREASURY STOCK
---------------------
CLASS A CLASS B TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Balances at December 31, 1996 (23,100) -- 7,096,943
Issuance of additional common stock -- -- 11,277
Net income -- -- 755,102
Net unrealized gains on securities -- -- 58,709
----------- ----------- -----------
Balances at December 31, 1997 (23,100) -- 7,922,031
Issuance of additional common stock -- -- 8,360
Stock dividend 11,550 (11,550) --
Purchase of treasury stock (40,000) (40,000) (80,000)
Retirement of treasury stock 11,550 11,550 --
Net income -- -- 839,683
Net unrealized gains on securities -- -- 34,484
----------- ----------- -----------
Balances at September 30, 1998 $ (40,000) $ (40,000) $ 8,724,558
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE> 195
CONSOLIDATED STATEMENT OF CASH FLOWS
for the nine months ended September 30, 1998 and 1997 (Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 1996
------------ ------------
Operating activities:
<S> <C> <C>
Net income $ 839,683 $ 562,994
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums and accretion of discounts on investments, net 146,348 66,792
Provision for loan losses 27,420 251,023
Deferral and amortization of net deferred loan origination expenses 142,416 110,350
Depreciation and amortization 48,043 42,282
Deferred income taxes 27,959 (52,264)
Increase in accrued interest receivable, prepaid expenses and other assets (95,227) (888,118)
Increase (decrease) in accrued interest payable, accounts, payable and accrued expenses 216,399 463,332
Common stock issued to officer 8,360 11,277
Loss on disposal of fixed assets 28,527 0
FHLB Dividends (99,044) (75,100)
------------ ------------
Net cash provided by operating activities 1,290,884 492,568
Investing activities:
Repayments on and sales proceeds from FHLMC MBS:
Available for sale 10,254,736 5,445,788
Held to maturity 0 661,386
Purchase of FHLMC MBS:
Available for sale (3,365,437) (10,434,250)
Held to maturity 0 (996,562)
Proceeds from maturities of investment securities 0 198,000
Proceeds from loan repayments 16,157,510 8,909,675
Loans originated (25,908,440) (23,732,601)
Purchases of premises and equipment (86,871) (80,402)
Purchases of Federal Home Loan Bank stock (650,700) (178,600)
Net increase in advance payments by borrowers (148,880) (78,665)
------------ ------------
Net cash used in investing activities (148,880) (20,286,231)
Financing activities:
Net increase in demand, savings, and NOW account deposits 949,998 1,028,335
Proceeds from issuance of time deposits 12,158,352 13,542,145
Payments for maturing time deposits (12,393,720) (5,340,293)
Proceeds from FHLB advances 40,000,000 7,500,000
Repayments of FHLB advances (25,150,000) (4,000,000)
Proceeds from reverse repurchase agreements 11,730,000 13,000,000
Repayments of reverse repurchase agreements (21,730,000) (6,200,000)
------------ ------------
Net cash provided by financing activities 5,564,630 19,530,187
Increase in cash and cash equivalents 3,107,432 (263,476)
Cash and cash equivalents at 12/31/98 and 12/31/97 4,004,221 2,215,473
------------ ------------
Cash and cash equivalents at 9/30/98 and 9/30/97 $ 7,111,653 $ 1,951,997
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 2,174,392 $ 1,890,090
Taxes $ $
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE> 196
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. BASIS OF PRESENTATION
Maple Leaf Holding Company is a one-bank holding company that owns all of the
outstanding common stock of Geauga Savings Bank ("Geauga"). The Corporation, a
consolidation of the holding company and Geauga, was incorporated under Ohio law
in May 1997 with the reorganization of the Bank completed in November 1997.
The accompanying consolidated financial statements are unaudited. However, in
the opinion of management, they contain the adjustments, all of which are normal
and recurring in nature, necessary to present fairly the consolidated financial
position, results of operations and changes in cash flow. The results of
operations and cash flows reported for the period ended September 30, 1998 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1998. The statements contained in the Annual Report for the year
ended December 31, 1997 should be read in conjunction with these consolidated
financial statements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Note 2. DUAL CLASS STOCK
In May 1998 stockholders voted to authorize a new Class B common stock, without
par value ("Class B Stock"). The Class B Stock was distributed to stockholders
of record at April 21, 1998, as a stock dividend with each stockholder receiving
one share of Class B Stock for each share of existing common stock ("Class A
Stock"). The Class B Stock has twenty votes for each share as compared to one
vote for each share of Class A Stock, with limited transferability. The Class A
Stock and the Class B Stock have equal rights as to cash dividends, liquidation
preferences and all other matters. The dividend has been accounted for as a
stock split.
Additionally, in May 1998 the Corporation authorized 10,000 shares of preferred
stock without par value.
Note 3. COMPREHENSIVE INCOME
As of January 1, 1998, the Corporation adopted Statement of Financial Accounting
Standards No. 130 (FAS 130), "Reporting Comprehensive Income." FAS 130
establishes new rules for reporting and display of comprehensive income and its
components; however, the adoption of FAS 130 has no effect on the Corporation's
net income, stockholders' equity, or earnings per share. FAS 130 requires
unrealized gains or losses on available-for-sale securities, which prior to
adoption were reported separately in stockholders' equity, to be included in
"other comprehensive income." Prior period financial information has been
restated to reflect implementation of FAS 130.
Note 4. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
As of July 1, 1998, the Corporation adopted Statement of Financial Accounting
Standards No. 133 (FAS 133) "Accounting for Derivative Instruments and Hedging
Activities." FAS 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an entity
recognize derivatives as either assets or liabilities at fair value, with gains
or losses determined depending on the intended use of the derivative and its
resulting designation.
The Corporation, upon its adoption of FAS 133, reclassified $3,769,661 of
held-to-maturity securities as "available-for-sale" so that those securities
would be eligible as hedged items in future fair-value and cash-flow hedge
transactions. This reclassification resulted in a net-of-tax
cumulative-effect-type adjustments of $102,528
F-49
<PAGE> 197
in other comprehensive income. Under the provisions of FAS 133, such a
reclassification does not call into question the Corporation's intent to hold
current or future debt securities to their maturity.
Note 5. NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131 (FAS 131), "Disclosures about Segments of an Enterprise and Related
Information," with an effective date for years beginning after December 15,
1997, but is not required to be applied to interim period financial statements
in the year of adoption. FAS 131 redefines how operating segments are determined
and requires disclosure of certain financial and descriptive information about a
public company's operating segments. It also requires comparative information
from earlier periods be restated to conform to the requirements of the standard.
In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132 (FAS 132), "Employers' Disclosure about Pensions and Other
Postretirement Benefits," which is effective for fiscal years beginning after
December 15, 1997, but is not required to be applied to interim period financial
statements in the year of adoption. FAS 132 provides for standardized
disclosures of benefit plans to the extent practicable, requires additional
information on changes in the benefit obligations and the fair value of plan
assets that will aid financial analysis, and eliminates certain disclosures that
are no longer useful.
F-50
<PAGE> 198
APPENDIX A
AGREEMENT OF AFFILIATION
AND PLAN OF MERGER
(composite agreement, as amended as of December 29, 1998)
THIS AGREEMENT OF AFFILIATION AND PLAN OF MERGER dated as of November
24, 1998 (this "Agreement") is made by and between GLB Bancorp, Inc., an Ohio
corporation ("GLB"), and Maple Leaf Financial, Inc., an Ohio corporation ("Maple
Leaf").
WHEREAS, the respective Boards of Directors of GLB and Maple Leaf have
each determined that it is in the best interests of their respective
shareholders for Maple Leaf to merge with and into GLB upon the terms and
subject to the conditions set forth herein;
WHEREAS, the respective Boards of Directors of GLB and Maple Leaf have
each approved the merger of Maple Leaf with and into GLB, upon the terms and
subject to the conditions set forth herein;
WHEREAS, contemporaneously with or promptly following the merger of
Maple Leaf with and into GLB, the Board of Directors of GLB intends to merge
Geauga Savings Bank, an Ohio-chartered savings bank and wholly owned subsidiary
of Maple Leaf, with and into Great Lakes Bank, an Ohio-chartered commercial bank
and wholly owned subsidiary of GLB; and
WHEREAS, for accounting purposes, it is intended that the merger will
be accounted for as a "purchase."
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, the parties hereto agree as follows:
ARTICLE 1
THE MERGER
1.1. MERGER
1.1.1. MERGER. At the Effective Time (as hereinafter defined),
a newly formed wholly-owned subsidiary of GLB (the "Subsidiary") shall be merged
with and into Maple Leaf (the "Merger") in accordance with the provisions of
Section 1701.78 of the Ohio General Corporation Law ("OGCL"). As a result of the
Merger, GLB shall have acquired all of the Maple Leaf Common Stock (as
hereinafter defined), Maple Leaf will be the surviving corporation in the
Merger, the result of which will be that Maple Leaf shall be a wholly-owned
subsidiary of GLB, and will continue after the Merger to be incorporated under
the laws of the State of Ohio (the "Surviving Corporation"). The Merger shall
have the effects specified in the OGCL. The name of the Surviving Corporation
will be "Maple Leaf Financial, Inc."
1.1.2. EFFECTIVE TIME. As soon as practicable following the
Closing (as hereinafter defined), Maple Leaf and the Subsidiary (the
"Constituent Corporations") shall cause a certificate of merger complying with
the requirements of Section 1701.81 of the OGCL (the "Certificate of Merger") to
be filed with the Secretary of State of Ohio. The form of Certificate of Merger
is attached hereto as Exhibit 1.1.2. The Merger will become effective at the
time and date set forth in the Certificate of Merger filed with the Secretary of
State of the State of Ohio (the "Effective Time").
1.1.3. CONSUMMATION OF THE MERGER. Provided that this
Agreement is not earlier terminated pursuant to Section 8.1 hereof, the closing
of the Merger (the "Closing") will occur (i) at 10:00 a.m. (local time) at the
principal executive offices of GLB as promptly as practicable after the date on
which all of the conditions set forth in Article 6 of this Agreement are
satisfied or duly waived, but not before at least fifteen days have elapsed
since FRB (as hereinafter defined) approval of the Merger, or (ii) at such other
time and place and on such other date as GLB and Maple Leaf may agree.
<PAGE> 199
1.1.4. ARTICLES OF INCORPORATION AND REGULATIONS. The Articles
of Incorporation, as amended, and Code of Regulations of Maple Leaf in effect
immediately prior to the Effective Time will be the Articles of Incorporation,
as amended, and Code of Regulations of the Surviving Corporation after the
Effective Time, until duly amended in accordance with their respective terms and
the OGCL.
1.1.5. DIRECTORS AND OFFICERS. The directors and officers of
GLB immediately prior to the Effective Time shall be the directors and officers,
respectively, of the Surviving Corporation, until their successors have been
duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the terms of the Surviving
Corporation's Articles of Incorporation, as amended, and Code of Regulations and
the OGCL.
Immediately following Closing, Betty L. Kimbrew, who is currently a
director and executive officer of Maple Leaf and Geauga Savings Bank, will be
appointed to the Board of Directors of GLB and Maple Leaf. In the event that she
is unable to serve or does not consent to serve as a director of GLB at that
time, GLB and Maple Leaf shall agree upon a substitute nominee to serve as a
director of GLB. In addition, GLB will propose to its shareholders for adoption
at the 1999 Annual Meeting of Shareholders an amendment of the Code of
Regulations of GLB for the purpose of increasing the authorized number of
directors, unless (i) a vacancy on the Board of Directors exists at Closing or
is created prior to the time of the 1999 Annual Meeting of Shareholders or (ii)
a director of GLB declines to stand for reelection at the 1999 Annual Meeting.
Provided he is able to serve and consents to serve as a director of GLB, GLB
will also nominate Mr. Howard Amster, who is a director of Maple Leaf and Geauga
Savings Bank, for election as a director at the 1999 Annual Meeting of
Shareholders, but his service as a director may be contingent upon the existence
of a vacancy, whether by expansion of the authorized number of directors, by
resignation of a director or otherwise. If elected at the 1999 Annual Meeting of
Shareholders, Mr. Amster would fill the vacancy, if any, created by expansion of
the authorized number of directors, by resignation of a director or otherwise.
Individuals appointed or elected to the Board of Directors of GLB shall serve
until the first annual meeting of shareholders of GLB following such appointment
or election, or until their successors shall have been duly elected, appointed
and qualified. Pending his election or appointment as a director of GLB, Mr.
Howard Amster may attend meetings of the Board of Directors of GLB, subject to
any reasonable confidentiality conditions the Board of Directors may impose in
connection with such attendance.
ARTICLE 2
CONVERSION AND EXCHANGE OF SHARES
2.1. CONVERSION AND EXCHANGE OF SHARES. At the Effective Time, by
virtue of the Merger and without any action on the part of any party or any
shareholder, the following shall occur:
A. Subject to the subsequent provisions of this Agreement,
each share of Class A common stock, without par value, and each share of Class B
common stock, without par value, of Maple Leaf (together, the "Maple Leaf Common
Stock") shall be canceled and extinguished and shall be converted into and
become a right to receive: (1) an amount of cash equal to the quotient of (a)
$10,597,258 divided by (b) the total number of shares of Maple Leaf Common Stock
issued and outstanding immediately prior to the Effective Time (such cash
consideration, representing the sum of $734.90 per issued and outstanding share
of Maple Leaf Common Stock as of the date hereof, is hereinafter referred to as
the "Tier 1 Merger Cash Consideration"); plus (2) the number of shares of GLB
Common Stock equal to the quotient of (x) 220,776 shares of GLB Common Stock
divided by (y) the total number of shares of Maple Leaf Common Stock issued and
outstanding immediately prior to the Effective Time (such consideration at the
date hereof, representing 15.31 shares of GLB Common Stock, is hereinafter
referred to as the "Tier 1 Merger Share Consideration"). Tier 1 Merger Cash
Consideration and Tier 1 Merger Share Consideration are hereinafter referred to
together as the "Tier 1 Merger Consideration."
A-2
<PAGE> 200
EXAMPLE: By way of illustration only, assuming a shareholder owns one
(1) share of Maple Leaf Common Stock, the Tier 1 Merger Cash
Consideration to which the shareholder would be entitled is calculated
as follows:
<TABLE>
<S> <C> <C>
$10,597,258 Aggregate Tier 1 Merger Cash Consideration
divided by 14,420 Total Maple Leaf Common Stock outstanding
-----------
= $734.90 Tier 1 Merger Cash Consideration per share
multiplied by 1 Shares of Maple Leaf Common Stock held by shareholder
-----------
= $ 734.90 Tier 1 Merger Cash Consideration received by shareholder
===========
</TABLE>
and the Tier 1 Merger Share Consideration to which such shareholder
would be entitled is calculated as follows:
<TABLE>
<S> <C> <C>
220,776 Aggregate Tier 1 Merger Share Consideration
divided by 14,420 Total Maple Leaf Common Stock outstanding
-----------
= 15.31 Tier 1 Merger Share Consideration per share
multiplied by 1 Shares of Maple Leaf Common Stock held by shareholder
-----------
= 15.31 Tier 1 Merger Share Consideration received by shareholder;
===========
</TABLE>
thus, such shareholder would be entitled to $734.90 in cash and 15.31
shares of GLB Common Stock.
B. Each outstanding 1996 Warrant (representing the right to purchase
one share of Class A common stock, without par value, and one share of Class B
common stock, without par value, of Maple Leaf each at the exercise price of
$412.50 per share) shall be cancelled and extinguished and shall be converted
into and become a right to receive: (1) an amount of cash equal to the quotient
of (a) $4,943,825 divided by (b) the total number of 1996 Warrants outstanding
immediately prior to the Effective Time (such cash consideration, representing
the sum of $825.90 per outstanding 1996 Warrant as of the date hereof, is
hereinafter referred to as the "Tier 2 Merger Cash Consideration"); plus (2) the
number of shares of GLB Common Stock equal to the quotient of (x) 102,996 shares
of GLB Common Stock divided by (y) the total number of 1996 Warrants outstanding
immediately prior to the Effective Time (such consideration at the date hereof,
representing 17.21 shares of GLB Common Stock, is hereinafter referred to as the
"Tier 2 Merger Share Consideration"). Tier 2 Merger Cash Consideration and Tier
2 Merger Share Consideration are hereinafter referred to together as the "Tier 2
Merger Consideration." It is intended that the holders of the 1996 Warrants
receive only the difference between the value of the Tier 1 Merger Consideration
and the exercise price of each share which is the subject of a 1996 Warrant.
EXAMPLE: By way of illustration only, assuming a warrant holder owns
one (1) 1996 Warrant, the Tier 2 Merger Cash Consideration to which
such warrant holder would be entitled is calculated as follows:
<TABLE>
<S> <C> <C>
$4,943,825 Aggregate Tier 2 Merger Cash Consideration
divided by 5,986 Total 1996 Warrants outstanding
----------
= $ 825.90 Tier 2 Merger Cash Consideration per 1996 Warrant
multiplied by 1 1996 Warrants held by warrant holder
----------
= $ 825.90 Tier 2 Merger Cash Consideration received by warrant holder
==========
</TABLE>
A-3
<PAGE> 201
and the Tier 2 Merger Share Consideration to which such warrant holder
would be entitled is calculated as follows:
<TABLE>
<S> <C> <C>
102,996 Aggregate Tier 2 Merger Share Consideration
divided by 5,986 Total 1996 Warrants outstanding
-------
= 17.21 Tier 2 Merger Share Consideration per 1996 Warrant
multiplied by 1 1996 Warrants held by warrant holder
---------
= 17.21 Tier 2 Merger Share Consideration received by warrant holder;
=======
</TABLE>
thus, such warrant holder would be entitled to $825.90 in cash and
17.21 shares of GLB Common Stock.
C. Each outstanding 1991 Warrant (representing the right to purchase
one share of Class A common stock, without par value, and one share of Class B
common stock, without par value, of Maple Leaf each at the exercise price of
$312.50 per share) shall be cancelled and extinguished and shall be converted
into and become a right to receive: (1) an amount of cash equal to the quotient
of (a) $2,458,917 divided by (b) the total number of 1991 Warrants outstanding
immediately prior to the Effective Time (such cash consideration, representing
the sum of $982.00 per outstanding 1991 Warrant as of the date hereof, is
hereinafter referred to as the "Tier 3 Merger Cash Consideration"); plus (2) the
number of shares of GLB Common Stock equal to the quotient of (x) 51,228 shares
of GLB Common Stock divided by (y) the total number of 1991 Warrants outstanding
immediately prior to the Effective Time (such consideration at the date hereof,
representing 20.46 shares of GLB Common Stock, is hereinafter referred to as the
"Tier 3 Merger Share Consideration"). Tier 3 Merger Cash Consideration and Tier
3 Merger Share Consideration are hereinafter referred to together as the "Tier 3
Merger Consideration." It is intended that the holders of the 1991 Warrants
receive only the difference between the value of the Tier 1 Merger Consideration
and the exercise price of each share which is the subject of a 1991 Warrant.
EXAMPLE: By way of illustration only, assuming a warrant holder owns
one (1) 1991 Warrant, the Tier 3 Merger Cash Consideration to which
such warrant holder would be entitled is calculated as follows:
<TABLE>
<S> <C> <C>
$2,458,917 Aggregate Tier 3 Merger Cash Consideration
divided by 2,504 Total 1991 Warrants outstanding
----------
= $ 982.00 Tier 3 Merger Cash Consideration per 1991 Warrant
multiplied by 1 1991 Warrants held by warrant holder
----------
= $ 982.00 Tier 3 Merger Cash Consideration received by warrant holder
==========
</TABLE>
A-4
<PAGE> 202
and the Tier 3 Merger Share Consideration to which such warrant holder
would be entitled is calculated as follows:
<TABLE>
<S> <C> <C>
51,228 Aggregate Tier 3 Merger Share Consideration
divided by 2,504 Total 1991 Warrants outstanding
-------
= 20.46 Tier 3 Merger Share Consideration per 1991 Warrant
multiplied by 1 1991 Warrants held by warrant holder
---------
= 20.46 Tier 3 Merger Share Consideration received by warrant holder;
=======
</TABLE>
thus, such warrant holder would be entitled to $982.00 in cash and
20.46 shares of GLB Common Stock.
D. The Tier 1 Merger Consideration, Tier 2 Merger Consideration and
Tier 3 Merger Consideration calculations and the illustrations set forth in this
Article 2 are based upon an assumed market value of GLB Common Stock of $13.50
per share and the assumption that none of the 1991 Warrants or 1996 Warrants are
exercised prior to the Effective Time. The assumed value of GLB Common Stock is,
however, subject to modification based upon the per share market value of GLB
Common Stock as of the Closing. Such modification may result in a recalculation
of, and adjustment to, the Tier 1 Merger Consideration, Tier 2 Merger
Consideration and Tier 3 Merger Consideration (i.e., such modification may
result in an adjustment to the number of shares of GLB Common Stock and/or cash
distributable to holders of Maple Leaf Common Stock, 1996 Warrants and 1991
Warrants if the GLB Closing Price (as hereinafter defined) is greater or less
than $13.50).
E. Notwithstanding Subsection 2.1.A, shares of Maple Leaf Common Stock
outstanding immediately prior to the Effective Time, and held by a shareholder
of record as of the date fixed for determination of shareholders of Maple Leaf
Common Stock entitled to notice of and to vote at the Maple Leaf Meeting (as
defined hereinafter) who, acting in accordance with Section 1701.85 of the OGCL,
both (i) has, within 10 days following the meeting at which Maple Leaf's
shareholders voted to approve the Merger, delivered to Maple Leaf written notice
of such shareholder's intention to demand payment of the fair value of his
shares of Maple Leaf Common Stock if the Merger is effectuated, and (ii) has not
voted in favor of the Merger or consented thereto in writing (shares of Maple
Leaf Common Stock meeting conditions (i) and (ii) are hereinafter referred to as
the "Dissenting Shares"), shall not be converted into a right to receive the
Tier 1 Merger Consideration, but shall be treated in accordance with applicable
provisions of the OGCL and Section 2.5 of this Agreement.
Shares of Maple Leaf Common Stock, 1996 Warrants and 1991 Warrants held
by Maple Leaf or Geauga Savings Bank or by GLB or Great Lakes Bank, in each case
other than in a fiduciary capacity or as a result of debts previously contracted
(collectively, the "Treasury Shares"), shall be excluded, shall not be converted
into cash and GLB Common Stock and shall be cancelled.
F. Subject to adjustment as provided in Sections 2.2, 2.3 and 2.6, the
aggregate amount of consideration payable in the Merger shall be equal to
$18,000,000 in cash or an amount as close to that amount as practicable, and
375,000 shares of GLB Common Stock or a number of shares as close to (but not in
excess of) that number as is practicable (such cash consideration and shares are
hereinafter referred to collectively as the "Merger Consideration").
2.2. ADDITIONAL CASH CONSIDERATION. Notwithstanding anything to the
contrary set forth in this Agreement, if the Merger is not consummated on or
before August 20, 1999, GLB shall pay to the holders of Maple Leaf Common Stock,
the 1996 Warrants and the 1991 Warrants an aggregate additional cash
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consideration in respect of the shares of Maple Leaf Common Stock, 1996 Warrants
and 1991 Warrants held immediately prior to the Merger, in an amount equal to
the net income of Maple Leaf for the period from August 20, 1999 to the date on
which the Merger becomes effective (the "Additional Merger Cash Consideration").
The aggregate Additional Merger Cash Consideration payable to the holders of
Maple Leaf Common Stock, 1996 Warrants and 1991 Warrants pursuant to this
Section 2.2 shall be the sum of (i) the net income of Maple Leaf for each whole
month between August 20, 1999 and the date upon which the Merger becomes
effective, plus (ii) a proportionate amount of the monthly net income of Maple
Leaf for any period between August 20, 1999 and the date upon which the Merger
becomes effective which is less than a whole month. In the event that Additional
Merger Cash Consideration is payable to the holders of Maple Leaf Common Stock,
the 1996 Warrants and the 1991 Warrants, the aggregate Additional Merger Cash
Consideration shall be divided among and paid to the holders of Maple Leaf
Common Stock, the holders of 1996 Warrants and the holders of 1991 Warrants in
the same proportions as the Merger Consideration is divided among the holders of
Maple Leaf Common Stock, the 1996 Warrants and the 1991 Warrants pursuant to a
schedule to be approved by GLB and a representative designated by Maple Leaf.
Maple Leaf shall conduct its business in the ordinary course,
consistent with the covenants in Article 5 hereof, and shall prepare its monthly
financial statements in accordance with generally accepted accounting principles
applied on a consistent basis. Computation of monthly net income for purposes of
this Section 2.2 shall be exclusive of unusual or extraordinary charges and
income items that are within Maple Leaf's or Geauga Savings Bank's control, and
shall be exclusive of (i) the fee due Tucker Anthony Incorporated described in
the Maple Leaf Disclosure Letter, (ii) the payment of up to $515,367 described
as severance and other payments in Exhibit 4.9(b) of the Maple Leaf Disclosure
Letter, and (iii) legal and accounting fees that are charged to Maple Leaf and
that relate to the Merger or other transactions contemplated by this Agreement.
Recognizing that Maple Leaf's net income for the month in which the
Merger becomes effective cannot be calculated until the Merger has become
effective, the calculation of the Additional Merger Cash Consideration that may
be payable by GLB pursuant to this Section 2.2 shall be certified in writing by
one or more designees agreed to by Maple Leaf and GLB and delivered to GLB as
promptly as possible after the Effective Time, but in any event within ten
business days after the date on which the Merger becomes effective. Such
certificate shall be accompanied by a copy of income statements covering the
period from August 20, 1999 to the date upon which the Merger became effective,
which income statements shall be no less detailed than monthly income statements
prepared by Maple Leaf and Geauga Savings Bank in the ordinary course of
business. GLB and its representatives, including GLB's independent auditors,
shall have the right to examine such income statements and any associated
workpapers of Maple Leaf and Geauga Savings Bank or the designee(s).
Within twenty business days after the end of the month in which the
Merger becomes effective (or, if later, within twenty business days after
receiving the certificate referred to in the immediately preceding paragraph),
GLB shall remit to the Exchange Agent for distribution to holders of Maple Leaf
Common Stock and Warrants an amount in cash equal to the Additional Merger Cash
Consideration, if any, payable pursuant to this Section 2.2. If GLB disputes in
good faith the calculation of Maple Leaf's net income, GLB shall provide a
detailed written notice of such dispute to Maple Leaf or its designee(s) within
twenty business days after the end of the month in which the Merger becomes
effective (or, if later, within twenty business days after receiving the
certificate referred to in the immediately preceding paragraph). Unless GLB and
Maple Leaf reach agreement within ten business days thereafter concerning the
calculation of Maple Leaf's net income, Maple Leaf's net income for the period
from August 20, 1999 to the date upon which the Merger becomes effective shall
be the average of the net income figures calculated by Maple Leaf and by GLB,
and such amount shall be payable immediately by GLB to the Exchange Agent for
distribution to holders of Maple Leaf Common Stock and Warrants.
2.3. FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of GLB Common Stock and no certificates or scrip therefor, or
other evidence of ownership thereof, will be issued
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in the Merger. Instead, GLB will pay to each holder of Maple Leaf Common Stock,
1996 Warrants or 1991 Warrants who would otherwise be entitled to a fractional
share of GLB Common Stock an amount in cash (without interest) determined by
multiplying such fraction by the average of the mean between the closing bid and
asked prices of GLB Common Stock, as reported by the Nasdaq SmallCap Market
reporting system (as reported in The Wall Street Journal or, if not reported
therein, in another authoritative source), for the five Nasdaq SmallCap Market
trading days immediately preceding the Effective Date.
2.4. EXCHANGE PROCEDURES.
2.4.1. At or prior to the Effective Time, Maple Leaf and GLB
shall deliver to an exchange agent designated by GLB (the "Exchange Agent") a
schedule of the cash and stock portions of the Merger Consideration to be paid
to holders of Maple Leaf Common Stock and Warrants; and GLB shall deposit or
cause to be deposited with the Exchange Agent for the benefit of the holders of
certificates for Maple Leaf Common Stock and Warrants, for exchange in
accordance with this Article 2, certificates representing the shares of GLB
Common Stock ("New Certificates") and cash (such cash and New Certificates,
together with any dividends or distributions with respect thereto (without any
interest thereon), being hereinafter referred to as the "Exchange Fund") to be
paid pursuant to this Article 2 in exchange for outstanding shares of Maple Leaf
Common Stock and Warrants.
2.4.2. As promptly as practicable after the Effective Date,
GLB shall send or cause to be sent to each former holder of record of Maple Leaf
Common Stock and Warrants immediately prior to the Effective Time (other than
Treasury Shares or Dissenting Shares) transmittal materials for use in
exchanging such shareholder's Maple Leaf certificates and Warrants for the
consideration set forth in this Article 2. GLB shall cause the New Certificates
into which a shareholder's Maple Leaf Common Stock and Warrants are converted at
the Effective Time and/or any check in respect of the cash portion of the Merger
Consideration and any fractional share interests or dividends or distributions
which such person shall be entitled to receive to be delivered to such
shareholder upon delivery to the Exchange Agent of Warrants agreements and
certificates representing such Maple Leaf Common Stock (or indemnity reasonably
satisfactory to GLB and the Exchange Agent, if any of such certificates or
Warrants are lost, stolen or destroyed) owned by such holder. No interest will
be paid on any such cash to be paid pursuant to this Article 2 upon such
delivery. The transmittal materials to be issued to holders of Maple Leaf Common
Stock and Warrants may include, without limitation, a release or acknowledgement
on the part of holders of Warrants in order to reflect the discharge of Maple
Leaf's obligations under any agreements pursuant to which the Warrants were
issued or are outstanding. The transmittal materials will specify that delivery
of certificates and Warrant agreements theretofore representing Maple Leaf
Common Stock and Warrants shall be effected, and risk of loss and title to the
Maple Leaf certificates and Warrants will pass, if and only if proper delivery
of such certificates and Warrants is made to the Exchange Agent.
2.4.3. Notwithstanding the foregoing, neither the Exchange
Agent nor any party hereto shall be liable to any former holder of Maple Leaf
Common Stock or Warrants for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
2.4.4. No dividends or other distributions with respect to GLB
Common Stock with a record date occurring after the Effective Time shall be paid
to the holder of any Warrants or unsurrendered certificates representing shares
of Maple Leaf Common Stock converted in the Merger into shares of GLB Common
Stock until the holder thereof shall surrender such Warrants or certificates, as
the case may be, in accordance with this Article 2. After the surrender in
accordance with this Article 2, the record holder thereof will be entitled to
receive any such dividends or other distributions, without any interest thereon,
which theretofore had become payable with respect to shares of GLB Common Stock
represented by such certificate or Warrants.
2.4.5. Any portion of the Exchange Fund that remains unclaimed
for twelve months after the Effective Time will be retained by GLB in one or
more accounts, which may include accounts at Great Lakes
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Bank, established for and on behalf of holders of Maple Leaf Common Stock or
Warrants who have not theretofore complied with this Article 2. Any holders of
Maple Leaf Common Stock or Warrants who have not theretofore complied with this
Article 2 shall thereafter look only to GLB for payment of the Merger
Consideration and unpaid dividends and distributions (if any) on the GLB Common
Stock deliverable in respect of Maple Leaf Common Stock or Warrants such
shareholder or Warrant holder holds as determined pursuant to this Agreement, in
each case without any interest thereon. Within thirty days after the end of each
calendar quarter and for a period of two years after the Closing, the Exchange
Agent shall provide a report showing disbursements from the Exchange Fund and
the identity of Maple Leaf shareholders and Warrant holders to whom or on whose
behalf such disbursements were made. The Exchange Agent's quarterly report shall
be provided to Ms. Betty L. Kimbrew or her designee, with a copy to GLB.
2.5. DISSENTERS' RIGHTS. To the extent provided by the OGCL, any holder
of Dissenting Shares shall cease at the Effective Time to have any of the rights
of a shareholder in respect of such shares, such Dissenting Shares shall not be
converted into or be exchangeable for the right to receive the Merger
Consideration (unless and until such holders shall have failed to perfect or
shall have effectively withdrawn or lost their dissenters' rights under the
OGCL), and such holder shall merely have the right to be paid the fair cash
value of such shares under Sections 1701.84 and 1701.85 of the OGCL. Any former
holder of Maple Leaf Class A common stock or Class B common stock who after the
Effective Time (i) surrenders his certificates representing shares of Maple Leaf
Class A common stock or Class B common stock, as the case may be, for exchange
pursuant to Section 2.4 hereof, or (ii) validly withdraws his written demand for
payment of fair cash value of such shares pursuant to Sections 1701.84 and
1702.85 of the OGCL, will thereupon be entitled to receive the Merger
Consideration as of the Effective Time pursuant to this Agreement. If any such
holder shall have failed to perfect or shall have effectively withdrawn or lost
such dissenters' rights, such holder's shares of Maple Leaf Class A common stock
or Class B common stock, as the case may be, shall thereupon be converted into
and become exchangeable for the right to receive, as of the Effective Time, the
Merger Consideration, as applicable, without any interest thereon, as provided
in Section 2.4.
Maple Leaf shall give GLB (i) prompt notice of any written demands for
payment for any Maple Leaf Class A common stock, without par value, or Class B
common stock, without par value, under Section 1701.85 of the OGCL, attempted
withdrawals of such demands, and any other instruments served pursuant to the
OGCL and received by Maple Leaf relating to dissenters' rights, and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
the exercise of dissenters' rights under the OGCL. Except with the prior written
consent of GLB, Maple Leaf shall not voluntarily make any payment with respect
to any demands for payment for Maple Leaf Class A common stock or Class B common
stock under the OGCL, offer to settle or settle any such demands or approve any
withdrawal of any such demands.
2.6. ANTIDILUTION PROVISIONS. In the event GLB changes (or establishes
a record date for changing) the number of shares of GLB Common Stock issued and
outstanding prior to the Effective Date as a result of a stock split, stock
dividend, recapitalization or similar transaction with respect to the
outstanding GLB Common Stock and the record date therefor shall be prior to the
Effective Date, or exchanges GLB Common Stock for a different number or kind of
shares or securities or is involved in any transaction resulting in any of the
foregoing, the exchange ratios for GLB Common Stock shall be proportionately
adjusted.
2.7. TREASURY SHARES. Each of the shares of Maple Leaf Common Stock
held as Treasury Shares immediately prior to the Effective Time shall be
canceled and retired at the Effective Time and no consideration shall be issued
in exchange therefor.
2.8 WARRANTS. In the event that (i) 1991 Warrants or 1996 Warrants
(together, the "Warrants") are exercised prior to the Closing by a holder who
has not theretofore executed an agreement not to exercise such Warrants, which
agreement is described in Section 5.2.3 of this Agreement, and (ii) Maple Leaf
receives from the holder(s) of the Warrants cash in payment of the exercise
price which Maple Leaf has not returned to such holder(s), the exercise price
for the Warrants so exercised will be returned by GLB to such Warrant
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holders promptly after Closing, and in any event within thirty days after
Closing, and such Warrant holder shall nevertheless be treated as a "Warrant
holder" under this Article 2 as if such Warrants were never exercised (i.e.,
such that the number of outstanding shares of Maple Leaf Common Stock and
Warrants and the Merger Consideration shall not be affected by such exercise).
The exercise price will be returned by GLB without payment of any interest
thereon. Maple Leaf will maintain records in reasonable detail with regard to
exercises of Warrants prior to the Closing.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF GLB
GLB hereby represents and warrants to Maple Leaf that:
3.1. CORPORATE ORGANIZATION. GLB is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio and is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which its ownership or lease of property or the nature
of the business conducted by it makes such qualification necessary, except for
such jurisdictions in which the failure to be so qualified would not have a
Material Adverse Effect (as hereinafter defined) on GLB. GLB is registered as a
bank holding company under the Bank Holding Company Act of 1956, as amended (the
"BHCA"). GLB has the requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as it is now
being conducted.
3.2. AUTHORITY. GLB has the requisite corporate power and authority to
execute and deliver this Agreement and, except for any required approval of the
applicable Governmental Entity (as defined hereinafter), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized and approved by the Board of Directors of GLB, including provisions
for the resolution of certain issues by management, and no other corporate
proceedings on the part of GLB are necessary to authorize this Agreement or to
consummate the transactions so contemplated. This Agreement has been duly
executed and delivered by, and constitutes a valid and binding obligation of,
GLB, enforceable against GLB in accordance with its terms, except as
enforceability hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceedings may be brought.
3.3. CAPITALIZATION. The authorized capital stock of GLB consists of
10,000,000 shares of GLB Common Stock and 2,000,000 shares of preferred stock.
As of September 30, 1998, (i) 2,133,906 shares of GLB Common Stock were issued
and outstanding (with no shares held in treasury), all of which are validly
issued, fully paid and nonassessable and not issued in violation of any
preemptive right of any shareholder of GLB, and (ii) no shares of preferred
stock were issued and outstanding. Since September 30, 1998 and through the date
of this Agreement, GLB has not issued any additional shares of GLB Common Stock
or preferred stock, other than any shares of GLB Common Stock issued pursuant to
the exercise of stock options under the GLB 1998 Stock Option and Incentive Plan
outstanding on September 30, 1998. Except as contemplated by this Agreement or
as may be set forth in the GLB Disclosure Letter (which letter is or may be
attached hereto as Exhibit 3.3, dated the date of this Agreement, from GLB to
Maple Leaf, such letter being identified by Maple Leaf executing a copy
thereof), as of the date of this Agreement there are no shares of capital stock
of GLB authorized, issued or outstanding and there are no outstanding
subscriptions, options, warrants, scrip, rights, calls, convertible securities
or any other similar agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock or other securities of GLB
obligating, or that may obligate, GLB to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock of GLB or
obligating, or that may obligate, GLB to grant, extend or enter into any
subscription, option, warrant, scrip, right, call, convertible security or other
similar agreement, arrangement or commitment. Except as may be set forth in the
GLB Disclosure Letter, there are no voting trusts or other similar agreements,
arrangements or
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commitments to which GLB or Great Lakes Bank is a party with respect to the
voting of the capital stock of GLB. All of the shares of GLB Common Stock
issuable in exchange for the Maple Leaf Common Stock and Warrants at the
Effective Time in accordance with this Agreement will be, when so issued, duly
authorized, validly issued, fully paid and nonassessable and will not be subject
to preemptive rights. GLB has reserved for issuance the number of shares of GLB
Common Stock necessary to satisfy GLB's obligations under Section 2.1.
3.4. SUBSIDIARIES.
(a) The sole subsidiary of GLB is Great Lakes Bank, a commercial bank
duly organized, validly existing and in good standing under the laws of the
State of Ohio. Great Lakes Bank is duly qualified to do business as a foreign
corporation in each jurisdiction in which its ownership or lease of property or
the nature of the business conducted by it makes such qualification necessary,
except for such jurisdictions in which the failure to be so qualified would not
have a Material Adverse Effect on GLB. Great Lakes Bank has the requisite
corporate power and authority to own, lease and operate its properties and
assets and to carry on its business as it is now being conducted.
(b) All of the issued and outstanding shares of capital stock of Great
Lakes Bank are owned by GLB and are validly issued and fully paid, have not been
issued in violation of any preemptive right and are owned free and clear of all
liens, claims, charges, options, encumbrances or agreements with respect
thereto. As of the date of this Agreement, neither GLB nor Great Lakes Bank owns
beneficially more than 5% of any class of equity securities or any similar
interests of any corporation, bank, business, trust, association or similar
organization. There are, as of the date of this Agreement, no outstanding
subscriptions, options, warrants, scrip, rights, calls, convertible securities
or any other similar agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock or other securities of Great
Lakes Bank obligating, or which may obligate, Great Lakes Bank to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of its
capital stock or obligating, or which may obligate, Great Lakes Bank to grant,
extend or enter into any subscription, option, warrant, scrip, right, call,
convertible security or other similar agreement, arrangement or commitment.
(c) Great Lakes Bank is an insured depository institution under Section
5 of the Federal Deposit Insurance Act, 12 U.S.C. ss.1815.
3.5. INFORMATION IN DISCLOSURE DOCUMENTS, REGISTRATION STATEMENT,
ETC.
(a) None of the information with respect to GLB or Great Lakes Bank
provided by GLB for inclusion in (i) the Registration Statement to be filed by
GLB with the Securities and Exchange Commission (the "Commission") on Form S-4
under the Securities Act of 1933 (the "Securities Act") for the purpose of
registering the offer and sale of shares of GLB Common Stock to be issued in the
Merger (the "Registration Statement") and (ii) any Proxy Statement (as
hereinafter defined) of Maple Leaf required to be mailed to Maple Leaf's
shareholders in connection with the Merger will, in the case of the Proxy
Statement or any amendments or supplements thereto, at the time of the mailing
of the Proxy Statement and any amendments or supplements thereto, and at the
time of the Maple Leaf Meeting (as hereinafter defined), or, in the case of the
Registration Statement, at the time it becomes effective, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Registration
Statement will comply as to form in all material respects with the provisions of
the Securities Act and the rules and regulations promulgated thereunder. The
Proxy Statement will comply as to form in all material respects with the
provisions of the Securities Exchange Act of 1934 (the "Exchange Act") and the
rules and regulations promulgated thereunder.
(b) All documents that GLB is responsible for filing with any
Governmental Entity (as hereinafter defined) will comply as to form in all
material respects with applicable law. None of the information with respect to
GLB or Great Lakes Bank provided by GLB for inclusion in any document to be
filed with any
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regulatory authority in connection with the transactions contemplated hereby
will contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading, as of the
time such statement is made.
3.6. CONSENTS AND APPROVALS; NO VIOLATION. Except as may be set forth
in the GLB Disclosure Letter, neither the execution and delivery of this
Agreement by GLB, nor consummation by GLB of the transactions contemplated
hereby or compliance by GLB with any of the provisions hereof will (a) conflict
with or result in any breach of any provision of its Amended and Restated
Articles of Incorporation or Code of Regulations, (b) violate, conflict with,
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration of, or result in the creation of any lien, security interest,
charge or other encumbrance upon any of the properties or assets of GLB or Great
Lakes Bank under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which GLB or Great Lakes Bank is a party or to which
they or any of their respective properties or assets may be subject, except for
such violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens or other encumbrances, which, individually or in the
aggregate, will not have a Material Adverse Effect on GLB, (c) violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to GLB or Great Lakes Bank or any of their respective properties or
assets, except for such violations which, individually or in the aggregate, will
not have a Material Adverse Effect on GLB, or (d) require any consent, approval,
authorization or permit of or from, or filing with or notification to, any
court, governmental authority or other regulatory or administrative agency or
commission, domestic or foreign ("Governmental Entity"), except (i) pursuant to
the Exchange Act and the Securities Act, (ii) filing the Certificate of Merger
pursuant to the OGCL, (iii) filings required under the securities or blue sky
laws of the various states, (iv) filings with, and approval by, the Board of
Governors of the Federal Reserve System (the "FRB"), (v) filings with, and
approval by, the Federal Deposit Insurance Corporation (the "FDIC"), (vi)
filings with, and approval by, the Office of Thrift Supervision ("OTS"), (vii)
filings with, and approval by, the Ohio Division of Financial Institutions
("Division"), (viii) filings and approvals pursuant to any applicable state
takeover laws ("State Takeover Approvals"), (ix) consents, approvals,
authorizations, permits, filings or notifications in connection with compliance
with applicable provisions of federal and state securities laws relating to the
regulation of broker-dealers, investment advisors, or stock transfer agents, (x)
filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act") or (xi) consents, approvals, authorizations, permits,
filings or notifications which have either been obtained or made prior to the
Closing or which, if not obtained or made, will neither, individually or in the
aggregate, have a Material Adverse Effect on GLB nor restrict GLB's legal
authority to execute and deliver this Agreement and consummate the transactions
contemplated hereby.
3.7. REPORTS AND FINANCIAL STATEMENTS. Since May 14, 1998, the date on
which equity securities of GLB were first registered under Section 12(g) of the
Exchange Act, GLB has timely filed all reports, registrations and statements,
together with any required amendments thereto, that it was required to file with
the Commission, including, but not limited to Forms 10-KSB, Forms 10-QSB, Forms
8-K and proxy statements (collectively, the "GLB Reports"). As of their
respective dates (but taking into account any amendments filed prior to the date
of this Agreement), the GLB Reports complied or, insofar as GLB Reports filed
after the date of this Agreement are concerned, will comply in all material
respects with all the rules and regulations promulgated by the Commission and
did not contain or, insofar as GLB Reports filed after the date of this
Agreement are concerned, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The audited consolidated financial statements of GLB
included in the Registration Statement on Form SB-2 (Registration No. 333-48387)
for the initial public offering of GLB Common Stock, which was declared
effective by the Commission on May 14, 1998 (the "IPO Registration Statement"),
and the unaudited interim financial statements of GLB included in the GLB
Reports (the "GLB Financial Statements") were prepared in accordance with
generally accepted accounting principles
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applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly present the consolidated financial position of GLB and
Great Lakes Bank at the dates thereof and the consolidated results of operations
and cash flows for the periods then ended, subject (in the case of the unaudited
interim financial statements) to normal year-end audit adjustments, any other
adjustments described therein and the absence of footnotes.
Except as disclosed in the GLB Disclosure Letter, neither GLB nor Great
Lakes Bank has any debt, obligation, guarantee or liability as of the date of
the GLB Financial Statements for the quarter ended September 30, 1998 (the "GLB
Balance Sheet Date"), whether absolute, accrued, contingent or otherwise in
excess of $50,000 in the aggregate, which is not adequately reflected and
reserved in the GLB Financial Statements for the quarter ended September 30,
1998. Except as disclosed in the GLB Disclosure Letter, all debts, liabilities,
guarantees and obligations of GLB and Great Lakes Bank incurred since the GLB
Balance Sheet Date have been incurred in the ordinary course of business and are
usual and normal in amount both individually and in the aggregate.
3.8. MATERIAL CONTRACTS AND INSURANCE. Except as may be set forth in
the GLB Disclosure Letter or disclosed in the GLB Reports, neither GLB nor Great
Lakes Bank is, as of the date of this Agreement, a party to, or is bound by, (a)
any material lease not made in the ordinary course of business of GLB or Great
Lakes Bank, (b) any agreement, arrangement, or commitment not made in the
ordinary course of business which materially restricts the conduct of any line
of business of GLB or Great Lakes Bank, (c) any material agreement, indenture or
other instrument not specifically disclosed in the GLB Financial Statements
relating to the borrowing of money by GLB or Great Lakes Bank or the guarantee
by GLB or Great Lakes Bank of any such obligation (other than trade payables and
instruments relating to transactions entered into in the ordinary course of
business), (d) any agreement, arrangement or commitment with or to a labor
union, or (e) any other contract or agreement or amendment thereto that would be
required to be filed as an exhibit to a Form 10-KSB filed by GLB with the
Commission as of the date of this Agreement (the "GLB Contracts"). Neither GLB
nor Great Lakes Bank is in default under any GLB Contracts, which default is
reasonably likely to have, either individually or in the aggregate with all
other such defaults, a Material Adverse Effect on GLB, and there has not
occurred any event that with the lapse of time or the giving of notice or both
would constitute such a default.
GLB has previously provided to Maple Leaf copies of all insurance
policies maintained by GLB or Great Lakes Bank on their business or material
properties and assets, as well as a copy of any director and officer liability
insurance policy(ies) maintained by GLB or Great Lakes Bank. The GLB Disclosure
Letter contains a summary of the coverage under such insurance policies.
3.9. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as may be set forth
in the GLB Disclosure Letter or disclosed in GLB Reports filed by GLB with the
Commission prior to the date of this Agreement, since May 14, 1998 to the date
of this Agreement, there has not been any change in the financial condition,
results of operations or business of GLB or Great Lakes Bank that either
individually or in the aggregate has had a Material Adverse Effect on GLB.
3.10. LITIGATION. Except as may be disclosed in the GLB Disclosure
Letter or in GLB Reports filed by GLB with the Commission prior to the date of
this Agreement, there is no litigation, action, arbitration or proceeding
pending, or, to the best knowledge of GLB, threatened against or affecting GLB
or Great Lakes Bank which, either individually or in the aggregate, is having,
or insofar as reasonably can be foreseen, will have, a Material Adverse Effect
on GLB, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator, outstanding against GLB or Great Lakes Bank
having, or which, insofar as reasonably can be foreseen, in the future would
have, any such effect.
3.11. COMPLIANCE WITH LAWS AND ORDERS. Except as may be disclosed in
the GLB Disclosure Letter or in GLB Reports filed by GLB with the Commission
prior to the date of this Agreement, the businesses
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of GLB and Great Lakes Bank are not being conducted, and have not been conducted
since May 14, 1998, in violation of any law, ordinance, regulation, judgment,
order, decree, license or permit of any Governmental Entity, except for possible
violations which individually or in the aggregate do not, and, insofar as
reasonably can be foreseen, in the future will not, have a Material Adverse
Effect on GLB. Except as may be set forth in the GLB Disclosure Letter, no
investigation or review by any Governmental Entity with respect to GLB or Great
Lakes Bank outside the ordinary course of business and not generally applicable
to entities engaged in the same business is pending or, to the knowledge of GLB,
threatened, and no Governmental Entity has indicated an intention to conduct the
same in each case other than those the outcome of which will not have a Material
Adverse Effect on GLB.
Except as may be disclosed in the GLB Disclosure Letter, each of GLB
and Great Lakes Bank has taken or caused to be taken all actions required to be
taken in order to ensure that all mission-critical internal and external systems
of Great Lakes Bank are substantially Year 2000 compliant. Great Lakes Bank has
not received a rating of less than satisfactory as a result of any regulatory
examination or assessment of Great Lakes Bank's Year 2000 compliance, and any
deficiencies noted in any report of regulatory examination or assessment of
Great Lakes Bank have been or are being addressed in the manner and within the
time frames required by such report.
3.12. AGREEMENTS WITH BANK REGULATORS. As of the date of this
Agreement, except as may be set forth in the GLB Disclosure Letter, the GLB
Reports filed by GLB with the Commission prior to the date of this Agreement or
the IPO Registration Statement, neither GLB nor Great Lakes Bank is a party to
any written agreement or memorandum of understanding with, or a party to any
commitment letter or similar undertaking to, or is subject to any order or
directive by, or is a recipient of any extraordinary supervisory letter from,
any Governmental Entity outside the ordinary course of business and not
generally applicable to entities engaged in the same business, including,
without limitation, cease-and-desist or other orders of any bank regulatory
authority, which restricts materially the conduct of its business, or in any
manner relates to its capital adequacy, its credit policies or its management,
nor has GLB been advised by any Governmental Entity that it is contemplating
issuing, requiring or requesting (or is considering the appropriateness of
issuing, requiring or requesting) any such order, directive, agreement,
memorandum of understanding, extraordinary supervisory letter, commitment letter
or similar undertaking. Except as may be set forth in the GLB Disclosure Letter,
there are no (i) material violations or (ii) violations with respect to which
refunds or restitutions which are material in amount to GLB and Great Lakes Bank
taken as a whole may be required, cited in any compliance report to GLB or Great
Lakes Bank as a result of an examination by any bank regulatory authority.
3.13. GLB OWNERSHIP OF STOCK. Except as may be disclosed in the GLB
Disclosure Letter, neither GLB nor, to the best of its knowledge, any of its
affiliates or associates (i) beneficially owns, directly or indirectly, or (ii)
are parties to any agreement, arrangement or commitment for the purpose of
acquiring, holding, voting or disposing of, in each case, shares of Maple Leaf
Common Stock (other than any shares of Maple Leaf Common Stock held in a
fiduciary, trust, custodial or agency capacity by Great Lakes Bank) which in the
aggregate, represent 1% or more of the outstanding shares of Maple Leaf Common
Stock.
3.14. FEES. Neither GLB nor Great Lakes Bank has paid or become
obligated to pay any fee or commission to any broker, finder or intermediary in
connection with the transactions contemplated by this Agreement.
3.15. GLB ACTION. The Board of Directors of GLB (at a meeting duly
called and held) has by the requisite vote (i) determined that the Merger is
advisable and in the best interests of GLB and its shareholders and (ii)
authorized and approved the Merger in accordance with Chapter 1704 of the Ohio
Revised Code with the result that Chapter 1704 will not apply to the
consummation of the Merger and acquisition of shares of GLB Common Stock by the
holders of Maple Leaf Common Stock and Warrants pursuant to this Agreement.
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3.16. TAXES. Except as may be set forth in the GLB Disclosure Letter,
GLB and Great Lakes Bank have prepared in good faith and duly and timely filed
or caused to be duly and timely filed all federal, state, local and foreign
income, franchise, sales, real and personal property and other tax returns and
reports required to be filed by them on or before the date of this Agreement,
except where the failure to file would not have a Material Adverse Effect on
GLB. Except as may be set forth in the GLB Disclosure Letter, GLB and Great
Lakes Bank have paid or have adequately reserved or have made adequate accruals
(in accordance with generally accepted accounting principles) with respect to
all taxes, interest and penalties shown to be owing on all such returns and
reports. The GLB Disclosure Letter sets forth, as of the date of this Agreement,
the following information with respect to GLB and Great Lakes Bank: (i) the most
recent tax year through which the Internal Revenue Service ("IRS") has completed
its examination of such corporation, (ii) whether there is an examination
pending by the IRS with respect to such corporation and, if so, the tax years
involved, (iii) whether such corporation has executed or filed with the IRS any
agreement which is still in effect extending the period for assessment and
collection of any federal tax and, if so, the tax years covered by such
agreement and the expiration date of such extension, and (iv) whether there are
any existing material disputes as to state, local or foreign taxes. Except as
may be set forth in the GLB Disclosure Letter, there are no liens for federal,
state, local or foreign taxes upon the assets of GLB or Great Lakes Bank, except
for statutory liens for taxes and assessments not yet delinquent or the validity
of which is being contested in good faith by appropriate proceedings. Except as
may be set forth in the GLB Disclosure Letter, neither GLB nor Great Lakes Bank
is a party to any action or proceeding, nor is any such action or proceeding
threatened, by any Governmental Entity for the assessment or collection of taxes
which are material in amount, and no deficiency notices or reports have been
received by GLB or Great Lakes Bank in respect of any material deficiencies for
any tax, assessment, or government charges.
After the date of this Agreement, GLB will promptly notify Maple Leaf
of (i) the commencement or threat of any such action or proceeding involving an
amount of taxes material to GLB and Great Lakes Bank taken as a whole, and (ii)
the receipt by GLB or Great Lakes Bank of any such deficiency notices or reports
in respect of any material deficiencies.
3.17. EMPLOYEE PLANS; EMPLOYEES. All employee bonus, deferred
compensation, pension, retirement, profit sharing, stock option, stock purchase,
employee stock ownership, stock appreciation rights, savings, consulting,
severance, collective bargaining, group insurance, fringe benefit and other
employee benefit, incentive and welfare plans, policies, contracts and
arrangements and all trust agreements related thereto, now in effect and
relating to any present or former directors, officers or employees of GLB or
Great Lakes Bank, regardless of whether described in Section 3(3) of the
Employee Retirement Income Security Act ("ERISA") ("GLB Employee Plans"), are
identified in the GLB Disclosure Letter. GLB has previously delivered or made
available to Maple Leaf copies of all GLB Employee Plans, in each case as in
effect on the date of this Agreement.
All GLB Employee Plans have been maintained, operated and administered
in substantial compliance with their terms, and GLB, Great Lakes Bank and all of
the GLB Employee Plans currently comply and have at all relevant times complied
in all material respects with ERISA, the Internal Revenue Code of 1986 (the
"Code"), and any other applicable laws. With respect to each GLB Employee Plan
that is a pension plan (as defined in Section 3(2) of ERISA): (a) except as may
be set forth in the GLB Disclosure Letter, each pension plan as amended (and any
trust relating thereto) intended to be a qualified plan under Section 401(a) of
the Code either has been determined by the IRS to be so qualified or is the
subject of a pending application for such determination that was timely filed,
(b) except as may be set forth in the GLB Disclosure Letter, would be fully
funded (calculated using the interest rate and other actuarial assumptions
mandated by the Pension Benefit Guaranty Corporation ("PBGC")) if terminated at
the Effective Time and there is no accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, and no
waiver of the minimum funding standards of such sections has been requested from
the IRS, (c) no reportable event described in Section 4043 of ERISA has
occurred, (d) except as may be set forth in the GLB Disclosure Letter, no
defined benefit plan has been terminated, nor has the PBGC instituted
proceedings to terminate a
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defined benefit plan or to appoint a trustee or administrator of a defined
benefit plan, and no circumstances exist that constitute grounds under Section
4042 of ERISA entitling the PBGC to institute any such proceedings, and (e) no
pension plan is a "multi-employer plan" within the meaning of Section 3(37) of
ERISA.
Except as may be set forth in the GLB Disclosure Letter, no GLB
Employee Plan provides benefits, including, without limitation, death or medical
benefits (whether or not insured), with respect to current or former employees
beyond their retirement or other termination of service (other than (i)
temporary coverage mandated by applicable law, (ii) death benefits or retirement
benefits under any "employee pension plan," as that term is defined in Section
3(2) of ERISA, (iii) deferred compensation benefits accrued as liabilities on
the books of GLB or Great Lakes Bank, or (iv) benefits the full cost of which
are borne by the current or former employee (or his or her beneficiary)).
Except as may be set forth in the GLB Disclosure Letter, all employees
of GLB or Great Lakes Bank are "at will" and there are no employment,
consulting, severance or like agreements, written or oral, expressed or implied.
GLB has previously delivered to Maple Leaf copies of all written employment,
consulting, severance or similar contracts between GLB or Great Lakes Bank, on
one hand, and any officer, employee or consultant of GLB or Great Lakes Bank, on
the other. The GLB Disclosure Letter contains a summary of the terms of any and
all such contracts that are not in writing.
3.18. ENVIRONMENTAL MATTERS. The term "loan portfolio properties and
other properties owned" means those properties owned, operated or managed
(including those held in trust) by GLB, as the case may be, or by Great Lakes
Bank. For purposes of this Agreement, the following terms shall have the
indicated meanings:
"Environmental Law" means any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree, injunction
or agreement with any Governmental Entity relating to (i) the
protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, ground water,
drinking water supply, surface soil, subsurface soil, plant and animal
life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances. The
term Environmental Law includes, without limitation; the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42
U.S.C. Section 9601, et seq.; the Resource Conservation and Recovery
Act, as amended, 42 U.S.C. Section 6901, et seq.; the Clean Air Act, as
amended, 42 U.S.C. Section 7401, et seq.; the Federal Water Pollution
Control Act, as amended, 33 U.S.C. Section 1251 et seq.; the Toxic
Substances Control Act, as amended, 125 U.S.C. Section 9601, et seq.;
the Emergency Planning and Community Right to Know Act, 42 U.S.C.
Section 11001, et seq.; the Safe Drinking Water Act, 42 U.S.C. Section
300f, et seq.; all comparable state and local laws; and any common law
(including without limitation common law that may impose strict
liability) that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Substance.
"Hazardous Substance" means any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or
dangerous, or otherwise regulated, under any Environmental Law, whether
by type or by quantity, including any material containing any such
substance as a component. Hazardous Substances include, without
limitation, petroleum or any derivative or by-product thereof,
asbestos, radioactive material, and polychlorinated biphenyls.
Except as may be set forth in GLB Disclosure Letter, to the best of GLB's
knowledge: (i) neither GLB nor Great Lakes Bank has been or is in violation of
or liable under any Environmental Law, except for any such
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violations or liabilities which would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect on GLB; and (ii) none of
the loan portfolio properties and other properties owned by GLB or Great Lakes
Bank has, since such properties have been owned, operated or managed by GLB or
Great Lakes Bank, been in violation of any Environmental Law, except for any
such violations which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on GLB. Except as may be set forth in
GLB Disclosure Letter, there are no actions, suits, demands, notices, claims,
investigations or proceedings pending, or to the best of GLB's knowledge
threatened, relating to the liability of the loan portfolio properties and other
properties owned by GLB or Great Lakes Bank under any Environmental Law,
including, without limitation, any notices, demand letters or requests for
information from any federal, state or local environmental agency relating to
any such liabilities under or violations of Environmental Law.
3.19. REPRESENTATION CONCERNING TRANSACTION. GLB acknowledges that (i)
it operates Great Lakes Bank, (ii) it has significant experience in the banking
industry and (iii) it is entering into this Agreement and the transactions
contemplated hereby after having performed due diligence concerning Maple Leaf
and Geauga Savings Bank. GLB acknowledges that Maple Leaf's representations and
warranties shall not survive the Closing. GLB acknowledges that the
representation contained in this Section 3.19 shall survive the Closing.
Anything in this Agreement to the contrary notwithstanding, nothing herein shall
be deemed to impair any rights of GLB or Maple Leaf in connection with any claim
GLB or Maple Leaf may have against the other for fraud arising out of this
Agreement or the transactions contemplated hereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF MAPLE LEAF
Maple Leaf hereby represents and warrants to GLB that:
4.1. CORPORATE ORGANIZATION. Maple Leaf is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio and is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which its ownership or lease of property
or the nature of the business conducted by it makes such qualification
necessary, except for such jurisdictions in which the failure to be so qualified
would not have a Material Adverse Effect on Maple Leaf. Maple Leaf is registered
as a savings association holding company under the Home Owners' Loan Act
("HOLA"). Maple Leaf has the requisite corporate power and authority to own,
lease and operate its properties and assets and to carry on its business as it
is now being conducted. Maple Leaf has delivered to GLB as attachments to the
Maple Leaf Disclosure Letter true and complete copies of its Articles of
Incorporation, as amended and restated, and its Code of Regulations, as amended
(the "Corporate Governance Documents"), each as currently in effect.
4.2. AUTHORITY. Maple Leaf has the requisite corporate power and
authority to execute and deliver this Agreement and, except for any required
approval of Maple Leaf's shareholders and the approval of the applicable
Governmental Entities, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized and approved by the
Board of Directors of Maple Leaf. No other corporate proceedings on the part of
Maple Leaf are necessary to authorize this Agreement or to consummate the
transactions so contemplated, except for approval by the shareholders of Maple
Leaf as provided in Section 6.1(a). This Agreement has been duly executed and
delivered by, and constitutes a valid and binding obligation of, Maple Leaf,
enforceable against Maple Leaf in accordance with its terms, except as
enforceability hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceedings may be brought, and except as
enforceability hereof may be limited by laws relating to the safety and
soundness of insured depository institutions as set forth in 12 U.S.C. Section
18(b) or to the appointment of a conservator or receiver by the FDIC.
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4.3. CAPITALIZATION. The authorized capital stock of Maple Leaf
consists solely of (i) 18,000 shares of Maple Leaf Class A common stock, without
par value, (ii) 18,000 shares of Maple Leaf Class B common stock, without par
value, and (iii) 10,000 shares of Preferred Stock, without par value. As of the
date of this Agreement, (i) 7,210 shares of Maple Leaf Class A common stock were
issued and outstanding (with no shares held in treasury), (ii) 7,210 shares of
Maple Leaf Class B common stock were issued and outstanding (with no shares held
in treasury), and (iii) no shares of Preferred Stock were issued or outstanding.
The issued and outstanding shares of Maple Leaf Class A common stock and Class B
common stock are validly issued, fully paid and nonassessable and were not
issued in violation of any preemptive right of any Maple Leaf shareholder.
Except as contemplated by this Agreement or in the Maple Leaf
Disclosure Letter (which letter is attached hereto as Exhibit 4.3(a), dated the
date of this Agreement, from Maple Leaf to GLB, such letter being identified by
GLB executing a copy thereof), there are no shares of capital stock of Maple
Leaf authorized, issued or outstanding and there are no outstanding
subscriptions, options, warrants, scrip, rights, calls, convertible securities
or any other similar agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock or other securities of Maple
Leaf obligating, or which may obligate, Maple Leaf to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of
Maple Leaf or obligating, or which may obligate, Maple Leaf to grant, extend or
enter into any subscription, option, warrant, scrip, right, call, convertible
security or other similar agreement, arrangement or commitment. Except as may be
set forth in the Maple Leaf Disclosure Letter, there are no voting trusts or
other similar agreements, arrangements, or commitments to which Maple Leaf or
Geauga Savings Bank is a party with respect to voting of the capital stock of
Maple Leaf.
As of the date of this Agreement, there were issued and outstanding
Warrants to acquire an aggregate of 16,980 shares of Maple Leaf Class A common
stock and Class B common stock, all of which are currently exercisable,
consisting of (i) 5,986 warrants (the "1996 Warrants") to acquire an aggregate
of 11,972 shares of Class A common stock and Class B common stock that are
exercisable at $412.50 for each share of Class A common stock and Class B common
stock so exercised, and (ii) 2,504 warrants (the "1991 Warrants") to acquire an
aggregate of 5,008 shares of Class A and Class B common stock that are
exercisable at $312.50 for each share of Class A common stock and Class B common
stock so exercised. Maple Leaf has previously provided to GLB a copy of each
agreement whereby warrants have been issued (including but not limited to those
that remain outstanding as of the date hereof). All warrant agreements entered
into by Geauga Savings Bank prior to the holding company reorganization of
Geauga Savings Bank in 1997 were assumed by and became the obligation of Maple
Leaf, exercisable solely for shares of Maple Leaf common stock, without par
value, and without any adjustment of the number of shares acquirable upon
exercise or the exercise prices thereof. The shares of Maple Leaf common stock,
without par value, issued and outstanding upon completion of the holding company
reorganization were subsequently recapitalized into shares of Class A common
stock and Class B common stock on the basis of one share of Class A common stock
and one share of Class B common stock for each share of Maple Leaf common stock
held prior to such recapitalization. Maple Leaf has not entered into any warrant
agreements other than the 1991 Warrants and the 1996 Warrants as disclosed
herein. Attached hereto as Exhibit 4.3(b) is a schedule showing all warrant
agreements entered into by Maple Leaf or Geauga Savings Bank, identifying (i)
the party to whom such warrants were issued, (ii) the number of shares
acquirable upon exercise thereof, (iii) the exercise prices thereof, (iv) any
conversions or adjustments that have occurred in the number of shares acquirable
upon exercise thereof or the exercise price therefor as a result of any change
in capitalization or any reorganization or similar event for which a change or
adjustment has been made to the warrant agreements' terms (or, if true, an
affirmative statement that no such conversions, changes or adjustments have been
made or required to be made), showing the date(s) of such event(s) and a summary
of the change(s) or adjustment(s), and (v) the number of shares of Maple Leaf
Class A and Class B common stock (or, prior to the 1997 holding company
reorganization of Geauga Savings Bank, Geauga Savings Bank capital stock, par
value $350 per share) that have been issued in respect of the exercise of any
such warrants through the date hereof. Through the date hereof, neither Geauga
Savings Bank nor Maple Leaf has breached, violated or otherwise failed to
fulfill any of its obligations under the terms of any warrant agreements, nor to
the best of
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their knowledge has any holder of any such warrants asserted that either of
Geauga Savings Bank or Maple Leaf has breached, violated or otherwise failed to
fulfill any of its obligations under such warrant agreements.
4.4. SUBSIDIARIES.
(a) The sole subsidiary of Maple Leaf is Geauga Savings Bank. Geauga
Savings Bank is a savings bank duly organized, validly existing and in good
standing under the laws of the State of Ohio and is duly qualified to do
business as a foreign corporation in each jurisdiction in which its ownership or
lease of property or the nature of the business conducted by it makes such
qualification necessary, except for such jurisdictions in which the failure to
be so qualified would not have a Material Adverse Effect on Maple Leaf. Geauga
Savings Bank has the requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as it is now
being conducted. Maple Leaf has delivered to GLB as attachments to the Maple
Leaf Disclosure Letter true and complete copies of Geauga Savings Bank's
articles of incorporation, constitution and bylaws, each as amended and restated
and as currently in effect as of the date of this Agreement.
(b) The authorized capital stock of Geauga Savings Bank consists of
12,000 shares of common stock, par value $350 per share, of which 7,299 shares
are issued and outstanding. All of the issued and outstanding shares of capital
stock of Geauga Savings Bank are owned beneficially and of record by Maple Leaf,
free and clear of all liens, claims, charges, options, encumbrances or
agreements with respect thereto. All of such shares are validly issued and fully
paid, and have not been issued in violation of any preemptive right. Except as
may be set forth in the Maple Leaf Disclosure Letter, as of the date of this
Agreement neither Maple Leaf nor Geauga Savings Bank owns beneficially more than
5% of any class of equity securities or any similar interests of any
corporation, bank, business, trust, association or similar organization. As of
the date of this Agreement, there are no outstanding subscriptions, options,
warrants, scrip, rights, calls, convertible securities or any other similar
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock or other securities of Geauga Savings Bank obligating,
or which may obligate, Geauga Savings Bank to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of its capital stock or
obligating, or which may obligate, Geauga Savings Bank to grant, extend or enter
into any subscription, option, warrant, scrip, right, call, convertible security
or other similar agreement, arrangement or commitment.
(c) Geauga Savings Bank is an insured depository institution under
Section 5 of the Federal Deposit Insurance Act, 12 U.S.C. section 1815.
4.5. INFORMATION IN DISCLOSURE DOCUMENTS, REGISTRATION STATEMENT,
ETC.
(a) None of the information with respect to Maple Leaf or Geauga
Savings Bank provided by Maple Leaf for inclusion in the Proxy Statement or the
Registration Statement will, in the case of the Proxy Statement or any
amendments or supplements thereto, at the time of the mailing of the Proxy
Statement and any amendments or supplements thereto and at the time of the Maple
Leaf Meeting (as hereinafter defined), or, in the case of the Registration
Statement, at the time it becomes effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations promulgated thereunder.
(b) All documents that Maple Leaf is responsible for filing with any
Governmental Entity will comply as to form in all material respects with
applicable law. None of the information with respect to Maple Leaf or Geauga
Savings Bank provided by Maple Leaf for inclusion in any document to be filed
with any Governmental Entity in connection with the transactions contemplated
hereby will contain any untrue statement of a material
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fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in which they were
made, not misleading, as of the time such statement is made.
4.6. CONSENT AND APPROVALS; NO VIOLATION. Except as may be set forth in
the Maple Leaf Disclosure Letter, neither the execution and delivery of this
Agreement by Maple Leaf nor consummation by Maple Leaf of the transactions
contemplated hereby or compliance by Maple Leaf with any of the provisions
hereof will (a) conflict with or result in any breach of any provision of its
Corporate Governance Documents, (b) violate, conflict with, constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration of, or result
in the creation of any lien, security interest, charge or other encumbrance upon
any of the properties or assets of Maple Leaf or Geauga Savings Bank under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which Maple Leaf or Geauga Savings Bank is a party or to which they or any of
their respective properties or assets may be subject, except for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens or other encumbrances as are set forth in the Maple Leaf
Disclosure Letter or which, individually or in the aggregate, will not have a
Material Adverse Effect on Maple Leaf, (c) violate any judgment, ruling, order,
writ, injunction, decree, statute, rule or regulation applicable to Maple Leaf
or Geauga Savings Bank or any of their respective properties or assets, except
for such violations which, individually or in the aggregate, will not have a
Material Adverse Effect on Maple Leaf, or (d) require any consent, approval,
authorization or permit of or from, or filing with or notification to, any
Governmental Entity, except (i) pursuant to the Exchange Act and the Securities
Act, (ii) filing the certificate of merger pursuant to the OGCL, (iii) filings
required under the securities or blue sky laws of the various states, (iv)
filings with, and approval by, the FRB, (v) filings with, and approval by, the
FDIC, (vi) filings with, and approval by, the OTS, (vii) filings with, and
approval by the Division, (viii) filings and approvals pursuant to any
applicable State Takeover Approvals, (ix) filings and approvals under the HSR
Act, (x) consents, approvals, authorizations, permits, filings or notifications
in connection with compliance with applicable provisions of federal and state
securities laws relating to the regulation of broker-dealers, investment
advisors, or stock transfer agents, or (xi) consents, approvals, authorizations,
permits, filings or notifications which have either been obtained or made prior
to the Closing or which, if not obtained or made, will neither, individually or
in the aggregate, have a Material Adverse Effect on Maple Leaf nor restrict
Maple Leaf's legal authority to execute and deliver this Agreement and
consummate the transactions contemplated hereby.
Without in any way limiting the generality of the foregoing, the
conversion of Warrants into the Tier 2 Merger Consideration and Tier 3 Merger
Consideration on the basis provided herein will not violate or conflict with any
of the terms and conditions under which any of such Warrants were issued or any
principles of applicable state law, including statutes, rules, regulations and
common law.
4.7. REPORTS AND FINANCIAL STATEMENTS. Neither Maple Leaf nor Geauga
Savings Bank has or is required to have any equity or other securities
registered under the Exchange Act and neither Maple Leaf nor Geauga Savings Bank
has been or is required to file any reports under the Exchange Act with the
Commission or the FDIC or under state securities or Blue Sky law with any state
securities regulatory authority. The audited consolidated financial statements
and unaudited interim financial statements of Maple Leaf included in the
Registration Statement (the "Maple Leaf Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the consolidated financial position of Maple Leaf and Geauga
Savings Bank as at the dates thereof and the consolidated results of operations
and cash flows for the periods then ended, subject (in the case of the unaudited
interim financial statements) to normal year-end audit adjustments, any other
adjustments described therein and the absence of footnotes.
Except as disclosed in the Maple Leaf Disclosure Letter, neither Maple
Leaf nor Geauga Savings Bank has any debt, obligation, guarantee or liability as
of the date of the Maple Leaf Financial Statements for the month ended October
31, 1998 (the "Maple Leaf Balance Sheet Date"), whether absolute, accrued,
contingent
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or otherwise in excess of $50,000 in the aggregate, which is not adequately
reflected and reserved in the Maple Leaf Financial Statements. Except as
disclosed in the Maple Leaf Disclosure Letter, all debts, liabilities,
guarantees and obligations of Maple Leaf and Geauga Savings Bank incurred since
the Maple Leaf Balance Sheet Date have been incurred in the ordinary course of
business and are usual and normal in amount both individually and in the
aggregate.
4.8. TAXES. Except as may be set forth in the Maple Leaf Disclosure
Letter, Maple Leaf and Geauga Savings Bank have prepared in good faith and duly
and timely filed or caused to be duly and timely filed all federal, state, local
and foreign income, franchise, sales, real and personal property and other tax
returns and reports required to be filed by them on or before the date of this
Agreement, except where the failure to file would not have a Material Adverse
Effect on Maple Leaf. Except as may be set forth in the Maple Leaf Disclosure
Letter, Maple Leaf and Geauga Savings Bank have paid or have adequately reserved
or have made adequate accruals (in accordance with generally accepted accounting
principles) with respect to all taxes, interest and penalties shown to be owing
on all such returns and reports. The Maple Leaf Disclosure Letter sets forth, as
of the date of this Agreement, the following information with respect to Maple
Leaf and Geauga Savings Bank: (i) the most recent tax year through which the IRS
has completed its examination of such corporation, (ii) whether there is an
examination pending by the IRS with respect to such corporation and, if so, the
tax years involved, (iii) whether such corporation has executed or filed with
the IRS any agreement which is still in effect extending the period for
assessment and collection of any federal tax and, if so, the tax years covered
by such agreement and the expiration date of such extension, and (iv) whether
there are any existing material disputes as to state, local or foreign taxes.
Except as may be set forth in the Maple Leaf Disclosure Letter, there are no
liens for federal, state, local or foreign taxes upon the assets of Maple Leaf
or Geauga Savings Bank, except for statutory liens for taxes and assessments not
yet delinquent or the validity of which is being contested in good faith by
appropriate proceedings. Except as may be set forth in the Maple Leaf Disclosure
Letter, neither Maple Leaf nor Geauga Savings Bank is a party to any action or
proceeding, nor is any such action or proceeding threatened, by any Governmental
Entity for the assessment or collection of taxes which are material in amount,
and no deficiency notices or reports have been received by Maple Leaf or Geauga
Savings Bank in respect of any material deficiencies for any tax, assessment, or
government charges.
After the date of this Agreement, Maple Leaf will promptly notify GLB
of (i) the commencement or threat of any such action or proceeding involving an
amount of taxes material to Maple Leaf and Geauga Savings Bank taken as a whole,
and (ii) the receipt by Maple Leaf or Geauga Savings Bank of any such deficiency
notices or reports in respect of any material deficiencies.
4.9. EMPLOYEE PLANS; EMPLOYEES. All employee bonus, deferred
compensation, pension, retirement, profit sharing, stock option, stock purchase,
employee stock ownership, stock appreciation rights, savings, consulting,
severance, collective bargaining, group insurance, fringe benefit and other
employee benefit, incentive and welfare plans, policies, contracts and
arrangements and all trust agreements related thereto, now in effect and
relating to any present or former directors, officers or employees of Maple Leaf
or Geauga Savings Bank, regardless of whether described in Section 3(3) of ERISA
("Maple Leaf Employee Plans"), are identified in the Maple Leaf Disclosure
Letter. Maple Leaf has previously delivered or made available to GLB copies of
all Maple Leaf Employee Plans, in each case as in effect on the date of this
Agreement.
All Maple Leaf Employee Plans have been maintained, operated and
administered in substantial compliance with their terms, and Maple Leaf, Geauga
Savings Bank and all of the Maple Leaf Employee Plans currently comply and have
at all relevant times complied in all material respects with ERISA, the Code,
and any other applicable laws. With respect to each Maple Leaf Employee Plan
that is a pension plan (as defined in Section 3(2) of ERISA): (a) except as may
be set forth in the Maple Leaf Disclosure Letter, each pension plan as amended
(and any trust relating thereto) intended to be a qualified plan under Section
401(a) of the Code either has been determined by the IRS to be so qualified or
is the subject of a pending application for such determination that was timely
filed, (b) except as may be set forth in the Maple Leaf Disclosure Letter, would
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be fully funded (calculated using the interest rate and other actuarial
assumptions mandated by the PBGC) if terminated at the Effective Time and there
is no accumulated funding deficiency (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, and no waiver of the minimum
funding standards of such sections has been requested from the IRS, (c) no
reportable event described in Section 4043 of ERISA has occurred, (d) no defined
benefit plan has been terminated, nor has the PBGC instituted proceedings to
terminate a defined benefit plan or to appoint a trustee or administrator of a
defined benefit plan, and no circumstances exist that constitute grounds under
Section 4042 of ERISA entitling the PBGC to institute any such proceedings, and
(e) no pension plan is a "multi-employer plan" within the meaning of Section
3(37) of ERISA. With respect to any qualified benefit plan which purports to be
an employee stock ownership plan (as defined in Section 4975(e)(7) of the Code)
(an "ESOP Qualified Benefit Plan"), such ESOP Qualified Benefit Plan satisfies
the requirements of Section 4975(e)(7) of the Code and is in material compliance
with the applicable qualification requirements of Section 409 of the Code. Any
capital stock of Maple Leaf acquired by an ESOP Qualified Benefit Plan meets the
definition of "employer securities" set forth in Sections 409(l) and 4975 of the
Code.
Except as may be set forth in the Maple Leaf Disclosure Letter, no
Maple Leaf Employee Plan provides benefits, including, without limitation, death
or medical benefits (whether or not insured), with respect to current or former
employees beyond their retirement or other termination of service (other than
(i) temporary coverage mandated by applicable law, (ii) death benefits or
retirement benefits under any "employee pension plan," as that term is defined
in Section 3(2) of ERISA, (iii) deferred compensation benefits accrued as
liabilities on the books of Maple Leaf or Geauga Savings Bank, or (iv) benefits
the full cost of which are borne by the current or former employee (or his or
her beneficiary)).
Except as may be set forth in the Maple Leaf Disclosure Letter, all
employees of Maple Leaf or Geauga Savings Bank are "at will" and there are no
employment, consulting, severance or like agreements, written or oral, expressed
or implied. Maple Leaf has previously delivered to GLB copies of all written
employment, consulting, severance or similar contracts between Maple Leaf or
Geauga Savings Bank, on one hand, and any officer, employee or consultant of
Maple Leaf or Geauga Savings Bank, on the other. The Maple Leaf Disclosure
Letter contains a summary of the terms of any and all such contracts that are
not in writing.
4.10. MATERIAL CONTRACTS AND INSURANCE. Except as may be set forth in
the Maple Leaf Disclosure Letter, neither Maple Leaf nor Geauga Savings Bank is,
as of the date of this Agreement, a party to, or is bound by, (a) any material
lease not made in the ordinary course of business of Maple Leaf or Geauga
Savings Bank, (b) any agreement, arrangement, or commitment not made in the
ordinary course of business which materially restricts the conduct of any line
of business of Maple Leaf or Geauga Savings Bank, (c) any benefit agreements
providing for aggregate payments to any person in any calendar year in excess of
$20,000, (d) any material agreement, indenture or other instrument not
specifically disclosed in the Maple Leaf Financial Statements relating to the
borrowing of money by Maple Leaf or Geauga Savings Bank or the guarantee by
Maple Leaf or Geauga Savings Bank of any such obligation (other than trade
payables and instruments relating to transactions entered into in the ordinary
course of business), (e) any agreement, arrangement or commitment with or to a
labor union or (f) any other contract or agreement or amendment thereto of a
kind that would be required to be filed as an exhibit to a Form 10-K with the
Commission by Maple Leaf if Maple Leaf had securities registered under the
Exchange Act (the agreements and other documents referred to in clauses (a)
through (e) of this sentence, collectively, the "Maple Leaf Contracts"). Without
in any way limiting the generality of the foregoing, the Maple Leaf Contracts
shall be deemed to include any agreement or agreements for data processing or
similar services. A true and correct copy of all such data processing and
similar agreements in effect on the date hereof has previously been provided to
GLB. Except as stated in the Maple Leaf Disclosure Letter, neither Maple Leaf
nor Geauga Savings Bank is in default under any Maple Leaf Contract, which
default is reasonably likely to have, either individually or in the aggregate
with all other such defaults, a Material Adverse Effect on Maple Leaf, and there
has not occurred any event that with the lapse of time or the giving of notice
or both would constitute such a default.
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Maple Leaf has previously provided to GLB copies of all insurance
policies maintained by Maple Leaf or Geauga Savings Bank on their business or
material properties and assets, as well as a copy of any director and officer
liability insurance policy(ies) maintained by Maple Leaf or Geauga Savings Bank.
4.11. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as may be set forth
in the Maple Leaf Disclosure Letter, since December 31, 1997 to the date of this
Agreement, there has not been any change in the financial condition, results of
operations or business of Maple Leaf or Geauga Savings Bank that either
individually or in the aggregate has had a Material Adverse Effect on Maple
Leaf. Since September 30, 1998, Geauga Savings Bank has maintained an adequate
reserve for possible loan losses.
4.12. LITIGATION. Except as may be disclosed in the Maple Leaf
Disclosure Letter, there is no litigation, action, arbitration or proceeding
pending, or, to the best knowledge of Maple Leaf, threatened against or
affecting Maple Leaf or Geauga Savings Bank which, either individually or in the
aggregate, is having, or insofar as reasonably can be foreseen will have, a
Material Adverse Effect on Maple Leaf, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator, outstanding
against Maple Leaf or Geauga Savings Bank having, or which, insofar as
reasonably can be foreseen, in the future would have, any such effect.
4.13. COMPLIANCE WITH LAWS AND ORDERS. Except as may be disclosed in
the Maple Leaf Disclosure Letter, the businesses of Maple Leaf and Geauga
Savings Bank are not being and have not been conducted in violation of any law,
ordinance, regulation, judgment, order, decree, license or permit of any
Governmental Entity (including, without limitation, zoning ordinances, building
codes, and environmental, civil rights, and occupational health and safety laws
and regulations and, in the case of Geauga Savings Bank, all statutes, rules and
regulations pertaining to the conduct of such business), except for possible
violations which individually or in the aggregate do not, and, insofar as
reasonably can be foreseen, in the future will not, have a Material Adverse
Effect on Maple Leaf. Except as may be set forth in the Maple Leaf Disclosure
Letter, no investigation or review by any Governmental Entity with respect to
Maple Leaf or Geauga Savings Bank outside the ordinary course of business and
not generally applicable to entities engaged in the same business is pending or,
to the knowledge of Maple Leaf, threatened, nor has any Governmental Entity
indicated an intention to conduct the same in each case other than those the
outcome of which will not have a Material Adverse Effect on Maple Leaf.
Except as may be disclosed in the Maple Leaf Disclosure Letter, each of
Maple Leaf and Geauga Savings Bank has taken or caused to be taken all actions
required to be taken in order to ensure that all mission-critical internal and
external systems of Geauga Savings Bank are substantially Year 2000 compliant.
Geauga Savings Bank has not received a rating of less than satisfactory as a
result of any regulatory examination or assessment of Geauga Savings Bank's Year
2000 compliance, and any deficiencies noted in any report of regulatory
examination or assessment of Geauga Savings Bank have been or are being
addressed in the manner and within the time frames required by such report.
4.14. AGREEMENTS WITH REGULATORS. As of the date of this Agreement,
except as may be disclosed in the Maple Leaf Disclosure Letter, neither Maple
Leaf nor Geauga Savings Bank is a party to any written agreement or memorandum
of understanding with, or a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, any Governmental Entity outside the
ordinary course of business and not generally applicable to entities engaged in
the same business, including, without limitation, cease-and-desist orders of any
regulatory authority, which restricts materially the conduct of its business, or
in any manner relates to its capital adequacy, its credit policies or its
management, nor has Maple Leaf been advised by any Governmental Entity that it
is contemplating issuing, requiring, or requesting (or is considering the
appropriateness of issuing, requiring or requesting) any such order, directive,
agreement, memorandum of understanding, extraordinary supervisory letter,
commitment letter or similar undertaking. Except as set forth in the Maple Leaf
Disclosure Letter, there are no (i) material violations, or (ii) violations with
respect to which refunds or restitutions which are material
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in amount to Maple Leaf and Geauga Savings Bank taken as a whole may be
required, cited in any compliance report to Maple Leaf or Geauga Savings Bank as
a result of an examination by any regulatory authority.
4.15. MAPLE LEAF OWNERSHIP OF STOCK. Except as may be disclosed in the
Maple Leaf Disclosure Letter, as of the date of this Agreement, neither Maple
Leaf nor, to the best of its knowledge, any of its affiliates or associates (i)
beneficially owns directly or indirectly, or (ii) are parties to any agreement,
arrangement or commitment for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of GLB Common Stock (other than any shares of
GLB Common Stock held in a fiduciary, trust, custodial or agency capacity by
Geauga Savings Bank) which in the aggregate, represent 1% or more of the
outstanding shares of GLB Common Stock.
4.16. FEES. Except for fees paid and payable to Tucker Anthony
Incorporated, neither Maple Leaf nor Geauga Savings Bank has paid or become
obligated to pay any fee or commission to any broker, finder or intermediary in
connection with the transactions contemplated by this Agreement.
4.17. MAPLE LEAF ACTION. At a meeting duly called and held, the Board
of Directors of Maple Leaf has by the requisite vote (i) determined that the
Merger is advisable and in the best interests of Maple Leaf and its
shareholders, (ii) authorized and approved this Agreement and the transactions
contemplated hereby and thereby, including the Merger, (iii) directed that the
Merger be submitted for consideration by the holders of Maple Leaf Class A
common stock and Class B common stock entitled to vote thereon at the Maple Leaf
Meeting (excluding holders of Warrants as such). Tucker Anthony Incorporated,
Maple Leaf's financial advisor, has provided the Board of Directors of Maple
Leaf with its written opinion that, as of the date of such duly called meeting
of the Board, the Merger Consideration is fair, from a financial point of view,
to the shareholders of Maple Leaf and holders of Warrants.
The written opinion of Tucker Anthony Incorporated shall be updated to
the date of the Proxy Statement included in the Registration Statement, and it
shall be included as an attachment to such Proxy Statement and delivered
therewith to shareholders of Maple Leaf.
4.18. VOTE REQUIRED. The affirmative vote of the holders of shares
entitling them to exercise a majority of the combined voting power of the
outstanding shares of Maple Leaf Class A common stock and Class B common stock,
and the affirmative vote of the holders of shares entitling them to exercise a
majority of the voting power of the outstanding shares of each of Maple Leaf
Class A common stock and Class B common stock voting separately as a class, is
the only vote of the holders of any class or series of Maple Leaf capital stock
necessary to approve this Agreement and the transactions contemplated hereby,
except for any separate vote that must be taken in accordance with the Ohio
Control Share Acquisition Act, Ohio Revised Code Section 1701.831 and Section
1701.48(C)(2).
None of the holders of issued and outstanding Warrants that remain
unexercised as of the record date for the Maple Leaf Meeting (as hereinafter
defined) has any rights of a shareholder with respect to such unexercised
Warrants, including the right to exercise voting power with respect to approval
of this Agreement, the right to exercise dissenters' rights with respect thereto
or the right to dividends or other distributions that may be declared or paid
after the date hereof.
4.19. CONDUCT OF BUSINESS. Except as may be disclosed in the Maple Leaf
Disclosure Letter, from and after December 31, 1997 to the date of this
Agreement: (a) Maple Leaf and Geauga Savings Bank have carried on their
respective businesses in the ordinary and usual course consistent with their
current practices, (b) Maple Leaf has not issued or sold any of its capital
stock or any corporate debt securities which would be classified as long-term
debt on the balance sheets of Maple Leaf, (c) Maple Leaf has not granted any
option or (except as may be set forth in Exhibit 4.3(b) hereto) issued, sold or
granted any warrants to acquire any of its capital stock, effected any stock
split, or otherwise changed its authorized capitalization, (d) Maple Leaf has
not declared, set aside, or paid any dividend or other distribution in respect
of its capital stock, or,
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directly or indirectly, redeemed or otherwise acquired any of its capital stock,
except regular quarterly cash dividends (based upon historic precedent), (e)
Maple Leaf has neither incurred nor prepaid any corporate debt securities or
instruments which are or would be classified as long-term debt on the balance
sheet of Maple Leaf, (f) neither Maple Leaf nor Geauga Savings Bank has sold,
assigned, transferred, or otherwise disposed of to a third party (i) equity
securities in or issued by Geauga Savings Bank, (ii) branch offices of Geauga
Savings Bank, (iii) assets constituting any other line of business, or (iv) any
of its other material properties or assets other than for a fair consideration
in the ordinary course of business, (g) neither Maple Leaf nor Geauga Savings
Bank has purchased or otherwise acquired from a third party equity securities in
or issued by such third party other than in the ordinary course of business,
branch offices of such third party, assets constituting any other line of
business, or any other material properties or assets outside the ordinary course
of its business, (h) neither Maple Leaf nor Geauga Savings Bank has: increased
the rate of compensation of, or paid any bonus to, any of its directors,
officers, or other employees, except under existing plans and policies, entered
into any new, or amended or supplemented any existing, or secured,
collateralized, or funded any, employment, management, consulting, deferred
compensation, severance, or other similar contract, entered into, terminated, or
substantially modified any Maple Leaf Employee Plan in respect of any of its
present or former directors, officers, or other employees, or agreed to do any
of the foregoing, (i) neither Maple Leaf nor Geauga Savings Bank has entered
into any material transaction, contract, lease, agreement or commitment
requiring the approval of the Board of Directors of Maple Leaf or Geauga Savings
Bank, or amended, modified or terminated any contract, lease or other agreement
to which it is a party in a manner requiring the approval of the Board of
Directors of Maple Leaf or Geauga Savings Bank, and (j) Geauga Savings Bank has
not entered into any material transaction, contract, lease, agreement or
commitment outside the ordinary course of business requiring the approval of the
Board of Directors of Geauga Savings Bank or amended, modified or terminated
outside the ordinary course of business any material contract, lease or other
agreement to which it is a party in a manner requiring the approval of the Board
of Directors of Geauga Savings Bank.
4.20. ENVIRONMENTAL MATTERS. When used in this Section, the term loan
portfolio properties and other properties owned means those properties owned,
operated or managed (including those held in trust) by Maple Leaf, as the case
may be, or by Geauga Savings Bank.
Except as may be set forth in Maple Leaf Disclosure Letter, to the best
of Maple Leaf's knowledge: (i) neither Maple Leaf nor Geauga Savings Bank has
been or is in violation of or liable under any Environmental Law, except for any
such violations or liabilities which would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on Maple
Leaf; and (ii) none of the loan portfolio properties and other properties owned
by Maple Leaf or Geauga Savings Bank has been since such properties have been
owned, operated or managed by Maple Leaf or Geauga Savings Bank, is in violation
of any Environmental Law, except for any such violations which, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect on Maple Leaf. Except as may be set forth in Maple Leaf Disclosure
Letter, there are no actions, suits, demands, notices, claims, investigations or
proceedings pending, or to the best of Maple Leaf's knowledge threatened,
relating to the liability of the loan portfolio properties and other properties
owned by Maple Leaf or Geauga Savings Bank under any Environmental Law,
including, without limitation, any notices, demand letters or requests for
information from any federal, state or local environmental agency relating to
any such liabilities under or violations of Environmental Law.
4.21. MATERIAL INTERESTS OF CERTAIN PERSONS. Except as disclosed in the
Maple Leaf Disclosure Letter, no officer or director of Maple Leaf, or any
"associate" (as such term is defined in Rule 14a-1 under the Exchange Act) of
any such officer or director, has any material interest in any material
contracts or property (real or personal), tangible or intangible, used in or
pertaining to the business of Maple Leaf or Geauga Savings Bank.
4.22. REPRESENTATION CONCERNING TRANSACTION. Maple Leaf acknowledges
that (i) it operates Geauga Savings Bank, (ii) it has significant experience in
the banking industry and (iii) it is entering into this Agreement and the
transactions contemplated hereby after having performed due diligence concerning
GLB and
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Great Lakes Bank. Maple Leaf acknowledges that GLB's representations and
warranties shall not survive the Closing. Maple Leaf acknowledges that the
representation contained in this Section 4.22 shall survive the Closing.
Anything in this Agreement to the contrary notwithstanding, nothing herein shall
be deemed to impair any rights of GLB or Maple Leaf in connection with any claim
GLB or Maple Leaf may have against the other for fraud arising out of this
Agreement or the transactions contemplated hereby.
ARTICLE 5
COVENANTS
5.1. ACQUISITION PROPOSALS AND NEGOTIATIONS.
(a) From and after the date hereof, Maple Leaf and Geauga Savings Bank
shall not, directly or indirectly, solicit, initiate, discuss or negotiate any
proposals or offers from any person other than GLB relating to any acquisition
or purchase of all or a material amount of the assets of, or any equity
securities of, or any merger, consolidation or business combination with, Maple
Leaf or Geauga Savings Bank (such transactions being referred to herein as
"Acquisition Transactions"), and each of Maple Leaf and Geauga Savings Bank
shall instruct and otherwise use its diligent efforts to cause their respective
officers, directors, employees, agents and advisors not to, directly or
indirectly, solicit, initiate discuss or negotiate any Acquisition Transactions
except with GLB; provided, however, that nothing contained in this Section shall
prohibit:
(i) Maple Leaf or Geauga Savings Bank, as the case may be,
from furnishing information to, or entering into discussions or negotiations
with, any person or entity that makes an unsolicited proposal of an Acquisition
Transaction if and to the extent that,
(a) the Board of Directors of Maple Leaf, after
consultation with Maple Leaf's counsel, has determined in good faith
that such action is required for the directors of Maple Leaf to fulfill
their fiduciary duties and obligations to the Maple Leaf shareholders
and other constituencies under Ohio law, taking into consideration the
sale process engaged in connection with the transactions contemplated
hereby, and
(b) prior to furnishing such information to, or
entering into discussions or negotiations with, such person or entity,
Maple Leaf provides immediate written notice to GLB at least two
business days prior to furnishing information to, or entering into
discussions or negotiations with, such a person or entity, or
(ii) the Board of Directors of Maple Leaf from failing to
make, withdrawing or modifying its recommendation referred to in Section 5.14
following receipt of a proposal for an Acquisition Transaction if the Board of
Directors of Maple Leaf, after consultation with Maple Leaf's counsel, has
determined in good faith that such action is required for the directors of Maple
Leaf to fulfill their fiduciary duties and obligations to the Maple Leaf
shareholders and other constituencies under Ohio law, taking into consideration
the sale process engaged in connection with the transactions contemplated
hereby.
In the event Maple Leaf or any officer, director or representative
thereof receives any contact, either oral or written, from a third party or its
representative regarding an Acquisition Transaction or any matter directly or
indirectly related thereto after the date of this Agreement, Maple Leaf shall
immediately notify GLB of such contact, and provide such information requested
by GLB, including but not limited to the name of the party or parties, and all
details related thereto. Maple Leaf shall have a continuing obligation to
provide information to GLB regarding any additional or continuing contacts. Any
writings received by Maple Leaf or any officer, director or representative
thereof, shall be immediately provided to GLB by facsimile, regardless of such
writing being marked confidential or otherwise.
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In the event Maple Leaf receives an opinion from Maple Leaf's counsel
pursuant to this Section 5.1(a), Maple Leaf shall immediately provide a copy of
such opinion to GLB.
(b) If the Board of Directors of Maple Leaf or Geauga Savings Bank
accepts in any manner a proposal for an Acquisition Transaction (including any
acceptance occurring after the termination of this Agreement and before December
31, 1999), Maple Leaf shall pay to GLB $2,250,000 in immediately available
federal funds upon the execution of any agreement in respect of the Acquisition
Transaction (regardless of when the consummation of such Acquisition Transaction
occurs). This payment shall be in lieu of any other claim against Maple Leaf
that GLB may have at law or in equity arising out of or in connection with this
Agreement.
5.2. INTERIM OPERATIONS OF MAPLE LEAF. During the period from the date
of this Agreement to the Effective Time, except as specifically contemplated by
this Agreement, as required by law, as set forth in the Maple Leaf Disclosure
Letter, or as otherwise approved in writing by GLB (which approval shall not be
unreasonably withheld):
5.2.1. CONDUCT OF BUSINESS. Maple Leaf shall, and shall cause
Geauga Savings Bank to, conduct their respective businesses only in, and not
take any action except in, the ordinary course of business substantially
consistent with current practices (which practices include any workout
arrangements for troubled loans and real estate development assets). Maple Leaf
shall use all diligent efforts to (i) maintain and preserve intact the business
organization of Maple Leaf and Geauga Savings Bank, keep available the services
of its and their present officers and employees, and keep the branch operations
fully staffed with competent employees, (ii) preserve the goodwill of those
having business relationships with Maple Leaf or Geauga Savings Bank, (iii)
maintain and keep its properties in as good repair and condition as at present,
except for depreciation due to ordinary wear and tear, (iv) keep in full force
and effect insurance and bonds comparable in amount and scope of coverage to
that now maintained by it; provided, however, in the event that any such
insurance (including, without limitation, directors' and officers' liability
insurance) is canceled or not renewable at its expiration at current or standard
rates, Maple Leaf shall consult with GLB in order to determine whether to
exercise Maple Leaf's right to extend the discovery period and in evaluating
available alternatives to replace the current insurance; and provided further,
that Maple Leaf shall take such action as is necessary to cause the directors'
and officers' liability insurance coverage of Maple Leaf and Geauga Savings Bank
to include coverage of claims arising from factors or events that occurred on or
before the Effective Time, including but not limited to claims arising from the
transactions contemplated by this Agreement (and with a rider insuring such
persons for any claim arising under the securities laws), (v) perform in all
material respects all obligations required to be performed by each of Maple Leaf
and Geauga Savings Bank under all material contracts, leases and documents
relating to or affecting its assets, properties, and business, and (vi) comply
with and perform in all material respects all obligations and duties imposed
upon it by all federal, state, municipal, and local laws, and all rules,
regulations and orders imposed by federal, state, municipal or local
governmental agencies.
5.2.2. NEGATIVE COVENANTS. Maple Leaf shall not, and shall not
permit Geauga Savings Bank to, make any change or amendment to, or to repeal,
their articles of incorporation or codes of regulations (or articles of
incorporation, constitution and bylaws in the case of Geauga Savings Bank). From
and after the date of this Agreement, neither Maple Leaf nor Geauga Savings Bank
shall enter into any loan or credit commitment (including standby letters of
credit) with any person or entity if such loan or commitment would exceed (i)
$5,000 as an unsecured loan or investment, (ii) $5,000 as a residential,
commercial or commercial real estate loan not fully secured by real estate
(fully secured being defined as a loan in which the loan-to-value ratio based on
Geauga Savings Bank's most recent appraisal does not exceed 100%, taking into
account the Geauga Savings Bank loan and all loans of equal or superior rank),
(iii) $500,000 as a residential, commercial or commercial real estate loan
without first consulting with GLB; provided, however, that nothing in this
paragraph shall prohibit Maple Leaf or Geauga Savings Bank from honoring any
contractual obligation in existence on the date of this Agreement; and provided
further that nothing herein shall impair Geauga Savings Bank's right to continue
making fully secured automobile loans. From and after the date of this
Agreement, neither Maple Leaf nor Geauga Savings Bank shall enter into any
venture capital or similar investment, other
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than the purchase of mortgage-backed securities from Freddie Mac, Fannie Mae or
Ginnie Mae. After the date upon which all conditions to the obligations of Maple
Leaf and GLB to consummate the Merger have been waived or satisfied by the
appropriate party, neither Maple Leaf nor Geauga Savings Bank shall enter into
any consumer loan or credit commitment except on a basis that is consistent with
the consumer loan underwriting standards of GLB and Great Lakes Bank.
Neither Maple Leaf nor Geauga Savings Bank shall sell, assign,
transfer or otherwise dispose of to a third party, (i) branch offices of Geauga
Savings Bank, or (ii) any of its material properties or assets. Neither Maple
Leaf nor Geauga Savings Bank shall purchase or otherwise acquire from a third
party, branch offices of such third party, assets constituting any other line of
business, or any other material properties or assets outside the ordinary course
of its business. Neither Maple Leaf nor Geauga Savings Bank shall enter into any
transaction, contract, lease, agreement or commitment (or any amendment to any
transaction, contract, lease, agreement or commitment) outside of the ordinary
course of business which is material to Maple Leaf and Geauga Savings Bank taken
as a whole.
5.2.3. CAPITAL STOCK. Other than the issuance of Class A
common stock or Class B common stock upon exercise of outstanding 1991 Warrants
or 1996 Warrants, Maple Leaf shall not, and shall not permit Geauga Savings Bank
to, issue or sell any shares of capital stock or any other securities of either
of them or issue any securities convertible into or exchangeable for, or
options, warrants to purchase, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or enter into any contract,
commitment or arrangement with respect to the issuance of, any shares of capital
stock or any other securities of either of them or enter into any arrangement,
contract or commitment with respect to the purchase or voting of shares of their
capital stock, or adjust, split, combine or reclassify any of their capital
stock or other securities or make any other changes in their capital structures;
provided, however, that nothing in this Agreement shall be deemed to prohibit
issuance of shares of Maple Leaf Class A common stock or Class B common stock
upon the valid exercise of Warrants, to the extent such Warrants were issued and
outstanding on the date hereof. Neither Maple Leaf nor Geauga Savings Bank shall
acquire beneficial ownership of any class of equity securities or any similar
interests of any corporation, bank, business, trust, association or similar
organization.
Commencing at the same time as the Prospectus and Proxy
Statement (as hereinafter defined) is first sent or given to holders of Maple
Leaf Class A common stock and Class B common stock, Maple Leaf will cause to be
sent or given to each holder of Warrants a copy of the Prospectus and Proxy
Statement. Commencing at the same time as the Prospectus and Proxy Statement is
first sent or given to holders of Warrants and continuing until the Effective
Time, Maple Leaf will use reasonable efforts to obtain from each holder of
Warrants an agreement in form and substance agreed upon by GLB and Maple Leaf
whereby the holders of Warrants (i) consent to the conversion of their Warrants
into the Tier 2 Merger Consideration and Tier 3 Merger Consideration on the
basis set forth in Article 2 hereof, and (ii) agree not to exercise any of the
Warrants then remaining unexercised unless this Agreement is terminated pursuant
to Section 8.1 hereof.
5.2.4. DIVIDENDS. Maple Leaf shall not, and shall not permit
Geauga Savings Bank to, declare, set aside, pay or make any dividend or other
distribution or payment (whether in cash, stock or property) with respect to, or
purchase or redeem, any shares of the capital stock of either of them other than
dividends paid (to the extent legally permitted) by Geauga Savings Bank to Maple
Leaf with respect to Geauga Savings Bank's capital stock. From the date of this
Agreement to the earlier of the Effective Time or the termination of this
Agreement, Maple Leaf shall not, without the prior written consent of GLB, make
any changes in its dividend policies.
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5.2.5. EMPLOYEE PLANS, COMPENSATION AND BONUSES. Except as is
necessary to comply with the Code or as contemplated in this Agreement, Maple
Leaf shall not, and shall not permit Geauga Savings Bank to: adopt or amend any
employee bonus, deferred compensation, pension, retirement, profit sharing,
stock option, stock purchase, employee stock ownership, stock appreciation
rights, savings, consulting, severance, collective bargaining, group insurance,
fringe benefit or other employee benefit, incentive and welfare plans, policies,
contracts and arrangements and trust agreements related thereto, employment or
other employee benefit agreements, trusts, plans, funds or other arrangements
for the benefit or welfare of any present or former director, officer or
employee of Maple Leaf or Geauga Savings Bank; increase the compensation or
fringe benefits of any present or former director, officer or employee; pay any
bonus, compensation or benefit not required by any existing plan or arrangement
(including, without limitation, the granting of stock options or stock rights)
take any action or grant any benefit not required under the terms of any
existing agreements, trusts, plans, funds or other such arrangements, except as
set forth in the Maple Leaf Disclosure Letter; or enter into any contract,
agreement, commitment or arrangement to do any of the foregoing.
Notwithstanding the restrictions contained in this Section,
Maple Leaf or Geauga Savings Bank may grant individual annual increases to
officers and employees in accordance with past practices up to a total of 3% of
the total annual compensation of all officers and employees, excluding from such
total the aggregate of the compensation for the employees of Maple Leaf or
Geauga Savings Bank who are parties to an employment agreement.
5.2.6. CONFORMING ACCOUNTING AND RESERVE POLICIES;
RESTRUCTURING EXPENSES.
(a) Maple Leaf and GLB shall consult and cooperate with each
other with respect to determining the amount and the timing for recognizing for
financial accounting purposes the expenses of the Merger and the restructuring
charges related to or to be incurred in connection with the Merger, provided
that any such accounting shall be in accordance with generally accepted
accounting principles.
(b) At the request of GLB, Maple Leaf shall promptly establish
and take such reserves and accruals as GLB shall request in order to conform, on
a mutually satisfactory basis, Maple Leaf's and Geauga Savings Bank's loan,
accrual and reserve policies to GLB's policies. Maple Leaf shall, and shall as
necessary cause Geauga Savings Bank to, establish and take such accruals,
reserves and charges in order to implement such policies in respect of excess
facilities and equipment capacity, severance costs, litigation matters,
write-off or write-down of various assets and other appropriate accounting
adjustments, and to recognize for financial accounting purposes such expenses of
the Merger and restructuring charges related to or to be incurred in connection
with the Merger; provided, however, that it is the objective of GLB and Maple
Leaf that such reserves, accruals and charges be taken on or before the
Effective Time; and provided, further, that such reserves and accruals shall not
constitute a Material Adverse Change, and Maple Leaf shall not be obligated to
take any such action pursuant to this Section 5.2.6 unless and until (i) all
conditions to the obligations of Maple Leaf and GLB to consummate the Merger set
forth in Sections 6.1 through 6.3 have been waived or satisfied by the
appropriate party, and (ii) such reserves, accruals and charges conform with
generally accepted accounting principles, applicable laws, regulations, and the
requirements of Governmental Entities.
5.3. INTERIM OPERATIONS OF GLB. During the period from the date of this
Agreement to the Effective Time, except as specifically contemplated by this
Agreement, as required by law, or as otherwise approved in writing by Maple Leaf
(which shall not be unreasonably withheld) GLB shall, and shall cause Great
Lakes Bank to, conduct their respective businesses in such a manner so as not to
materially interfere with the ability to consummate the Merger, delay the
Effective Time or have a Material Adverse Effect upon the transactions
contemplated by the Agreement.
During the period from the date of this Agreement to the Effective
Time, GLB shall not directly or indirectly solicit, initiate, discuss or
negotiate any proposals or offers from any person relating to the acquisition or
purchase of all or substantially all of the assets of, or more than five percent
(5%) of the equity securities of,
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or any merger, consolidation or business combination with, any bank, savings
bank, savings and loan association or similar financial institution or financial
institution holding company, unless (i) GLB shall have first given written
notice to Maple Leaf of GLB's intention to take such action, which notice shall
be delivered to Maple Leaf no later than ten days prior to taking such action,
and (ii) Maple Leaf shall have not objected to such action, which objection
shall not be effective unless stated in writing by Maple Leaf and delivered to
GLB within such ten-day period. Anything in this Agreement to the contrary
notwithstanding, however, GLB shall not be required to notify Maple Leaf of, nor
shall Maple Leaf have the right to object to, any proposed acquisition by GLB or
Great Lakes Bank of a branch or branches of another financial institution,
unless the total branch deposits to be acquired exceed $40 million and/or the
cash acquisition price for such branch or branches exceeds $3.5 million.
5.4. EMPLOYMENT MATTERS. GLB is not required to hire any employees of
Maple Leaf or Geauga Savings Bank, but may if it so desires. All persons
employed by GLB or Great Lakes Bank as of the Effective Time will remain "at
will" employees, meaning that their employment can be terminated for any reason
or no reason.
Following the Effective Time, the employee benefit programs to
be available and applicable to the persons who were employees of Maple Leaf or
Geauga Savings Bank, and who become employees of GLB or Great Lakes Bank, are as
follows:
(i) Savings Plans. GLB maintains the GLB 401(k) Salary
Reduction Plan and Trust ("GLB 401K Plan"). At the Effective Time, GLB will
credit the Maple Leaf and Geauga Savings Bank employees who become employees of
GLB or Great Lakes Bank, for purposes of the GLB 401K Plan, with all service
with Maple Leaf or Geauga Savings Bank for purposes of determining their
eligibility to participate in such plan and the vested portion of their
respective accrued benefits under such plan.
(ii) Health Care Plans. At such time on or after the Effective
Time as GLB shall deem appropriate, GLB and Great Lakes Bank will provide Maple
Leaf and Geauga Savings Bank employees hired by GLB with such coverage under the
GLB health care plan as GLB and Great Lakes Bank then provide their employees,
with all service with Maple Leaf or Geauga Savings Bank credited for purposes of
determining such employee's eligibility to participate in such plan and without
any "prior existing condition" exclusion. The Geauga Savings Bank health care
plans will be continued until the employees so hired can participate in the GLB
health care plans.
No benefits currently provided Maple Leaf or Geauga Savings
Bank employees that exceed benefits provided by GLB and Great Lakes Bank will be
grandfathered or provided, unless otherwise specifically agreed to by GLB in
writing or unless required by law. Other than otherwise expressly stated herein,
GLB shall not assume any other health care benefit plans or benefits. GLB
retains any existing right to amend or terminate any such plan, provided such
right has been reserved by the plan sponsor in the plan document or otherwise
and provided that such right currently exists.
(iii) Other Benefit Plans. At such time on or after the
Effective Time as GLB shall deem appropriate, GLB and Great Lakes Bank shall
provide former Maple Leaf or Geauga Savings Bank employees with such coverage
under the GLB benefit plans and programs as are generally provided to all
employees of GLB and Great Lakes Bank. All service with Maple Leaf or Geauga
Savings Bank shall be credited for purposes of vesting and determining a former
Maple Leaf or Geauga Savings Bank employee's eligibility to participate in such
other benefit plans. No benefits currently provided to Maple Leaf or Geauga
Savings Bank employees that exceed the benefits provided by GLB or Great Lakes
Bank will be grandfathered or provided, unless otherwise specifically agreed to
by GLB in writing or unless required by law, except as referenced in Section
5.2.5 of the Maple Leaf Disclosure Letter.
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Notwithstanding anything contained herein to the contrary, no third
party shall have a right to enforce the provisions of this Section 5.4 or assert
any claim hereunder.
5.5. ACCESS, INFORMATION AND CONFIDENTIALITY. Upon reasonable notice,
Maple Leaf and Geauga Savings Bank shall grant to GLB and its representatives
(including, without limitation, directors, officers and employees of GLB and
Great Lakes Bank, its counsel, accountants, environmental consultants and other
professionals retained by GLB) full access during normal business hours
throughout the period prior to the Effective Time to the books, contracts,
records (including, without limitation, tax returns), shareholder and customer
information, properties, personnel and other information and documents of Maple
Leaf and Geauga Savings Bank. With prior notice to Maple Leaf, GLB may have
environmental assessments conducted on any properties owned, managed or
controlled by Maple Leaf or Geauga Savings Bank.
All information furnished by one party to another party in connection
with this Agreement and the transactions contemplated hereby that is regarded by
such furnishing party as confidential will be kept confidential by the other
party and its representatives (including, without limitation, directors,
officers and employees, its counsel, accountants and other professionals
retained by such party) and will be used only in connection with this Agreement
and the transactions contemplated hereby, and not in such party's business or by
its directors, officers and employees, its counsel, accountants and other
professionals retained by such party if the Merger is not consummated. Unless
the Merger is consummated, neither GLB and Great Lakes Bank nor their respective
directors, officers, employees, agents and representatives shall knowingly (i)
solicit the customers or employees of Maple Leaf or Geauga Savings Bank or (ii)
the loan or deposit customers of Maple Leaf or Geauga Savings Bank as identified
in any materials or information provided to GLB in connection with this
Agreement; provided, however, that general advertisements or general public
solicitations for loans or depositors that are not targeted or directed
specifically to customers of the Maple Leaf or Geauga Savings Bank, inquiries
initiated by Maple Leaf or Geauga Savings Bank customers themselves, and
solicitation of GLB or Great Lakes Bank's own customers existing as of the date
hereof who are or may be customers of Maple Leaf or Geauga Savings Bank as well
shall not be considered a violation of this provision. Nothing contained in this
Section shall restrict or prohibit Maple Leaf or GLB from disclosing information
required to be disclosed in any document filed with the Commission, FRB, FDIC,
OTS, the Division and other Governmental Entities and bodies. So long as this
Agreement has not been terminated pursuant to Article 8 hereof, GLB may,
notwithstanding this confidentiality provision, disclose such information as GLB
and Maple Leaf agree in writing is necessary or advisable in connection with
explaining or providing background information to securities analysts and others
concerning the transactions contemplated by this Agreement.
5.6. CERTAIN FILINGS; CONSENTS AND ARRANGEMENTS. GLB and Maple Leaf
shall (a) promptly file all reports and applications required to be filed with
the Commission, the FRB and such other Governmental Entities as may have
jurisdiction for such approvals as may be required to be obtained from such
Governmental Entities in order to carry out the transactions contemplated by
this Agreement as soon as practicable between the date of this Agreement and the
Effective Time and Great Lakes Bank and Geauga Savings Bank shall file all
reports or applications that may be required to be filed with the FRB, the FDIC,
the OTS and the Division with respect to the Merger and the other transactions
contemplated by this Agreement, (b) cooperate with one another (i) in promptly
determining whether any other filings are required to be made or consents,
approvals, permits or authorizations are required to be obtained under any other
federal, state or foreign law or regulation, and (ii) in promptly making any
such filings, furnishing information required in connection therewith and timely
seeking to obtain any such consents, approvals, permits or authorizations, and
(c) deliver to the other party to this Agreement copies of all such applications
and reports promptly after they are filed. In no event, however, shall either
party hereto be liable for any untrue statement of a material fact or omission
to state a material fact in any filing made with any Governmental Entity
pursuant to this Section made in reliance upon, and in conformity with, written
information concerning the other party hereto furnished by such other party
specifically for use in such filing. Each party hereto shall advise the other
party promptly of the occurrence of any event making untrue any statement of a
material fact contained in any such filing or any amendment or supplement
thereto or
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that requires a change in any such filing or any amendment or supplement thereto
in order to make any material statement therein not misleading.
5.7. TAKEOVER STATUTES AND PROVISIONS. Maple Leaf shall use diligent
efforts to (i) exempt Maple Leaf, this Agreement and the Merger from the
requirements of any state takeover law (including without limitation, statutes
relating to business combinations, control share acquisitions and merger
moratoriums) and from any provisions under its Corporate Governance Documents,
as applicable, by action of Maple Leaf's Board of Directors, shareholders or
otherwise, and (ii) assist in any challenge by GLB to the applicability to the
Merger of any state takeover law.
5.8. INDEMNIFICATION AND INSURANCE. Except as may be limited by
applicable law, indemnification of directors, officers and employees of Maple
Leaf and Geauga Savings Bank for any claims made against them in their
capacities as such shall be provided by GLB to the maximum amount permitted by
law; provided, however, that this obligation shall expire on the fourth
anniversary of the Effective Time.
For a period of up to three years following the Effective Time, GLB
will maintain in effect the current insurance policies maintained by Maple Leaf
or Geauga Savings Bank (or substitute policies with substantially the same
coverage and terms) covering directors' and officers' liability with respect to
claims arising from factors or events that occurred before the Effective Time.
Maple Leaf shall notify GLB prior to purchasing or continuing any insurance to
cover the matters contained herein. To the extent insurance is available under
any of the provisions in this Section to cover such claims and costs, such
insurance shall be the primary source of funding these obligations.
5.9. ADDITIONAL AGREEMENTS. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use diligent efforts promptly to
take or cause to be taken all actions necessary, proper or advisable under
applicable laws to consummate the transactions contemplated by this Agreement.
In addition, without limitation, each party shall from time to time execute such
certificates as to factual matters necessary, proper or advisable in order to
receive the opinions contemplated by Article 6 or Article 7 of this Agreement.
If at any time after the Effective Time the Surviving Corporation
considers or is advised that any further deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm of record its right, title or interest in and to any of the
rights, properties or assets of Maple Leaf or Geauga Savings Bank acquired or to
be acquired by the Surviving Corporation, Maple Leaf, Geauga Savings Bank and
their respective officers and directors shall be deemed to have granted to the
Surviving Corporation an irrevocable power of attorney to execute and deliver
all such deeds, bills of sale, assignments and assurances and to take and do all
such other actions and things as may be necessary or desirable to vest, perfect
or confirm any and all right, title and interest in and to such rights,
properties or assets in the Surviving Corporation.
5.10. COMPLIANCE WITH ANTITRUST LAWS. Each of GLB and Maple Leaf shall
use diligent efforts to resolve such objections, if any, as may be asserted with
respect to the Merger by the FRB, the Department of Justice, or any other
Governmental Entity (including, without limitation, objections under any
antitrust laws and any applicable laws or regulations). In the event a suit is
threatened or instituted challenging the Merger as violative of the antitrust
laws, each of GLB and Maple Leaf shall use diligent efforts to resist, resolve
or avoid the filing of such suit. GLB and Maple Leaf shall use their diligent
efforts to take such action as may be required: (a) by the FRB, the Department
of Justice, or any other Governmental Entity in order to resolve such objections
as any of them may have to the Merger, or (b) by any federal or state court of
the United States, in any suit brought by a private party or Governmental Entity
challenging the Merger as violative of any antitrust laws, in order to avoid the
entry of, or to effect the dissolution of, any injunction, temporary restraining
order or other order which has the effect of preventing the consummation of the
Merger.
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5.11. PUBLICITY. The initial press release announcing this Agreement
shall be a joint press release in form and substance mutually agreed upon by the
parties. Thereafter, except as required by law, Maple Leaf and GLB shall consult
with each other and obtain the consent as to form and substance of any
subsequent press release, and provide a written copy to the other prior to
issuing any press releases, or otherwise making public statements, with respect
to the transactions contemplated hereby and in making any filings with any
Governmental Entity.
5.12. REGISTRATION STATEMENT, PROXY STATEMENT AND COMFORT LETTERS.
(a) GLB will, as soon as practicable, prepare and file with the
Commission the Registration Statement, and any required amendments thereto, and
GLB will use all reasonable efforts to have the Registration Statement declared
effective by the Commission as promptly as practicable. GLB will also take any
action required to be taken under any applicable state blue sky or securities
laws in connection with the issuance of the GLB Common Stock pursuant to the
Merger. Maple Leaf shall promptly furnish GLB all information concerning Maple
Leaf, Geauga Savings Bank, and the holders of its capital stock and Warrants and
shall promptly take any action as GLB may reasonably request in connection with
any such action.
As soon as practicable, Maple Leaf will prepare appropriate proxy
materials in respect of the Maple Leaf Meeting, which proxy materials will
conform in all material respects to the provisions of the Exchange Act and the
rules and regulations promulgated thereunder and will include, without
limitation, a proxy statement of Maple Leaf, a Notice of Meeting and form of
proxy (collectively, the "Proxy Statement"). The Proxy Statement will be
included in the Registration Statement and shall be issued by Maple Leaf to
Maple Leaf shareholders together with a prospectus of GLB relating to the offer
and sale of GLB Common Stock to Maple Leaf shareholders and holders of Warrants
(the "Prospectus"). GLB agrees to cooperate with Maple Leaf in preparation of a
combined Prospectus and Proxy Statement (hereinafter sometimes referred to
together as the "Prospectus/Proxy Statement") and take such other action so that
Maple Leaf may promptly after the effectiveness of the Registration Statement
mail the Prospectus/Proxy Statement to Maple Leaf's shareholders and holders of
Warrants. GLB and Maple Leaf shall cooperate and consult with each other in the
preparation of the Prospectus/Proxy Statement. Maple Leaf shall promptly furnish
GLB all information concerning Maple Leaf, Geauga Savings Bank, the Maple Leaf
Meeting and the holders of its capital stock and Warrants that is necessary for
inclusion in or for preparation of the Registration Statement or the Prospectus
or Proxy Statement included therein, and shall promptly take any action as GLB
may reasonably request in connection with any such action.
(b) Each of GLB and Maple Leaf will cause its respective independent
auditors to issue a letter addressed to both GLB and Maple Leaf, within three
business days prior to the effectiveness of the Registration Statement and also
as of Closing, stating among other things, the following: (i) such accountants
are independent public accountants within the meaning of the Securities Act and
the rules and regulations promulgated thereunder; (ii) in the opinion of such
accountants, the financial statements included in the Registration Statement and
reported on therein by such accountants comply as to form in all material
respects with the applicable accounting requirements of the Securities Act and
the Rules and Regulations promulgated thereunder; (iii) on the basis of
specified limited procedures (which procedures do not constitute an examination
in accordance with generally accepted auditing standards), including a reading
of the latest available unaudited financial statements and inquiries of
officials responsible for financial and accounting matters, nothing came to
their attention which caused them to believe that, during the period subsequent
to December 31, 1997, to a specified date not more than three business days
prior to the effective date of the Registration Statement and to a specified
date not more than three business days prior to Closing, there was any change in
the shares of its capital stock or long-term debt, if any, (other than changes
due to payments in accordance with the terms of such debt, or in the event of
any such change in long-term debt, the amount thereof) or any decrease
(increase) in the total or per share amount of its net income (net loss) as
compared with the corresponding period in the preceding year, except in all
instances for changes or decreases (increases) which the Registration Statement
discloses have occurred or may occur; (iv) such accountants have read the other
data included in the
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Registration Statement with respect to the financial condition and operations of
their respective clients and they find such data to be correctly computed and in
agreement with the respective books and records of GLB and Maple Leaf.
5.13. AFFILIATES' COMPLIANCE WITH THE SECURITIES ACT.
(a) Within 30 days after the date of this Agreement, Maple Leaf shall
identify to GLB all officers, directors and holders of more than ten percent
(10%) of the Maple Leaf Common Stock whom Maple Leaf reasonably believes are its
"affiliates" as that term is used in paragraphs (c) and (d) of Rule 145 under
the Securities Act of the Commission. Thereafter and until the Effective Time,
Maple Leaf shall identify to GLB each additional person whom it reasonably
believes to have thereafter become its affiliate.
(b) Maple Leaf shall use its diligent efforts to cause each person who
is identified as an affiliate pursuant to clause (a) above to deliver to GLB not
later than the date on which the Merger is approved, a written agreement,
substantially in the form of Exhibit 5.13(b).
5.14. MAPLE LEAF SHAREHOLDER MEETING. Maple Leaf shall take all action
necessary, in accordance with applicable law and its Corporate Governance
Documents, to convene a special or regular meeting of the holders of Maple Leaf
Class A common stock and Class B common stock as promptly as practicable after
the effectiveness of the Registration Statement for the purpose of considering
and taking action upon this Agreement and the transactions contemplated herein
(the "Maple Leaf Meeting"). Subject to the fiduciary obligations and duties of
the Board of Directors of Maple Leaf under Ohio law and to the provisions of
Section 5.1 of this Agreement, the Board of Directors of Maple Leaf shall
recommend that the holders of the Maple Leaf Class A common stock and Class B
common stock vote in favor of and approve the Merger and adopt this Agreement at
the Maple Leaf Meeting, and in favor of approval of the control share
acquisition represented thereby if a separate vote under the Ohio Control Share
acquisition Act is necessary.
5.15. TAX-FREE TREATMENT. Neither GLB nor Maple Leaf shall
intentionally take or cause to be taken any action, or omit to take any action
required to be taken, whether before or after the Effective Time, which would
cause the Merger to be treated as a "sale of assets" for tax purposes. GLB
covenants and agrees that it shall not cause a step-up in basis in the assets of
Maple Leaf for tax purposes as a result of the Merger. In addition, in order for
this transaction to be treated as having no income tax consequences at the
entity level, GLB covenants and agrees that the Subsidiary shall have no other
activities or assets, other than such activities as contemplated herein which
are reasonably necessary to effect the Merger.
5.16. MERGERS OF SUBSIDIARIES. The Board of Directors of GLB intends to
merge Geauga Savings Bank with and into Great Lakes Bank contemporaneously with
or promptly following the merger of Maple Leaf with and into GLB. Accordingly,
Maple Leaf shall cause Geauga Savings Bank to enter into a definitive merger or
consolidation agreement with Great Lakes Bank, providing for the merger or
consolidation of Geauga Savings Bank with or into Great Lakes Bank; provided,
however, that, in all cases, the obligation of Maple Leaf to cause such merger
or consolidation to occur shall be subject to the condition that the Merger be
simultaneously or previously consummated; and provided further, notwithstanding
anything to the contrary in this Agreement, (i) the representations and
warranties of Maple Leaf in this Agreement shall not be deemed to be untrue or
breached, (ii) Maple Leaf shall not be deemed to have failed to perform any
covenant or obligation contained in this Agreement, and (iii) no condition to
GLB's obligation to effect the Merger shall be deemed not to have been satisfied
by or as a result of any merger or consolidation consummated pursuant to this
Section. Maple Leaf shall cause Geauga Savings Bank to cooperate fully with GLB
in consummating this merger or consolidation, including cooperating in the
filing of any necessary regulatory applications.
5.17. CURRENT INFORMATION. During the period from the date of this
Agreement to the Effective Time, each of Maple Leaf and GLB will promptly notify
the other of (i) any material change in the normal course of its business, (ii)
any governmental complaints, investigations or hearings (or communications
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indicating that the same may be contemplated), or receipt of any memorandum or
understanding or cease and desist order from a regulatory authority, or (iii)
the institution or the threat of material litigation involving such party and
will keep the other party fully informed of such events. During such period, GLB
and Maple Leaf shall promptly provide the other with monthly unaudited financial
statements as soon as they are available and each shall promptly provide the
other with a copy of all Reports filed by it after the date of this Agreement
through the Effective Time. Each of GLB and Maple Leaf agrees to keep the
foregoing information strictly confidential.
5.18. INTEGRATION OF OPERATIONS; YEAR 2000 COMPLIANCE. (a) Subject to
applicable laws, regulations and the requirements of Governmental Entities,
during the period from the date of this Agreement to the Effective Time, the
parties will consult and cooperate fully with each other to do all things
advisable to prepare for and facilitate the integration of Maple Leaf and Geauga
Savings Bank operations into and with GLB's operations as rapidly and
effectively as possible as of the Effective Time, including, without limitation,
preparation for the integration of such branch operations, if any (including,
without limitation, the preparation for the necessary installation of all of
GLB's or Great Lakes Bank's hardware and software systems), management
information systems, financial and accounting operations, employee compensation
and benefit matters and similar matters, and employee training, as requested by
GLB; provided, however, that Maple Leaf and Geauga Savings Bank shall not be
required prior to the date upon which all conditions to the obligation of Maple
Leaf to consummate the Merger have been waived or satisfied to make any changes
in its branch operations, management information systems, financial and
accounting systems or other operational matters that Maple Leaf reasonably
believes should be deferred until all conditions to the obligation of Maple Leaf
to consummate the Merger have been waived or satisfied.
(b) After the date upon which all conditions to the obligation of Maple
Leaf to consummate the merger have been waived or satisfied, each of Maple Leaf
and Geauga Savings Bank shall, at their sole expense, take or cause to be taken
such actions as are necessary in order to ensure that all mission-critical
internal and external systems of Geauga Savings Bank are substantially Year 2000
compliant. If GLB determines that additional steps should be taken by Maple Leaf
or Geauga Savings Bank in order to ensure that Geauga Savings Bank is Year 2000
compliant, or if as a result of a regulatory examination or assessment Geauga
Savings Bank's Year 2000 compliance is rated less than satisfactory, Maple Leaf
and Geauga Savings Bank shall, at their expense, take such additional actions as
reasonably requested by GLB or as may be required by the Federal Deposit
Insurance Corporation in order to achieve Year 2000 compliance in accordance
with applicable regulatory guidelines and in order to address any deficiencies
noted in the regulatory examination or assessment of Geauga Savings Bank.
5.19. NASD LISTING. GLB will file an additional listing application
with the National Association of Securities Dealers, Inc. for the GLB Common
Stock to be issued in the Merger at the time prescribed by applicable rules and
regulations. In addition, GLB will use its best efforts to maintain its listing
on the Nasdaq SmallCap Market. GLB covenants and agrees that adequate current
public information with respect to GLB will be made available for a period of
three (3) years from and after the Closing, consistent with Commission Rule
144(c) under the Securities Act.
ARTICLE 6
CONDITIONS
6.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment or waiver at or prior to the Closing of the following
conditions:
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(a) The Merger and this Agreement shall have been approved and adopted
by the affirmative vote of the holders of Maple Leaf Class A common stock and
Class B common stock required by law and Maple Leaf's Corporate Governance
Documents.
(b) All authorizations, consents, orders or approvals, lack of any
injunctive actions by the Department of Justice or any state or federal
antitrust authority, of the FRB, FDIC, Division and any other Governmental
Entity (collectively, "Consents") that are necessary for the consummation of the
Merger shall have been obtained or shall have occurred and shall be in full
force and effect at the Effective Time, and all applicable waiting periods shall
have expired, except for any immaterial Consents that, if not obtained, would
not involve criminal liability, any material civil penalties or fines, or would
not have or reasonably be expected to have a Material Adverse Effect on the
combined businesses, financial condition, or results of operations of GLB, Maple
Leaf, Great Lakes Bank and Geauga Savings Bank taken as a whole. A material
Consent shall not be deemed to have been obtained if the Consent shall include
any conditions or requirements which, in the reasonable opinion of the Board of
Directors of GLB, would have a Material Adverse Effect on the anticipated
economic and business benefits to GLB of the transactions contemplated by this
Agreement, taken as a whole.
(c) The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or, to the knowledge of the parties,
threatened by the Commission.
(d) GLB shall have received all state securities and "blue sky" permits
and other authorizations and approvals necessary to consummate the Merger and
the transactions contemplated hereby, no order restraining the ability of GLB to
issue GLB Common Stock pursuant to the Merger shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the parties, threatened by any state securities administrator.
(e) The shares of GLB Common Stock to be issued in connection with the
Merger shall have been approved for listing or trading on the Nasdaq SmallCap
Market, subject to official notice of issuance.
(f) No temporary restraining order, preliminary or permanent injunction
or other order by any federal or state court or agency in the United States
enjoining, prohibiting or materially delaying the consummation of the Merger
shall have been issued and remain in effect.
(g) Counsel to Maple Leaf shall have delivered to Maple Leaf and GLB
such counsel's opinion substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion which are consistent
with the state of facts existing at the Effective Time, the Merger will be
treated for federal income tax purposes as having no income tax consequences at
the entity level and that, accordingly, no gain or loss will be recognized by
GLB, the Subsidiary or Maple Leaf as a result of the Merger. In rendering such
opinion, counsel may require and rely upon representations contained in
certificates of officers of Maple Leaf, the subsidiary, GLB and others. The
opinion of Maple Leaf's counsel shall be dated the date of the Closing.
6.2. CONDITIONS TO OBLIGATION OF MAPLE LEAF TO EFFECT THE MERGER.
The obligation of Maple Leaf to effect the Merger shall be subject to
the fulfillment or waiver at or prior to the Closing of the additional following
conditions:
(a) GLB shall have performed in all material respects all of its
obligations contained in this Agreement required to be performed at or prior to
the Closing.
(b) The representations and warranties of GLB contained in this
Agreement shall be true and correct both: (i) on the date of this Agreement, and
(ii) as of the Effective Time as if made at and as of such time, (x) except,
both on the date of this Agreement and at the Effective Time, as expressly
contemplated or permitted by
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this Agreement, (y) except, as of the Effective Time, for representations and
warranties relating to a time or times other than the Effective Time, and (z)
except, both on the date of this Agreement and at the Effective Time, to the
extent that the inaccuracy of the representations or warranties of GLB,
individually or in the aggregate, shall not have a Material Adverse Effect on
GLB or Maple Leaf.
(c) Maple Leaf shall have received a letter, dated as of the date of
the Proxy Statement, from Tucker Anthony Incorporated to the effect that, in its
opinion as of such date, the terms of the Merger are fair to Maple Leaf's
shareholders and Warrant holders from a financial point of view.
(d) Since the date of this Agreement, and except as may be explicitly
provided in this Agreement, there shall not have been any change in the
financial condition, results of operations or business of GLB or Great Lakes
Bank that, either individually or in the aggregate, would have a Material
Adverse Effect on GLB.
(e) There shall not be any action or proceeding commenced by or before
any court or governmental agency or authority in the United States, or
threatened by any governmental agency or authority in the United States, that
challenges or seeks to prevent or delay the consummation of the Merger.
6.3. CONDITIONS TO OBLIGATION OF GLB TO EFFECT THE MERGER.
The obligation of GLB to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Closing of the additional following
conditions:
(a) Maple Leaf shall have performed in all material respects all of its
obligations contained in this Agreement required to be performed at or prior to
the Closing.
(b) The representations and warranties of Maple Leaf contained in this
Agreement shall be true and correct both: (i) on the date of this Agreement, and
(ii) as of the Effective Time as if made on and as of such time, (x) except,
both on the date of this Agreement and at the Effective Time, as expressly
contemplated or permitted by this Agreement, (y) except, as of the Effective
Time, for representations and warranties relating to a time or times other than
the Effective Time, and (z) except, both on the date of this Agreement and at
the Effective Time, to the extent that the inaccuracy of the representations or
warranties of Maple Leaf, individually or in the aggregate, shall not have a
Material Adverse Effect on Maple Leaf or GLB.
(c) Since the date of this Agreement, and except as may be explicitly
provided in this Agreement, there shall not have been any change in the
financial condition, results of operations or business of Maple Leaf or Geauga
Savings Bank that, either individually or in the aggregate, would have a
Material Adverse Effect on Maple Leaf.
(d) In the aggregate, an amount less than ten percent (10%) of the
Maple Leaf Common Stock is held by shareholders of Maple Leaf who have demanded
payment of the fair value of their Maple Leaf Class A common stock or Class B
common stock under Ohio Revised Code Section 1701.85 in connection with the
Merger.
(e) There shall not be any action or proceeding commenced by or before
any court or governmental agency or authority in the United States, or
threatened by any governmental agency or authority in the United States, that
challenges or seeks to prevent or delay the consummation of the Merger or seeks
to impose material limitations on the ability of GLB to exercise full rights of
ownership of the assets or business of Maple Leaf.
(f) There shall not be in effect or proposed any order with respect to
the transactions contemplated by this Agreement that in the reasonable judgment
of GLB would (i) materially and adversely affect the ability of GLB to enjoy the
economic or other benefits of the Merger or (ii) impose any material adverse
condition,
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limitation or requirement on GLB or Great Lakes Bank in connection with the
Merger or the merger of Geauga Savings Bank with and into Great Lakes Bank.
ARTICLE 7
CLOSING
7.1 CLOSING.
(a) Provided that this Agreement is not earlier terminated pursuant to
Section 8.1 hereof, the Closing will occur (i) at 10:00 a.m. (local time) at the
principal executive offices of GLB as promptly as practicable after the date on
which all of the conditions set forth in Article 6 of this Agreement are
satisfied or duly waived, but not before at least fifteen days have elapsed
since FRB approval of the Merger, or (ii) at such other time and place and on
such other date as GLB and Maple Leaf may agree. Each of GLB and Maple Leaf
acknowledges that time is of the essence of this Agreement.
(b) Each of GLB and Maple Leaf shall use its best efforts to execute
and deliver, on or prior to Closing, all such instruments, documents and
certificates as may be necessary or advisable in order for the transactions
contemplated by this Agreement to be consummated as soon as practicable.
7.2 CLOSING TRANSACTIONS AND DELIVERIES BY GLB. On or before the
Closing, GLB shall cause all of the following to be delivered to Maple Leaf:
(a) A Certificate of Merger duly executed by the Subsidiary in
accordance with Section 1701.81 of the Ohio Revised Code and
in the form attached hereto as Exhibit 1.1.2, or in such other
form as is appropriate for filing with the Ohio Secretary of
State.
(b) A certificate of the President and Chief Executive Officer and
the principal financial officer of GLB certifying in their
capacities as such officers that (i) the warranties and
representations of GLB set forth in this Agreement were true
and correct on the date of this Agreement, and are true and
correct as of the Effective Time as if made at and as of such
time, except (a) both on the date of this Agreement and at the
Effective Time, as expressly contemplated or permitted by this
Agreement and (b) as of the Effective Time, for
representations and warranties relating to a time or times
other than the Effective Time; and (ii) GLB has caused all of
its covenants set forth in this Agreement to be fully
performed and satisfied in all material respects. The
certificate shall be dated as of the date of Closing.
(c) Copies of resolutions adopted by the directors of GLB and by
the directors and sole shareholder of the Subsidiary,
approving and adopting the Merger and this Agreement and
authorizing the consummation of the transactions described
therein, accompanied by a Certificate of the Secretary, or
Assistant Secretary of GLB and the Subsidiary dated as of the
date of Closing certifying the adoption of the foregoing
resolutions.
(d) The written opinion of Grady & Associates in form and
substance satisfactory to the parties.
7.3 CLOSING TRANSACTIONS AND DELIVERIES BY MAPLE LEAF. On or before the
Closing, Maple Leaf shall cause all of the following to be delivered to GLB:
(a) A Certificate of Merger duly executed by Maple Leaf in
accordance with Section 1701.81 of the Ohio Revised Code and
in the form attached hereto as Exhibit 1.1.2, or in such other
form as is appropriate for filing with the Ohio Secretary of
State.
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(b) A certificate of the President and the principal financial
officer of Maple Leaf certifying in their capacities as such
officers that (i) the warranties and representations of Maple
Leaf set forth in this Agreement were true and correct on the
date of this Agreement, and are true and correct as of the
Effective Time as if made at and as of such time, except (a)
both on the date of this Agreement and at the Effective Time,
as expressly contemplated or permitted by this Agreement and
(b) as of the Effective Time, for representations and
warranties relating to a time or times other than the
Effective Time; and (ii) Maple Leaf has caused all its
covenants set forth in this Agreement to be fully performed
and satisfied in all material respects. The certificate shall
be dated as of the date of Closing.
(c) Copies of all resolutions adopted by the directors and
shareholders of Maple Leaf approving and adopting this
Agreement and authorizing the consummation of the transactions
described herein, accompanied by a certificate of the
secretary or the assistant secretary of Maple Leaf, dated as
of the Closing Date, and certifying (i) the date and manner of
the adoption of each such resolution, and (ii) that each such
resolution is in full force and effect, without amendment, as
of the Closing Date.
(d) The written opinion of Ulmer & Berne LLP, in form and
substance satisfactory to the parties.
(e) The original, complete minute books of Maple Leaf containing
at least the Articles of Incorporation, as the same may have
been amended and restated, and the Code of Regulations, and
all of the minutes and actions of the shareholders, directors
and committees or directors and share transfer and
registration records of Maple Leaf.
(f) With respect to each holder of Warrants who has executed the
agreement contemplated by Section 5.2.3, an original of such
agreement.
ARTICLE 8
MISCELLANEOUS
8.1. TERMINATION. Notwithstanding any other provision of this
Agreement, this Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of this Agreement by the shareholders of
Maple Leaf:
(a) by mutual agreement of the parties by the vote of a majority of the
Board of Directors of each of GLB and Maple Leaf;
(b) by the vote of a majority of the Board of Directors of either GLB
or Maple Leaf if the Merger shall not have been consummated on or before
December 15, 1999 (provided that the terminating party is not in material breach
of any representation, warranty, covenant or other agreement contained herein).
If the Merger is not consummated on or before November 1, 1999, Maple Leaf or
Geauga Savings Bank shall be entitled to pay year-end bonuses for the 1999
fiscal year in amounts up to $65,000 for Geauga Savings Bank's President,
$25,000 for its Treasurer and an aggregate of $20,500 for all other employees;
(c) by the vote of a majority of the Board of Directors of Maple Leaf
if any of the conditions specified in Sections 6.1 and 6.2 have not been met or
waived by Maple Leaf at such time as such condition can no longer be satisfied;
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(d) by the vote of a majority of the Board of Directors of GLB if any
of the conditions specified in Sections 6.1 and 6.3 have not been met or waived
by GLB at such time as such condition can no longer be satisfied;
(e) by the vote of a majority of the Board of Directors of either GLB
or Maple Leaf if any regulatory agency has denied approval of the Merger;
(f) by the vote of a majority of the Board of Directors of either GLB
or Maple Leaf in the event of a material breach by the other party of any
representation, warranty, covenant or agreement, which breach is not cured, or
cannot be cured, within 30 days after written notice thereof is given to the
party committing such breach;
(g) By the vote of a majority of the Board of Directors of Maple Leaf
at any time prior to the second full day immediately prior to the Closing with
immediate notice to GLB, if the following three conditions are satisfied:
(i) the GLB Closing Price is less than $8.00 per share;
and
(ii) the number obtained by dividing the GLB Closing Price
by the mean between the bid and asked closing prices
of the GLB Common Stock on November 24, 1998 (on the
Nasdaq SmallCap Market as reported by The Wall Street
Journal or, if not reported thereby, another
authoritative source) is less than 90% of the
quotient obtained by dividing the Index Price on the
seventh (7th) day immediately preceding the Closing
by the Index Price on November 24, 1998; and
(iii) GLB shall not have given written notice to Maple Leaf
prior to the second full day immediately prior to the
Closing stating that GLB elects to increase the cash
portion of the Merger Consideration by an amount
equal to the product of (x) the difference between
$8.00 and the GLB Closing Price per share and (y)
375,000.
For purposes of this Subsection 8.1(g):
"GLB Closing Price" shall mean the average of the mean between
the bid and asked closing prices per share of GLB Common Stock on the
Nasdaq SmallCap Market (as reported by The Wall Street Journal or, if
not reported thereby, another authoritative source) for the most recent
twenty (20) days on which actual trades of such shares occur ending on
the seventh (7th) day immediately preceding the Closing.
"Index Price" on a given date shall mean the weighted average
(weighted according to market-value) of the closing sales prices of
banks and bank holding companies headquartered in Ohio whose common
stock is traded on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq SmallCap Market or the Nasdaq National Market, as
reported by SNL Securities LC of Charlottesville, Virginia. If GLB or
any of such banks or bank holding companies declares or effects a stock
dividend, reclassification, recapitalization, split-up, combination,
exchange of shares, or other similar transaction between November 24,
1998 and the seventh (7th) day immediately preceding the Closing, the
prices for the GLB Common Stock or such company and any calculations
hereunder will be appropriately adjusted for the purposes of applying
this section; or
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(h) By a vote of a majority of the Board of Directors of Maple Leaf
upon the acceptance by Maple Leaf of an Acquisition Transaction pursuant to
Section 5.1(b) and the payment to GLB required thereunder.
8.2. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES; EFFECT OF
TERMINATION.
The representations and warranties or covenants in this Agreement will
terminate at the Effective Time or the earlier termination of this Agreement
pursuant to Section 8.1, as the case may be; provided however, that if the
Merger is consummated, Sections 1.1.5, 2.1 through 2.8, 3.19, 4.22, 5.4, 5.5,
5.8, 5.9, 5.10, 5.13, 5.15, 5.16, 5.19 and 8.2 will survive the Effective Time
to the extent contemplated by such Sections.
In the event of the termination of this Agreement, this Agreement shall
become void and of no effect, except that (i) the confidentiality and other
obligations set forth or referenced in Section 5.5 (the second paragraph of
Section 5.5) and the expense provisions set forth in Section 8.11 will survive
any termination of this Agreement, and (ii) until October 20, 2000, neither GLB,
Great Lakes Bank nor their respective directors, officers, employees, agents,
representatives or owners of more than ten percent (10%) of the GLB Common Stock
shall acquire or propose to acquire in any manner, whether directly or
indirectly and including any unilateral offer or proposal, any securities or
property of Maple Leaf or Geauga Savings Bank, nor will any of such persons
solicit or accept proxies relating to any vote of shareholders of Maple Leaf,
except pursuant to a transaction approved by the Board of Directors of Maple
Leaf.
8.3. WAIVER. Either party hereto may, by written notice to the other
party hereto, (a) extend the time for the performance of any of the obligations
or other actions of such other party under this Agreement, (b) waive any
inaccuracies in the representations or warranties of such other party contained
in this Agreement or in any document delivered pursuant to this Agreement, (c)
waive compliance with any of the conditions or covenants of such other party
contained in this Agreement, or (d) waive or modify performance of any of the
obligations of such other party under this Agreement. Except as provided in the
preceding sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of either party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any of the representations, warranties, covenants, conditions, or agreements
contained in this Agreement. The waiver by either party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
8.4. AMENDMENT. This Agreement may be amended or supplemented by the
parties hereto, by action taken by or on behalf of their respective Boards of
Directors, at any time before or after approval of this Agreement by the
shareholders of Maple Leaf; provided however, that any such amendment or
supplement to this Agreement made subsequent to the adoption of this Agreement
by the shareholders of Maple Leaf shall not (a) alter the amount or change the
form of the consideration contemplated by this Agreement, (b) alter or change
any material term of the Amended and Restated Articles of Incorporation of the
Surviving Corporation to be affected by the Merger, or (c) alter or change the
qualification of the Merger as a tax-free reorganization under the provisions of
Section 368 of the Code.
8.5. ENTIRE AGREEMENT. This Agreement and the agreements referenced and
contemplated therein and thereby, contain the entire agreement between GLB and
Maple Leaf with respect to the Merger and the other transactions contemplated
hereby and thereby, and supersede all prior agreements between GLB and Maple
Leaf with respect to such matters; provided, however, that nothing contained
herein shall be deemed to rescind or modify that certain confidentiality
agreement dated September 28, 1998 by and between GLB and Tucker Anthony
Incorporated.
8.6. APPLICABLE LAW. This Agreement will be governed by and construed
in accordance with the laws of the State of Ohio, without giving effect to the
principles of conflicts of law thereof.
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8.7. CERTAIN DEFINITIONS.
(a) For purposes of this Agreement, the term:
(i) "affiliate" and "associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date
hereof;
(ii) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or
indirectly or as trustee or executor, of the power to direct
or cause the direction of the management or policies of a
person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(iii) "person" means an individual, corporation, partnership,
association, trust or unincorporated organization; and
(iv) "Material Adverse Effect" on Maple Leaf or GLB means a
material adverse effect (other than as a result of changes (x)
in banking laws or regulations of general applicability or
interpretations thereof by court or governmental entities, and
(y) in generally accepted accounting principles) on the
respective condition (financial and otherwise), results of
operations, or business of Maple Leaf and Geauga Savings Bank,
or GLB and Great Lakes Bank, as the case may be, taken as a
whole, or on the ability of Maple Leaf or GLB, as the case may
be, to consummate the transactions contemplated hereby.
8.8. NOTICES. All notices and other communications hereunder will be in
writing and will be deemed to have been duly given or delivered, if delivered
personally or delivered by a recognized commercial courier, to each of the
parties at the following addresses:
TO MAPLE LEAF: TO GLB:
Betty L. Kimbrew, President Richard T. Flenner, Jr., President
Maple Leaf Financial, Inc. and Chief Executive Officer
10800 Kinsman Road GLB Bancorp, Inc.
Newbury, Ohio 44065-9744 7001 Center Street
Mentor, Ohio 44060
WITH A COPY TO: WITH A COPY TO:
Robert A. Fein, Esq. and Francis X. Grady, Esq.
Stanley T. Koenig, Esq. Grady & Associates
Ulmer & Berne LLP 20800 Center Ridge Road, Suite 116
Bond Court Building Rocky River, Ohio 44116-4306
1300 East Ninth Street, Suite 900
Cleveland, Ohio 44114-1583
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section 8.8.
8.9. COUNTERPARTS; EXHIBITS. This Agreement may be executed in any
number of counterparts, each of which will be deemed to be an original but all
of which together will constitute but one agreement. Any exhibits or schedules
referenced herein and attached hereto shall be incorporated by reference herein
as if fully written out in this Agreement.
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8.10. PARTIES IN INTEREST. This Agreement is not intended to nor will
it confer upon any other person any rights or remedies, except as expressly
stated herein.
8.11. EXPENSES. Each party shall be responsible for the costs and
expenses incurred by it in connection with the transactions contemplated by this
Agreement, except that the cost of the tax opinion shall be shared equally by
Maple Leaf and GLB. If this Agreement is terminated by Maple Leaf or GLB
pursuant to 8.1(f) because of the material breach by the other party of any
representation, warranty, covenant or agreement contained in this Agreement,
then the breaching party shall pay all costs and expenses of the terminating
party, including but not limited to printing, mailing, filing, registration and
related fees, as well as fees for financial advisors, accountants and legal
counsel, provided that the terminating party is not in material breach of any
representation, warranty, covenant or agreement contained in this Agreement.
8.12. ENFORCEMENT OF THE AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached, that it is impossible to measure in money the damages that
would result to a party by reason of the failure of any of the parties to
perform any of the obligations of this Agreement and that money damages would be
an inadequate remedy in this instance. It is accordingly agreed that the parties
hereto will be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, it is agreed that if any party should institute an action or
proceeding seeking specific enforcement of this Agreement, the party against
which such action or proceeding is brought hereby waives the claim or defense
that the party instituting such action or proceeding has an adequate remedy at
law and hereby agrees not to assert in any such action or proceeding the claim
or defense that such a remedy at law exists and shall waive or not assert any
requirement to post bond in connection with seeking specific performance.
Notwithstanding anything to the contrary herein, and in addition to any rights
set forth in Section 8.11, a party may seek monetary damages against a breaching
party for any willful breach of this Agreement.
8.13. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party hereto. Upon any such determination that any term or other provision
is invalid, illegal or incapable of being enforced and does not adversely affect
the substance of these transactions in a material way, the parties hereto will
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated by this Agreement are consummated to the
extent possible.
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IN WITNESS WHEREOF, Maple Leaf and GLB have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the day
and year first written above.
GLB BANCORP, INC.
Attest:
/s/ Andrew L. Meinhold /s/ Richard T. Flenner, Jr.
- --------------------------------- -------------------------------------
Andrew L. Meinhold, Executive Richard T. Flenner, Jr.
Vice President and Secretary President and Chief Executive Officer
ACKNOWLEDGMENT
STATE OF OHIO )
) SS:
COUNTY OF LAKE )
BE IT REMEMBERED that on this 24th day of November, 1998, personally
came before me, a Notary Public in and for the State and County aforesaid,
Richard T. Flenner, Jr., President and Chief Executive Officer, and Andrew L.
Meinhold, Executive Vice President and Secretary of GLB Bancorp, Inc., an Ohio
corporation, and they duly executed the Agreement of Affiliation and Plan of
Merger before me and acknowledged it to be their act and deed and the act and
deed of said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 24th day
of November, 1998.
/s/ Notary
-----------------------------
MAPLE LEAF FINANCIAL, INC.
Attest:
/s/ Lloyd V. Clemmer /s/ Betty L. Kimbrew
- ---------------------------------- -----------------------------
Lloyd V. Clemmer, Treasurer Betty L. Kimbrew, President
and Secretary
ACKNOWLEDGMENT
STATE OF OHIO )
) SS:
COUNTY OF GEAUGA )
BE IT REMEMBERED that on this 24th day of November, 1998, personally
came before me, a Notary Public in and for the State and County aforesaid, Betty
L. Kimbrew, President, and Lloyd V. Clemmer, Treasurer and Secretary of Maple
Leaf Financial, Inc., an Ohio corporation, and they duly executed the Agreement
of Affiliation and Plan of Merger before me and acknowledged it to be their act
and deed and the act and deed of said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 24th day
of November, 1998.
/s/ Notary
-----------------------------
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INDEX TO DEFINITIONS
DEFINITIONS SECTIONS
---------------------- ----------------
Acquisition Transactions Section 5.1
Additional Merger Cash Consideration Section 2.2
affiliate Section 8.7(i)
Agreement Introduction
associate Section 8.7(i)
BHCA Section 3.1
Certificate of Merger Section 1.1.2
Closing Section 1.1.3
Commission Section 3.5
Company Contracts Section 4.10
Company Employees Section 5.4(b)
Company Employee Plans Section 4.9
Code Section 3.17
Consents Section 6.1
Constituent Corporations Section 1.1.2
control Section 8.7(ii)
Corporate Governance Documents Section 4.1
Dissenting Shares Section 2.1
Division Section 3.6
Effective Time Section 1.1.2
Environmental Law Section 3.18
ERISA Section 3.17
ESOP Qualified Benefit Plan Section 4.9
Exchange Act Section 3.5
Exchange Agent Section 2.2
Exchange Fund Section 2.5.1
FDIC Section 3.6
Fed Approval Date Section 8.6(iii)
FRB Section 3.6
GLB Introduction
GLB 401(k) Plan Section 5.4
GLB Balance Sheet Date Section 3.7
GLB Closing Price Section 8.1(g)
GLB Common Stock Section 2.1
GLB Contracts Section 3.8
GLB Employee Plans Section 3.17
GLB Financial Statements Section 3.7
GLB Reports Section 3.7
Governmental Entity Section 3.6
Hazardous Substance Section 3.18
HOLA Section 4.1
HSR Act Section 3.6
Index Price Section 8.1(g)
IPO Registration Statement Section 3.7
IRS Section 4.8
Mailing Date Section 2.2
Maple Leaf Introduction
Maple Leaf Balance Sheet Date Section 4.7
Maple Leaf Common Stock Section 2.1
Maple Leaf Contracts Section 4.10
Maple Leaf Employee Plans Section 4.9
Maple Leaf Financial Statements Section 4.7
Maple Leaf Meeting Section 5.14
Material Adverse Effect Section 8.7(iv)
Merger Section 1.1.1
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Merger Consideration Section 2.1
New Certificates Section 2.5.1
OGCL Section 1.1.1
OTS Section 3.6
PBGC Section 3.17
person Section 8.7(iii)
Prospectus Section 5.12
Prospectus/Proxy Statement Section 5.12
Proxy Statement Section 5.12
Registration Statement Section 3.5
Securities Act Section 3.5
State Takeover Approvals Section 3.6
Subsidiary Section 8.6(i)
Surviving Corporation Section 1.1.1
Tier 1 Merger Cash Consideration Section 2.1
Tier 1 Merger Share Consideration Section 2.1
Tier 1 Merger Consideration Section 2.1
Tier 2 Merger Cash Consideration Section 2.1
Tier 2 Merger Share Consideration Section 2.1
Tier 2 Merger Consideration Section 2.1
Tier 3 Merger Cash Consideration Section 2.1
Tier 3 Merger Share Consideration Section 2.1
Tier 3 Merger Consideration Section 2.1
Treasury Shares Section 2.1
Warrants Section 2.8
1991 Warrants Section 4.3
1996 Warrants Section 4.3
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APPENDIX B
TUCKER ANTHONY INCORPORATED
ONE BEACON STREET
BOSTON, MASSACHUSETTS 02108
(617) 725-1762
(617) 725-2483 FAX
November 24, 1998
Board of Directors
Maple Leaf Financial, Inc.
10800 Kinsman Road
Newbury, Ohio 44065
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, of the consideration to be received by holders of Class A common stock and
Class B common stock and 1996 and 1991 warrants to purchase Class A and Class B
common stock of Maple Leaf Financial, Inc. ("Maple Leaf" or the "Company")
pursuant to the Agreement of Affiliation and Plan of Merger dated November 24,
1998 (the "Agreement") by and between the Company and GLB Bancorp, Inc. ("GLB").
Pursuant to the Agreement, at the Effective Time, by virtue of the Merger and
without any action on the part of any party or any shareholder: A) Each share of
Class A common stock, without par value, and each share of Class B commons
stock, without par value of Maple Leaf shall be canceled and extinguished and
shall be converted into and become a right to receive: (1) an amount of cash
equal to the quotient of (a) $10,597,258 divided by (b) the total number of
shares of Maple Leaf Common Stock issued and outstanding immediately prior to
the Effective Time; plus (2) the number of shares of GLB Common Stock equal to
the quotient of (x) 220,776 shares of GLB Common Stock divided by (y) the total
number of shares of Maple Leaf Common Stock issued and outstanding immediately
prior to the Effective Time; B) Each outstanding 1996 Warrant shall be canceled
and extinguished and shall be converted into and become a right to receive: (1)
an amount of cash equal to the quotient of (a) $4,943,825 divided by (b) the
total number of 1996 Warrants issued and outstanding immediately prior to the
Effective Time; plus (2) the number of shares of GLB Common Stock equal to the
quotient of (x) 102,996 shares of GLB Common Stock divided by (y) the total
number of 1996 Warrants issued and outstanding immediately prior to the
Effective Time; (C) Each outstanding 1991 Warrant shall be canceled and
extinguished and shall be converted into and become a right to receive: (1) an
amount of cash equal to the quotient of (a) $2,458,917 divided by (b) the total
number of 1991 Warrants issued and outstanding immediately prior to the
Effective Time; plus (2) the number of shares of GLB Common Stock equal to the
quotient of (x) 51,228 shares of GLB Common Stock divided by (y) the total
number of 1991 Warrants issued and outstanding immediately prior to the
Effective Time. As described in the Agreement, the Merger Consideration is based
upon an assumed market value of GLB Common Stock of $13.50 per share and the
assumption that none of the 1996 and 1991 Warrants are exercised prior to the
Effective Time. The Merger Consideration will be recalculated if the GLB Closing
Price (as defined in the Agreement) is different than $13.50.
Tucker Anthony Incorporated ("Tucker Anthony") as part of its investment banking
business is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for corporate and other
purposes. We are acting as financial advisor to the Company in connection with
the Merger and will receive a fee for our services, a significant portion of
which is payable upon the consummation of the Merger. In the ordinary course of
our business, we may actively trade the securities of GLB for our own account
and for the accounts of customers and, accordingly, may at any time hold a long
or short position in such securities.
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In arriving at our opinion, we have among other things:
(i) Reviewed the draft form of the Agreement dated November 20, 1998;
(ii) Reviewed certain historical financial and other information concerning
the Company for the five fiscal years ended December 31, 1997, and for
the three quarters ended March 31, June 30, and September 30, 1998;
(iii) Reviewed certain historical financial and other information concerning
GLB for the three fiscal years ended December 31, 1997, and for the
three quarters ended March 31, June 30, and September 30, 1998,
including GLB's common stock Prospectus dated May 14, 1998 and
quarterly reports on Form 10-Q;
(iv) Held discussions with the senior management of the Company and GLB with
respect to their past and current financial performance, financial
condition and future prospectus;
(v) Reviewed certain internal financial data, projections and other
information of the Company including financial projections prepared by
management;
(vi) Analyzed certain publicly available information of other financial
institutions that we deemed comparable or otherwise relevant to our
inquiry, and compared the Company and GLB from a financial point of
view with certain of these institutions;
(vii) Compared the consideration to be received by the stockholders of the
Company pursuant to the Agreement with the consideration received by
stockholders in other acquisitions of financial institutions that we
deemed comparable or otherwise relevant to our inquiry;
(viii) Reviewed publicly available earnings estimates, historical trading
activity and ownership data of GLB common stock and considered the
prospects for dividends and price movement;
(ix) Reviewed historical trading activity and ownership data of the
Company's common stock and considered the prospects for dividends and
price movement; and
(x) Conducted such other financial studies, analyses and investigations and
reviewed such other information as we deemed appropriate to enable us
to render our opinion. In our review, we have also taken into account
an assessment of general economic, market and financial conditions and
certain industry trends and related matters.
In our review and analysis and in arriving at our opinion we have assumed and
relied upon the accuracy and completeness of all the financial information
publicly available or provided to us by the Company and GLB and have not
attempted to verify any of such information. We have assumed (i) that the
financial projections of the Company provided to us with respect to the results
of operations likely to be achieved by the Company have been prepared on a basis
reflecting the best currently available estimates and judgments of the Company's
management as to future financial performance and results and (ii) that such
forecasts and estimates will be realized in the amounts and in the time periods
currently estimated by management. We have also assumed, without independent
verification, that the aggregate reserves for possible loan losses for the
Company and GLB are adequate to cover such losses. We did not make or obtain any
independent evaluations or appraisals of any assets or liabilities of the
Company, GLB or any of their respective subsidiaries nor did we verify any of
the Company's or GLB's books or records or review any individual loan credit
files. Our opinion is necessarily based upon market, economic and other
conditions as they exist and can be evaluated as of the date of this letter.
This opinion is being furnished for the use and benefit of the Board of
Directors of the Company and is not a recommendation to shareholders. Tucker
Anthony has advised the Board of Directors of the Company that it does not
believe any persons other than the Members of the Board of Directors of the
Company have the legal right to rely on the opinion and, absent any controlling
precedent, would resist any assertion otherwise.
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Based upon and subject to the foregoing, it is our opinion that as of the date
hereof the consideration to be received by holders of Class A common stock and
Class B common stock and 1996 and 1991 warrants to purchase Class A and Class B
common stock of the Company pursuant to the Agreement is fair to such holders
from a financial point of view.
Very truly yours,
/s/ Tucker Anthony Incorporated
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APPENDIX C
OHIO DISSENTERS' RIGHTS STATUTE
RELIEF TO DISSENTING SHAREHOLDER
OF DOMESTIC CORPORATION
OHIO REVISED CODE 1701.85
(A) (1) A shareholder of a domestic corporation is entitled to relief
as a dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 [1701.80.1] of the Revised Code shall be a
record holder of the shares of the corporation as to which he seeks relief as of
the date on which the agreement of merger was adopted by the directors of that
corporation. Within twenty days after he has been sent the notice provided in
section 1701.80 or 1701.801 [1701.80.1] of the Revised Code, the dissenting
shareholder shall deliver to the corporation a written demand for payment with
the same information as that provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the
address specified in his demand, a request for the certificates representing the
shares as to which he seeks relief, the dissenting shareholder, within fifteen
days from the date of the sending of such request, shall deliver to the
corporation the certificates requested, so that the corporation may forthwith
endorse on them a legend to the effect that demand for the fair cash value of
such shares has been made. The corporation promptly shall return such endorsed
certificates to the dissenting shareholder. A dissenting shareholder's failure
to deliver such certificates terminates his rights as a dissenting shareholder,
at the option of the corporation, exercised by written notice sent to the
dissenting shareholder, within twenty days after the lapse of the fifteen-day
period, unless a court for good cause shown otherwise directs. If shares
represented by a certificate on which such a legend has been endorsed are
transferred, each new certificate issued for them shall bear a similar legend,
together with the name of the original dissenting holder of such shares. Upon
receiving a demand for payment from a dissenting shareholder who is the record
holder of uncertificated securities, the corporation shall make an appropriate
notation of the demand for payment in its shareholder records. If uncertificated
shares for which payment has been demanded are to be transferred, any new
certificate issued for the shares shall bear the legend required for
certificated securities as provided in this paragraph. A transferee of the
shares so endorsed, or of uncertificated securities where such notation has been
made, acquires only such rights in the corporation as the original dissenting
holder of such shares had immediately after the service of a demand for payment
of the fair cash value of the shares. A
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request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to
an agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the shareholder or the corporation, which
in case of a merger or consolidation may be the surviving or the new entity,
within three months after the service of the demand by the dissenting
shareholder, may file a complaint in the court of common pleas of the county in
which the principal office of the corporation that issued such shares is located
or was located when the proposal was adopted by the shareholders of the
corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs, or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint, and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with interest at
such rate and from such date as the court considers equitable. The costs of the
proceeding, including reasonable compensation to the appraisers to be fixed by
the court, shall be assessed or apportioned as the court considers equitable.
The proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505 of the Revised
Code. If, during the pendency of any proceeding instituted under this section, a
suit or proceeding is or has been instituted to enjoin or otherwise to prevent
the carrying out of the action as to which the shareholder has dissented, the
proceeding instituted under this section shall be stayed until the final
determination of the other suit or proceeding. Unless any provision in division
(D) of this section is applicable, the fair cash value of the shares that is
agreed upon by the parties or as fixed under this section shall be paid within
thirty days after the date of final determination of such value under this
division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which such payment is made.
(C) If the proposal was required to be submitted to the shareholders of
the corporation, fair cash value as to those shareholders shall be determined as
of the day prior to the day on which the vote by the shareholders was taken and,
in the case of a merger pursuant to section 1701.80 or 1701.801 [1701.80.1] of
the Revised Code, fair cash value as to shareholders of a constituent subsidiary
corporation shall be determined as of the day before the adoption of the
agreement of merger by the directors of the particular subsidiary corporation.
The fair cash value of a share for the purposes of this section is the amount
that a willing seller, who is under no compulsion to sell would be willing to
accept and that a willing buyer who is under no compulsion to purchase would be
willing to pay, but in no event shall the fair cash value of a share exceed the
amount specified in the demand of the particular shareholder. In computing such
fair cash value, any appreciation or depreciation in market value resulting from
the proposal submitted to the directors or to the shareholders shall be
excluded.
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(D) (1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this
section, unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind
their adoption of the action involved;
(c) The dissenting shareholder withdraws his demand, with the
consent of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not
come to an agreement as to the fair cash value per share, and neither
the shareholder nor the corporation has filed or joined in a complaint
under division (B) of this section within the period provided in that
division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand,
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
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APPENDIX D
WARRANT HOLDERS' AGREEMENT
--------------------------
THIS WARRANT HOLDERS' AGREEMENT (the "Agreement") dated December ,
1998 is entered into by and among MAPLE LEAF FINANCIAL, INC., an Ohio
corporation ("Maple Leaf") and those existing holders of 1996 Warrants
representing the right to purchase one share of Class A common stock, without
par value, and one share of Class B common stock, without par value, of Maple
Leaf each at $412.50 per share (the "1996 Warrants") and 1991 Warrants
representing the right to purchase one share of Class A common stock, without
par value, and one share of Class B common stock, without par value, of Maple
Leaf each at $312.50 per share (the "1991 Warrants") listed on EXHIBIT "A"
attached hereto and incorporated herein by reference (individually, a "Warrant
Holder" and collectively, the "Warrant Holders").
RECITALS:
---------
A. The respective Boards of Directors of GLB Bancorp, Inc., an Ohio
corporation ("GLB") and Maple Leaf have determined that it is in the best
interests of the shareholders of GLB and Maple Leaf, respectively, that Maple
Leaf merge with and into GLB upon the terms and subject to the conditions set
forth in that certain Agreement of Affiliation and Plan of Merger dated as of
November 24, 1998 by and between GLB and Maple Leaf (the "Merger Agreement").
B. The respective Boards of Directors of GLB and Maple Leaf have each
approved the merger of Maple Leaf with and into GLB upon the terms and subject
to the conditions set forth in the Merger Agreement.
C. Section 5.2.3 of the Merger Agreement provides, among other things,
that the Warrant Holders (i) consent to the conversion of their 1991 Warrants
and 1996 Warrants into the Tier 2 Merger Consideration and Tier 3 Merger
Consideration (as such terms are defined in Article 2 of the Merger Agreement)
on the basis set forth in Article 2 of the Merger Agreement, and (ii) agree to
forbear from the exercise of any of their 1991 Warrants or 1996 Warrants unless
the Merger Agreement is terminated pursuant to Section 8.1 thereof.
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. CONSENT TO CONVERSION. Each Warrant Holder has read the Merger
Agreement, understands its terms, and has had the opportunity to receive the
advice of counsel and/or such Warrant Holder's financial and tax advisers with
respect to the Merger Agreement and this Agreement. Each Warrant Holder hereby
consents to the conversion of all 1991 Warrants and 1996 Warrants owned by such
Warrant Holder into the Tier 2 Merger Consideration and Tier 3 Merger
Consideration on the basis set forth in Article 2 of the Merger Agreement.
2. FORBEARANCE FROM EXERCISE. Each Warrant Holder hereby agrees to
forbear from the exercise of any 1991 Warrants and 1996 Warrants owned by such
Warrant Holder which remain unexercised as of the date hereof unless and until
the Merger Agreement is terminated pursuant to Section 8.1 thereof.
3. RELEASE. In consideration of the execution and delivery of this
Agreement, and other good and valuable consideration, the receipt, adequacy and
sufficiency of which are hereby acknowledged, each Warrant Holder (for such
Warrant Holder and such Warrant Holder's shareholders, officers, directors,
members, partners, heirs, executors, representatives, successors and assigns)
forever releases GLB and Maple Leaf, and their respective shareholders,
directors, officers, employees, agents, representatives, successors and assigns,
from any and all claims, demands, actions, and causes of action whatsoever,
known and unknown, liquidated and contingent, foreseeable and unforeseeable, of
such Warrant Holder against GLB, Maple Leaf, or their
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respective shareholders, directors, officers, employees, agents,
representatives, successors and assigns, arising from or in connection with, or
relating to:
(a) the conversion of all 1991 Warrants and 1996 Warrants
owned by such Warrant Holder into the Tier 2 Merger
Consideration and Tier 3 Merger Consideration on the
basis set forth in Article 2 of the Merger Agreement;
and
(b) the agreement of such Warrant Holder to forebear from
the exercise of any 1991 Warrants and 1996 Warrants
owned by such Warrant Holder which remain unexercised
as of the date hereof unless and until the Merger
Agreement is terminated pursuant to Section 8.1
thereof.
4. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
Jurisdiction and venue for any action or claim
arising hereunder shall lie exclusively in the United
States Federal District Court for the Northern
District of Ohio, Eastern Division, and the Geauga
County, Ohio, Court of Common Pleas, and each party
irrevocably consents to the personal and subject
matter jurisdiction of said courts. Each party
consents to service of process.
(b) This Agreement may be executed in multiple
counterparts, each of which shall be deemed an
original, and all of which together shall constitute
one and the same instrument. The signature page of
any counterpart, and facsimiles and photocopies
thereof, may be appended to any other counterpart and
when so appended will constitute an original.
(c) This Agreement shall be binding upon and inure to the
benefit of the Maple Leaf and its shareholders,
officers, directors, employees, agents,
representatives, successors and assigns, and the
Warrant Holders and their respective shareholders,
officers, directors, members, partners, employees,
agents, heirs, executors, representatives, successors
and assigns. This Agreement may not be assigned by a
party without the prior written consent of the other
parties hereto; provided, that, this Agreement may be
assigned by Maple Leaf, whether by operation of law
or otherwise, to any successor of Maple Leaf. The
parties hereby expressly acknowledge their mutual
intent and agreement that GLB shall be considered a
third party beneficiary of this Agreement.
(d) This Agreement contains the entire agreement among
the parties respecting the subject matter of this
Agreement. There are no representations, agreements,
arrangements or understandings, oral or written,
between the parties with respect to the subject
matter of this Agreement, other than as set forth
herein. This Agreement may be modified only in a
writing executed by all of the parties.
(e) Each party covenants and agrees to execute and
deliver such further consents, certificates,
affidavits, agreements, instruments and other
documents as another party reasonably requests to
effectuate the provisions of this Agreement.
(f) Section and paragraph headings are not to be
considered part of this Agreement. They are included
solely for the convenience of the parties and are not
intended to be full and accurate descriptions of the
contents of this Agreement. The recitals set forth
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<PAGE> 251
at the beginning of this Agreement are an integral
part of this Agreement and are incorporated herein by
reference as if fully rewritten.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
MAPLE LEAF FINANCIAL, INC.
By:
----------------------------------
Betty L. Kimbrew, President
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<PAGE> 252
WARRANT HOLDERS' AGREEMENT SIGNATURE PAGE
-----------------------------------------
The undersigned acknowledges that the foregoing Warrant Holders'
Agreement has been read and is understood in its entirety and agrees to be bound
thereby.
Executed by the undersigned this _______ day of _______________, 1998.
SIGNATURE BLOCK FOR SIGNATURE BLOCK FOR WARRANT HOLDERS
INDIVIDUAL WARRANT HOLDERS OTHER THAN INDIVIDUALS
- --------------------------------- ------------------------------------
(Signature of Warrant Holder) (Print Name of Entity/Warrant Holder)
By:
- --------------------------------- -----------------------------------
(Print Name of Warrant Holder) (Signature of Authorized Signatory)
Its:
----------------------------------
(Title of Authorized Signatory)
------------------------------------
(Print Name of Authorized Signatory)
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<PAGE> 253
EXHIBIT "A"
-----------
WARRANT HOLDERS
---------------
<PAGE> 254
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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. Article EIGHTH of GLB's Amended and Restated Articles of Incorporation
provides for indemnification to the maximum extent permitted by the OGCL.
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. GLB Bancorp, Inc. maintains insurance for the
benefit of persons entitled to indemnification.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. See the Exhibit Index.
(b) Financial Statement Schedules. Not Applicable.
(c) Reports, Opinions or Appraisals. Furnished as Appendix B to
the Prospectus and Proxy Statement
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement
to:
(i) Include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental
change in the information in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
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(iii) Include any additional or changed material
information in the plan of distribution.
(2) For determining liability under the Securities Act of
1933, treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities
at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of GLB Bancorp, Inc. pursuant to the foregoing provisions, or otherwise,
GLB Bancorp, Inc. 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 GLB Bancorp,
Inc. of expenses incurred or paid by a director, officer or controlling person
of GLB Bancorp, Inc. 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, GLB Bancorp, Inc. will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(d) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
II-2
<PAGE> 256
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mentor,
State of Ohio, on the 4th day of February, 1999.
GLB BANCORP, INC.
By: /s/ Richard T. Flenner, Jr.
----------------------------------
Richard T. Flenner, Jr., 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.
/s/ Richard T. Flenner, Jr. February 4, 1999
- -----------------------------------------------
Richard T. Flenner, Jr., President,
Chief Executive Officer and Director
/s/ Cheryl J. Mihitsch February 4, 1999
- -----------------------------------------------
Cheryl J. Mihitsch, Treasurer
(Principal Financial and Accounting Officer)
/s/ James V. Fryan * February 4, 1999
- -----------------------------------------------
James V. Fryan, Director
/s/ George C. Lott * February 4, 1999
- -----------------------------------------------
George C. Lott, Director
/s/ George X. Mechir * February 4, 1999
- -----------------------------------------------
George X. Mechir, Director
/s/ Marian Rose Nathan* February 4, 1999
- -----------------------------------------------
Marian Rose Nathan, Director
/s/ Jerome T. Osborne* February 4, 1999
- -----------------------------------------------
Jerome T. Osborne, Director and
Chairman of the Board
/s/ Richard M. Osborne * February 4, 1999
- -----------------------------------------------
Richard M. Osborne, Director and
Vice Chairman of the Board
II-3
<PAGE> 257
/s/ Edward R. Pike * February 4, 1999
- -----------------------------------------------
Edward R. Pike, Director
/s/ Thomas J. Smith * February 4, 1999
- -----------------------------------------------
Thomas J. Smith, Director
/s/ Joseph T. Svete * February 4, 1999
- -----------------------------------------------
Joseph T. Svete, Director
/s/ Thomas E. Wheeler * February 4, 1999
- -----------------------------------------------
Thomas E. Wheeler, Director
*The undersigned, by signing his name hereto, does sign and execute
this registration statement on behalf of each of the indicated officers and
directors of GLB Bancorp, Inc. pursuant to a Power of Attorney executed by each
such officer and director and filed with this registration statement.
Dated: February 4, 1999 /s/Richard T. Flenner, Jr.
-----------------------------
Richard T. Flenner, Jr.
Attorney-in-Fact
II-4
<PAGE> 258
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
** 2.1 Agreement of Affiliation and Plan of Merger by and between GLB
Bancorp, Inc. and Maple Leaf Financial, Inc. dated as of
November 24, 1998, as amended by Amendment to Agreement of
Affiliation and Plan of Merger dated as of December 29, 1998
(included as Appendix A to the Prospectus/Proxy Statement and
incorporated herein by this reference)
3.1 Amended and Restated Articles of Incorporation of GLB Bancorp,
Inc. (incorporated by reference to Exhibit 3.a to the
Registration Statement on Form SB-2 filed by the registrant on
March 20, 1998, Commission File No. 333-48387)
3.2 Code of Regulations, as amended, of GLB Bancorp, Inc.
(incorporated by reference to Exhibit 3.b to the Registration
Statement on Form SB-2 filed by the registrant on March 20,
1998, Commission File No. 333-48387)
* 5 Opinion of Grady & Associates regarding legality
* 8 Opinion of Ulmer & Berne LLP regarding certain tax matters
10.a 1998 Stock Option and Incentive Plan of GLB Bancorp, Inc.
(incorporated by reference to Exhibit 10.a to the Registration
Statement on Form SB-2 filed by the registrant on March 20,
1998,
Commission File No. 333-48387)
10.b Indenture of Lease dated March 1, 1998 between Richard M.
Osborne, Trustee, and Great Lakes Bank, for the 58 South Park
Place branch (Painesville, Ohio) (incorporated by reference to
Exhibit 10.b to the Registration Statement on Form SB-2 filed
by the registrant on March 20, 1998, Commission File No.
333-48387)
10.c Indenture of Lease dated May 1, 1997 between Richard M.
Osborne, Trustee, and Great Lakes Bank, for the 29933 Euclid
Avenue branch (Wickliffe, Ohio) (incorporated by reference to
Exhibit 10.c to the Registration Statement on Form SB-2 filed
by the registrant on March 20, 1998, Commission File No.
333-48387)
10.d Indenture of Lease dated March 1, 1998 between Great Lakes
Bank and OsAir, Inc. for the lease of certain space in Great
Lakes Bank's main office facility at 7001 Center Street
(Mentor, Ohio) (incorporated by reference to Exhibit 10.d to
the Registration Statement on Form SB-2, Amendment No. 1,
filed by the registrant on May 1, 1998, Commission File No.
333-48387)
10.e Federal Home Loan Bank of Cincinnati Blanket Agreement for
Advances and Security Agreement, dated July 22, 1996
(incorporated by reference to Exhibit 10.e to the Registration
Statement on form SB-2 filed by the registrant on March 20,
1998, Commission File No. 333-48387)
** 10.f Lease Agreement by and between Great Lakes Bank and
Collinwood Properties Co., LLC dated September 16, 1998, for
the 28500 Chardon Road branch (Willoughby Hills, Ohio)
II-5
<PAGE> 259
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
** 10.g Employment Agreement of Betty L. Kimbrew
** 21 Subsidiaries of GLB Bancorp, Inc.
** 23.1 Consent of PricewaterhouseCoopers LLP (relating to the audited
financial statements of Maple Leaf Financial, Inc.)
** 23.2 Consent of KPMG Peat Marwick LLP (relating to the audited
financial statements of the Registrant)
23.3 Consent of Grady & Associates (included in Exhibit 5)
23.4 Consent of Ulmer & Berne LLP (included in Exhibit 8)
** 23.5 Consent of Tucker Anthony Incorporated
** 24 Power of Attorney
** 99.1 Form of Proxy
** 99.2 Shareholder Voting Agreement dated as of November 24, 1998
** 99.3 Consent of Betty L. Kimbrew to being named a Director of GLB
Bancorp, Inc.
** 99.4 Consent of Howard Amster to being named a Director of GLB
Bancorp, Inc.
- ----------------------------------
* To be filed by amendment
** Filed herewith
II-6
<PAGE> 1
EXHIBIT 10.f
LEASE AGREEMENT
BY AND BETWEEN
COLLINWOOD PROPERTIES CO., LLC ("Lessor")
AND
GREAT LAKES BANK ("Lessee")
For Property Located at 28500 Chardon Road
Willoughby Hills, Ohio
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
Access to Premises 16 Non-Liability of Lessor 17
Alterations 22 Notices/Consents 23
Applicable Laws 24 Operating Charges 6
Benefits of Assigns 24
Operation of Business 5
Care, Use and Occupancy Partial Invalidity 24
of Premises 9 Promotional Fund Charges 7
Common Areas 15 Quiet Enjoyment 24
Default 21 Rent, Fixed 7
Definitions 1/2/3/4 Rent, Payment & Demand 8
Rent, Percentage
Rent, Taxes 8
Destruction of Premises 18 Representations 23
Eminent Domain 19 Sales, Gross 8
Entire Agreement 23 Security Deposit 5
Signature/acknowledgements 25/26
Signs 7
Fixed Rent/Percentage Rent 6
Force Majeure 22
Grant of Lease 4 Sublease, Assignment/
Gross Sales 6 Stock Transfer 14
Holding Over 15 Surrender of Possession 13
Indemnity by Lessee 10 Term 5
Insurance by Lessee 10 Transfer of Title 22
Lessee's Chattels Taxes 8 Use and Restriction 5
Liability of Lessor Limited 22 Use of Terms 25
Maintenance 11 Utilities 7
Memorandum of Lease 24 Waiver of Jury Trial 22
Mortgage Subordination/ Waiver of Subrogation 17
Estoppel Certificate 20 Waiver 23
</TABLE>
<PAGE> 3
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT (herein called LEASE) made at Mentor, Ohio this
16th day of September, 1998 by and between GREAT LAKES BANK, herein "LESSEE" and
COLLINWOOD PROPERTIES CO., LLC, herein "LESSOR"
WITNESS AS FOLLOWS:
-------------------
ARTICLE 1. DEFINITIONS. As used herein, the words capitalized in this Article
and LEASE shall have the meaning of identity or represent the amount set forth
after each word:
A. LESSOR (name) COLLINWOOD PROPERTIES CO., LLC
(address) c/o 7670 Tyler Blvd.
Mentor, Ohio 44060
(tel. no.) (440) 951-2977
B. LESSEE: (name) GREAT LAKES BANK
(address) 7001 Center Street
Mentor, Ohio 44060
Attention: Mr. Richard T. Flenner, Jr.
(tel. no.) (440) 974-0000
C. PREMISES:
(i) Address: 28500 Chardon Road, Willoughby Hills, Ohio
(ii) Unit No. 1 Square Footage 3,268 square feet of rentable space.
The PREMISES are shown on the plot plan marked Exhibit "B" attached
hereto and made a part hereof for the sole purpose of identifying the
PREMISES and STRIP CENTER. Included in the definition of PREMISES shall
be the area used for LESSEE'S trash receptacles as designated by LESSOR
(wherever and whenever appropriate herein).
(iii) LESSEE'S SHARE: 56.05%
(iv) The Premises shall be delivered in their present "as is"
condition.
D. ORIGINAL TERM: Ten (10) Years (See Article 1.S hereof)
(i) COMMENCEMENT DATE: Delivery of actual and exclusive possession
of the PREMISES to LESSEE. (Approximately September 15, 1998)
(ii) EXPIRATION DATE: Tenth (10th) Anniversary of the last day of
the month in which the RENT COMMENCEMENT DATE occurs.
E. RENT COMMENCEMENT DATE: Thirty (30) days after the COMMENCEMENT DATE or
the date the PREMISES are opened for business, whichever is earlier.
F. FIXED RENT:
(i) During the Original Term:
Two Thousand Nine Hundred $2900.00 per month in advance on the first
day of each month without deduction or set-off.
<PAGE> 4
G. PERCENTAGE RENT: NONE
H. PERCENTAGE RENT BASE SALES AMOUNT: NOT APPLICABLE
I. OPERATING CHARGES: (initial) $4,500.00 per annum $375.00 per month
(LESSEE'S SHARE)
J. PROMOTIONAL FUND CHARGE: NONE
K. (i) SECURITY DEPOSIT: NONE
(ii) ADVANCE DEPOSIT: NONE
L. USE: Operation of a commercial bank branch and all activities
reasonably incidental thereto in the commercial banking industry.
M. EXTENDED TERM: One (1) option(s) of ten (10) ("OPTION TERM(S)")
N. EXTENDED FIXED RENT:
(i) for the EXTENDED TERM, EXTENDED FIXED RENT shall be paid by LESSEE
to LESSOR in an amount equal to the FIXED RENT or EXTENDED FIXED RENT
multiplied by a fraction, such fraction having as a numerator the CPI
for the first month of the OPTION TERM, and as a denominator the CPI
for the first month of the ORIGINAL TERM. In no event shall EXTENDED
FIXED RENT for the OPTION TERM be less than the annual FIXED RENT for
the ORIGINAL TERM nor more than 130% of FIXED RENT during the ORIGINAL
TERM.
(ii) Until the calculation provided for in the preceding Subsection can
be completed, payment of EXTENDED FIXED RENT for the OPTION TERM shall
be paid based upon the FIXED RENT for the ORIGINAL TERM. LESSOR shall
submit an invoice to LESSEE as soon after the commencement of the
OPTION TERM as to the calculation provided for in the preceding
Subsection, and LESSEE shall reimburse LESSOR for any deficiency in the
prior monthly payments based upon any increase therein, and shall
thereafter make payments accordingly to LESSOR.
(iii) If the CPI is not computed for a month required hereunder, the
amount thereof as of the closest amount thereto (with prior and
following months averaged, if necessary) shall be used. If no CPI or a
successor thereto is computed and/or published within thirty (30) days
of each such date, comparable statistics compiled by a responsible
financial periodical or recognized authority shall be used.
O. EXTENDED PERCENTAGE RENT: NOT APPLICABLE
P. STRIP CENTER: The buildings and improvements (including the PREMISES
and COMMON AREAS) comprising the commercial development situated on the
parcel of land, the legal description of which is set forth on Exhibit
"A" attached hereto and made a part hereof.
Q. COMMON AREAS: The parking (customers and employees) and service areas,
driveways and service roads, sidewalks and walkways, landscaped areas,
maintenance, meter and storage areas, utility lines and sewers, Strip
Center identification signs and other similar facilities common for all
lessees of the Strip Center and constituting a part of the Strip
Center.
<PAGE> 5
R. LESSEE'S SHARE: The percentage computed from the fraction, the
numerator of which is the number of square feet on the PREMISES and the
denominator of which is the total rentable square fee of all buildings
in the Strip Center. "Square feet in the PREMISES" and "rentable square
feet", as used herein for purposes of determining LESSEE'S SHARE solely
shall be deemed to exclude therefrom (where applicable) (i) non-sales
mezzanine areas, (ii) common areas, (iii) maintenance, meter and
storage areas, and (iv) areas used for LESSEE'S trash receptacles.
Adjustments for additions or deletions of rentable square feet shall be
made annually as of the first of the following year for the ensuing
year (not retroactive). LESSOR and LESSEE acknowledge the LESSEE'S
SHARE as of the date hereof is as set forth in Article 1. LESSEE'S
SHARES shall not increase during the ORIGINAL TERM or during the
EXTENDED TERM unless either (i) LESSOR constructs additional rentable
space in the STRIP CENTER, or (ii) LESSEE leases additional space
within the STRIP CENTER from LESSOR.
S. TERM: The ORIGINAL TERM and any extension or renewal, unless otherwise
specified, but subject to termination as provided herein. The ORIGINAL
TERM shall include, in addition to the period of time set forth in
Article 1(D) hereof, the period of time from the COMMENCEMENT DATE to
the last day of the month in which the RENT COMMENCEMENT DATE occurs,
in the event the COMMENCEMENT DATE and RENT COMMENCEMENT DATE do not
coincide.
T. LEASE YEAR: The first LEASE YEAR shall commence on the RENT
COMMENCEMENT DATE and end on the last day of the month in which the
first anniversary of the RENT COMMENCEMENT DATE occurs. Thereafter a
LEASE YEAR shall consist of twelve (12) consecutive full calendar
months commencing on the day following the close of the prior LEASE
YEAR. The twelve (12) months constituting a LEASE YEAR may be changed
with LESSOR'S prior consent, which consent shall not be unreasonably
withheld.
U. CPI: The Bureau of Labor statistics, Consumer Price Index for All Urban
Consumers for Cleveland (1996 equals 100) ("CPI"). If the CPI is not
computed for a month required hereunder, the amount thereof as of the
closest month thereto (with prior and following months averaged, if
necessary) shall be used. If no CPI or a successor thereto is computed
and/or published within thirty (30) days of each such date, comparable
statistics compiled by a responsible financial periodical or recognized
authority shall be used.
V. AFFILIATE: The family members of an individual, if the LESSEE is an
individual; the individual partners, (general and/or limited) and/or
their family members, if the LESSEE is a partnership; and any parent,
subsidiary, brother/sister corporation of LESSEE or corporations under
common control with LESSEE and/or in principal shareholders of LESSEE,
if LESSEE is a corporation (including, specifically, the parties who
sign this LEASE on behalf of the corporation or partnership, if the
LESSEE is a corporation or partnership).
W. LESSEE'S CHATTELS: Any and all stock-in trade, floor and wall
coverings, trade fixtures, furniture, furnishings, ceiling-hung light
fixtures and other adornments, special equipment and personal property
of LESSEE within the PREMISES.
X. ARTICLE HEADINGS: The ARTICLE headings and the page numbers indicated
are for information index purposes solely.
ARTICLE 2. GRANT OF LEASE.
(a) LESSOR does lease and let unto LESSEE and LESSEE does lease and take
from LESSOR the PREMISES for the TERM upon the agreements, conditions
and covenants hereof.
<PAGE> 6
(b) The use and occupation of the PREMISES by LESSEE shall include (i) the
use by LESSEE (or LESSEE'S contractor) of the area designated by LESSOR
for LESSEE'S trash receptacle.
(c) The non-exclusive use by LESSEE, its agents, customers, employees and
invitees, in common with others entitled thereto, of the COMMON AREAS.
(d) LESSOR from time to time may make additions, alterations and/or
modifications to the Strip Center so long as the same do not
significantly obstruct the public's view of the PREMISES, significantly
hamper the public's access to the PREMISES, nor significantly interfere
with the intended use of the COMMON AREAS.
(e) Notwithstanding the dimensions of the PREMISES being calculated from
exterior faces of exterior walls and the center lines of interior
walls, LESSOR may use and shall control the surfaces of the exterior
walls (excluding storefronts) and the interior walls between surfaces
for utility lines or other purposes in connection with the operation of
the Strip Center.
ARTICLE 3. USE AND RESTRICTION. The PREMISES shall be used for retail purposes
solely for the USE and for no other purpose. LESSOR agrees not to engage in or
to allow anyone other than the LESSEE to engage in the business of operating a
commercial bank or a thrift institution at the STRIP CENTER.
ARTICLE 4. OPERATION OF BUSINESS.
(a) LESSEE shall operate all of the PREMISES for the USE in keep with good
business practice and during the business hours customary in the
commercial banking business, subject, however, to restrictions imposed
by law, to union agreements, and restrictions, and except as it may be
necessary that the PREMISES be closed due to the order of any duly
constituted authority or for the purpose of making repairs or
improvements, or during the period of strikes, lockouts, emergencies or
other causes beyond LESSEE'S reasonable control, so long as LESSEE
shall make all reasonable efforts to shorten such periods.
ARTICLE 5. SECURITY DEPOSIT. This Section intentionally deleted.
ARTICLE 6. TERM.
(a) The ORIGINAL TERM of this LEASE shall commence on the COMMENCEMENT
DATE and end on the EXPIRATION DATE.
(b) LESSOR shall deliver to LESSEE and LESSEE shall accept from LESSOR
possession of the PREMISES upon the COMMENCEMENT DATE in an "as is"
physical condition.
(c) The taking of possession of the PREMISES by LESSEE shall be conclusive
evidence as against LESSEE that the PREMISES were in good and
satisfactory condition at the time such possession was so taken as
provided in Exhibit "C" and that LESSOR has performed all conditions,
if any, by it to be performed prior to such taking of possession.
(d) LESSEE is hereby granted an option to extend this LEASE for the
EXTENDED TERM(S) upon the agreements, conditions and covenants herein
set forth, provided that
(i) LESSEE shall be deemed to have exercised said Option to Extend
unless LESSEE shall notify LESSOR not later than six (6)
months prior to the beginning of the EXTENDED TERM of LESSEE'S
election not to extend (time being of the essence).
<PAGE> 7
(ii) LESSEE has at all times prior to the beginning of EXTENDED
TERM(S) (the option for which LESSEE is then exercising) fully
complied with the agreements, conditions and covenants hereof,
(iii) this LEASE is then in full force and effect,
(iv) the FIXED RATE and PERCENTAGE RENT during EXTENDED TERM(S)
(EXTENDED FIXED RENT and EXTENDED PERCENTAGE RENT) shall be as
set forth in Article 1 hereof, and
(v) this option for EXTENDED TERM(S) is personal to LESSEE and may
not be assigned to and/or exercised by any other person or
entity.
ARTICLE 7. FIXED RENT/PERCENTAGE RENT.
(a) LESSEE shall pay to LESSOR the FIXED RENT in monthly installments on
the first day of each and every calendar month in advance commencing
upon the RENT COMMENCEMENT DATE and continuing during the balance of
the TERM.
(b) If the FIXED RENT and other charges (other than PERCENTAGE RENT, if
any) are not payable for a full month, then the same shall be prorated
on a PER DIEM basis unit the applicable annual amount divided by 365
multiplied times the number of days for which the FIXED RENT and other
charges are payable.
(c) This Subsection intentionally deleted.
ARTICLE 8. GROSS SALES.
(a) This Section intentionally deleted.
ARTICLE 9. OPERATING CHARGES.
(a) OPERATING CHARGES as used herein shall further be defined as the total
cost to LESSOR of complying with LESSOR'S obligations under Article
24(a), (b), and (c) hereof (entitled Common Areas Maintenance,
Operation, Insurance and Taxes by LESSOR).
Any increase in the costs otherwise includable in OPERATING CHARGES
which are directly attributable to a Strip Center tenant's wilful
action or negligence, change of use in a unit within Strip Center or
alterations, additions, and/or improvements to a unit within Strip
Center shall be excluded from OPERATING CHARGES computations.
(b) LESSEE shall pay to LESSOR LESSEE'S SHARE of annual OPERATING CHARGES
in monthly installments in advance on the first day of each and every
calendar month commencing upon the RENT COMMENCEMENT DATE and
continuing during the balance of TERM. The initial LESSEE'S SHARE of
OPERATING CHARGES shall be as set forth in Article 1(H) hereof. Within
ninety (90) days after the end of each calendar year during the TERM,
LESSOR shall determine the actual OPERATING CHARGES for the preceding
calendar year and LESSOR shall furnish to LESSEE a statement thereof
for such year. If LESSEE'S SHARE of the OPERATING CHARGES paid by
LESSEE is greater or less than the LESSEE'S SHARE of OPERATING CHARGES
determined as aforesaid for such year, then LESSEE shall pay to LESSOR
such deficiency or LESSOR shall credit LESSEE with any excess,
whichever the case shall be, within fifteen (15) days after the
furnishing of such statement. Effective as of the first day of the new
calendar year, the current amount of
<PAGE> 8
LESSEE'S SHARE of OPERATING CHARGES shall be increased or decreased so
as to equal one-twelfth of the preceding year's LESSEE'S SHARE of
OPERATING CHARGES (adjusted to reflect any then current known charges
in such costs.)
(c) For the LEASE YEAR in which the LEASE terminates, LESSEE'S SHARE of
OPERATING CHARGES shall be determined and adjusted to the date of lease
termination as soon thereafter as possible with any amounts prepaid
refunded and any deficiencies paid within fifteen (15) days thereafter.
ARTICLE 10. PROMOTIONAL FUND CHARGE.
(a) This Section intentionally deleted.
ARTICLE 11. UTILITIES.
(a) LESSEE shall pay all charges for all utilities, including, without
limitation, electricity, gas, water and sewage, used or consumed in or
chargeable to the PREMISES directly, which LESSOR shall cause to be
separately metered to the PREMISES.
(b) In no event shall LESSOR be liable for any interruption in or failure
of the supply of such utilities to the PREMISES unless due to LESSOR'S
negligence nor shall any interruption therein or failure thereof
entitle LESSEE to any rent abatement.
ARTICLE 12. SIGNS.
(a) LESSEE shall not install, erect or maintain or permit the installation,
erection, or maintaining of any sign or signs of any kind whatsoever on
the exterior of the PREMISES or intended to be visible from the
exterior of the PREMISES except in accordance with LESSOR'S SIGN
CRITERIA. Any breach of this subparagraph shall entitle LESSOR to the
right of self-help (that is, removal of unapproved signs) after fifteen
(15) days notice to LESSEE.
(b) Notwithstanding the foregoing, if, at any time and from time to time,
after the ORIGINAL TERM only, LESSOR establishes a new uniform SIGN
CRITERIA for substantially all of the tenants in the Strip Center,
LESSEE shall, at LESSEE'S sole cost and expense, comply with such SIGN
CRITERIA (that is, remove the old sign to the extent same does not
comply and/or replace same with a sign that does comply therewith)
within ninety (90) days after notice from LESSOR of the establishment
of such new SIGN CRITERIA.
(c) As to any and all such approved signs, LESSEE shall, at LESSEE'S own
cost, comply with all municipal and governmental codes, ordinances,
regulations and rules, both present and future, applicable thereto.
ARTICLE 13. LESSEE'S CHATTELS TAXES. LESSEE shall pay all municipal, county,
state and/or federal taxes levied or assessed against LESSEE'S CHATTELS.
ARTICLE 14. RENT TAXES. This Section intentionally deleted.
ARTICLE 15. RENT PAYMENT AND DEMAND.
(a) All payments of rent and other charges payable to LESSOR shall be paid
in current United States funds at LESSOR'S address or such other place
as LESSOR may from time to time designate without any
<PAGE> 9
deduction or setoff whatsoever (except as otherwise specifically
provided in this LEASE) and without any prior demand.
(b) Every demand for rents and other charges due, wherever and whenever
made, shall have the same effect as if made at the time it falls due
and at the place of payment, and, after the service of any notice or
commencement of any suit or final judgment therein, LESSOR may receive
and collect any rents and other charges due, and such collection or
receipt shall not operate as a waiver of nor affect such notice, suit
or judgment. Any rents and other charges not paid by LESSEE within ten
(10) days of the due date shall bear interest from the due date to the
date of payment at the rate of one and one-half percent (1.5%) per
month.
(c) Rents and other charges may be rounded to the nearest dollar i.e., if
50 cents or more to the next higher dollar and if less than 50 cents to
the next lower dollar. (For example, 101.39 would be 101.00 and 202.50
would be 203.00).
ARTICLE 16. CARE, USE AND OCCUPANCY OF PREMISES,
(a) LESSEE shall use and occupy the PREMISES in a careful, safe and proper
manner and shall keep the PREMISES in a clean, safe and healthy
condition and in accordance with all applicable governmental
authorities and insurance requirements and all laws and ordinances now
or hereafter in force. Included within the foregoing shall be LESSEE'S
obligation to maintain the area designed by LESSOR for LESSEE'S trash
receptacles in a clean, safe and healthy condition and in compliance
with all applicable laws, including enclosure of such area by LESSEE if
required by law. In addition, LESSEE shall maintain a legible street
address on the rear door in accordance with applicable law, ordinances
and/or regulations.
(b) LESSEE shall not:
(i) use or allow the PREMISES to be used for auction, fire,
bankruptcy, or "lost our lease" sales,
(ii) permit the PREMISES to be used for any purpose other than as
specified herein or for any unlawful purpose or in any way
that will injure the reputation of the Strip Center,
(iii) permit the PREMISES to be occupied in whole or in part by any
other person except as permitted under LEASE,
(iv) commit or suffer to be committed any waste or nuisance in the
PREMISES or any act or thing which may disturb the quiet
enjoyment of another tenant in the Strip Center,
(v) permit the accumulation of rubbish in or around the PREMISES
other than in LESSEE'S trash receptacles therefor,
(vi) use the sidewalks or permit the usage thereof for other than
access to the PREMISES and Strip Center, nor
(vii) misuse or permit the misuse of the COMMON AREAS by LESSEE'S
agents, employees, invitees or licensees.
(c) If required by local law, ordinance, and/or regulations, LESSEE shall
maintain a key to the rear door of the PREMISES in a fire department
lock box behind the PREMISES so as to make the PREMISES accessible to
the fire department in the event of a fire.
<PAGE> 10
ARTICLE 17. INSURANCE BY LESSEE.
(a) LESSEE shall keep in full force and effect a policy of public liability
and property damage insurance with respect to the PREMISES and the
business operated by LESSEE therein in which the limits of public
liability coverage shall be not less than $2,000,000 per occurrence for
personal injury liability and $100,000 per occurrence for property
damage liability. If LESSEE'S insurance carrier provides a combined
single limit for both personal injury and property damage, then the
limit shall not be less than $2,000,000 per occurrence. Such policy
shall include LESSOR as an additional insured and shall contain a
clause that the insurer will not cancel or change the insurance without
first giving LESSOR ten (10) days prior written notice. The foregoing
dollar limits shall be reviewed and revised periodically so as to
provide adequate insurance in accordance with good Strip Center
practice.
(b) LESSEE shall keep in full force and effect adequate insurance against
fire and such other risks as are, from time to time, included in
standard extended coverage endorsements insuring (i) LESSEE'S CHATTELS
located on or with the PREMISES, and (ii) alterations, decorations and
improvements to the PREMISES made by LESSEE (whether or not
constituting part of the PREMISES).
(c) LESSEE shall keep in full force and effect a policy of plate glass
insurance in standard form covering all glass in the PREMISES.
(d) All of such insurance policies shall be underwritten by insurance
companies licensed to do business in the State of Ohio. LESSEE shall
furnish LESSOR with a certificate evidencing such coverages within
thirty (30) days after written request therefor by LESSOR.
ARTICLE 18. INDEMNITY BY LESSEE.
Commencing upon the COMMENCEMENT DATE, or, if earlier, the date upon
which LESSEE shall enter possession of the PREMISES and continuing during the
TERM, LESSEE will indemnify LESSOR and save and hold LESSOR harmless from and
against all actions, claims, damages, demands, expenses, judgments and
liabilities in connection with damage, injury or loss to person or property
resulting or occurring or arising wholly or in part by reason of LESSEE'S use or
occupancy of the PREMISES or any part thereof or LESSEE'S altering, decorating,
or improving of the PREMISES or by any act or failure to act of LESSEE, LESSEE'S
agents, contractors, employees or servants, or anyone claiming by, through, or
under LESSEE. If LESSOR shall, without fault on its part, be made a party to any
litigation commenced by or against LESSEE, LESSEE shall protect and hold LESSOR
harmless from and pay all costs, expenses, and reasonable attorney's fees
incurred or paid by LESSOR in connection with such litigation.
Commencing upon the COMMENCEMENT DATE, or, if earlier, the date upon
which LESSEE shall enter possession of the PREMISES and continuing during the
TERM, LESSOR will indemnify LESSEE and save and hold LESSEE harmless from and
against all actions, claims, damages, demands, expenses, judgments and
liabilities in connection with damage, injury or loss to person or property
resulting or occurring or arising wholly or in part by reason of LESSOR'S
construction, operation or maintenance of the COMMON AREAS or by any act or
failure to act of LESSOR, LESSOR'S agents, contractors, employees or servants,
or anyone claiming by, through, or under LESSOR. If LESSEE shall, without fault
on its part, be made a party to any litigation commenced by or against LESSOR,
LESSOR shall protect and hold LESSEE harmless from and pay all costs, expenses,
and reasonable attorney's fees incurred or paid by LESSEE in connection with
such litigation.
ARTICLE 19. MAINTENANCE.
(a) LESSEE shall keep and maintain (including applicable replacement when
necessary) in good condition and repair the interior of the PREMISES,
including but not limited to:
<PAGE> 11
(i) The heating, ventilating and air conditioning system within
the PREMISES and any portion thereof not within the PREMISES
but serving the PREMISES exclusively, including any gas supply
line serving the PREMISES to the point of connection with the
gas company meter for the PREMISES, wherever located, and to
accomplish same, LESSEE shall carry (and pay for) a
maintenance service contract with a reputable heating,
ventilating and air conditioning contractor, approved in
writing by LESSOR,
(ii) the electrical system with the PREMISES and any portion
thereof not within the PREMISES but serving the PREMISES
exclusively, including the electric supply line serving the
PREMISES to the main panel within the PREMISES where the
electric supply line enters the PREMISES,
(iii) the plumbing system, both sewage and water lines, within the
PREMISES exclusively, including the water line with the
PREMISES from the point of entrance of the water supply line
into the PREMISES, (the water meter shall be maintained by the
utility company and/or the LESSOR) and the sewage line within
the PREMISES to the point of exit from the PREMISES,
(iv) alterations, decorations and improvements (whether or not
constituting a part of the PREMISES) made and/or installed by
LESSEE,
(v) the exterior doors and windows and door and window frames,
which for purposes hereof shall be construed as part of the
interior of the PREMISES, and
(vi) areas designated by LESSOR for LESSEE'S trash receptacles.
In the event LESSEE fails to maintain the PREMISES as hereinbefore
provided, LESSOR may (but with no obligation) do so after fifteen (15)
days notice to LESSEE or immediately in emergency cases. LESSEE shall
reimburse LESSOR the cost thereof as additional rent with the next
installment of FIXED RENT.
(b) LESSOR shall keep and maintain (including applicable replacement when
necessary) in good condition and repair the exterior of the PREMISES
and the Strip Center (to the extent the same is not the responsibility
of the tenants within Strip Center), the roofs, gutters and downspouts,
the foundations and structural portions of the PREMISES and Strip
Center.
(c) Notwithstanding the foregoing, each party shall be responsible for all
repairs pertaining to the interior/exterior and/or other portions of
the PREMISES/Strip Center necessitated by the wilful action or
negligence of such party or anyone acting for or on behalf of such
party, except to the extent such repairs are covered by standard fire
and extended coverage insurance.
ARTICLE 20. ALTERATIONS.
(a) LESSEE shall have the right to make such interior alterations,
decorations and improvements to the PREMISES not constituting a part of
the building as may be proper and necessary for the conduct of its
business and for the beneficial use of the PREMISES, provided the same
do not affect the exterior or structural portion of the PREMISES and
provided further that LESSEE shall:
(i) pay all costs, expenses and charges thereof,
(ii) make the same in accordance with applicable laws and building
codes and in a good and workmanlike manner,
<PAGE> 12
(iii) cause the same to be performed by qualified contractors who
shall not create any labor or other disturbance in the Strip
Center while performing same,
(iv) fully and completely indemnify LESSOR against any mechanic's
lien or other liens or claims in connection with the taking
thereof, and
(v) not thereby diminish the value of the PREMISES or Strip
Center.
(b) LESSEE may make alterations, decorations and improvements constituting
a part of the building or affecting the exterior or structural portion
of the PREMISES with the same provisions as contained in subparagraph
(a)(i)-(v) but only after (i) obtaining LESSOR'S prior consent thereto,
and (ii) obtaining LESSOR'S consent to the contractor engaged to
perform such work, which consent shall not be unreasonably withheld.
Upon completion of any such alterations, decorations and improvements
constituting a part of the building or affecting the exterior and/or
structural portions, the same shall immediately thereupon become a part
of the PREMISES and be included in the word "PREMISES" as used in this
LEASE.
(c) Notwithstanding the fact that alterations, decorations and/or
improvements to the PREMISES made by LESSEE may constitute a part of
and be included in the word PREMISES as used in this LEASE, repair
and/or restoration of damages thereto caused by fire and/or other
casualty shall be the responsibility of LESSEE, whether or not covered
by insurance by LESSEE, unless otherwise covered by LESSOR'S insurance
(which shall not be considered primary insurance).
(d) All of LESSEE'S CHATTELS and all interior alterations, decorations and
improvements not constituting a part of the building installed in the
PREMISES by LESSEE shall remain the property of LESSEE and shall be
removed by LESSEE upon the termination of this LEASE, and LESSEE shall
make any repairs necessitated by such removal. Any thereof not removed
on or before the termination of this LEASE and surrender of possession
of the PREMISES by LESSEE shall be deemed abandoned by LESSEE and, at
LESSOR'S election, may be treated and/or disposed of by LESSOR as
LESSOR'S own property without further right or claim thereto by LESSEE,
except that LESSEE shall reimburse LESSOR for the cost of removal if
LESSOR elects to have the same removed, and LESSEE shall be liable to
LESSOR for any damages sustained by LESSOR as a result of LESSEE'S
failure to remove same.
ARTICLE 21. SURRENDER OF POSSESSION.
(a) LESSEE shall deliver up and surrender to LESSOR possession of the
PREMISES upon the termination of this LEASE broom clean and in as good
condition and repair as the same shall be on the COMMENCEMENT DATE
(loss by fire or other casualty covered by insurance carried by LESSOR
and ordinary wear and decay only expected) and deliver the keys at the
office of LESSOR or LESSOR'S agent.
(b) Notwithstanding anything contained herein to the contrary, LESSEE shall
cause the heating, ventilating and air conditioning system to be placed
in good working order as of the date of termination of this LEASE and
shall furnish to LESSOR within three (3) business days thereafter a
statement from the heating, ventilating and air conditioning contractor
providing the service contract for such system (pursuant to Article
19(a)(1) hereof) so indicating. Failure to do so shall be deemed
authorization to LESSOR on behalf of LESSEE to place the heating,
ventilating and air conditioning system in good working order at
LESSEE'S expense payable by LESSEE within thirty (30) days after
billing therefor.
<PAGE> 13
ARTICLE 22. SUBLEASE/ASSIGNMENT/STOCK TRANSFER.
(a) LESSEE shall not (i) sublet the PREMISES or any part thereof, nor (ii)
assigns this LEASE, nor (iii) transfer, or permit the transfer of, by
sale, assignment, merger, consolidation, operation of law, or
otherwise, any part or all of the corporate shares of LESSEE to other
than an AFFILIATE, if LESSEE is a corporation the stock of which is not
listed or traded on a recognized security exchange or eighty percent
(80%) of which is not owned by a corporation so listed or traded, so as
to result in a change in the person or persons owning a majority of
said corporate shares on the date of execution of this LEASE, without
in each case [that is, either (i), (ii) or (iii)] the prior consent of
LESSOR, which consent shall not be unreasonably withheld.
Notwithstanding any approved subletting, assignment or stock transfer,
LESSEE shall remain fully liable under this LEASE and shall not be
released from performance of LESSEE'S obligations hereunder unless
specifically released by LESSOR, in LESSOR'S sole discretion. LESSOR'S
consent to any sublease, assignment or transfer as described
hereinabove shall not be deemed to be a consent to or the waiver of the
right to consent to any subsequent sublease, assignment or transfer.
(b) After the ORIGINAL TERM, LESSOR shall have the right, as a condition to
the granting of LESSOR'S consent as aforesaid, to increase the annual
FIXED RENT by such amount as LESSOR shall solely determine, not
exceeding, in any event, the annual CPI INCREASE (from the 13th month
prior to the proposed effective date of the sublease, assignment or
stock transfer to the month immediately preceding same.) Any such
increase shall be effective commencing upon the first day of the month
following the effective date of the sublease, assignment or stock
transfer. LESSOR'S exercise of the foregoing right shall not be deemed
to be an unreasonable withholding of LESSOR'S consent. Notice of such
increase shall be included with LESSOR'S consent to such sublease,
assignment or stock transfer.
(c) Any request for LESSOR'S consent to a sublease, assignment or transfer
as hereinabove provided shall be accompanied by the sum of $500.00 for
LESSOR'S consideration thereof, whether or not LESSOR'S consent is
thereafter granted or denied.
(d) In the event LESSEE assigns this LEASE to an entity having a net worth
equal to or greater than the net worth of LESSEE as of the date of
execution hereof or the date of assignment and such entity has had
retail experience in the operation of a business for the USE, then
LESSOR agrees to release LESSEE from liability hereunder arising after
the date of such assignment within thirty (30) days after receipt of
verification of the information as required hereunder.
ARTICLE 23. HOLDING OVER.
LESSEE shall pay to LESSOR, upon demand by LESSOR, as liquidated
damages, one and one-quarter times the rent and other charges specified herein
applicable during the last LEASE YEAR of the TERM for any period during which
LESSEE shall hold the PREMISES after the TERM if this LEASE has expired by its
terms and not be acceleration. Any holding over by LESSEE shall be deemed on a
month-to-month basis, subject in all other respects, except as to term, to the
agreements, conditions and covenants hereof.
ARTICLE 24. COMMON AREAS MAINTENANCE, OPERATION, INSURANCE AND TAXES BY LESSOR.
LESSOR SHALL:
(a) keep and maintain in good condition and repair (including replacement
where necessary, with any replacement costs amortized over the useful
life of such replacements for the purposes of computing OPERATING
CHARGES as provided in Article 9 hereof) the COMMON AREAS (to the
extent the same are not the responsibility of LESSEE or any other
tenant within Strip Center) and operate the
<PAGE> 14
COMMON AREAS in accordance with reasonable rules and regulations
uniformly applicable prescribed by LESSOR from time to time, including
designation of areas and times for deliveries, areas for parking by the
Strip Center tenants and employees, and usage of the COMMON AREAS by
others from time to time, with or without charge, so doing as such
usage does not significantly interfere with the use of the COMMON AREAS
by LESSEE, LESSEE'S agents, customers, employees, and invitees.
Included within the term "operate" shall be the following: cleaning,
clearing debris, snow and ice removal, painting of lane markers and
parking spaces, operation of parking/traffic control signs/devices
(both on and off site), illumination, music, storm drainage; equipment
rental expense or depreciation and operating charges pertaining
thereto; fire protection; direct labor costs (excluding supervisory or
administrative personnel), whether compensation for employees of LESSOR
or LESSOR'S managing company or independent contractors, together with
all employee benefits and payroll taxes including Social Security,
workers' compensation and unemployment compensation; landscaping,
including materials and supplies; license and/or permit fees, levies,
and/or surcharges, personal property taxes; police and security;
utility charges; utility service line maintenance for which connecting
tenants are not directly responsible; water and sewage administration
and maintenance; and such other items as are reasonable and necessary
for the ongoing operation of the COMMON AREAS not specifically included
in the foregoing.
(b) keep in full force and effect:
(i) insurance covering the buildings and improvements constituting
the PREMISES and Strip Center against loss by fire and
standard extended coverage in amounts equal to at least
replacement value (with no less than eighty percent (80%)
co-insurance) and such amount of deductible as LESSOR from
shall from time to time determine appropriate,
(ii) public liability and property damage insurance with respect to
the Strip Center in which the limit of public liability
coverage shall be not less than $2,000,000 per occurrence with
respect to personal injury and $100,000 per occurrence with
respect to property damage. The foregoing dollar limits shall
be reviewed and revised periodically so as to provide adequate
insurance in accordance with good Strip Center practice, and
(iii) other insurance, such as rental, boiler, sprinkler, vandalism,
and malicious mischief, as LESSOR shall from time to time
determine appropriate.
LESSEE'S payments of OPERATING CHARGES shall in no event create any
rights in LESSEE in such insurance policies nor shall LESSEE be
entitled to the benefit of any proceeds payable thereunder. LESSEE
shall reimburse LESSOR for any increase in the cost of the foregoing
insurance coverages caused by LESSEE or LESSEE'S change of use of the
PREMISES and the same shall be excluded from OPERATING CHARGES
computation.
(c) pay all real estate taxes and assessments against the PREMISES and
Strip Center and any costs expended in contesting the amount and/or
validity thereof. The term "REAL ESTATE TAXES AND ASSESSMENTS" as used
herein shall be construed to mean the total of all real estate taxes
and assessments, special or otherwise, assessed upon or with respect to
the ownership of all or any part of the Strip Center imposed by
federal, state or local governmental authorities or any other taxing
authority having jurisdiction, by whatever name the tax may be
designated. If, due to a change in the methods of taxation, any rent,
franchise, income, profit or other tax, however designated, (herein
called OTHER TAX) may be levied against or chargeable to LESSOR
directly due to LESSOR'S interest in Strip Center in lieu of any tax
which would otherwise constitute REAL ESTATE TAXES AND ASSESSMENTS,
such OTHER TAXES shall be included in the term REAL ESTATE TAXES AND
ASSESSMENTS. LESSEE shall reimburse LESSOR for any increase in REAL
ESTATE TAXES AND ASSESSMENTS which are directly due to LESSEE'S
alterations, additions and/or
<PAGE> 15
improvements to the PREMISES made by LESSEE or LESSOR at LESSEE'S
request and the same shall be excluded from OPERATING CHARGES
computations. Any increase in REAL ESTATE TAXES AND ASSESSMENTS due to
alterations, additions or improvements by another tenant in the Strip
Center shall be excluded from OPERATING CHARGES computations.
ARTICLE 25. ACCESS TO PREMISES. LESSOR shall have free access to the PREMISES at
all reasonable times and at any time for emergency purposes for the purpose of
examining the same or to make any alterations or repairs to the PREMISES that
LESSOR may deem necessary for its safety or preservation or that LESSOR is
required to make, and also during the last three (3) months of the TERM for the
purpose of exhibiting the PREMISES and putting up the usual notice "To Rent",
not to exceed six (6) square feet in area, which notice shall not be removed,
obliterated or hidden by LESSEE.
ARTICLE 26. NON-LIABILITY OF LESSOR. LESSOR and LESSOR'S agents, contractors,
employees, and servants shall not be liable for, and LESSEE hereby releases and
waives any and all claims for, loss or damage to persons or the business or
property of LESSEE or anyone claiming, by, through or under LESSEE, or others
within the Strip Center.
(a) occasioned by reason of:
(i) any accident or act of God within or around the PREMISES or
Strip Center.
(ii) the condition or construction of the Strip Center, including
the PREMISES except as set forth in Exhibit C,
(iii) any defect in or failure of the electrical system, the
plumbing and sewer system, and/or heating, ventilating or air
conditioning system serving the PREMISES or the building of
which the PREMISES are a part, or
(iv) water, snow or ice being upon or coming through the roof,
trapdoor, walls, windows, doors or otherwise,
unless in any such case such damage shall be due to the negligence of
LESSOR, LESSOR'S agents, contractors, employees or servants,
(b) arising by reason of the failure of LESSEE to comply with the
agreements, conditions and covenants hereof or the negligence of LESSEE
or other tenants of the Strip Center, LESSEE'S and/or their agents,
contractors, customers, employees, invitees, licensees, servants and/or
suppliers.
ARTICLE 27. WAIVER OF SUBROGATION. LESSOR and LESSEE hereby waive all claims,
rights or recovery and causes of action which either has or may have or which
may arise hereafter against the other whether caused by negligence, intentional
misconduct or otherwise, for any damage to the PREMISES or property or business
within or about the PREMISES or the building of which the PREMISES are a part or
the Strip Center caused by any of the perils covered by LESSOR'S or LESSEE'S
fire insurance with extended coverage and with vandalism and malicious mischief
endorsements, building and contents and business interruption insurance, or for
which either party may be reimbursed as a result of insurance coverage affecting
any loss suffered by it, provided, however, that the foregoing waivers shall
apply only to the extent of any recovery made by the parties hereto under any
policy of insurance now or hereafter issued and provided further that the
foregoing waivers do not invalidate any policy of insurance of the parties
hereto, now or hereafter issued, it being stipulated by the parties hereto that
the waivers shall not apply in any case in which the application thereof would
result in the invalidation of any such policy of insurance. Any additional
premium caused by this waiver of subrogation shall be paid by the party
benefitted thereby. The parties acknowledge that the use of "deductibles" may
result in limiting the effectiveness of this waiver of subrogation.
<PAGE> 16
ARTICLE 28. DESTRUCTION OF PREMISES.
(a) (i) If the PREMISES shall be damaged by fire or other insured
casualty, (herein called INSURED LOSS) but are not thereby
rendered untenantable in whole or in part, LESSOR shall, at
LESSOR'S own expense, cause such damage to be repaired, and
the rents and other charges shall not be abated.
(ii) If, by reason of such INSURED LOSS, the PREMISES shall be
rendered untenantable only in part, LESSOR shall, at LESSOR'S
own expense, cause such damage to be repaired and the rents
and other charges meanwhile shall be equitably abated.
(iii) If the PREMISES shall be rendered wholly untenantable by
reason of such INSURED LOSS and such damage could be
reasonably repaired within six (6) months, this LEASE shall
continue and LESSOR shall, at LESSOR'S own expense, cause such
damage to be repaired, and the rents and other charges
meanwhile shall abate.
(iv) If (A) the PREMISES shall be rendered wholly untenantable by
reason of such INSURED LOSS and such damage cannot be
reasonably repaired within six (6) months, or (B) if such
INSURED LOSS is during the last two (2) years of the TERM to
the extent of fifty percent (50%) or more of the then value of
the PREMISES, then either party may terminate this LEASE as of
the date of such INSURED LOSS by giving notice to the other
party within sixty (60) days thereafter of such party's
election so to do. If neither party terminates this LEASE
within said sixty (60) day period, this LEASE shall continue
in full force and effect and LESSOR shall repair the PREMISES
as soon as reasonably possible and the rents and other charges
meanwhile shall abate.
(v) Nothing herein contained shall alter or affect LESSEE'S
obligation to repair, replace and/or restore plate glass
and/or alterations, decorations and improvements made by or
for LESSEE to the PREMISES whether or not constituting a part
of the PREMISES.
(vi) Following any restoration as provided in subparagraph (a)(iii)
and (iv), payments of rents and other charges shall recommence
thirty (30) days after the date of redelivery of possession of
the restored PREMISES in tenantable condition to LESSEE or the
date the PREMISES are reopened for business, whichever is
earlier.
(b) In the event that:
(i) the building in which the PREMISES are situated shall be
materially damaged or destroyed by any cause not covered by
LESSOR'S insurance (herein called UNINSURED LOSS) regardless
of the length of time necessary to repair and/or restore same,
or
(ii) 50% or more of the building in which the PREMISES are situated
shall be damaged or destroyed by an INSURED LOSS, but the same
cannot reasonably be repaired within six (6) months after such
INSURED LOSS, notwithstanding the fact that the PREMISES may
be unaffected by either such UNINSURED LOSS or INSURED LOSS.
LESSOR or LESSEE may terminate this LEASE and the tenancy hereby
created by giving to the other not less than thirty (30) days nor more
than one hundred twenty (120) days notice of such party's election so
to do, which notice shall be given, if at all, within sixty (60) days
following such UNINSURED LOSS or INSURED LOSS, setting forth in such
notice the effective date of such termination.
<PAGE> 17
(c) In the event of the material damage or destruction to the building in
which the PREMISES are situated, LESSOR reserves the right to change
the configuration of such building, provided that the PREMISES as
situated in any such new configuration shall be substantially the same
in location, dimensions and traffic flow as prior to such damage or
destruction.
ARTICLE 29. EMINENT DOMAIN.
(a) If the whole of the PREMISES or COMMON AREAS shall be acquired or
condemned by eminent domain for any public or quasi-public use or
purpose, then the TERM shall cease and terminate as of the date
possession shall be taken by such public authority.
(b) If any part of the PREMISES shall be acquired or condemned as
aforesaid,
(i) in the event that such partial taking or condemnation shall
render the PREMISES unsuitable for the business of LESSEE,
then the TERM shall cease and terminate as of the date
possession shall be taken by such public authority, or
(ii) in the event that such partial taking or condemnation is not
extensive enough to render the remaining PREMISES unsuitable
for the business of LESSEE, then LESSOR shall promptly restore
the remaining PREMISES to a condition comparable to its
condition at the time of such condemnation less the portion
lost in the taking, and this LEASE shall continue in full
force and effect with respect to the remaining PREMISES and an
equitable reduction of rents and other charges shall be made
based upon the portion lost in the taking. This LEASE shall be
thereupon terminated as to the portion of the PREMISES so
taken.
(c) If less than ten percent (10%) of the COMMON AREAS shall be acquired or
condemned as aforesaid, there shall be no change in this LEASE or
LESSEE'S obligations hereunder.
(d) If more than ten percent (10%) of the COMMON AREAS shall be acquired or
condemned as aforesaid, and if, as the result thereof, the ratio of
square feet of COMMON AREAS to ground floor square feet of the sales
area of the Strip Center buildings is reduced to a ratio below four (4)
parking spaces per 1,000 square feet, then the TERM shall cease and
terminate as of the date possession shall be taken by such public
authority, unless LESSOR shall take immediate steps toward increasing
the parking ratio to a ratio at least equal to four (4) parking spaces
per 1,000 square feet, in which event, this LEASE shall be unaffected
and shall remain in full force and effect without any reduction or
abatement or rents and other charges.
(e) In the event of the termination of this LEASE as aforesaid, all rents
and other charges due hereunder shall be paid to the date of
termination and any rents and other charges paid in advance shall be
refunded.
(f) In the event of any condemnation or taking as aforesaid, whether whole
or partial and regardless of the termination of this LEASE as
aforesaid, LESSEE shall not be entitled to any part of the award paid
for such condemnation and LESSOR is to receive the full amount of such
award, LESSEE having hereby assigned to LESSOR any right or claim to
any part thereof. Although all damages in the event of any condemnation
are to belong to LESSOR, whether such damages are awarded as
compensation for diminution in value of the leasehold or to the fee of
the PREMISES, LESSEE shall have the right to claim and recover from the
condemning authority, but not from LESSOR, such compensation as may be
separately awarded or recoverable by LESSEE'S business by reason of
(i) an account of any and all damage to LESSEE'S business by
reason of the condemnation, and
<PAGE> 18
(ii) for or on account of any cost or loss to which LESSEE might be
put in removing LESSEE'S CHATTELS and interior alterations,
decorations and improvements not constituting a part of the
building installed in the PREMISES by LESSEE.
ARTICLE 30. MORTGAGE SUBORDINATION/ESTOPPEL CERTIFICATE.
(a) This LEASE shall, at the option of LESSOR, be subject, subordinate and
inferior in lien with respect to a first mortgage that may be placed on
the land and building of which the PREMISES from a part by a Bank,
Trust Company, Insurance Company, or other lender, and LESSEE will,
upon demand without cost, execute any instrument necessary to
effectuate such subordination. If LESSEE, within ten (10) days after
submission of such instrument, fails to execute same, LESSOR is hereby
authorized to execute same, as attorney in fact for LESSEE.
(b) It is a condition, however, to the subordination and lien provision
herein provided, that LESSOR shall procure from any such mortgagee a
non-disturbance and attornment agreement in writing in form reasonably
acceptable to the first mortgage lender, which shall be delivered to
LESSEE, providing in substance that so long as LESSEE shall faithfully
discharge the obligations on LESSEE'S part to be kept and performed
under the terms of this LEASE, LESSEE'S tenancy will not be disturbed
nor this LEASE affected by any default under such mortgage.
(c) In the event of such financing or in the event of a sale of the
PREMISES by LESSOR and a written statement is requested of LESSEE
certifying as to the status of the LEASE. LESSEE shall provide such
certification within ten (10) days after request therefor stating
therein that this LEASE is in full force and effect and that there are
no defenses or offsets thereto or stating those claimed by LESSEE.
ARTICLE 31. DEFAULT.
(a) If
(i) Lessee shall at any time be in default in the payment of rent
and/or other charges or in the observance of the performance
of any of the agreements, conditions or covenants of this
LEASE on LESSEE'S part to be observed and/or performed and
LESSEE shall fail to remedy such default within fifteen (15)
days after notice thereof from LESSOR in the event the default
is as to payment of rent and/or other charges, or within
thirty (30) days after notice thereof if the default relates
to matters other than the payment of rent and/or other charges
(but LESSEE shall not be deemed in default if it commences to
remedy said defaults other than relate to payment of rent
and/or other charges within said thirty (30) day period and
proceeds therewith with due diligence), or
(ii) LESSEE shall make an assignment for the benefit of creditors,
or
(iii) a receiver of any property of LESSEE in or upon the PREMISES
be appointed in any action, suit or proceeding by or against
LESSEE and not removed within forty-five (45) days after
appointment, or
(iv) the interest of LESSEE in the PREMISES shall be sold under
execution or other legal process, or
(v) LESSEE shall sublet the PREMISES or any part thereof, assign
this LEASE or transfer or permit the transfer by sale,
assignment, merger, consolidation, operation of law or
otherwise any part or all of the shares of LESSEE, without
LESSOR'S written consent, if such consent in any such event is
required as provided in Article 22 hereof, or
<PAGE> 19
(vi) an audit of LESSEE'S records discloses a deficiency in
reported annual GROSS SALES in excess of five percent (5%) of
the annual GROSS SALES actually made by LESSEE during any
LEASE YEAR.
then, in any such event, LESSOR may terminate this LEASE, or, without
terminating this LEASE, re-enter the PREMISES by summary proceedings or
otherwise and, in either event, may dispossess LESSEE at LESSEE'S
expense. LESSOR shall not be deemed to have elected to terminate this
LEASE unless LESSOR gives LESSEE notice of such election to terminate.
In the event of such re-entry, LESSOR shall relet the PREMISES and
apply the rents therefrom first to the payment of LESSOR'S expenses
incurred by reason of LESSEE'S default and the expenses of reletting
including reasonable attorney's fees and then to the payment of rents
and other charges due from LESSEE hereunder. If the rents received do
not equal the expenses and costs of reletting, LESSEE shall remain
liable for any deficiencies. If the rents received exceed the expenses
and costs of reletting, then LESSEE shall have no rights therein if
LESSOR has elected to terminate this LEASE. Such deficiency, at
LESSOR'S option, may be calculated and payable by LESSEE monthly.
(b) In the event either party hereto incurs or pays costs, expenses and/or
reasonable attorney fees in enforcing the agreements, conditions and
covenants of the LEASE as a result of the other party's default in
observance or performance thereof, then the defaulting party shall be
required to reimburse or pay such costs, expenses and/or fees incurred
or paid by the non-defaulting party.
ARTICLE 32. WAIVER OF JURY TRIAL. It is mutually agreed by and between LESSOR
and LESSEE that the respective parties hereto shall and they hereby do waive
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matters whatsoever arising out of or in any way connected with this
LEASE, the relationship of LESSOR and LESSEE, LESSEE'S use or occupancy of the
PREMISES, and any emergency or other statutory remedy.
ARTICLE 33. LIABILITY OF LESSOR LIMITED. This Section intentionally deleted.
ARTICLE 34. TRANSFER OF TITLE. In the event of a sale, assignment, or transfer
by LESSOR of the PREMISES or its interest in the PREMISES, such LESSOR shall
thereafter have no liability for the agreements, conditions and covenants of
this LEASE on the part of LESSOR to be observed or performed thereafter,
provided that LESSOR'S transferee assumes the obligations of LESSOR accruing
hereunder thereafter. All such agreements, conditions, and covenants shall,
however, run with the land and shall be binding upon the successors-in-interest
of such LESSOR.
ARTICLE 35. FORCE MAJEURE. In the event that either party hereto shall be
delayed or hindered in or prevented from the performance of any act, other than
payment of rents or other charges required hereunder, by reason of strikes,
lockouts, labor trouble, inability to procure materials, failure of power,
restrictive governmental laws or regulations, riots, insurrection, war or other
reason of a like nature not the fault of the party delayed in performing work or
doing acts required under the terms of this LEASE, then performance of such act
shall be excused for the period of the delay and the period for the performance
of any such act shall be extended for a period equivalent to the period of such
delay, provided that nothing herein shall be deemed to extend the TERM beyond
the EXPIRATION DATE or earlier termination of this LEASE as hereinbefore
provided.
ARTICLE 36. NOTICE/CONSENTS.
(a) Any notice or consent required to be given by or on behalf of either
party upon the other shall be in writing and shall be given by mailing
such notice or consent by registered or certified mail addressed:
(i) to LESSOR at the address in Article 1 with a courtesy copy to
________________________________________________, and
<PAGE> 20
(ii) to LESSEE at the address in Article I or at such other
addresses as may be specified from time to time in writing
delivered to the other party.
(b) Notices shall be deemed effective when deposited as certified or
registered mail in the mail or delivered to a private express carrier
provided that the same is received or tendered for delivery in the
ordinary course of business at the address to which the same is sent.
ARTICLE 37. WAIVER.
(a) No waiver of any agreement, condition or covenant shall be valid unless
it be in writing signed by the party to be charged nor shall the waiver
of a breach of any agreement, condition, or covenant be claimed or
pleaded to excuse a future breach of the same agreement, condition or
covenant or any other agreement, condition, or covenant.
(b) No waiver by LESSOR in respect to one tenant of the Strip Center shall
constitute a waiver in respect to any other tenant.
(c) Acceptance by LESSOR of a lesser amount than the amount actually due
hereunder, whether for rents or other charges, shall not prejudice
LESSOR'S right to collect the full amount due.
ARTICLE 38. REPRESENTATIONS. LESSOR and LESSOR'S agents have made no
representations or promises with respect to the PREMISES or the building or
Strip Center of which the same form a part except as herein expressly set forth.
ARTICLE 39. ENTIRE AGREEMENT. This LEASE and the Exhibits, if any, attached
hereto and forming a part hereof, set forth all of the agreements, conditions
and covenants between LESSOR and LESSEE concerning the PREMISES and the Strip
Center and there are no agreements, conditions and covenants, either oral or
written, between the, other than are herein set forth. Except as herein
otherwise provided, no subsequent amendment, change, modification or addition to
this LEASE shall be binding upon LESSOR or LESSEE unless in writing and signed
by them.
ARTICLE 40. QUIET ENJOYMENT. LESSOR hereby covenants and agrees that if LESSEE
shall perform all the agreements, conditions and covenants herein stipulated to
be performed on LESSEE'S part, LESSEE shall at all times during the TERM have
the peaceable and quiet enjoyment and possession of the PREMISES without any
hindrance or interruption from LESSOR or any person or persons lawfully claiming
the PREMISES, subject only to the agreements, conditions and covenants of this
LEASE.
ARTICLE 41. APPLICABLE LAWS. This LEASE and the agreements, conditions and
covenants herein set forth shall be construed in accordance with and governed
pursuant to the laws of the State of Ohio.
ARTICLE 42. BENEFIT OF ASSIGNS. This LEASE and all the agreements, conditions,
and covenants herein contained shall inure to the benefit of and be binding upon
the heirs, personal representatives, successors and assigns, respectively, of
the parties hereto, provide however, that no assignment by, from, through or
under LESSEE in violation of the provisions hereof shall vest in the assigns any
right, title or interest whatever.
ARTICLE 43. MEMORANDUM OF LEASE.
(a) This LEASE shall not be recorded, but a Memorandum of Lease of event
date herewith describing the PREMISES, setting forth the TERM and
referring to this LEASE may be recorded by either party.
(b) In the event the COMMENCEMENT DATE, RENT COMMENCEMENT DATE or
EXPIRATION DATE hereof are not dates certain as of the date hereof, the
parties shall enter into a Supplemental
<PAGE> 21
Lease Agreement at such time as the same have been determined setting
forth therein the actual COMMENCEMENT DATE, RENT COMMENCEMENT DATE and
EXPIRATION DATE hereof and describing the PREMISES.
ARTICLE 44. PARTIAL LIABILITY. If any agreement, condition or covenant of this
LEASE or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this LEASE, or the
application of such agreement, condition or covenant to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each agreement, condition or covenant of this LEASE shall
be valid and be enforced to the fullest extent permitted by law.
ARTICLE 45. USE OF TERMS.
(a) Wherever the word "LESSOR" or "LESSEE" is used in this LEASE, it shall
be considered as meaning "LESSORS" or "LESSEES" respectively, wherever
the context permits or requires, and when the singular and/or neuter
pronouns are used herein, the same shall be construed as including all
persons, entities and corporations designated respectively as LESSOR or
LESSEE in the heading of this instrument wherever the context requires.
(b) If there be more than one LESSEE, they shall be jointly and severally
liable hereunder. Notice to either LESSEE, if there be more than one,
shall be deemed to be adequate and proper notice hereunder and each
LESSEE authorizes, approves and consents to service of notice upon any
one or more of the LESSEES.
(c) The word, LESSOR, as used in this LEASE shall mean, in addition to the
party identified in Article 1 hereof, any successor-in-interest to such
party, including a mortgagee-in-possession of the PREMISES.
IN WITNESS WHEREOF, on the date and at the place first aforesaid, the
parties have set their hands to this LEASE consisting of Pages 1 through 26 and
Exhibits "A" though "C".
<TABLE>
<S> <C>
LESSOR:
Signed and acknowledged COLLINWOOD PROPERTIES CO., LLC
in the presence of: AN OHIO LIMITED LIABILITY COMPANY
/s/ Gail L. Webster By: LANCE ONE CORP., Authorized Member
- --------------------------------------
[Signature of Witness]
Gail L. Webster By: /s/ Michael E. Osborne, President
- -------------------------------------- -----------------------------------
[Printed Name of Witness] Michael E. Osborne, President
/s/ Deborah L. Augusta
- -------------------------------------
[Signature of Witness]
DEBORAH L. AUGUSTA
- -------------------------------------
[Printed Name of Witness]
LESSEE:
GREAT LAKES BANK
/s/ Gail L. Webster By: /s/ Richard T. Flenner, Jr. [Signature of Witness]
- --------------------------------------- --------------------------------------
Richard T. Flenner, Jr.
Gail L. Webster Its: /s/ President
- --------------------------------------- -------------------
[Printed Name of Witness] President
/s/ Deborah L. Augusta AND BY:
- ---------------------------------------- ----------------------------------------
[Signature of Witness]
</TABLE>
<PAGE> 22
<TABLE>
<S> <C>
Deborah L. Augusta ITS:
- ---------------------------------------- ---------------------------------
[Printed Name of Witness]
</TABLE>
STATE OF OHIO )
) SS. LESSOR ACKNOWLEDGEMENT
COUNTY OF LAKE )
BEFORE ME, a Notary Public in and for said County and State, personally
appeared the above named COLLINWOOD PROPERTIES CO., LLC by LANCE ONE CORP. by
MICHAEL E. OSBORNE, its President, who acknowledged that he did sign the
foregoing instrument and that the same is his free and voluntary act and deed
personally and as such officer and the free and voluntary act and deed of said
corporation.
IN TESTIMONY WHEREOF, I have hereunto affixed my signature and official
seal at Mentor, Ohio this 16th day of September, 1998.
/s/ Gail L. Webster
---------------------------
Notary Public
STATE OF OHIO )
) SS. LESSEE ACKNOWLEDGEMENT
COUNTY OF LAKE )
BEFORE ME, a Notary Public in and for said County and State, personally
appeared the above named GREAT LAKES BANK by Richard T. Flenner, Jr., its
President, and by _________________________, its _______________, who
acknowledged that they did sign the foregoing instrument and that the same is
their free and voluntary act and deed personally and as such officers and the
free and voluntary act and deed of said corporation.
IN TESTIMONY WHEREOF, I have hereunto affixed my signature and official
seal at Mentor, Ohio this 16th day of September, 1998.
/s/ Gail L. Webster
---------------------------
Notary Public
This instrument prepared by:
David J. Richards, Jr., Esq.
153 E. Erie Street
Painesville, Ohio 44077
<PAGE> 23
EXHIBIT "A"
Situated in the City of Willoughby Hills, County of Lake and State of
Ohio, being known as part of Original Willoughby Township Lot 4, Tract
4, bounded and described as follows:
Beginning at a monument box with an iron pin at the centerline
intersection of Bishop Road, 60 feet wide, and Chardon (aka U.S. Route
6), width varies:
Thence South 81 degrees 33'11" West, along said centerline of Chardon
Road, a distance of 179.99 feet to a point;
Thence South 00 degrees 32'28" East, passing through a 3/8" iron pin
found at 30.29 feet point being the northwesterly corner of land
conveyed to Lyden Company by deed recorded in Volume 521, Page 999 of
Lake county Official Records, a total distance of 45.42 feet to a 5/8"
iron pin set and the principal place of beginning.
COURSE I Thence South 00 degrees 32'28' East, along the
westerlyline of land so conveyed to Lyden Company, a
distance of 134.39 feet to a 3/8" iron pin found on
the northerly line of land conveyed to John P.
Hollis by deed recorded in Volume 890, Page 759 of
Lake County Official Records;
COURSE II Thence South 81 degrees 33'11" West, along said
Hollis' northerly line, a distance of 4.06 feet to
a 3/8" iron pin found at the northwesterly corner
thereof;
COURSE III Thence South 08 degrees 19'12" East, along Hollis'
westerly line, a distance of 202.84 feet to a 5/8"
iron pin set on the northerly line of land conveyed
to Ernest H. and Mildred Hall by deed recorded in
Volume 843, Page 1194 of Lake County Records;
COURSE IV Thence South 81 degrees 33'24" West, along said
northerly line, a distance of 100.29 feet to a 1/2"
iron pin found at the southeasterly corner of land
conveyed to Elliot Weisenberg by deeds recorded in
Volume 42, Page 1091 and Volume 44, Page 600 of
Lake County Records;
COURSE V Thence North 16 degrees 09'19" West, along an
easterly line of said Weisenberg, a distance of
148.13 feet to an iron pin found at an angle point
therein;
COURSE VI Thence North 08 degrees 24'34" West, along an
easterly line of said Weisenberg, a distance of
189.16 feet to a 5/8" iron pin set on a southerly
sideline of said Chardon Road;
COURSE VII Thence North 81 degrees 33'11" East along said
sideline a distance of 143.03 feet to the principal
place of beginning and containing 0.9361 acres as
calculated and described in August, 1998 by
Richard A. Thompson, Jr., P.S. No. 7388 of LDC, Inc.
based on a boundary survey done by Rudy E. Schwartz
P.S. No. 7193 of LDC, Inc. in March 1996, be the
same more or less but subject to all legal highways
and easements of record.
Bearings used herein refer to an assumed meridian and
are intended to indicate angles only.
Easement Parcel 1:
Together with a perpetual easement and right of way for the purpose of
ingress and egress across the following described premises:
<PAGE> 24
Situated in the City of Willoughby Hills, County of Lake and State of
Ohio and known as part of Original Willoughby Township Lot No. 4 in
tract No. 4 and further described as follows:
Beginning in the westerly margin of Bishop Road as conveyed to
Willoughby Hills City of deed recorded in Volume 726, Page 510 of the
Lake County Deed Records at the point that is South 04 degrees 46'55"
East along said Westerly margin 28.00 feet from the southerly line of
land conveyed to the Mobile Oil Corporation, Inc., by deed recorded in
Volume 746, Page 573 of the aforesaid deed records;
Thence South 82 degrees 28'45" West 134.41 feet;
Thence South 07 degrees 24'03" East 25.97 feet;
Thence North 82 degrees 28'45" East, 133.25 feet to the aid Westerly
margin of Bishop Road;
Thence North 04 degrees 46'55" West along said margin 26.00 feet to
the place of beginning.
Easement Parcel 2
Together with a perpetual easement and right of way for the purpose of
ingress and egress across the following described premises:
Situated in the City of Willoughby Hills, County of Lake and State of
Ohio and known as part of Original Willoughby Township Lot No. 4 in
tract No. 4 and further described as follows:
Beginning in the Westerly margin of Bishop Road as conveyed in
Willoughby Hills City by deed recorded in 726, Page 510 of the Lake
County Deed Records at the point that is North 04 degrees 46'55" West
along said Westerly margin 23.76 feet from the northerly line of land
conveyed to Ernest H. and Mildred Hall by deed recorded in Volume 843,
page 1194 of the aforesaid deed records;
Thence North 04 degrees 46'55" West continuing along said Westerly
margin 26.00 feet;
Thence South 82 degrees 29'26" West 128.69 feet;
Thence South 07 degrees 24'03" East 25.97 feet;
Thence North 82 degrees 29'26" East 127.50 feet to the place
of beginning.
Easement Parcel 3
Together with a perpetual easement for a right of way for ingress and
egress over and upon the land hereinafter described.
Situated in the Village of Willoughby Hills, County of Lake and State
of Ohio and known and described as follows, to-wit:
and known as being a part of Lot 4, Tract 4 and bounded and described
as follows:
Beginning at the intersection of the centerline of Euclid-Chardon Road
and the Northwesterly line of land conveyed to Central National Bank of
Cleveland Trustee, as recorded in Deed Volume 402, Page 430 of Lake
County Records;
<PAGE> 25
Thence South 0 degrees 27'10" West a distance of 179.83 to the
southwest corner of Central National Bank's property; thence North
82 degrees 3' East along said southerly line a distance of 20'; thence
in a northerly direction back to the point of beginning, forming a
pie-shaped parcel, be the same more or less, but subject to all legal
highways.
<PAGE> 26
EXHIBIT "B"
TO BE SUPPLIED FOLLOWING EXECUTION
<PAGE> 1
EXHIBIT 10.g
EMPLOYMENT AGREEMENT
--------------------
This AGREEMENT is made and entered into as of this 1st day of January,
1999 by and among GLB Bancorp, Inc., an Ohio bank holding company (the "Holding
Company"), Great Lakes Bank, an Ohio-chartered, FDIC-insured bank and wholly
owned subsidiary of the Holding Company (the "Bank"), and Betty L. Kimbrew (the
"Executive"). Any reference to "FRB" herein shall mean the Board of Governors of
the Federal Reserve System and any reference to "FDIC" herein shall mean the
Federal Deposit Insurance Corporation. Any reference to "Superintendent" herein
shall mean the Superintendent of the Ohio Division of Financial Institutions.
Any reference herein to the "Employer" shall mean either or both of the Holding
Company and the Bank, as appropriate in a given case.
WHEREAS, the parties intend that this Agreement shall supersede all
prior understandings, agreements and contracts, whether written or oral, between
or among the parties hereto that concern the subject matter hereof;
NOW THEREFORE, in consideration of the performance of the
responsibilities of the Executive and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. EMPLOYMENT.
(a) The Executive shall be employed as Senior Vice President -
Corporate Development of the Bank and the Holding Company. As Senior Vice
President - Corporate Development, the Executive shall render administrative,
managerial and other services to the Holding Company and the Bank at the
direction and subject to the supervision of the President and Chief Executive
Officer of the Holding Company. The Executive shall have such additional power
and authority as may be set forth in or as is not inconsistent with the Amended
and Restated Articles of Incorporation, as amended, and Code of Regulations (the
"Governing Instruments") of the Holding Company and the Bank, as the case may
be, and applicable federal and Ohio law, but
<PAGE> 2
subject in all cases to the direction and supervision of the president and Chief
Executive Officer of the Holding Company.
(b) The Executive shall be furnished with a private office and
with such other facilities, amenities and services as are appropriate for the
Executive's position as Senior Vice President of the Employer and adequate for
the performance of her duties hereunder.
2. TERM
The initial term of employment under this Agreement shall be
for a period of one year, commencing on the date in 1999 upon which the
acquisition of Maple Leaf Financial, Inc. by the Holding Company becomes
effective and ending on that same date in the year 2000.
3. STANDARDS OF PERFORMANCE.
Excluding periods of vacation and sick leave to which the
Executive is entitled, the Executive agrees to devote her best efforts and her
entire business time during regular business hours to the business and affairs
of the Employer and to discharge the responsibilities assigned to the Executive
hereunder. Following consultation with the Board of Directors of the Bank, the
Executive may serve on corporate, civic or charitable boards or committees and,
without such consultation, manage personal investments, so long as such
activities do not interfere in any material respect with the performance of the
Executive's responsibilities hereunder. In conjunction with the Executive's
responsibilities, it is anticipated that she will participate in and attend
programs affiliated with banking related associations, which programs have a
reasonable relationship to the business and affairs of the Employer.
4. BASE SALARY.
The Bank agrees to pay the Executive for the term of this
Agreement a salary of $85,000 per annum (hereinafter referred to as the "Base
Salary"). The Base Salary provided for herein shall be payable twice monthly
(i.e., twenty-six (26) pay periods per year).
<PAGE> 3
5. OTHER COMPENSATION AND BENEFITS.
The Executive shall be eligible to participate in the
Company's/Bank's stock option plan, as the same may be amended or supplemented
hereafter. The Executive shall also be entitled to participate in any additional
compensation, incentive, bonus or award plans (the "Additional Plans") hereafter
adopted by the Board of Directors of the Employer and, as necessary or
appropriate, by the shareholders of the Holding Company to the extent that her
position as an executive officer makes her eligible to participate therein under
the terms of any Additional Plans.
6. PARTICIPATION IN RETIREMENT, EMPLOYEE BENEFIT AND OTHER PLANS.
(a) The Executive shall be entitled to participate in any plan
of the Bank relating to pension, thrift, deferred compensation, profit-sharing,
group life insurance, medical insurance, disability insurance, education
reimbursement or other retirement or employee benefits that the Bank may adopt
for the benefit of its executive employees.
(b) In addition to the compensation provided to the Executive
pursuant to Paragraphs 4 and 5 hereof, the Bank agrees to reimburse the
Executive for reasonable entertainment, travel, lodging and other miscellaneous
expenses whether local or out-of-city, incurred on its behalf and directly
related to the performance of her duties as Senior Vice President - Corporate
Development of the Employer. This reimbursement shall include the payment of
reasonable expenses for attending meetings of trade associations. The Executive
shall submit an itemized statement and satisfactory documentation of the
expenses incurred. The Bank shall also include the Executive as an insured under
its liability insurance policies with coverage at least equal to the coverage
under its current liability insurance policies.
7. VACATIONS.
The Executive shall be entitled, without loss of pay, to the
number of vacation days in each calendar year determined, from time to time, by
the Board of Directors of the Bank or appropriate committee thereof. Further,
the Boards of Directors of the Holding Company and the Bank shall be entitled to
grant to the Executive a leave or leaves of absence with or without pay at
<PAGE> 4
such time or times and upon such terms and conditions as such Boards of
Directors, in their discretion, may determine.
8. TERMINATION OF EMPLOYMENT.
(a) The Executive's employment under this Agreement may be
terminated at any time by the Board of Directors of either Employer. Except as
otherwise provided in this Agreement, any termination by the Board of Directors
other than for "cause" shall not prejudice the Executive's right to receive:
(i) compensation in accordance with Paragraphs 4
and 5 of this Agreement for the remaining
term hereof, and
(ii) the other benefits provided by this
Agreement for the remaining term.
(b) The Executive shall have no right to receive compensation
or other benefits under this Agreement for any period after the date of
termination for cause. For purposes of this Agreement, termination for "cause"
shall mean only the following events:
(i) personal dishonesty:
(ii) incompetence;
(iii) material breach of any provision of this
Agreement;
(iv) breach of fiduciary duty involving personal
profit;
(v) intentional failure to perform stated
duties;
(vi) a material breach of the reasonable policies
and procedures for the operation of the Bank
or the Holding Company provided to the
Executive by formal action of the Board of
Directors of the Bank or the Holding
Company, respectively;
(vii) willful violation of any law, rule,
regulation (other than a law, rule or
regulation relating to a traffic violation
or similar offense) or final
cease-and-desist order; or
<PAGE> 5
(viii) willful misconduct.
(c) (i) For purposes of Paragraph 8(b)(ii),
"incompetence" shall mean the Executive's
inability to perform her duties hereunder
due to insufficient knowledge or skills;
when determining incompetence, the Board of
Directors of the Bank and the Holding
Company, respectively, shall, among other
things, consider the Bank's CAMELS rating
and the Holding Company's BOPEC rating
relative to the Ohio banking industry peer
group and measure the Executive's acts and
omissions against standards then prevailing
in the Ohio banking industry.
(ii) For purposes of Paragraph 8(b)(vii) and
8(b)(viii), no act, or failure to act, on
the Executive's part shall be considered
"willful" unless she has acted, or failed to
act, with an absence of good faith and
without a reasonable belief that her action
or failure to act was in the best interest
of the Employer.
(iii) For purposes of Paragraph 8(b)(vii), a
cease-and-desist order shall not become
final until exhaustion or lapse of all
(administrative and judicial) appeal rights
in relation thereto.
(d) The Executive shall not be deemed to have been terminated
for cause unless there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the entire membership of the appropriate Board of Directors at a meeting of the
Board of Directors called and held for the purpose (after reasonable notice to
the Executive and an opportunity for the Executive, together with her counsel,
to be heard before the Board of Directors), finding that in the good faith
opinion of the Board of Directors the Executive was guilty of conduct set forth
above in the second sentence of this Paragraph 8(b) and specifying the
particulars thereof in detail. In no event will the Executive be subject to
termination
<PAGE> 6
for cause pursuant to Paragraph 8(b)(iii) above unless the Executive
shall have failed to cure, correct or prevent the alleged breach within thirty
(30) days after such resolution has been delivered to the Executive.
(e) This Agreement may be terminated by the Executive at any
time upon ninety (90) days' written notice to the Employer or upon such shorter
period as may be agreed upon between the Executive and the Board of Directors of
the Employer. In the event of such termination, the Employer shall be obligated
only to continue to pay the Executive her salary up to the date of termination
and those retirement and/or employee benefits which have been earned or become
payable up to the date of termination.
(f) If the Executive is removed from office and/or permanently
prohibited from participating in the conduct of the Holding Company's affairs or
the Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. ss.1818(e)(4) or (g)(1), all
obligations of the Employer under this Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties shall
not be affected.
(g) If the Bank is declared insolvent by the Superintendent
(pursuant to Chapter 1125 of the Ohio Revised Code), all obligations under this
Agreement shall terminate as of the date of default, but vested rights of the
contracting parties shall not be affected.
(h) At such time as the FDIC enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of the Federal Deposit Insurance Act, all obligations of the
Employer under this Agreement shall terminate, unless and to the extent that
continuation of the contract is determined by the FRB or the FDIC to be
necessary for the continued operation of the Bank. Any rights of the parties
that have already vested, however, shall not be affected by such action.
(i) Notwithstanding any provision in this Agreement to the
contrary, in the event the Holding Company files a voluntary bankruptcy petition
under Title 11 of the United States Code or an involuntary bankruptcy petition
with respect to the Holding Company is not dismissed
<PAGE> 7
within sixty (60) days of filing, and provided the Bank has not been declared
insolvent by the Superintendent, then the Holding Company shall have the right
upon ninety (90) days' prior notice to the Executive to terminate this Agreement
without further obligation hereunder.
9. SUSPENSION OF EMPLOYMENT.
(a) If the Executive is suspended and/or temporarily
prohibited from participating in the conduct of the Bank's affairs or the
Holding Company's affairs by a notice served under Section 8(e)(3) or (g)(1) of
the Federal Deposit Insurance Act, 12 U.S.C. ss.1818(e)(3) or (g)(1), the
Employer's obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings.
(b) If the charges in the notice referenced in Paragraph 9(a)
are dismissed, the Bank's Board of Directors shall:
(i) pay the Executive all or part of the
compensation withheld while its contract
obligations were suspended, and
(ii) reinstate (in whole or in part) any of its
obligations which were suspended as required
in subparagraph (a) above.
10. DISABILITY.
(a) The Bank may terminate the Executive's employment after
having established the Executive's disability. For purposes of this Agreement,
"disability" means a physical or mental infirmity that substantially impairs the
Executive's ability to perform her duties under this Agreement. The Executive
shall be entitled to the compensation and benefits provided for under this
Agreement for any period prior to the establishment of the Executive's
disability during which the Executive is unable to work due to a physical or
mental infirmity.
(b) If any dispute arises as to whether the Executive is or
was physically or mentally unable to perform her duties pursuant to this
Agreement, or whether her disability has ceased and she is able to resume her
duties, the parties shall submit such questions to a licensed physician
agreed upon by the parties, or if the parties are unable to agree, to a licensed
physician
<PAGE> 8
appointed by the President of the Academy of Medicine of Cleveland,
Cleveland, Ohio, at the request of either party. The Executive shall submit to
such examinations and provide information as such physician may request and the
determination of such physician as to the Executive's physical or mental
condition shall be binding and conclusive on the parties. The Bank agrees to pay
the cost of any such physician and examinations.
11. PROPRIETARY INFORMATION.
The Executive agrees that the knowledge of the business
activities and plans for business activities of the Bank and affiliates thereof
is a confidential, valuable, special and unique asset of the business of the
Bank and the Holding Company. During the term of her employment and for the
period ending two (2) years following the termination of her employment for any
reason, the Executive will not disclose any knowledge of the past, present,
planned or considered business activities of the Bank or affiliates thereof to
any person, firm, corporation, or other entity for any reason or purpose
whatsoever. Notwithstanding the foregoing, the Executive may disclose any
knowledge of banking, financial and/or economic principles, concepts or ideas
that are not solely and exclusively derived from the business plans and
activities of the Bank. In the event of a breach or threatened breach by the
Executive of the provisions of this Paragraph 11, the Bank and/or the Holding
Company will be entitled to an injunction restraining the Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof, or from
rendering any services to any person, firm, corporation or other entity to whom
such knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the Bank and/or the
Holding Company from pursuing any other remedies available to the Bank or the
Holding Company for such breach or threatened breach, including the recovery of
damages from the Executive. This Paragraph 11 shall not cover any information
concerning the Bank or the Holding Company of which a third party (excluding any
party employed by or an agent of the Bank or the Holding Company or otherwise
subject to an
<PAGE> 9
agreement or duty to maintain confidentiality of such information) has both
knowledge and an unrestricted right to that knowledge.
12. NOTICES.
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified or registered mail, return receipt
requested, with postage prepaid, to the following addresses or to such other
address as either party may designate by like notice.
A. IF TO THE BANK, TO:
Board of Directors
Great Lakes Bank
7001 Center Street
Mentor, Ohio 44060
B. IF TO THE HOLDING COMPANY, TO:
Board of Directors
GLB Bancorp, Inc.
7001 Center Street
Mentor, Ohio 44060
C. IF TO THE EXECUTIVE, TO:
Ms. Betty L. Kimbrew
--------------------------
--------------------------
--------------------------
and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.
13. OTHER CONTRACTS.
Consistent with Paragraph 3 herein, the Executive shall not,
during the term of this Agreement, have any other employment except with the
prior approval of the Board of Directors of the Bank.
14. AMENDMENTS.
No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties, except as herein otherwise
provided.
<PAGE> 10
15. PARAGRAPH HEADINGS.
The paragraph headings used in this Agreement are included
solely for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
16. SEVERABILITY.
The provisions of this Agreement shall be deemed severable and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof.
17. GOVERNING LAW.
This Agreement shall, except to the extent that Federal law
(including a law, rule, or regulation of the FRB or FDIC) shall be deemed to
apply, be governed by and construed and enforced in accordance with the laws of
Ohio.
18. ARBITRATION.
Except for the determination of disability provided for in
Paragraph 10, any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in accordance with
the rules of the American Arbitration Association then in effect. Judgement may
be entered on the arbitrator's award in any court having jurisdiction.
19. SAFETY AND SOUNDNESS LIMITATION.
Notwithstanding anything to the contrary in this Agreement, in
the event that the Bank is not at least an "adequately capitalized" institution
within the meaning of Part 325 of the Rules and Regulations of the FDIC or any
successor regulation, prior to or as a result of any incentive bonus payment or
severance or termination payment required under this Agreement, the payment
shall be deferred until the Bank could be an adequately capitalized institution
and shall be paid within ten (10) business days after the close of the month in
which capital compliance is achieved, so long as such payment does not result in
the Bank failing its regulatory capital requirements to be considered an
adequately capitalized institution.
<PAGE> 11
20. NON-SOLICITATION.
(a) Upon any termination of Executive's employment hereunder
pursuant to Paragraph 8, Executive agrees for a period of two (2) years
following such termination she will not compete with the Holding Company or the
Bank in Geauga County or Lake County or solicit, divert or take away any of the
customers, business or patronage of the Bank or its respective subsidiaries or
affiliates.
(b) Executive hereby agrees that she shall not, for a period
of two (2) years after the date of Executive's termination of employment with
the Bank, serve as a director, employee, or officer of, consult, or contract
with any federally insured depository institution (or holding company thereof)
within Geauga County or Lake County, Ohio; both the Employer and the Executive
recognizing that such geographical limitation is reasonable, does not include
all areas where the Bank presently conducts business, and will not prevent the
Executive from meaningful employment opportunities elsewhere (for example,
Cuyahoga County).
(c) Executive agrees that for two (2) years following
termination of employment pursuant to this Agreement, Executive shall not hire,
solicit or cause to be solicited for employment by the Executive or by any third
party any person who is, as of the date of such solicitation or who was within
the twelve (12) month period prior to the date of such solicitation, an employee
of the Bank or of any subsidiary or affiliate of the Bank.
(d) In the event of a breach or threatened breach by the
Executive of the provisions of this Paragraph 20, the Holding Company, the Bank
or any duly authorized officer of either will be entitled to a temporary
restraining order or injunction.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first hereinabove written.
WITNESSES: GREAT LAKES BANK
/s/ Richard T. Flenner, Jr.
- -------------------------- -----------------------------------------
Richard T. Flenner, Jr.
- -------------------------- President and Chief Executive Officer
<PAGE> 12
WITNESSES: GLB BANCORP, INC.
/s/ Richard T. Flenner, Jr.
- -------------------------- -----------------------------------------
Richard T. Flenner, Jr.
- -------------------------- President and Chief Executive Officer
WITNESSES: /s/ Betty L. Kimbrew
- -------------------------- -----------------------------------------
- -------------------------- Betty L. Kimbrew (the "Executive")
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF GLB BANCORP, INC.
Great Lakes Bank Ohio-chartered commercial bank
<PAGE> 1
EXHIBIT 23.1
Consent of PricewaterhouseCoopers LLP
We consent to the inclusion in Registration Statement (Form S-4) of our
report dated March 23, 1998, on our audit of the consolidated financial
statements of Maple Leaf Financial, Inc. and subsidiaries. We also consent to
the reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
February 4, 1999
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
GLB Bancorp, Inc. and Subsidiary
We consent to the use of our report dated February 6, 1998, except note 18,
which is as of March 18, 1998, with respect to the consolidated statements of
financial condition of GLB Bancorp, Inc. ("Corporation") as of December 31, 1997
and 1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1997 included herein and to the reference to our firm under the
heading "Experts" in the registration statement. Our report refers to a change
in the method of accounting for goodwill.
/s/ KPMG LLP
Cleveland, Ohio
February 2, 1999
<PAGE> 1
EXHIBIT 23.5
Consent of Tucker Anthony Incorporated
January 29, 1999
We consent to the inclusion in this Registration Statement on Form S-4 of GLB
Bancorp, Inc. of our opinion set forth as Appendix B to the Prospectus and Proxy
Statement, which is part of the Registration Statement, and to the reference to
our firm and summarization of our opinion in the Prospectus and Proxy Statement
under the captions "Opinion of Maple Leaf's Financial Advisor."
/s/ Tucker Anthony Incorporated
<PAGE> 1
EXHIBIT 24
GLB BANCORP, INC.
LIMITED POWER OF ATTORNEY
REGISTRATION STATEMENT ON FORM S-4
The undersigned directors and officers of GLB Bancorp, Inc. (the
"Company") hereby constitute and appoint Richard T. Flenner, Jr., Cheryl Jean
Mihitsch and Andrew L. Meinhold, and each of them, with full power of
substitution and resubstitution, as attorneys or attorney of the undersigned, to
execute and file under the Securities Act of 1933 a Registration Statement on
Form S-4 for the offer and sale of shares of the Common Stock of the Company in
connection with the acquisition of Maple Leaf Financial, Inc., and any and all
amendments and exhibits thereto, including pre-and post-effective amendments,
and any and all applications or other documents to be filed with the Securities
and Exchange Commission, National Association of Securities Dealers and any
state securities agencies pertaining to such registration, with full power and
authority to do and perform any and all acts and things whatsoever necessary,
appropriate or desirable to be done in the premises, or in the name, place and
stead of the said directors and officers, hereby ratifying and approving the
acts of said attorneys and any of them and any such substitute.
IN WITNESS WHEREOF, this Power of Attorney has been signed at Mentor,
Ohio, this 19th day of January, 1999.
/s/ Richard T. Flenner, Jr. /s/ Jerome T. Osborne
- -------------------------------- --------------------------
Richard T. Flenner, Jr. Jerome T. Osborne
/s/ James V. Fryan /s/ Richard M. Osborne
- -------------------------------- --------------------------
James V. Fryan Richard M. Osborne
/s/ George C. Lott /s/ Edward R. Pike
- -------------------------------- --------------------------
George C. Lott Edward R. Pike
/s/ George X. Mechir /s/ Thomas J. Smith
- -------------------------------- --------------------------
George X. Mechir Thomas J. Smith
/s/ Marian Rose Nathan /s/ Joseph T. Svete
- -------------------------------- --------------------------
Marian Rose Nathan Joseph T. Svete
/s/ Thomas E. Wheeler
--------------------------
Thomas E. Wheeler
<PAGE> 1
EXHIBIT 99.1
MAPLE LEAF FINANCIAL, INC.
SPECIAL MEETING OF SHAREHOLDERS
April , 1999
The undersigned hereby appoints the Board of Directors of Maple Leaf
Financial, Inc. (the "Company"), and the survivor of them, with full powers of
substitution, to act as attorney and proxies for the undersigned to vote all
shares of Class A and Class B common stock of the Company which the undersigned
is entitled to vote at the Special Meeting of Shareholders (the "Meeting"), to
be held on April , 1999, 10:00 a.m., at the Punderson Manor House, Punderson
State Park, 11755 Kinsman Road, Newbury, Ohio 44065, and at any and all
adjournments thereof, as follows:
1. The adoption of the Agreement of Affiliation and Plan of Merger
dated as of November 24, 1998, by and between GLB Bancorp, Inc. and Maple Leaf
Financial, Inc., as amended as of December 29, 1998, and the acquisition of
Maple Leaf Financial, Inc. by GLB Bancorp, Inc. in accordance with Section
1701.78 of the Ohio Revised Code.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the Meeting or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE INDICATED PROPOSAL
This proxy will be voted as directed, but if no instructions are
specified, this proxy will be voted FOR the proposal stated. If any other
business is presented at such meeting, this proxy will be voted by those named
in this proxy in their best judgment. At the present time, the Board of
Directors knows of no other business to be presented at the meeting.
Should the undersigned be present and elect to vote at the Meeting or
any adjournment thereof, and after notification to the Secretary of the Company
at the Meeting of the stockholder's decision to terminate this Proxy, then the
power of such attorneys and proxies shall be deemed terminated and of no further
force and effect.
The undersigned acknowledges receipt from the Company, prior to the
execution of this Proxy, of Notice to the Meeting and a Prospectus/Proxy
Statement dated , 1999.
Dated: , 1999
----------------------------
SIGNATURE OF SHAREHOLDER
----------------------------
SIGNATURE OF SHAREHOLDER
Please sign exactly as your name(s) appear(s) above on this card. When signing
as attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE
<PAGE> 1
EXHIBIT 99.2
SHAREHOLDER VOTING AGREEMENT
THIS SHAREHOLDER VOTING AGREEMENT dated as of November 24, 1998 (this
"Agreement) is made by and among (i) Howard Amster, Robert M. Bloom, Cosmo
Bordonaro, William Costaras, Jay A. Goldblatt, John C. Loring, Dennis E. Prots
and Worth Wollpert (the "Director Shareholders"), each of whom is a director of
Maple Leaf Financial, Inc., an Ohio corporation ("Maple Leaf"), and direct or
indirect record owner with voting control of Class A and Class B common stock of
Maple Leaf, each such class without par value (such classes of common stock of
Maple Leaf being hereinafter sometimes referred to together as the "Maple Leaf
Stock"), (ii) Bobbie Brooks, Incorporated Executive Officer & Key Employee
Deferred Retirement Trust (the "Bobbie Brooks Trust") and The Clemmer Family
Trust, Lloyd V. Clemmer, Jr., Trustee (the "Clemmer Family Trust"), each of whom
is a record owner with voting control of Maple Leaf Stock, (iii) Betty L.
Kimbrew, a director, President and principal executive officer of Maple Leaf and
record owner with voting control of Maple Leaf Stock (Ms. Kimbrew is hereinafter
sometimes referred to as the "Executive Officer Shareholder"), (iv) Tamra Gould,
spouse of Director Howard Amster and direct or indirect record owner with voting
control of Maple Leaf Stock (the Director Shareholders, the Bobbie Brooks Trust
and the Clemmer Family Trust, the Executive Officer Shareholder and Tamra Gould
are hereinafter sometimes referred to individually as a "Shareholder" and
collectively as the "Shareholders"), (v) Maple Leaf and (vi) GLB Bancorp, Inc.,
an Ohio corporation ("GLB").
WHEREAS, GLB and Maple Leaf are entering into an Agreement of
Affiliation and Plan of Merger dated the date hereof (the "Merger Agreement"),
which provides for the merger of Maple Leaf with and into GLB upon satisfaction
of all of the conditions set forth in the Merger Agreement (the "Merger");
WHEREAS, among other conditions, the Merger Agreement provides that it
is a condition to the Merger that the shareholders of Maple Leaf approve the
Merger Agreement at a special meeting of shareholders of Maple Leaf called for
that purpose (such meeting, together with any adjournments thereof, the "Maple
Leaf Meeting");
WHEREAS, the Maple Leaf Stock consists of 18,000 authorized shares of
Class A common stock, without par value, 18,000 authorized shares of Class B
common stock, without par value, and 10,000 authorized shares of preferred
stock, without par value, of which 7,210 shares of Class A common stock are
issued and outstanding, 7,210 shares of Class B common stock are issued and
outstanding and no shares of preferred stock are issued and outstanding, with
Class A common stock being entitled to one vote per share and Class B common
stock being entitled to twenty votes per share;
<PAGE> 2
WHEREAS, the Shareholders own or have the power to vote Class A common
shares and Class B common shares of Maple Leaf Stock as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF MAPLE PERCENTAGE OF OUTSTANDING
LEAF STOCK OWNED MAPLE LEAF STOCK AND
PERCENTAGE OF VOTING POWER
SHAREHOLDER CLASS A CLASS B
<S> <C> <C> <C>
Howard Amster 1,928 1,928 26.74%
Tamra Gould 487 487 6.75
Robert M. Bloom 102 102 1.40
Cosmo Bordonaro 367 367 5.09
William Costaras 544 544 7.54
Jay A. Goldblatt 38 38 .52
John C. Loring 83 83 1.15
Dennis E. Prots 74 74 1.02
Worth Wollpert 170 170 2.35
Bobbie Brooks Trust 978 978 13.56
Betty L. Kimbrew 224 224 3.10
The Clemmer Family Trust 26 26 .36%
----- ------- -------
TOTAL 5,021 5,021 69.58%
===== ======= =======
</TABLE>
WHEREAS, it is the belief of each Shareholder that the Merger is in the
best interests of the Shareholders and Maple Leaf; and
WHEREAS, GLB has made it a condition to entering into the Merger
Agreement that the Shareholders shall have agreed to vote their Maple Leaf Stock
in favor of the Merger.
NOW, THEREFORE, in consideration of GLB and Maple Leaf entering into
the Merger Agreement and to encourage GLB and Maple Leaf to enter into the
Merger Agreement and complete the Merger, the parties hereto agree as follows:
1. AGREEMENT TO VOTE. Except as set forth in subparagraphs (i) and (ii)
of subsection 5.1(a) of the Merger Agreement or in Section 2 below, each
Shareholder agrees to vote the Maple Leaf Stock as follows, and to vote the
Maple Leaf Stock of any person controlled by the Shareholder and any shares of
Maple Leaf Stock hereafter acquired by the Shareholder or by any person
controlled by the Shareholder as follows:
(i) in favor of the adoption of the Merger Agreement at the Maple
Leaf Meeting;
(ii) against the approval of an Acquisition Transaction (as defined
in the Merger Agreement); and
(iii) against any other transaction that is inconsistent with the
obligation of Maple Leaf to consummate the Merger in
accordance with the Merger Agreement.
2. LIMITATION ON VOTING POWER. The parties hereto acknowledge and agree
that nothing contained herein is intended to restrict a Shareholder from voting
on any matter, or otherwise from acting, in the Shareholder's capacity as a
director of Maple Leaf with respect to any matter, including but not limited to,
the management or operation of Maple Leaf.
3. TERMINATION. This Agreement shall terminate on the earliest of:
<PAGE> 3
(i) November 1, 1999;
(ii) the mutual consent of Maple Leaf, GLB and the Shareholders;
(iii) the date on which the Merger Agreement is terminated in
accordance with its terms; or
(iv) the date on which the Merger is consummated.
Upon any such termination, the obligations of each party to this Agreement shall
be extinguished.
4. REPRESENTATIONS, WARRANTIES AND ADDITIONAL COVENANTS OF THE
SHAREHOLDERS.
4.1 Each Shareholder hereby represents and warrants to
GLB and Maple Leaf that:
(i) such Shareholder has the capacity and all
necessary power and authority to vote the
Shares;
(ii) this Agreement constitutes a legal, valid
and binding obligation of the Shareholder;
(iii) this Agreement has been duly authorized,
executed and delivered by the person
executing this Agreement on behalf of the
Shareholder; and
(iv) this Agreement shall apply to all additional
shares of capital stock of Maple Leaf
acquired by the Shareholder after the date
of this Agreement.
4.2 Each Shareholder further agrees that, during the term of
this Agreement, the Shareholder will not, without the prior
written consent of GLB, sell, pledge or otherwise voluntarily
dispose of any of the shares owned by the Shareholder or take
any other voluntary action that would have the effect of
removing the Shareholder's power to vote the shares of Maple
Leaf Stock or that would be inconsistent with this Agreement;
provided that nothing herein shall prohibit a Shareholder from
transferring such shares without consideration to such
Shareholder's spouse, issue or other family members or a trust
for the benefit of such Shareholder, spouse or issue or family
members, or to a charity so long as such transferee
acknowledges that such shares are and will remain subject to
the provisions of this Agreement or voting rights are retained
by such Shareholder.
5. AFFILIATE'S AGREEMENT. Each Shareholder who is determined by Maple
Leaf to be an affiliate of Maple Leaf in accordance with Section 5.13(a) of the
Merger Agreement agrees to sign an agreement in the form of Exhibit 5.13(b) to
the Merger Agreement.
6. SPECIFIC PERFORMANCE. Each Shareholder hereby acknowledges that
damages would be an inadequate remedy for any breach of the provisions of this
Agreement and agrees that the obligations of the Shareholder shall be
specifically enforceable and that GLB and Maple Leaf shall be entitled to
injunctive or other equitable relief upon such a breach by each Shareholder.
Each Shareholder further agrees to waive any bond in connection with the
obtaining of any such injunctive or equitable relief. This provision is without
prejudice to any other rights that GLB and Maple Leaf may have against each
Shareholder for any failure to perform the Shareholder's obligations under this
Agreement.
<PAGE> 4
7. GOVERNING LAW. This Agreement shall be enforceable under and
construed in accordance with the laws of the State of Ohio.
8. REGISTRATION STATEMENT. Each of the Shareholders acknowledges that a
Registration Statement on Form S-4 is in preparation and will be filed by GLB
with the Securities and Exchange Commission. The Registration Statement will
include a prospectus of GLB and a proxy statement of Maple Leaf, which proxy
statement will be used to solicit proxies of shareholders of Maple Leaf for use
at the Maple Leaf Meeting. Each of the Shareholders acknowledges and agrees that
(a) it is an accredited investor, within the meaning of Securities and Exchange
Commission Rule 501(a), or it has had and continues to have, either alone or
together with its representatives, (i) access to all of the information the
Registration Statement and prospectus and proxy statement therein will provide
and (ii) sufficient opportunity to make inquiries of GLB and Maple Leaf
concerning such information, (b) on its own or together with its
representatives, it is able to evaluate and has evaluated the merits and risks
of approval of the Merger Agreement and the Merger contemplated thereby and
investment in GLB common stock, without par value, and (c) each of GLB and Maple
Leaf has relied and may rely upon these representations in connection with its
execution of this Agreement.
IN WITNESS WHEREOF, each Shareholder has executed this Agreement as of
the date set forth in the first paragraph above.
SHAREHOLDERS:
<TABLE>
<S> <C>
/s/ Howard Amster /s/ Tamra Gould
- ------------------------------------------ ---------------------------------------
Howard Amster, Director Tamra Gould
/s/ Robert M. Bloom /s/ Cosmo Bordonaro
- ------------------------------------------ ---------------------------------------
Robert M. Bloom, Director Cosmo Bordonaro, Director
/s/ William Costaras /s/ Jay A. Goldblatt
- -------------------------------------------- ---------------------------------------
William Costaras, Director Jay A. Goldblatt, Director
/s/ John C. Loring /s/ Dennis E. Prots
- --------------------------------------------- ----------------------------------------
John C. Loring, Director Dennis E. Prots, Secretary and Director
/s/ Worth Wollpert /s/ Betty L. Kimbrew
- --------------------------------------------- ----------------------------------------
Worth Wollpert, Director Betty L. Kimbrew, President and Director
BOBBIE BROOKS, INCORPORATED
EXECUTIVE OFFICER & KEY
EMPLOYEE DEFERRED RETIREMENT TRUST
/s/ Stephen R. Kalette
- --------------------------------------------
By: Stephen R. Kalette, Trustee
THE CLEMMER FAMILY TRUST
/s Lloyd V. Clemmer, Jr.
- --------------------------------------------
Lloyd V. Clemmer, Jr., Trustee
MAPLE LEAF FINANCIAL, INC.
By: /s Betty L. Kimbrew
------------------------------------
Betty L. Kimbrew, President
GLB BANCORP, INC.
By: /s/ RICHARD T. FLENNER, JR.
--------------------------------------------------------------
Richard T. Flenner, Jr., President and Chief Executive Officer
</TABLE>
<PAGE> 1
EXHIBIT 99.3
February 2, 1999
GLB Bancorp, Inc.
7001 Center Street
Mentor, Ohio 44060
To the Board of Directors:
I hereby consent to being named as a person about to become a director
of GLB Bancorp, Inc. ("GLB"), in connection with the consummation of the
acquisition (the "Acquisition") of Maple Leaf Financial, Inc., an Ohio
corporation ("Maple Leaf"), by GLB pursuant to the Agreement of Affiliation and
Plan of Merger dated as of November 24, 1998 by and between GLB and Maple Leaf,
as amended as of December 29, 1998, in the Registration Statement on Form S-4
filed by GLB with the Securities and Exchange Commission in connection with the
acquisition (the "Registration Statement"), and to the filing of this consent as
an exhibit to the Registration Statement.
Sincerely,
/s/ Betty L. Kimbrew
----------------------------
Betty L. Kimbrew
<PAGE> 1
EXHIBIT 99.4
February 2, 1999
GLB Bancorp, Inc.
7001 Center Street
Mentor, Ohio 44060
To the Board of Directors:
I hereby consent to being named as a person about to become a director
of GLB Bancorp, Inc. ("GLB"), in connection with the consummation of the
acquisition (the "Acquisition") of Maple Leaf Financial, Inc., an Ohio
corporation ("Maple Leaf"), by GLB pursuant to the Agreement of Affiliation and
Plan of Merger dated as of November 24, 1998 by and between GLB and Maple Leaf,
as amended as of December 29, 1998, in the Registration Statement on Form S-4
filed by GLB with the Securities and Exchange Commission in connection with the
acquisition (the "Registration Statement"), and to the filing of this consent as
an exhibit to the Registration Statement.
Sincerely,
/s/ Howard Amster
-------------------------
Howard Amster
