Registration No. _______________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
LCNB Corp.
(Exact name of issuer as specified in its Charter)
Ohio 31-1626393
(State of Incorporation) (I.R.S. Employer Identification No.)
P.O. Box 59, Lebanon, Ohio 45036, (513) 932-1414
(Address, including zip code, and telephone number, including area
code, of registrant's Principal Executive Offices)
------------------------------------
Stephen P. Wilson
President
LCNB Corp.
P.O. Box 59
Lebanon, Ohio 45036
(513) 932-1414
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------------------
Copy To:
Susan B. Zaunbrecher, Esq.
Dinsmore & Shohl LLP
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
(513) 977-8200
Approximate date of proposed commencement of sales hereunder:
As soon as practicable after the effective date of this Registration
Statement
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: __<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
Title of Securities Amount To Be Proposed Maximum Proposed Maximum Amount of
To Be Registered Registered Offering Price Per Share Offering Price Registration Fee
<S> <C> <C> <C> <C>
Common Stock 1,760,000 $24.00 (1) $42,240,000 $11,743.00
without par value
<FN>
(1) The transaction to be registered on this Registration
Statement on Form S-4 is the issuance of shares of the
Common Stock without par value of LCNB Corp. (the "Holding
Company") to the existing shareholders of Lebanon Citizens
National Bank (the "Bank") pursuant to the merger of the
Bank into a wholly-owned subsidiary of the Holding Company.
As a result of the merger, each shareholder of the Bank will
receive ten (10) shares of the Holding Company's Common Stock
in exchange for each share of the Bank's Common Stock.
Although there are transactions in the Common Stock of the Bank
from time to time, trading has been extremely limited.
As of January 20, 1999 the estimated book value of the
Bank's Common Stock was approximately $240 per share.
Since ten (10) shares of Holding Company Common Stock are
to be issued for each of the presently outstanding
shares of Bank Common Stock, the per share book value of Bank
Common Stock, or $24.00 per share of Holding Company Common
Stock, is the amount on which the above registration fee is based.
</FN>
</TABLE>
<PAGE>
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, as amended, or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
LEBANON CITIZENS NATIONAL BANK
P.O. Box 59
Lebanon, Ohio 45036
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Notice is hereby given that a Special Meeting of Shareholders of
Lebanon Citizens National Bank (the "Bank") will be held on April
13, 1999 at 10:00 a.m., local time, at the main office of the Bank,
located at 2 North Broadway, Lebanon, Ohio, for the following
purposes:
1. To consider and act upon a proposal for the reorganization of the
Bank into a one-bank holding company structure by the adoption of
the form of Plan and Agreement of Merger and the Agreement to Merge
providing for the merger of the Bank with and into LC Interim
National Bank (In Organization), a wholly-owned national banking
subsidiary of LCNB Corp., Lebanon, Ohio, the Articles of
Incorporation of which contain certain antitakeover provisions, all
as described in the accompanying Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
THE BOARD OF DIRECTORS OF THE BANK HAS UNANIMOUSLY APPROVED THE
FOREGOING MERGER PROPOSAL AND RECOMMENDS ITS APPROVAL BY THE
SHAREHOLDERS.
The Board of Directors has fixed the close of business on March 1,
1999, as the record date for the purpose of determining the
shareholders entitled to notice of and to vote at the Special
Meeting and any adjournment thereof. Transferees after said date
will not be entitled to vote at the Special Meeting.
You are cordially invited to attend the Special Meeting in person.
Whether or not you plan to attend, you are urged to complete, date,
sign and return the enclosed Proxy in the envelope provided as soon
as possible.
By order of the Board of Directors
Dated: March 18, 1999 Stephen P. Wilson, President
<PAGE>
PROXY STATEMENT/PROSPECTUS
LCNB CORP.
1,760,000 SHARES OF COMMON STOCK WITHOUT PAR VALUE
OF LCNB CORP.
TO BE ISSUED IN CONNECTION WITH THE MERGER OF
LEBANON CITIZENS NATIONAL BANK INTO
THE LC INTERIM NATIONAL BANK (IN ORGANIZATION),
A WHOLLY-OWNED SUBSIDIARY OF LCNB CORP.
---------------------------------------------
This Proxy Statement/Prospectus constitutes the Proxy Statement of
Lebanon Citizens National Bank with respect to a special meeting of
its shareholders to be held on Tuesday, the 13th of April, 1999.
---------------------------------------------
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these securities,
or determined if this Proxy Statement/Prospectus is truthful or
complete.
---------------------------------------------
The securities offered hereby are not listed on any national
securities exchange or the NASDAQ Stock Market.
The OCC's approval reflects only its view that the transaction does
not contravene applicable competitive standards imposed by law, and
that the transaction is consistent with regulatory policies relating
to safety and soundness. The OCC's approval is not an opinion by
the OCC that the proposed transaction is favorable to the
stockholders from a financial point of view or that the OCC has
considered the adequacy of the terms of the transaction.
The OCC's approval is not an endorsement
or recommendation of the merger.
The date of this Proxy Statement/Prospectus is March 18, 1999
<PAGE>
The Holding Company may, in its sole discretion, issue unaudited
quarterly or other interim reports to its shareholders as it deems
appropriate.
-------------------------------------------------
We have not authorized anyone to give any information or to make any
representations other than those contained in this Proxy
Statement/Prospectus, and, if you have received information or
representations, they must not be relied upon as having been
authorized by the Bank or Holding Company.
This Proxy Statement/Prospectus does not constitute an offering
within any jurisdiction to any person to whom it is unlawful to make
such offer within such jurisdiction.
This Proxy Statement/Prospectus incorporates important business and
financial information about the Bank and the Holding Company that is
not included in or delivered with this document. If you would like
to receive any of this information free of charge, please write or
call Stephen P. Wilson, c/o Lebanon Citizens National Bank, P.O. Box
59, Lebanon, Ohio 45036 (513) 932-1414. You should request this
information at least five days in advance of the Special Meeting of
the Bank's shareholders to ensure that you receive it prior to the
meeting.
TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION 4
INTRODUCTION 6
General 6
Revocation of Proxies 6
Lebanon Citizens National Bank 7
LCNB CORP 7
Summary of the Transaction 7
Regulatory Approval 8
DESCRIPTION OF THE TRANSACTION - FORMATION OF
A ONE-BANK HOLDING COMPANY 8
General 8
Purpose of Transaction 9
Summary of Agreements 9
Expenses of Conversion 10
Shareholder Vote Required 11
Regulatory Approvals 11
Rights of Dissenting Shareholders 11
Conditions of the Merger 12
Amendment or Abandonment of the Plan and
Agreement of Merger 13
Conversion of Shares and Exchange of Certificates 13
Anticipated Accounting Treatment 14
Federal Income Tax Aspects 14
State Income Tax Aspects 15
State Dividend Income Taxes 15
Capitalization 15
DESCRIPTION OF BANK COMMON STOCK AND HOLDING
COMPANY COMMON STOCK 16
General 16
Dividends 16
Preemptive Rights 17
Cumulative Voting 17
Par Value 18
Certain Stabilizing Features of Corporate
Governance 18
Repurchase of Shares 20
INFORMATION CONCERNING THE HOLDING COMPANY 21
General 21
Supervision and Regulation 21
INFORMATION REGARDING THE BANK 23
General 23
Selected Financial Data 23
Management's Discussion and Analysis of
Financial Condition and Results of Operations 24
Supervision and Regulation 28
MANAGEMENT OF THE BANK AND THE HOLDING COMPANY 29
Directors and Executive Officers 29
Executive Compensation 31
CERTAIN BENEFICIAL OWNERS 32
COMMON STOCK MARKET INFORMATION 32
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 33
LEGAL MATTERS 34
OTHER BUSINESS 34
INDEX TO FINANCIAL STATEMENTS F-1
Appendices
Plan and Agreement of Merger Appendix A
Agreement of Merger Appendix A-1
Articles of Incorporation of LCNB Corp. Appendix A-2
Code of Regulations of LCNB Corp. Appendix A-3
12 U.S.C. Section 215a and Banking Circular 259 Appendix B
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
1. Question: Why is the Bank restructuring itself into a holding
company system?
Answer: A bank holding company is a corporation that owns 25% or
more of the voting securities of a bank. Currently, the existing
Bank is governed by laws, rules and regulations of the Comptroller
of the Currency and the Federal Reserve Bank of Cleveland. The new
Holding Company, LCNB Corp., will be an Ohio corporation, governed
by Ohio general corporate law. The reason for converting to a
holding company structure is that it will afford greater flexibility
in carrying out the Bank's business activities and in responding
effectively to future needs and opportunities to expand the
financial services currently offered and the market currently
served. Also, the holding company structure will provide an
opportunity for diversification, either through newly-formed
subsidiaries or by acquisition of established companies, both of
which alternatives are less complicated in a holding company
structure.
In addition, the reorganization will provide flexibility in meeting
future financing needs. The Holding Company can increase its number
of authorized shares of common stock and issue such stock without
the approval of the Comptroller of the Currency. The Holding
Company also will have the authority to redeem its shares, subject
to regulatory limits, without the prior approval of supervisory
authorities and to hold them, if desired, as treasury shares
available for future issuance.
2. Question: Is the Bank being sold?
Answer: The Bank is not being sold. The Bank simply is
reorganizing into a holding company structure, with the end result
being that the operating bank will be a wholly-owned subsidiary of
a new holding company, LCNB Corp. All of the shareholders of the
Bank, unless they exercise dissenters' rights, will become
shareholders of LCNB Corp., which, in turn, will own the Bank.
3. Question: Will my stock ownership change?
Answer: After the transaction is completed, each shareholder will
own the same percentage of LCNB Corp. as he or she owned of the Bank
prior to the transaction. As part of the transaction, there will be
a 10 for 1 stock split and an exchange of shares of the Bank for
shares of LCNB Corp. As the end result, however, the percentage
share ownership of each shareholder will not change. For example,
a shareholder who owns 2% of the outstanding shares of the Bank
prior to the holding company conversion will, at the completion of
the holding company conversion, own 2% of the outstanding shares of
LCNB Corp.
4. Question: What, if anything, will I, as a shareholder, be
required to do?
Answer: First, the Bank asks that each shareholder return his or
her proxy card, appropriately completed, so that the Bank can have
as many responses as possible in advance of the date of the Special
Shareholder Meeting. This small effort on the part of each
shareholder will make the determination of the voting results much
easier.
Second, once the transaction has been consummated, each share of the
Bank's stock will automatically be converted, by operation of law,
into ten shares of LCNB Corp. However, each shareholder will be
requested to return his or her certificates for Bank common stock to
LCNB Corp. in order to receive certificates representing LCNB Corp.
common stock in exchange for his or her Bank shares. Please do not
return your stock certificates until you are instructed by the Bank
to do so.
5. Question: How long will this whole process take?
Answer: It is anticipated that the holding company conversion will
be consummated by the end of April, 1999. The Bank already has
filed applications to approve the transaction with the Comptroller
of the Currency and with the Federal Reserve Bank of Cleveland. It
is anticipated that these applications will be approved by
mid-March, 1999. Once the transaction is approved by the
shareholders of the Bank on April 13, 1999, the transaction can be
consummated, and the stock exchange process will begin.
6. Question: Will I notice any change in the business/operations
or management of the Bank?
Answer: After the consummation of the transaction, Lebanon Citizens
National Bank will continue to operate as before and there will be
no change in its business or operations. Additionally, the
management of Lebanon Citizens National Bank after the transaction
will continue in their current positions.
7. Question: Will I have to pay extra taxes as a result of the
transaction?
Answer: No additional taxes will be incurred by the shareholders of
the Bank as a result of this transaction. The shareholders of the
Bank will recognize no gain or loss upon the exchange of their
shares for shares of the Holding Company and the tax basis of the
shares of the Holding Company common stock received by the
shareholders of the Bank will be the same as the tax basis of the
Bank common stock for which it was surrendered.
8. Question: If I disagree with the transaction, what are my
rights?
Answer: Any shareholder of the Bank who disagrees with the
transaction can become a dissenting shareholder and has the right to
be paid in cash the value of his or her shares (as of the time the
merger becomes effective), if and when the merger is consummated,
only upon compliance with the following conditions:
(1) the dissenting shareholder must vote against approval of the
merger at the Special Meeting of Bank shareholders or give written
notice to the Bank at or prior to the Special Meeting that he or she
dissents from the proposed merger, which notice shall be addressed
to Stephen P. Wilson, President, Lebanon Citizens National Bank,
P.O. Box 59, Lebanon, Ohio 45036;
(2) the dissenting shareholder must at any time before 30 days after
consummation of the merger make a written request for payment of the
cash value of such shares to the Bank; and
(3) the written request described in (2) immediately preceding shall
be accompanied by the surrender of the certificate(s) representing
such shares.
The value of the shares of any dissenting shareholder will be
ascertained, as of the effective date of the transaction, by an
appraisal, which is further explained in the Proxy
Statement/Prospectus.
The foregoing constitutes a brief description of the rights of
dissenting shareholders and does not purport to be a complete
statement of such rights or the procedures to be followed by
shareholders desiring to receive the value of their shares. Each
shareholder who may desire to receive the value of his or her shares
should consult Section 215a of Title 12 of the United States Code
and strictly adhere to all of the provisions thereof. A copy of
Section 215a of Title 12 of the United States Code is attached to
the Proxy Statement/Prospectus as Appendix B, and the discussion
herein concerning the rights of dissenting shareholders is qualified
in its entirety by reference to Section 215a of Title 12 of the
United States Code.
INTRODUCTION
General
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Lebanon
Citizens National Bank (the "Bank") for use at a Special Meeting of
the Bank's shareholders to be held on April 13, 1999 for the purpose
of considering and voting upon a proposal to merge the Bank into LC
Interim National Bank (In Organization) (the "New Bank"). The New
Bank will be a wholly-owned subsidiary of LCNB Corp., an Ohio
corporation (the "Holding Company"), and the purpose of the merger
is to effect a corporate reorganization so that the business of the
Bank will be conducted as a wholly-owned subsidiary of the Holding
Company. At the effective date of the merger, each one share of
common stock, $60 par value of the Bank ("Bank Common Stock") will
be converted by virtue of the merger into ten (10) shares of the
common stock, without par value, of the Holding Company ("Holding
Company Common Stock"). All shareholders of the Bank will become
shareholders of the Holding Company and will retain the same
percentage of ownership of Holding Company Common Stock as each
shareholder held of the Bank Common Stock. The members of the Board
of Directors will be the Directors of the New Bank and will hold
their qualifying shares in shares of the Holding Company. At the
closing of this transaction, the resulting bank in the merger will
be the wholly-owned subsidiary of the Holding Company. Following
the merger, the Bank's business will continue unchanged under the
name Lebanon Citizens National Bank with the same management and
employees. For a more detailed description of the transaction, see
the section in this Proxy Statement/Prospectus entitled "DESCRIPTION
OF THE TRANSACTION."
Each of the 176,000 shares of Bank Common Stock outstanding on March
1, 1999, the record date for the meeting, is entitled to one vote on
all matters coming before the meeting. Only shareholders of record
on the books of the Bank at the close of business on March 1, 1999
will be entitled to vote at the meeting, either in person or by
proxy. If you did not own shares of Bank Common Stock on March 1,
1999, you will not be eligible to vote on this matter.
The shares represented by all properly executed proxies that are
sent to the Bank will be voted as designated. Each proxy that does
not contain a designated vote will be voted "For" the proposed
merger. Proxies will be solicited principally by mail, but may also
be solicited by directors, officers and other regular employees of
the Bank who will receive no compensation in addition to their
regular salaries for soliciting. Brokers and others who hold stock
in trust will be asked to send proxy materials to the beneficial
owners of the stock and the Bank may reimburse them for their
expenses. The cost of preparing, assembling and mailing this Proxy
Statement/Prospectus, the notice of meeting, and proxy, and any
other costs of soliciting proxies, will be paid by the Bank.
Revocation of Proxies
Each person granting a proxy may revoke it at any time before it is
voted by giving notice to the Bank in writing or in open meeting or
by submitting a subsequently dated proxy.
Lebanon Citizens National Bank
The Bank is a national banking association which was organized in
1877 and has been in continuous operation since that date. It is
engaged in the general commercial banking business through its main
office and 16 branch offices located in Warren, Butler, Clinton,
Clermont and Hamilton Counties, Ohio. The street address of the
Bank's principal office is 2 North Broadway, Lebanon, Ohio 45036;
(513) 932-1414. The mailing address of the Bank's principal office
is P.O. Box 59, Lebanon, Ohio 45036.
LCNB CORP.
The Holding Company is a proposed bank holding company which was
organized on December 22, 1998 to facilitate the corporate
reorganization of the Bank by establishing it as a subsidiary of a
bank holding company. When this transaction is complete, the
Holding Company will be the sole shareholder of the New Bank.
Neither the Holding Company nor the New Bank has conducted any
business, and, until the merger becomes effective, neither will
conduct any business. After the merger becomes effective, the
Holding Company's principal business will be ownership of 100% of
the outstanding capital stock of the New Bank, which as the
resulting bank in the merger will change its name to "Lebanon
Citizens National Bank" upon the effectiveness of the merger and
will succeed to all the assets and liabilities of the Bank. Also on
the effective date of the merger, the shareholders of the Bank, by
reason of the merger, will receive ten (10) shares of Holding
Company Common Stock for each share of Bank Common Stock.
If the conversion is approved by the Bank's shareholders at the
special meeting of shareholders, and assuming the timely receipt of
the appropriate regulatory approvals, it is expected that the
conversion will be legally consummated by the end of April, 1999.
The affirmative vote of the holders of at least two-thirds of the
Bank's Common Stock, or 117,334 shares, is necessary to approve the
conversion and adopt the Plan and Agreement of Merger and the
Agreement of Merger described below.
Summary of the Transaction
The Bank's Board of Directors has determined that, due to the
greater business flexibility of a one-bank holding company system,
it is desirable for the Bank to become a wholly-owned subsidiary of
a bank holding company. Accordingly, the Board directed the
formation of the Holding Company and the organization of the New
Bank as a wholly-owned subsidiary of the Holding Company. The Board
also approved the terms of the Plan and Agreement of Merger and the
Agreement of Merger and directed that they be presented to the
shareholders for their approval.
Pursuant to the Agreement of Merger, on the effective date of the
merger, the Bank will be merged with and into the New Bank, and the
name of the New Bank will automatically be changed to "Lebanon
Citizens National Bank." Each share of the outstanding Bank Common
Stock will, by operation of law, be converted into ten (10) shares
of the Holding Company Common Stock, and the shareholders of the
Holding Company and their percentage ownership thereof immediately
after the merger becomes effective will be identical to the
shareholders of the Bank and their percentage ownership thereof
immediately before the merger becomes effective. Following the
merger, the Bank's business will continue unchanged with the present
management. For a more detailed description of the transaction, see
the section in this Proxy Statement/Prospectus entitled,
"DESCRIPTION OF THE TRANSACTION".
Shareholders of the Bank who do not agree with the holding company
conversion have a remedy under Ohio corporate law called
"dissenters' rights." In order to claim dissenters' rights, you
must vote against the merger or give written notice to the Bank at
or prior to the Special Meeting of Shareholders that you dissent
from the merger, and you must make written demand for payment within
30 days after consummation of the merger and surrender your
certificates representing Bank Common Stock. If you comply with
these requirements, you can perfect your right to receive cash
representing the fair market value of their Bank Common Stock in
lieu of Holding Company Common Stock. See "DESCRIPTION OF THE
TRANSACTION - Rights of Dissenting Shareholders." See also
"MANAGEMENT OF THE BANK AND THE HOLDING COMPANY," for information
regarding the interest of directors and executive officers.
Regulatory Approval
The Holding Company must be approved for formation as a bank holding
company by the Board of Governors of the Federal Reserve System,
which regulates bank holding companies. In addition, the merger
must be approved by the Comptroller of the Currency, the agency of
the federal government which regulates national banks. The Bank and
the Holding Company will apply to both agencies for approval to
consummate the holding company conversion. As a result of this
regulation, the Special Meeting may have to be recessed from time to
time until the merger has been approved by the Comptroller, so that
the Bank's shareholders can act on technical changes, if any, to the
Plan and Agreement of Merger or Agreement of Merger recommended by
the Comptroller. However, it is not anticipated at this time that
the Special Meeting will require a recess.
DESCRIPTION OF THE TRANSACTION - FORMATION OF
A ONE-BANK HOLDING COMPANY
General
At the Special Meeting to be held on April 13, 1999, the following
proposed resolution will be submitted for adoption by the Bank's
shareholders. The affirmative vote of the holders of at least
two-thirds of the Bank's Common Stock issued and outstanding on
March 1, 1999, the record date for the Special Meeting, is required
to approve and adopt the Plan and Agreement of Merger and the
Agreement of Merger which will effect the conversion of the Bank
into the Holding Company through the statutory merger of the Bank
with and into the New Bank. The New Bank will thereafter be a
wholly-owned subsidiary of the Holding Company. Below are graphic
illustrations of the corporate structure of the Bank before and
after the completion of the holding company conversion.
Corporate Structure Corporate Structure
Before Holding Company After Holding Company
Conversion Conversion
Shareholders Shareholders
| |
| |
| |
Lebanon Citizens LCNB Corp.
National Bank (Holding Company)
|
|
|
Lebanon Citizens
National Bank
The members of the Board of Directors of the Bank will be the
Directors of the New Bank and will hold their qualifying shares in
shares of the Holding Company.
The Board of Directors has declared the advisability of the adoption
of the following resolution and recommends a vote FOR the
resolution. Proxies received from the Bank shareholders will be
voted in favor of this resolution unless otherwise instructed by the
shareholders.
The resolution states:
"RESOLVED, That the form of Plan and Agreement of Merger dated as of
February 22, 1999 between Lebanon Citizens National Bank and LCNB
Corp., together with the Agreement of Merger appended to it as
Exhibit A, providing for the merger of Lebanon Citizens National
Bank with and into New Bank and the conversion of the Bank into a
holding company structure, are hereby approved, ratified, adopted
and confirmed."
Purpose of Transaction
In recent years, an increasing number of banks have converted their
corporate structures to that of a one-bank holding company under the
Bank Holding Company Act of 1956 due to the various advantages of
such a corporate structure, and the Board of Directors of the Bank
has determined that such a conversion is in the best interests of
the Bank. A holding company corporate structure will enhance the
Bank's ability to compete under the laws and conditions prevailing
in the banking field today. The resulting holding company structure
will afford greater flexibility in carrying on the Bank's business
activities and in responding effectively to future needs and
opportunities to expand the financial services currently offered and
the market currently served. It will provide an opportunity for
diversification, either through newly-formed subsidiaries or by
acquisition of established companies.
In addition, the reorganization will also provide flexibility in
meeting future financing needs. The Holding Company can increase
its number of authorized shares of Common Stock and issue such stock
without the approval of the Comptroller of the Currency. While
there are no present plans for the issuance of additional shares,
having this capability affords greater flexibility in raising
additional capital, in effectuating proposed acquisitions and for
other corporate purposes. The Holding Company will also have
authority to redeem its shares, subject to regulatory limits,
without the prior approval of any supervisory authorities and to
hold them, if desired, as treasury shares available for future
issuance.
The Board of Directors and management of the Bank also determined
that it was the proper time to undertake the process of becoming a
holding company. The Bank, at the end of 1998, had over 500
shareholders and is now required to register with the Securities and
Exchange Commission ("SEC") as a public company which must make
periodic reports to the SEC in accordance with the Securities
Exchange Act of 1934 (the "1934 Act"). The filings made with the
SEC in connection with the holding company conversion will also have
the effect of registering the Holding Company with the SEC in
accordance with the 1934 Act and the rules promulgated thereunder.
Following the completion of the holding company conversion, the
Holding Company will be a public company which will make the
required SEC periodic reports.
Summary of Agreements
Copies of the Plan and Agreement of Merger, including the Agreement
of Merger, are attached as Appendices A and A-1 to this Proxy
Statement/Prospectus and are incorporated herein. The following
paragraphs describe the conversion, merger and related transactions.
However, for more complete information reference is made to the
Agreements attached hereto as Appendices A and A-1 as well as to
Appendices A-2 and A-3 containing the Articles of Incorporation and
Code of Regulations of the Holding Company. The proposed Articles
of Association of the resulting bank in the merger are contained in
the Agreement of Merger (Appendix A-1).
The Bank and the Holding Company have entered into, and the New Bank
upon its formation will join in and become a party to, the Plan and
Agreement of Merger which sets forth the terms of the Bank's
conversion to a holding company structure. Under this Agreement,
the Bank will be merged with and into the New Bank, which will
simultaneously change its name to "Lebanon Citizens National Bank."
Upon consummation of the merger, each outstanding share of the Bank
Common Stock, $60 par value, will by operation of law be converted
into ten (10) shares of the Holding Company Common Stock without par
value. Consequently, the shareholders of the Bank and their
respective share holdings, as a percentage of ownership, immediately
prior to the consummation of the merger will be identical to those
of the Holding Company immediately after consummation of the merger.
A maximum of 1,760,000 shares of Holding Company Common Stock will
be issued pursuant to the merger. See "DESCRIPTION OF BANK COMMON
STOCK AND HOLDING COMPANY COMMON STOCK" for a discussion of the
rights of shareholders of the Bank as compared to shareholders of
the Holding Company.
As of the effective date of the merger, the Bank will cease to exist
as a legal entity. The corporate identities and business of both
the Bank and the New Bank will be combined, and the business of the
Bank will continue to be conducted under the name "Lebanon Citizens
National Bank" after the merger without any change.
The business of the resulting bank after the merger will be
identical to that of the Bank prior to the merger and will be
conducted with the same offices, properties and personnel as that of
the Bank. The resulting bank initially will have the same directors
and officers as the Bank. The resulting bank will continue to be
subject to regulation by the Comptroller of the Currency, and
deposits in the resulting bank will continue to be insured by the
Federal Deposit Insurance Corporation. In short, the resulting bank
will succeed to all of the rights and assets of the Bank and will be
subject to all of the Bank's obligations and liabilities.
Expenses of Conversion
The expenses of the conversion of the Bank into a holding company
structure, estimated to total approximately $120,000, will be borne
by the Bank. It is anticipated that legal expenses of the
conversion will approximate $40,000; accounting and financial
advisory services will approximate $10,000; application and related
fees for the Securities and Exchange Commission and approvals by
regulatory authorities are expected to total $19,250; and postage,
photocopying, long distance, supplies and related miscellaneous
expenses are not expected to exceed $7,500. No commissions of any
kind and no remuneration to directors, other than customary fees for
attending meetings, will be paid as a result of the conversion.
The Holding Company will borrow approximately $120,000 from an
unaffiliated bank to finance its subscription for all the shares of
the New Bank's common stock. The loan will be evidenced by the
promissory note of the Holding Company. Upon the consummation of
the merger, the total equity capital of the resulting bank in the
merger will be essentially equal to that of the Bank plus that of
the New Bank. The total equity capital of the Bank at December 31,
1998 was $42,199,000. The contemplated total equity capital of the
resulting bank in the merger on a pro forma basis based upon the
Statement of Condition of the Bank at December 31, 1998 and
immediately after the merger will be approximately $42,319,000. The
increase of $120,000 represents the full subscription paid in for
the shares of the New Bank by the Holding Company. The resulting
bank in the merger will thereupon declare and pay a dividend of
approximately $120,000 to the Holding Company, which will be used to
repay in full the loan plus accrued interest thereon. Interest on
the loan, which will be an additional expense of the conversion, is
estimated to be less than $1,500. Thus, the total equity capital of
the resulting bank by merger will essentially be the same as the
total equity capital of the Bank immediately prior to the merger.
See "FINANCIAL STATEMENTS AND CAPITALIZATION."
Shareholder Vote Required
The merger of the Bank with and into the New Bank and the consequent
reorganization of the Bank's structure into that of a one bank
holding company system may only be effected if approved by the
affirmative vote of the holders of at least two-thirds of the Bank's
outstanding Common Stock, or 117,334 shares.
Approval by the Holding Company as the sole shareholder of the New
Bank is also required; the Holding Company will vote all outstanding
shares of the New Bank in favor of the transaction.
Regulatory Approvals
The formation of the Holding Company as a bank holding company is
subject to the approval of the Board of Governors of the Federal
Reserve System, the agency which regulates bank holding companies.
The merger of the Bank with and into the New Bank is subject to the
approval of the Comptroller of the Currency, which regulates
national banks. Applications requesting such approvals were
submitted to such agencies prior to the Special Meeting and are
subject to shareholder approval of the conversion. Assuming receipt
of all requisite approvals, it is anticipated that the merger will
become effective not later than April 30, 1999.
Rights of Dissenting Shareholders
Pursuant to the provisions of Section 215a of Title 12 of the United
States Code, a copy of which is attached hereto as Appendix B, you,
as a shareholder of the Bank, have the right to be paid in cash the
value of your shares (as of the time the merger becomes effective),
if and when the merger is consummated, only upon compliance with the
following conditions: (1) you must vote against approval of the
merger at the Special Meeting of Bank shareholders or give written
notice to the Bank at or prior to the Special Meeting that you
dissent from the proposed merger, which notice shall be addressed to
Stephen P. Wilson, President, Lebanon Citizens National Bank, P.O.
Box 59, Lebanon, Ohio 45036; (2) you must at any time before 30 days
after consummation of the merger make a written request for payment
of the cash value of such shares to the Bank; and (3) the written
request described in (2) immediately preceding shall be accompanied
by your surrender of the certificate(s) representing such shares.
Failure to comply with any of the foregoing conditions may result in
your loss of the rights described in this Proxy
Statement/Prospectus. If you vote against approval of the merger,
you will be notified of the effective date of the merger so that you
may exercise your dissenters' rights.
The value of the shares of any dissenting shareholder will be
ascertained, as of the effective date of the merger, by an appraisal
made by a committee of three persons, composed of one selected by
the vote of the holders of a majority of the stock, the owners of
which are entitled to payment in cash; one selected by the directors
of the receiving association, i.e., the New Bank; and one selected
by the two so selected. The valuation agreed upon by any two of the
three appraisers shall govern. If the value so fixed shall not be
satisfactory to any dissenting shareholder who has requested
payment, that shareholder may, within five days after being notified
of the appraised value of his or her shares, appeal to the
Comptroller of the Currency ("Comptroller"), who shall cause a
reappraisal to be made which shall be final and binding as to the
value of the shares of such shareholder.
If, within ninety days from the date of consummation of the merger,
for any reason one or more of the appraisers is not selected as
herein provided, or the appraisers fail to determine the value of
such shares, the Comptroller, upon written request of any interested
party, is required to cause an appraisal to be made which shall be
final and binding on all parties. The expenses of the Comptroller
in making the reappraisal or the appraisal, as the case may be, must
be paid by the resulting bank. The value of the shares ascertained
must be promptly paid to the dissenting shareholders.
The foregoing constitutes a brief description of the rights of
dissenting shareholders and does not purport to be a complete
statement of such rights or the procedures to be followed by
shareholders desiring to receive the value of their shares. Each
shareholder who may desire to receive the value of his or her shares
should consult Section 215a of Title 12 of the United States Code
and strictly adhere to all of the provisions thereof. A copy of
Section 215a of Title 12 of the United States Code is appended
hereto as Appendix B, and the discussion herein concerning the
rights of dissenting shareholders is qualified in its entirety by
reference to Section 215a of Title 12 of the United States Code.
A copy of Banking Circular 259 is also included as part of Appendix
B. Banking Circular 259 summarizes the various methods used by the
Office of the Comptroller of the Currency in arriving at a fair
estimate of the value of the shares of a national bank.
Shareholders are advised to review Appendix B in its entirety before
the exercise of dissenter's rights.
Conditions of the Merger
Under the Plan and Agreement of Merger, the consummation of the
merger is conditioned, among other things, upon the following:
(a) The Plan and Agreement of Merger, including the Agreement of
Merger, shall have been duly adopted and approved by the affirmative
vote of the holders of at least two-thirds of the outstanding shares
of Bank Common Stock entitled to vote on the proposal.
(b) The shares of Holding Company Common Stock into which the shares
of Bank Common Stock will be converted upon the consummation of the
merger shall be validly issued and outstanding, fully paid and
non-assessable.
(c) The Plan and Agreement of Merger and the Agreement of Merger as
well as the respective terms thereof shall be duly approved by all
the bank regulatory agencies to which the same are submitted for
approval as provided by law.
(d) It is intended that the merger be a pooling of interests for
accounting purposes. Holders in the aggregate of more than five
percent (5%) of the outstanding shares of the Bank Common Stock
shall not have voted against the merger at the Annual Meeting of
shareholders or given written notice of dissent to the merger prior
to or at the Annual Meeting. This condition may be waived by the
Holding Company.
(e) The conversion will be a tax-free reorganization and no gain or
loss will be recognized by the shareholders of the Bank upon the
exchange of shares of the Bank for the shares of the Holding Company
pursuant to the merger.
Consummation of the merger is also subject to the accuracy in all
material respects of various representations and warranties of the
Bank, the Holding Company and the New Bank with respect to their
financial conditions and other matters, and the performance by the
parties of various other requirements.
Amendment or Abandonment of the Plan and Agreement of Merger
The Plan and Agreement of Merger may be amended only by written
agreement of all the parties to it. The Plan and Agreement of
Merger provides that the Bank and the Holding Company may amend the
Plan and Agreement of Merger, by action of their respective Boards
of Directors, either before or after the shareholders of the Bank
have adopted the Plan and Agreement of Merger, in order to
facilitate the performance thereof or to comply with any applicable
law or order of any court, public agency or authority. However, no
such amendment may change, to the detriment of the Bank's
shareholders, the ratio set forth in the Plan and Agreement of
Merger for converting the Bank Common Stock into the Holding Company
Common Stock.
The Plan and Agreement of Merger will terminate and become void and
of no effect, notwithstanding prior approval by the shareholders of
the Bank, if the respective Boards of Directors of the Bank, the
Holding Company and the New Bank adopt resolutions prior to the
consummation of the merger to the effect that it is not advisable
under then existing circumstances to effectuate the merger.
Conversion of Shares and Exchange of Certificates
Upon consummation of the merger, each outstanding share of Bank
Common Stock will automatically be converted, by operation of law,
into ten (10) shares of Holding Company Common Stock. After the
merger is effected, you will be requested to return your
certificates for Bank Common Stock to the Holding Company in order
to receive certificates representing Holding Company Common Stock in
exchange for your shares. In the event you are unable to produce a
certificate(s) representing your shares of Bank Common Stock, you
may instead deliver (i) evidence reasonably satisfactory to the
Holding Company that such certificate(s) has been lost, mislaid,
wrongfully taken or destroyed, (ii) such security or indemnity as
reasonably may be requested by the Holding Company to hold it
harmless, and (iii) evidence reasonably satisfactory to the Holding
Company that you are the owner of the shares represented by the
certificate or certificates claimed to be lost, mislaid, wrongfully
taken or destroyed and that you are the person who had been entitled
to present each such certificate and to receive Holding Company
Common Stock in exchange therefor pursuant to the Agreement to
Merge. If any certificate representing Holding Company Common Stock
is to be issued in a name other than that in which the
certificate(s) for shares of the Bank Common Stock surrendered for
exchange is registered, the certificate(s) so surrendered must be
properly endorsed or otherwise be in proper form for transfer, and
the person requesting such transfer must pay to the Holding Company
or its transfer agent any applicable transfer or other taxes
required by reason of the issuance of the certificate.
In the event you fail to surrender your certificate(s) evidencing
ownership of Bank Common Stock or to satisfy the above-listed
conditions with respect to a lost, mislaid, wrongfully taken or
destroyed certificate, you will, upon consummation of the merger,
cease to have any rights with respect to such shares and each Bank
Common Stock certificate will be deemed for all purposes to evidence
ownership of the number of Holding Company shares into which such
shares have been converted. Dividends and other distributions, if
any, that become payable on Holding Company Common Stock will be
retained by the Holding Company until you surrender the certificates
evidencing shares of Bank Common Stock or satisfaction of such
conditions, at which time such dividends and distributions will be
paid to you in full, without interest.
Please do not return your Bank Common Stock certificates to the Bank
or Holding Company until you are specifically instructed to do so by
the Holding Company. After the merger has been consummated, you
will receive a letter containing all of the instructions for the
exchange of your certificates.
Anticipated Accounting Treatment
It is anticipated that the merger will be accounted for as a pooling
of interests. Under pooling of interests accounting as of the
effective date of the merger, the assets and liabilities will be
added to those of the Bank at their recorded book value and the
stockholders' equity account of LN Interim National Bank will be
included on the Holding Company's consolidated balance sheet.
Federal Income Tax Aspects
The conversion transaction, including the merger of the Bank into
the New Bank and the conversion of the Bank's Common Stock into the
Holding Company's Common Stock, has been structured for federal tax
purposes to result in the following tax effects:
1. The proposed statutory merger will qualify as a tax-free
reorganization within the meaning of Section 368(a)(1)(A) and
Section 368(a)(2)(D) of the Internal Revenue Code of 1986. The
Bank, the New Bank and the Holding Company will each be a party to
the reorganization within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by the Bank upon the transfer
of substantially all of its assets to the New Bank in exchange for
the Holding Company's Common Stock, and the assumption of all of the
Bank's liabilities by the New Bank.
3. No gain or loss will be recognized by either the Holding Company
or the New Bank upon the acquisition by the New Bank of
substantially all of the assets of the Bank in exchange for the
Holding Company's Common Stock.
4. The basis of the assets of the Bank acquired by the New Bank
will be the same in the hands of the New Bank as the basis of such
assets in the hands of the Bank immediately prior to the merger.
The holding periods of the assets of the Bank received by the New
Bank will include the periods for which such assets were held by the
Bank.
5. No gain or loss will be recognized by the shareholders of the
Bank upon the exchange of Bank Common Stock into Holding Company
Common Stock.
6. The federal income tax basis of the shares of the Holding
Company Common Stock received by the shareholders of the Bank will
be the same as the basis of the Bank Common Stock surrendered
therefor.
7. The holding period of the Holding Company Common Stock received
by the shareholders of the Bank will include the period during which
the Bank Common Stock surrendered therefor was held, provided that
the Bank Common Stock was a capital asset in the hands of the
shareholders of the Bank on the date of the consummation of the
transaction.
8. The New Bank shall take into account as of the date of the
proposed merger (as defined in Section 1.381(b)-1(b) of the
Regulations promulgated under Code Section 381), the items described
in Section 381(c) of the Code subject to the conditions and
limitations of Sections 381, 382, 383 and 384 of the Internal
Revenue Code of 1986 and the regulations thereunder.
The Plan and Agreement of Merger provides that any of the parties
may terminate such Agreement prior to the consummation of the merger
in the event that the tax-free nature of the conversion will not
occur or there is some threat that it will not occur.
State Income Tax Aspects
For purposes of calculating the net worth tax for the bank holding
company, only one-half of the bank holding company's net worth is
subject to Ohio franchise tax. The Ohio Supreme Court has held that
"quiescent holding companies", i.e. holding companies which do not
conduct any business of their own and are merely conduits between
the subsidiary and the shareholders, are not considered to be
engaged in business in the State of Ohio. As a result, their net
worth ratio for purposes of calculating the Ohio franchise tax is
reduced to 50% , even though the bank holding company's entire
activity is located within Ohio. If the bank holding company is
engaged in any business activities on its own other than acting
merely as a conduit between the shareholders and the subsidiary,
then the Ohio ratio would likely be increased to 100%. As a result,
the holding company's Ohio franchise tax would be doubled.
State Dividend Income Taxes
Dividends on shares of Bank Common Stock held by Ohio residents are
subject to the Ohio income tax, and dividends on shares of Holding
Company Common Stock will also be subject to such tax.
Capitalization
The following table sets forth the expected capitalization of the
New Bank upon its formation and prior to the merger, the
capitalization of the Bank as at December 31, 1998, based upon its
Statement of Condition for such date, the anticipated adjustments
attributable to the merger, and the pro forma capitalization of both
the resulting bank in the merger and the Holding Company as if the
New Bank had been in existence and the merger had been consummated
on December 31, 1998:
<PAGE>
<TABLE>
<CAPTION>
(In Thousands)
New Bank Bank Adjustments Pro Forma Pro Forma
Resulting Bank Holding Company
<S> <C> <C> <C> <C> <C>
EQUITY CAPITAL:
Common Stock $ 100 $10,560 $ (100) $10,560 $10,560
Surplus $ 20 $11,000 $ (20) $11,000 $11,000
Undivided Profits $ 0 $20,639 $ 0 $20,574(1) $20,639
------- ------ ------ ------ ------
Total Equity Capital $ 120 $42,199 $ (120) $42,134 $42,199
======== ====== ====== ====== ======
DEBT:
Long Term 0 0 0 0 0
Short Term 0 0 0 0 120
Total Debt(2) 0 0 0 0 120(2)
------- ------ ------ ----- -------
<FN>
(1) Immediately after the merger is consummated, approximately
$120,000 will be paid by the resulting bank to the Holding Company
from the Undivided Profits of the resulting bank so that the
Holding Company will have funds available to repay the funds
borrowed by it, as described in Note 2 below. Consequently,
immediately after the declaration and payment of such dividend,
the total Equity Capital of the resulting bank will be essentially
the same as that of the Bank immediately prior to the merger.
(2) These funds will be borrowed in order to capitalize the New
Bank on an interim basis and will be repaid as soon as possible,
following the consummation of the merger and the receipt of the
dividend referred to in Note 1 above. The borrowing for the same
period of time, but occurring at the beginning of the fiscal period,
would have had an immaterial effect on net income.
</FN>
/TABLE
<PAGE>
DESCRIPTION OF BANK COMMON STOCK AND HOLDING COMPANY COMMON STOCK
General
The Bank's authorized capital stock consists of 176,000 shares of
Common Stock, $60 par value per share ("Bank Common Stock"), of
which all shares are presently outstanding. The Holding Company's
authorized capital stock consists of 850 shares of Common Stock
without par value ("Holding Company Common Stock") of which 100
shares are presently outstanding. Immediately prior to the
consummation of the merger, the articles will be amended to increase
the number of shares authorized to 4,000,000. The 100 outstanding
shares of Holding Company Common Stock will be repurchased for their
original sales price by the Holding Company, and up to 1,760,000
shares will be issued in exchange for the outstanding shares of Bank
Common Stock. The capitalization of the Bank immediately before the
merger and of the Holding Company immediately after the merger will
therefore be substantially identical.
Because the Bank is a national bank organized under federal law
while the Holding Company is a general business corporation formed
under the corporate law of the State of Ohio, there will be certain
minor differences in your respective rights as a shareholder, which
are described below. In addition, management has elected to take
advantage of the greater flexibility of Ohio corporate law in
comparison to that of the corporate law contained in the national
bank law to provide certain additional features of corporate
governance in the organizational documents of the Holding Company,
which are also discussed below.
Dividends
Under Ohio law, dividends may be declared by the Holding Company and
paid from the surplus of the corporation, provided that no dividend
may be paid at any time the corporation is insolvent or there is
reasonable ground to believe that by such payment it would be
rendered insolvent. Dividends which may be declared by the Bank are
governed by federal law which limits the amounts available for
payment of dividends to net profits and, under certain
circumstances, requires that a certain percentage of net profits
must be transferred to surplus which is unavailable for the purpose
of paying cash dividends. The ability of the resulting bank to pay
dividends to the Holding Company following the merger will be
governed by the same considerations which currently control the
declaration of dividends by the Bank.
Subject to the foregoing discussion and to the discretion of the
Board of Directors, it is expected that cash dividends of the
Holding Company after consummation of the merger will be paid on
approximately the same basis as the Bank presently pays cash
dividends. Funds for the payment of dividends by the Holding
Company will initially be obtained solely from dividends paid to the
Holding Company by the resulting bank.
Following consummation of the merger, no shareholder whose shares of
Bank Common Stock have been converted into shares of Holding Company
Common Stock by reason of the merger will be entitled to receive any
dividends or other distributions with respect to such Holding
Company shares until his or her Bank stock certificates are
exchanged for Holding Company stock certificates. However, when the
exchange of certificates is made, any dividends or other
distributions withheld will be paid without interest. Within a
reasonable period of time after consummation of the merger,
materials will be furnished to assist shareholders in effecting the
exchange.
Preemptive Rights
Neither the Holders of Bank Common Stock presently have the right
under the Bank's Articles of Association, in the event additional
shares of Bank Common Stock are to be sold, to subscribe for such
additional shares in proportion to the number of shares of Bank
Common Stock then owned by them, nor will the holders of Holding
Company Common Stock have preemptive rights.
Cumulative Voting
Holders of Holding Company Common Stock will have substantially the
same right to cumulatively vote their shares in the election of
directors as they possessed as holders of Bank Common Stock. Under
Ohio law, there shall be cumulative voting in the election of
directors if written notice is given by any shareholder to the
President, Vice President, or the Secretary of the Holding Company,
not less than 48 hours before the time fixed for holding the
meeting, that such shareholder desires that voting for the election
of directors shall be cumulative, and if announcement of the giving
of such notice is made upon the convening of the meeting by the
chairman or secretary or by or on behalf of the shareholder giving
such notice. In such event, each shareholder shall be entitled to
cumulate such voting power as he or she possesses and to give one
nominee as many votes as the number of directors to be elected
multiplied by the number of his or her shares, or to distribute such
votes on the same principle among two or more candidates, as the
shareholder sees fit. Cumulative voting rights applicable to the
Holding Company under Ohio law contain certain requirements that are
not applicable to national banks under the National Bank Act and
regulations promulgated by the Office of the Comptroller of the
Currency thereunder. Shareholders of the Bank may exercise
cumulative voting rights without the need for any corporate action
or notification requirements prior to the applicable shareholder
meeting, whereas these requirements would have to be met under
applicable provisions of Ohio law before a shareholder of the
Holding Company could exercise cumulative voting rights. Therefore,
cumulative voting rights under Ohio law are essentially the same as
those currently applicable to the Bank, but are slightly more
restrictive because of the addition of certain corporate and
notification requirements on the part of shareholders prior to their
exercise.
Par Value
The Bank Common Stock is par value stock and the Holding Company
Common Stock is no par value stock. The par value of stock serves
to fix a minimum subscription or original issue price for each share
of par value stock. The attributes of par value stock issued by a
national bank are determined by reference to the law of the state in
which the national bank is located. In the case of the Bank, Ohio
law provides that any consideration paid for non-treasury, original
issue par value shares shall not be less than the par value of the
shares, provided that such shares may be sold and paid for at such
a discount from the par thereof as would amount to or not exceed a
reasonable discount from the par value thereof as would amount to or
not exceed reasonable compensation for the sale, underwriting or
purchase of such shares. Par value is also used to set the stated
capital of a corporation. The stated capital of a corporation with
par value stock shall not be less than the par value of each class
of its outstanding shares times the total number of shares of each
class outstanding. In the Bank's case, its stated capital cannot be
less than $10,560,000 ($60 par value stock multiplied by 176,000
shares outstanding). On the other hand, no par value stock may be
issued by a corporation at any price, with no stated minimum
subscription or issuance price. A share of no par value stock does
not purport to represent any stated proportionate interest in the
capital of a corporation and the issuance of such shares does not in
itself increase stated capital.
Certain Stabilizing Features of Corporate Governance
The Holding Company's Articles of Incorporation contain certain
corporate governance provisions which may have the effect of
discouraging attempts to change control of the Holding Company
without the prior approval of its Board of Directors. The Bank's
Articles of Association do not contain any such provisions. The
following is a brief summary of such provisions and of their
respective advantages and disadvantages.
Classified Board of Directors. Under the Bank's Articles of
Association and By-Laws, all members of the Board of Directors are
elected at each Annual Meeting of Shareholders to serve for a one
year term which ends at the following Annual Meeting of
Shareholders.
The Holding Company's Articles of Incorporation provide for a
classified Board of Directors consisting of three classes of
directors each with overlapping three-year terms of office. Each
such class is to have an equal, or as close to equal as
mathematically possible, number of members with no class having less
than three members. The Holding Company, upon its incorporation,
will have three classes of directors: Class I to serve an initial
one-year term, Class II to serve a full two-year term. Class III to
serve a full three-year term. Thereafter, at the first annual
meeting of shareholders of the Holding Company after consummation of
the Merger, the first class of directors will be elected for a
three-year term; at the second annual meeting of shareholders the
second class will be elected for a three-year term; and at each
annual meeting thereafter, one class will be elected to a three-year
term.
Management believes that structuring the Holding Company's Board of
Directors into three classes will insure a continuity of experienced
Board members, although there have been no problems with respect to
such continuity in the past. Also, under the classified Board
system, a shareholder or group of shareholders possessing a majority
of the voting power of the Holding Company will not in any one year
be able to replace a majority of the directors since only one-third
of the directors will stand for election each year. Rather, at
least two annual meeting elections will be required to change a
majority of the directors by the requisite vote of the shareholders.
By contrast, control of the Bank's Board of Directors could be
obtained by such a shareholder or a group of shareholders in a
single year since the Bank's entire Board is subject to election
each year. The classified Board of the Holding Company may
therefore have the effect of discouraging or making more difficult
an unfriendly attempt to take over the Holding Company. It will
also make it more difficult for shareholders to change the majority
of directors even if the only reason for such a change is the
performance of incumbent directors.
Vote Required for Certain Extraordinary Corporate Actions. Under
applicable law, the affirmative vote of the holders of at least
two-thirds of the issued and outstanding capital stock of the Bank
is required with respect to a merger or consolidation of the Bank
with another bank or the sale of all or substantially all of the
Bank's assets.
The Articles of Incorporation of the Holding Company provide for a
special "super-majority" voting requirement, subject to certain
exceptions, with respect to (i) any merger or consolidation of the
Holding Company with or into any other corporation; (ii) any sale,
lease, exchange or other disposition of all or any substantial part
of the assets of the Holding Company to or with any other
corporation, person or other entity; (iii) the issuance or transfer
of any securities of the Holding Company to any other corporation,
person or other entity in exchange for assets or securities or a
combination thereof (except assets or securities or a combination
thereof so acquired in a single transaction or a series of related
transactions having an aggregate fair market value of less than
$250,000); or (iv) the issuance or transfer of any securities of the
Holding Company to any other corporation, person or other entity for
cash.
Any such transaction must be approved by the affirmative vote of the
holders of at least eighty (80%) of the outstanding shares of the
Holding Company's capital stock which are not beneficially owned by
the other corporation, person or entity with which the Holding
Company proposes to enter into such transaction ("other party"), if
the other party is then the beneficial owner, directly or
indirectly, of 10% or more of the outstanding shares of the Holding
Company's Common Stock. However, there are certain exceptions to
the applicability of this "super-majority" vote requirement.
Specifically, it does not apply if the other party is a corporation
and a majority of the outstanding shares of all classes of such
corporation's voting capital stock are owned by the Holding Company,
if the Holding Company's Board of Directors has approved a
memorandum of understanding with the other party substantially
consistent with the proposed transaction before the other party
became the beneficial owner of 10% or more of the Holding Company's
Common Stock, or if the transaction is approved by at least a
majority of the members of the Holding Company's Board of Directors.
The Holding Company's Board of Directors is expressly authorized to
determine, for the purpose of applying the super-majority voting
requirement, on the basis of information then known to it, whether
(i) any other corporation, person or other entity beneficially owns,
directly or indirectly, 10% or more of the outstanding shares of
stock of the Holding Company entitled to vote generally in the
election of directors, or is an "affiliate" or an "associate" of
another, (ii) any proposed sale, lease, exchange or other
disposition of part of the assets of the Holding Company involves a
substantial part of the assets of the Holding Company, (iii) assets
or securities, or a combination thereof, to be acquired in exchange
for securities of the Holding Company, have an aggregate fair market
value of less than $250,000 and whether the same are proposed to be
acquired in a single transaction or a series of related
transactions, and (iv) the memorandum of understanding referred to
above is substantially consistent with the transaction to which it
relates. Any such determination by the Board shall be conclusive
and binding for all purposes.
Further, when evaluating any offer of another party to (i) purchase
or exchange any securities or property for any outstanding equity
securities of the Holding Company, (ii) merge or consolidate the
Holding Company with another corporation, or (iii) purchase or
otherwise acquire all or substantially all of the properties and
assets of the Holding Company, the Board of Directors is required,
in connection with the exercise of its judgment in determining what
is in the best interests of the Holding Company and its
shareholders, to give due consideration not only to the price or
other consideration being offered but also to all other relevant
factors, including without limitation the financial and managerial
resources and future prospects of the other party; the possible
effects on the business of the Holding Company and its subsidiaries
and on the depositors, employees, and other constituents of the
Holding Company and its subsidiaries; and the possible effects on
the communities and the public interest which the Holding Company
and its subsidiaries serve. In evaluating any such offer, the Board
of Directors shall be deemed to be performing its duly authorized
duties and acting in good faith and in the best interests of the
Holding Company within the meaning of applicable Ohio law.
The provision described above will have the general effect of
discouraging, or rendering more difficult, unfriendly takeover or
acquisition attempts. Consequently, such a provision would be
beneficial to current management in an unfriendly takeover attempt
but would have an adverse effect on shareholders who might wish to
participate in such a transaction. However, management believes
that such a provision is advantageous to shareholders in that it
will require a higher level of shareholder participation and consent
than currently would be required for the Bank and therefore would
increase the discussion and understanding of any such proposal.
Repurchase of Shares
Under applicable law, a national bank may not repurchase shares of
its capital stock except under certain limited circumstances where
such a purchase is necessary to prevent a loss upon a debt
previously contracted in good faith.
As permitted under Ohio law, and subject to federal regulatory
limitations, the Holding Company may redeem, purchase, or contract
to purchase, at any time and from time to time, shares of any class
issued by the Holding Company for such prices and upon and subject
to such terms and conditions as the Board of Directors may
determine, when authorized by the affirmative vote of a majority of
the Board of Directors, without the action or approval of the
shareholders of the Holding Company. The Holding Company's ability
to redeem, repurchase or contract to repurchase any of its shares is
subject only to the requirement that an Ohio corporation may not
repurchase its shares if immediately thereafter its assets would be
less than its liabilities plus stated capital, if the corporation is
insolvent, or if there is reasonable ground to believe that by such
purchase it would be rendered insolvent and to the Federal Reserve
requirement that a bank holding company may not expend more than 10%
of its net worth in any 12 month period for the purpose of
repurchasing its stock.
The market for the Bank's shares has been somewhat limited. The
most significant advantage of the ability of the Holding Company to
repurchase its own shares is that the Holding Company will be able
to facilitate the market for its shares. For example, the Holding
Company will be able to purchase shares from the estates of deceased
shareholders or to otherwise purchase shares in situations
management deems appropriate from shareholders who desire to sell
their shares but have been unable to locate purchasers. An
important disadvantage of this ability is that Holding Company
management could purchase shares during or in anticipation of a
proxy contest or other hostile takeover attempt from shareholders
who might otherwise favor the proposed action and thus render the
proxy contest or other takeover attempt less likely to succeed,
thereby insulating incumbent management.
INFORMATION CONCERNING THE HOLDING COMPANY
General
The Holding Company was incorporated under the laws of the State of
Ohio on December 22, 1998, at the direction of the Bank's Board of
Directors, to engage in the business of a bank holding company. The
New Bank will be formed as a national bank subsidiary of the Holding
Company. Both the Holding Company and the New Bank will remain
dormant from their respective formations and will not begin to
conduct business until the merger becomes effective. Immediately
following the merger, the Holding Company's sole asset will be 100%
of the outstanding capital stock of the New Bank.
As a bank holding company, the Holding Company has broader corporate
powers than the Bank. Specifically, the Holding Company may own the
capital stock of banks located in Ohio and, under certain
circumstances, in neighboring states; it may engage, either directly
or through one or more nonbank subsidiaries, in certain nonbanking
activities which are closely related to banking; and it may own up
to 5% of the voting capital stock of any corporation, all subject to
applicable law and regulatory provisions as described below.
The Holding Company currently is not required to file reports with
the Securities and Exchange Commission, although it will become a
reporting company under the Exchange Act of 1934 after the
consummation of the transactions contemplated by the Plan and
Agreement of Merger and the Agreement of Merger. The public may
read and copy any materials that the Holding Company files with the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains an Internet site that contains reports, proxy and
information statements and other information regarding issuers that
file electronically with the SEC at http://www.sec.gov.
Supervision and Regulation
The following is a brief summary of certain general aspects of the
governmental supervision and regulation of bank holding companies.
This summary does not purport to be comprehensive and is qualified
in its entirety by reference to the actual laws and regulations
pursuant to which such supervision and regulation is carried out.
The Holding Company will, if the merger is consummated, be a bank
holding company within the meaning of the Bank Holding Company Act
of 1956, as amended (the "Act"). As such, it will be registered
with the Board of Governors of the Federal Reserve System (the
"Federal Reserve") and will be subject to regulation by that agency.
The Holding Company will be required to file various reports with,
and will be subject to examination by, the Federal Reserve. Before
the Holding Company may become a bank holding company under the Act,
it must submit an application to the Federal Reserve, and its
application must be approved. Approval of the Holding Company's
application is a precondition to consummation of the merger.
The Act requires prior approval of the Federal Reserve before a bank
holding company may acquire more than five percent of the voting
stock or substantially all of the assets of any bank or merge or
consolidate with any other bank holding company. If the effect of
a proposed acquisition, merger or consolidation may be substantially
to lessen competition or tend to create a monopoly, the Federal
Reserve cannot approve the acquisition unless it finds that the
anti-competitive effects of the acquisition, merger or consolidation
are clearly outweighed by the convenience and needs of the community
to be served. The Act also provides that the consummation of any
acquisition, merger or consolidation must be delayed until 30 days
following the approval of the Federal Reserve. The Attorney General
of the United States may, within this 30 day period, bring an action
under federal anti-trust laws, in which case the effectiveness of
such approval is stayed pending a final ruling of the courts.
The Act also provides that a bank holding company may acquire any
adequately capitalized and adequately managed bank in a state other
than the home state of the bank holding company, regardless of
whether such transaction is prohibited by the laws of any state, so
long as the bank to be acquired has been in existence for the lesser
of the minimum period of time specified in the statutory law if its
home state or five (5) years. For purposes of the Act, pursuant to
12 U.S.C. 215(a)(d)(1)(C), a bank that has been chartered solely for
the purpose of, and does not open for business prior to, acquiring
control of, or acquiring all or substantially all of the assets of,
an existing bank, shall be deemed to have been in existence for the
same period of time as the bank to be acquired.
Subject to certain exceptions, a bank holding company is also
prohibited from acquiring direct or indirect ownership or control of
more than 5% of the voting shares of any company which is not a bank
and from engaging directly or indirectly in activities unrelated to
banking or managing or controlling banks. One of the exceptions to
this prohibition permits activities by a bank holding company or its
subsidiaries which the Federal Reserve has determined to be so
closely related to banking or managing or controlling banks as to be
a proper incident thereto. In determining whether a particular
activity is a proper incident to banking or managing or controlling
banks, the Federal Reserve considers whether performance of the
activity by an affiliate of a bank holding company can reasonably be
expected to produce benefits to the public, such as greater
convenience, increased competition or gains in efficiency that
outweigh possible adverse effects, such as undue concentration or
unsound banking practices. The Federal Reserve has adopted
regulations prescribing those activities which it presently regards
as permissible for bank holding companies and their subsidiaries.
Some of the activities are: servicing loans and other extensions of
credit; performing certain data processing services; engaging in
certain personal and real property leasing; making or acquiring
loans and other extensions of credit as would be made by a mortgage,
finance, credit card or factoring company; and under certain
circumstances acting as any or all of the following: investment or
financial advisor, insurance agent or broker, and underwriter for
credit life insurance and credit accident and health insurance.
The Act, the Federal Reserve Act and the Federal Deposit Insurance
Act also subject bank holding companies and their subsidiaries to
certain restrictions on any extensions of credit by subsidiary banks
to the bank holding company or any of its subsidiaries, or
investments in the stock or other securities thereof, and on the
taking of such stocks or securities as collateral for loans to any
borrower. Further, under the Act and the regulations of the Federal
Reserve, a bank holding company and its subsidiaries are effectively
prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, sale or lease of any
property or furnishing of services.
The Holding Company, upon consummation of the Merger, will become an
SEC reporting company subject to the requirements of the 1934 Act.
As a reporting company, the Holding Company will be required to file
quarterly and yearly reports on Forms 10-Q and 10-K, respectively,
and to comply with the proxy rules of the 1934 Act. In addition,
certain "affiliates" of the Holding Company (as that term is defined
in the 1934 Act) also will be required to make filings with the SEC.
There are various legislative enactments and regulations pending
which could affect the business of the Holding Company. However,
what other legislation might be enacted or what other regulations
might be adopted, or if enacted or adopted the effect thereof,
cannot be predicted.
INFORMATION REGARDING THE BANK
General
The Bank was organized as a national banking association in 1877 and
has been in continuous operation since that date. It is engaged in
the general commercial banking business through its main banking
office located in Warren County, Ohio and through its 16 branch
offices located in Warren, Butler, Clinton, Clermont and Hamilton
Counties, Ohio. In addition, the Bank provides normal retail
banking services, including the acceptance of demand, savings, money
market and time deposits and the making of various types of loans.
Other services provided by the Bank include collection, safekeeping,
investment, trust and various other services to meet the public's
banking needs. The significant banking market for Lebanon, which
encompasses portions of Warren, Butler, Clinton, Clermont and
Hamilton Counties, includes approximately 65 other commercial banks,
60 thrift institutions and 67 credit unions. The address of the
main office of the Bank is 2 North Broadway, Lebanon, Ohio 45036;
telephone (513) 932-1414. No changes in control of the Bank have
occurred within the past 36 months.
Selected Financial Data
The following selected financial data has been derived from
unaudited financial statements or call reports for the years ended
December 31, 1994, 1995, 1996, 1997 and 1998. The information is
based on financial statements provided by Bank management that
contain all adjustments believed to be required to reflect financial
condition and operating results fairly for the periods indicated.
This data should be read in conjunction with the Bank's financial
statements and their related notes contained in this Proxy
Statement/Prospectus (see "INDEX TO FINANCIAL STATEMENTS").<PAGE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997 1996 1995 1994
(In Thousands, Except Data Per Share)
<S> <C> <C> <C> <C> <C>
Total Interest Income $ 29,599 $ 27,777 $ 25,998 $ 24,750 $ 20,721
Net Interest Income 15,519 13,433 12,756 11,754 11,062
Provision For Loan Losses 191 291 288 281 257
Other Income 3,455 2,974 2,573 2,563 2,559
Other Expenses 10,910 8,903 7,851 7,443 7,015
Income Tax Expenses 2,426 2,178 2,195 1,997 1,942
Net Income 5,447 5,035 4,995 4,596 4,407
Data Per Share:
Net Income 30.95 28.61 28.38 26.11 25.04
Cash Dividends 14.00 12.00 9.50 7.50 6.50
Book Value 239.77 219.64 202.54 183.66 165.05
Total Assets (in Thousands) 432,159 421,027 369,476 351,117 328,117
</TABLE>
<PAGE>
The New Bank is being formed to facilitate the holding company
conversion and is not an operating bank; therefore, no financial
information has been provided for the New Bank.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion is presented to aid in understanding the
financial condition and results of operations of Lebanon Citizens
National Bank. This discussion should be read in conjunction with
the financial statements included in this Proxy
Statement/Prospectus. In addition to the historical information
contained herein, the following discussion contains forward-looking
statements that involve risks and uncertainties. The Bank's
operations and actual results could differ significantly from those
discussed in the forward-looking statements. Some of the factors
that could cause or contribute to such differences include changes
in the economy and interest rates in the nation and the Bank's
general market area, and the effect of Year 2000 on computer systems
of the Bank and its customers.
Results of Operations.
General. The Bank's net income increased $412,000, or by 8.2%, in
1998 to $5,447,000 or $30.95 per share compared to $5,035,000 or
$28.61 per share in 1997. Contributing to the increase was a $2.1
million, or 15.5%, increase in net interest income resulting from
both an increase in average earning assets and a decrease in rates
paid on deposits. Additionally, service charges and fees increased
by $334,000 and gains on sales of securities were $234,000 in 1998
compared with no sales of securities in 1997. Average
interest-earning assets increased $18.0 million, or 4.9%, to $384.9
million in 1998 from $366.9 million in 1997. The net
tax-equivalent margin on average interest-earning assets increased
to 4.22% in 1998 compared to 3.96% in 1997. Performance ratios for
1998 included a return on average assets of 1.30% and a return on
average equity of 13.47%.
Net income for 1997 increased $40,000 from 1996, or .80%. The
increase resulted from a $677,000 increase in net interest income,
and a $401,000 increase in other operating income, partially offset
by a $1.1 million increase in operating expenses. Operating
expenses increased primarily as a result of the branch acquisitions.
Average interest-earning assets increased $31.9 million, or 9.5%, to
$366.9 million in 1997 from $335.0 million in 1996. The net
tax-equivalent margin on average interest-earning assets decreased
to 3.96% in 1997 compared to 4.03% in 1996. In 1997, return on
average assets was 1.29% and return on average equity was 13.52%.
Other Income. Other income increased $481,000, or 16.2%, to $3.5
million in 1998 from $3.0 million in 1997. The increase is
primarily due to a $335,000, or 20.0%, increase in fee income and
securities gains of $234,000. There were no sales of securities in
1997 or 1996.
From 1996 to 1997, other income increased $401,000, or 15.6%, due
primarily to a $313,000 increase in income from trust services.
Other Expense. Other expense increased $2.0 million, or 22.5%, from
1997 to 1998. This increase was primarily due to a $739,000, or
16.0%, increase in labor costs including pension and other benefits
resulting from a full year of operating additional branch offices
acquired or constructed in 1997. The Bank acquired three branch
offices in September 1997 located in Oxford, Okeana and Waynesville,
Ohio. The Bank's Wilmington branch was opened in October 1997.
Additionally, amortization of intangibles acquired with the Oxford,
Okeana, and Waynesville branches increased from $177,000 in 1997 to
$611,000 in 1998. The intangibles are being amortized on a straight
line basis over ten years. The Bank periodically reviews the
acquired intangibles for impairment.
The $1.1 million increase in other expense from 1996 to 1997
resulted primarily from $476,000 in additional labor costs due in
part to the additional branches and $177,000 in amortization of
intangibles related to the acquisitions noted above.
Income Taxes. The Bank's effective tax rate of 30.8% in 1998 is 60
basis points greater than the rate in 1997 due to a decline in
tax-exempt interest income as a percent of income before income
taxes. The ratio in 1998 was 10.4% compared to 11.7% in 1997. The
effective tax rate was 30.2% in 1997 compared to 30.5% in 1996.
Financial Condition.
Total Assets. Total assets increased $11.1 million, or 2.64%, from
December 31, 1997 to December 31, 1998. The most significant
changes from December 31, 1997 to December 31, 1998 were a $23
million, or 22.23%, increase in investment securities from $101
million to $124 million, a $3 million, or 1.27%, decrease in total
loans from $270 million to $267 million, and a 56.6% decrease in
combined federal funds sold and interest-bearing deposits in other
financial institutions from $21 million to $9 million.
Securities increased as a result of shifting assets from
lower-yielding overnight fed funds to higher-yielding securities and
investment of incremental deposit proceeds. To help maximize the
returns on the securities portfolio, the Bank hired an investment
management advisor. As a result, the Bank shifted its portfolio to
a higher weighting of corporate notes, U.S. Agency notes, and U.S.
Agency mortgage backed securities from U.S. Treasury notes. Also
contributing to the increase in dollar value of securities was a
transfer of held-to-maturity securities to available-for-sale and
the resulting mark-to-market. This incremental increase for the
appreciation in the transferred securities represented less than $1
million of the total $23 million increase.
Residential real estate loans and consumer loans decreased $11.8
million and $2.9 million, respectively, while commercial loans
increased $9.6 million from December 31, 1997 to December 31, 1998.
The decrease in residential real estate loans is due to the
implementation of a strategy to limit the volume of fixed rate
loans added to the portfolio in 1998 as part of the Bank's ongoing
management of interest rate risk. During 1998, an increasing number
of borrowers opted to lock in low rates available through fixed rate
products. To meet customer demand, the Bank continued to originate
fixed rate real estate loans, however, most were immediately sold in
the secondary market to the Federal Home Loan Mortgage Corporation
(Freddie Mac). Fixed rate residential real estate loans originated
for immediate sale to Freddie Mac were $11.6 million in 1998
compared to $280,000 in 1997. Variable rate loans were
approximately 15% of total mortgage loans at December 31, 1998,
compared to approximately 5% at December 31, 1997. The Bank retains
servicing for all loans sold to Freddie Mac. Commercial loans
increased as result of several significant new credit relationships.
Deposits. Deposits increased $9.6 million, or 2.6%, to $387 million
at December 31, 1998, from $377.4 million at the close of 1997. Of
this increase, noninterest-bearing demand deposits were $8.4 million
or 20.3% greater than at year end 1997 and interest bearing deposits
were up $1.2 million or .4%, net of a decrease in time deposits of
$19.9 million. The Bank's strategy is to competitively price
deposit products in the markets served with an emphasis on growing
its lower-priced core deposits products.
Premises and Equipment. In January 1998, the Bank sold real estate
in Waynesville associated with the consolidation of its branch
operations in that community. The $33,000 gain realized on the sale
in 1998 is included in Other Operating Income in the Statements of
Income. Expenditures in 1998 were approximately $600,000 in
renovations to branch offices and $383,000 for equipment purchases
and data processing systems upgrades. The Bank plans to complete
its branch renovation program in 1999.
The Bank owns its branches with the exception of three. The
Otterbein, Oxford, and South Lebanon branches are leased under
multi-year operating leases. The aggregate lease expense for the
three branches was $64,000 in 1998. The current Otterbein lease
expires in July 2005, the Oxford lease expires in May 2000, and the
South Lebanon lease expires in July 2001. The Otterbein and South
Lebanon leases include renewal options. The Bank is evaluating
future alternative sites to relocate its branch within the Oxford
community.
Allowance for Loan Losses. The allowance for loan losses is $2.0
million or .75% of total loans at December 31, 1998, compared to
$2.2 million or .81% of total loans at year end 1997. The following
table summarizes the activity in the allowance account for the past
three years ($000s):
<PAGE>
<TABLE>
1998 1997 1996
<S> <C> <C> <C>
Balance- Beginning of year $2,200,000 2,000,000 1,800,000
Loans charged off:
Commercial and industrial 227,000 - 2,906
Commercial, secured by real estate - - -
Residential real estate 3,000 - -
Consumer, excluding credit card 153,000 93,000 100,000
Agricultural - - -
Credit card 36,000 29,000 17,000
Other - - -
------------ ---------- ---------
Total Loans charged off 419,000 122,000 119,906
------- ------- -------
Recoveries:
Commercial and industrial - - -
Commercial, secured by real estate - - -
Residential real estate - - -
Consumer, excluding credit card 26,000 25,000 29,000
Agricultural - - -
Credit card 2,000 6,000 -
Other - - -
----------- ---------- --------
Total Recoveries 28,000 31,000 29,000
------ ------ ------
Net charge-offs 391,000 91,000 90,906
Provision charged to operations 191,000 291,000 288,000
------- ------- -------
Balance - End of year $2,000,000 2,200,000 2,000,000
========= ========= =========
</TABLE>
<PAGE>
The $419,000 of charge-offs in 1998 includes one commercial loan for
$227,000. The Bank had no loans on nonaccrual status at the end of
1998, 1997 or 1996. At December 31, 1998, 1997, and 1996, loans 90
days or more past due and still accruing interest were $374,000,
$108,000, and $182,000, respectively. The Bank had no real estate
acquired through or in lieu of foreclosure at December 31, 1998 or
1997.
Liquidity. Management closely monitors the level of liquid assets
available to meet ongoing funding needs. It is management's intent
to maintain adequate liquidity so that sufficient funds are readily
available at a reasonable cost. Loans to deposits were 69% and 72%,
at December 31, 1998, and 1997, respectively. The Bank experienced
no liquidity or operational problems as a result of the current
liquidity levels.
Regulatory Capital Requirements. The Bank is required by banking
regulators to meet certain minimum levels of capital adequacy. These
are expressed in the form of certain ratios. Capital is separated
into Tier I capital (essentially shareholders' equity less goodwill
and other intangibles) and Tier II capital (essentially the
allowance for loan losses limited to 1.25% of
risk-weighted assets). The first two ratios, which are based on the
degree of credit risk in the Bank's assets, provide for weighting
assets based on assigned risk factors and include off-balance sheet
items such as loan commitments and stand-by letters of credit. The
ratio of Tier I capital to risk-weighted assets must be at least
4.0% and the ratio of Total capital (Tier 1 capital plus Tier 2
capital) to risk-weighted assets must be at least 8.0%.The capital
leverage ratio supplements the risk-based capital guidelines. Banks
are required to maintain a minimum ratio of Tier 1 capital to
adjusted quarterly average total assets of 3.0%. A summary of the
regulatory capital of the Bank at December 31 follows ($000's):
1998 1997
Regulatory Capital:
Shareholders' equity $ 42,199 38,656
Goodwill and other intangibles (5,321) (5,932)
Net unrealized securities gains (646) (86)
------- -------
Tier 1 risk-based capital 36,232 32,638
Eligible allowance for loan losses 2,000 2,200
------- -------
Total risk-based capital $ 38,232 34,838
======= =======
Capital Ratios:
Total risk-based 15.1% 15.7%
Tier 1 risk-based 14.3% 14.8%
Tier 1 leverage 8.6% 7.9%
The FDIC, the insurer of deposits in financial institutions, has
adopted a risk-based insurance premium system based in part on an
institution's capital adequacy. Under this system, a depository
institution is required to pay successively higher premiums
depending on its capital levels and its supervisory rating by its
primary regulator. It is management's intention to maintain
sufficient capital to permit the Bank to maintain a
"well-capitalized" designation (the FDIC's highest rating).
Year 2000 Compliance.
The Year 2000 problem exists because many computer operating systems
and programs utilize two digits rather than four digits to define
years for computer calculations. After December 31, 1999, any
computer recognizing a two digit date may incur system failure or
miscalculate date sensitive information. This is a particular
problem for financial institutions, since many financial
transactions, such as interest accruals and payments, are date
sensitive. It may also affect the operations of third parties with
whom the Bank does business, including vendors, suppliers, utility
companies and customers.
LCNB has been addressing these challenges since April, 1997 when a
Year 2000 Coordinator was appointed and a management team began
taking action to become Y2K compliant. The Bank adopted the FFIEC's
five-step approach of Awareness, Assessment, Renovation, Validation
and Implementation as its guidelines to verify compliance.
At December 31, 1998, the Bank had completed the first three phases.
The fourth phase, validation, consists of actual testing of all
sensitive systems to critical dates published by the FFIEC. There
are fourteen dates which could cause potential system problems,
ranging from 4/9/1999 to 12/31/2001. At December 31, 1998, testing
of four of the fourteen dates was complete with no detected errors.
The remaining ten dates are less critical and testing of those is
estimated to be complete by February 28, 1999. The implementation
phase, which will require certification or non-certification of
systems after testing, includes adoption of contingency plans on any
non-certified systems. Based on positive results obtained thus far,
it is anticipated that all systems will be certified Year 2000
compliant. It is estimated this final phase will be complete March
31, 1999.
The Bank is addressing the readiness of its vendors, major customers
and other third parties that do business with the Bank. All
business customers with loans greater than $100,000 were contacted
regarding Year 2000 compliance. All municipalities for which the
Bank holds more than $100,000 in bonds will be contacted and
reviewed for Year 2000 compliance by March 31,1999. All loan
customers have been reviewed with satisfactory results and all new
loans will be checked for compliance before approved. All
non-information technology systems were examined and none were found
to be date sensitive, and therefore are compliant.
All system applications that were not Year 2000 compliant have been
upgraded or replaced by new systems. The hardware and software
costs incurred in 1998 for the purpose of becoming compliant was
$68,000. There are no material system costs remaining to be
incurred in 1999. The costs of new systems have been, or will be,
recorded as an asset and depreciated over the appropriate lives.
The execution of the Banks plan to become Y2K compliant was
performed entirely in-house. These internal costs were not tracked,
however the majority of time spent by bank employees on Y2K issues
is limited to the data processing and auditing departments.
Based on the Bank's significant investment in time and resources to
prepare for the Y2K issues, and the highly regulated nature of the
business, management anticipates the Bank can avoid any major
detrimental effects. The worst case scenario is believed to stem
from the potential of environmental Y2K failures, such as power or
telecommunications, which are generally out of the Bank's control.
Any operational disruptions caused by internal system failures can
be backed up by the off-site processor according to the Bank's
Disaster Recovery Plan.
Current regulatory guidelines require national banks to maintain a
minimum total capital (shareholder's equity) ratio of 3.0% of total
assets. Primary capital consists of shareholder's equity plus the
allowance for loan and lease losses less any intangible assets. At
December 31, 1998, the Bank's primary capital ratio was 15.1%. The
Bank had $5,300,000 of intangible assets at December 31, 1998.
Supervision and Regulation
The Bank, as a national banking association, as defined under the
National Bank Act, 12 U.S.C. 21 (the "Bank Act") is regulated
primarily by the Comptroller of the Currency, and is also subject to
various other federal and state laws. The New Bank will also be
regulated by the Comptroller of the Currency and subject to other
federal and state laws and regulations to the same extent as the
Bank, and also to regulation as a subsidiary of a registered bank
holding company.
The Bank Act permits a national banking association or a state bank
to merge into a national banking association located within the same
state, with the approval of the Comptroller of the Currency. The
transaction must be approved by a majority of the board of directors
of each association or state bank, be ratified and confirmed by the
affirmative vote of the shareholders of each association or state
bank owning at least two thirds of its capital stock outstanding, or
by such greater proportion in the case of a state bank as the state
where it is organized so require, at a meeting of the shareholders.
Under the Bank Act, any shareholder who votes against the merger or
who, prior to such meeting, notifies the presiding officer in
writing, may receive the value of the shares held by him or her when
the merger is approved by the Comptroller, when a written request is
made to the merging bank at any time before thirty days after the
consummation of the merger.
A national bank also may engage in an merger under the Bank Act with
an out-of-state bank if it fulfills the requirements of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
12 U.S.C. 1831(u) (the "Riegle-Neal Act"). The Riegle-Neal Act
permits interstate branch banking and mergers, so long as none of
the home states of the concerned banks has enacted a law after the
date of enactment of the Riegle-Neal Act, September 24, 1994 and
before June 1, 1997 that expressly prohibits merger transactions
involving out-of-state banks. Ohio no longer has such prohibitive
bank merger laws, nor do its neighboring states of Indiana and
Kentucky. The Holding Company, however, has no current plans to
acquire additional banks either within or outside of Ohio.
MANAGEMENT OF THE BANK AND THE HOLDING COMPANY
Directors and Executive Officers
The conversion of the Bank into a holding company structure is
simply a change in the legal structure of the present business of
the Bank and is not meant to cause a change in any of the present
management or business policies of the Bank. The Bank will continue
to serve all of its shareholders, depositors and other customers as
it has in the past.
The Holding Company has the same Directors as the Bank. However,
the Board of Directors of the Holding Company is divided into three
classes of Directors with overlapping terms. Class I will serve an
initial one-year term, Class II, a two-year term and Class III, a
three-year term. Commencing with the first annual meeting of the
shareholders of the Holding Company, each Class whose members are to
be elected will thereafter be elected to serve a three-year term.
The Directors and Officers of the Holding Company are:
DIRECTORS
CLASS I CLASS II CLASS III
Stephen P. Wilson Marvin Young M. Russell Horn
Howard Wilson Kathleen Porter Stolle George L. Leasure
Sam Kaufman Corwin Nixon William H. Kaufman
James Miller
In addition, the Regulations of the Holding Company and of the New
Bank provide that directors must qualify for their position by
meeting certain age requirements. No person may stand for election
as a director of the Holding Company or of the New Bank who has
passed his or her 75th birthday. This age limitation will not apply
to the individuals who currently serve as directors of the Holding
Company or of the New Bank.
EXECUTIVE OFFICERS
Chairman/President: Stephen P. Wilson
Senior Vice President: D.J. Benjamin Jackson
Vice President/Trust Officer: Bernard H. Wright, Jr.
Vice President/Chief Financial Officer: Steve P. Foster
Vice President/Cashier: Donald E. Williams
The following table sets forth information as to each person who
currently serves as a Director or executive officer of the Bank and
who also will serve as a Director of the Holding Company following
the merger, and as to all such Directors and executive officers as
a group, as well as the number of shares of the Bank beneficially
owned by each as of December 31, 1998:
<PAGE>
<TABLE>
<CAPTION>
Shares of Common Stock of
the Bank Beneficially
Owned on December 31, 1998(1)
Name and Principal
Occupation During Position With Position With
Past Five Years Bank Holding Company Age Number Percent of Class(2)
<S> <C> <C> <C> <C> <C>
M. Russell Horn, Retired Director Director 81 4,300(3) 2.44%
Sam Kaufman(4), Retired retailer Director Director 93 1,330(5) 0.76%
William H. Kaufman(4), Director Director 55 1,671(6) 0.95%
Attorney at Law; former Municipal
Court Judge
George L. Leasure, President of Director Director 66 573(7) 0.33%
Ghent Manufacturing, Inc.
James B. Miller, Manager, Director Director 72 2,434(8) 1.38%
President and Director of
Greenwood Farms; CEO, Director
of Mound Steel Corp.
Corwin M. Nixon, Manager of Miami Director Director 85 1,279 0.73%
Valley Trotting Club and Lebanon
Trotting Club; farm owner
Kathleen Porter Stolle, Attorney Director Director 51 1,297(9) 0.74%
at Law, former County Court Judge,
former secretary/treasurer of
Interscope Manufacturing, Inc.
Howard E. Wilson(10), Retired Director Director 71 6,000(11) 3.41%
Chairman and CEO of the Bank
Stephen P. Wilson(10), President, President, President 48 1,470(12) 0.84%
CEO and Chairman of the Board of CEO, Chairman CEO,Chairman
the Bank of the Board of the Board
Marvin E. Young, Attorney at Law Director Director 83 4,900(13) 2.78%
All directors and executive 25,254 14.35%
officers as a group (10 persons)
<FN>
(1) Includes shares held in the name of spouses, minor children,
certain relatives, trusts or estates whose share ownership
under the beneficial ownership rules of the Securities and Exchange
Commission, is to be aggregated with that of the Director or officer
whose stock ownership is shown.
(2) Following the merger, all percentage amounts as to Holding
Company ownership will remain unchanged.
(3) Includes 2,150 shares owned by Mr. Horn's spouse. All shares
are held in revocable grantor trusts.
(4) Sam Kaufman is the uncle of William H. Kaufman.
(5) All shares are held jointly with Mr. Kaufman's spouse in a
revocable trust.
(6) Includes 700 shares held in trust, 420 shares held jointly
with Mr. Kaufman's spouse, 115 shares owned by Mr. Kaufman's spouse,
40 shares owned by Mr. Kaufman's daughter and 38 shares held in
trust for Mr. Kaufman's daughter.
(7) Includes 493 shares held jointly with Mr. Leasure's spouse
and 40 shares owned by Mr. Leasure's spouse.
(8) Includes 858 shares owned by Mr. Miller's spouse.
(9) Includes 760 shares held in an irrevocable trust of which
Mrs. Stolle is one of several beneficiaries.
(10) Howard E. Wilson is the father of Stephen P. Wilson.
(11) Includes 2,990 shares held in a revocable grantor trust
and 2,990 shares owned by Mr. Howard Wilson's spouse and also
held in a revocable grantor trust.
(12) Includes 1,270 shares held jointly with Mr. Stephen
Wilson's spouse.
(13) Includes 2,450 shares owned by Mr. Young's spouse. All
shares are held in revocable grantor trusts.
</FN>
</TABLE>
<PAGE>
All persons referred to above as currently being directors or
officers of the Bank will continue to hold similar positions with
the resulting bank after the merger is effective.
Executive Compensation
Two executive officers of the Bank had aggregate cash compensation
for the year ended December 31, 1998 in excess of $100,000,
including any cash bonuses. The following table sets forth
information concerning the compensation of the Chief Executive
Officer and Senior Vice President:
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long Term
Compensation
Securities
Underlying Restricted
Fiscal Options Stock Other Annual
Name Principal Position Year Salary Bonus(1) Granted Awards Compensation
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen P. CEO, President, 1998 $150,000 $47,475 n/a n/a 11,873
Wilson Chairman of the Board 1997 145,000 49,500 n/a n/a 9,867
1996 140,000 22,275 n/a n/a 9,302
D.J. Senior Vice President 1998 90,000 13,175 n/a n/a 5,523
Benjamin 1997 85,000 14,175 n/a n/a 3,600
Jackson 1996 81,000 12,705 n/a n/a 3,508
<FN>
(1) Mr. Wilson's and Mr. Jackson's 1997 bonuses were paid in 1998, their 1996 bonuses
were paid in 1997 and their 1995 bonuses were paid in 1996. The 1998 bonuses will be
paid in 1999.
</FN>
</TABLE>
<PAGE>
The aggregate cash compensation paid to all executive officers of
the Bank (5 persons) during the year ended December 31, 1998 was
$582,317, which includes amounts paid in employee benefits on behalf
of each employee.
The Board of Directors of the Bank meets weekly for a total of 52
meetings per year. Members of the Board of Directors hold 59
committee meetings. Directors receive approximately $1,155.00 per
month for service on the Board of Directors. The Bank does not pay
premiums for health and life insurance for directors with the
exception of two directors who continue to receive health and life
insurance as the result of the grandfathering of policies from a
previous Bank board of directors.
Including Board meetings and Committee meetings, which all Directors
attend, the Board of Directors met approximately fifty-two (52)
times during the fiscal year ended December 31, 1998. Each
incumbent Director attended at least 53.8% of the total number of
Board meetings and over half of the Directors attended over 92.3% of
the total number of meetings.
It is anticipated that the Holding Company will also compensate its
directors for attendance at the Holding Company Board meeting. The
decision as to whether and how much to give the Holding Company
directors will be determined after the completion of the holding
company conversion.
CERTAIN BENEFICIAL OWNERS
Under Rule 13(d) of the Securities Exchange Act of 1934, a
beneficial owner of a security is any person who directly or
indirectly has or shares voting power or investment power over such
security. Such beneficial owner under this definition need not
enjoy the economic benefit of such securities. There are no
shareholders (or group as that term is used in Rule 13d-3) deemed to
be beneficial owners of 5% or more of the Common Stock of the Bank
as of December 31, 1997.
COMMON STOCK MARKET INFORMATION
There is currently no established public trading market for Bank
Common Stock. It is anticipated that shareholder liquidity will be
increased by the conversion of the Bank into a holding company
structure, and, although there are no assurances that the Holding
Company will be able to do so, management of the Holding Company
expects to take steps in the future to enhance its shareholders'
ability to trade Holding Company Common Stock.
During 1998, trade prices for shares of stock in the Bank, reported
through registered securities dealers, were as follows:
High Low
First Quarter $430 $315
Second Quarter 430 390
Third Quarter 530 425
Fourth Quarter 530 505
The Bank's Common Stock was held of record by approximately 564
persons as of December 31, 1998. Immediately following consummation
of the merger, the Holding Company will have the same number of
shareholders as the Bank had immediately prior to the merger except
to the extent any shareholders elect to exercise dissenters' rights
due to the conversion. Assuming there are no dissenting
shareholders, the number of outstanding shares of the Holding
Company will be exactly ten (10) times the number of shares as that
of the Bank, or 1,760,000, and each shareholder's percentage
ownership interest in the Holding Company after the merger will be
identical to his or her percentage ownership interest in the Bank
prior to the merger.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Bank has paid dividends annually, as set forth in the following
table:
Period Ended Dividend Paid Per Share
1996 $ 9.50
1997 $12.00
1998 $14.00
It is expected that the Holding Company will continue to pay
dividends on a similar schedule, to the extent permitted by the
business and other factors beyond management's control, see
"DESCRIPTION OF COMMON STOCK - Dividends."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the ordinary course of conducting its banking business, the Bank
may engage in banking transactions with the employees, directors and
managers of the Bank which may include, but not be limited to,
loans. All banking transactions with Bank employees, directors and
managers are conducted on the same basis and terms as would be
provided to any other customer of the Bank.
During 1998, the Bank paid John Mullins, the son-in-law of Mr. M.
Russell Horn, $60,088 as gross compensation and reimbursement for
repairs, maintenance and supplies for work on Bank property.
Management believes that these services and supplies were obtained
at prices and terms advantageous to the Bank. In the future, the
Bank expects to obtain similar services from Mr. Mullins as needed.
The Bank retained Mr. William H. Kaufman's law firm during 1998 for
legal services for the Bank in connection with various matters
arising in the course of the Bank's business. The Bank contemplates
using Mr. Kaufman's firm in the future on similar terms, as needed.
Mr. Howard Wilson retired as President of the Bank in 1992. Prior
to his retirement he entered into a contract with the Bank deferring
portions of his compensation until after retirement. During 1998,
he received payments under the terms of the agreement.
The Bank retained Mr. Marvin E. Young's law firm during 1998 for
legal services for the Bank in connection with various matters
arising in the course of the Bank's business. The Bank contemplates
using Mr. Young's firm in the future on similar terms, as needed.
In connection with the extension of credit to the Bank's customers,
customers are charged for various documents, mortgages, etc. The
Bank requires customers to use the legal services of Kaufman &
Florence, a firm in which Mr. William H. Kaufman is a partner, or
Young & Hubbell, a firm in which Mr. Young is a partner, for these
matters.
LEGAL MATTERS
Certain legal matters will be passed upon for the Holding Company by
Dinsmore & Shohl, its special counsel, 1900 Chemed Center, 255 East
Fifth Street, Cincinnati, Ohio 45202.
OTHER BUSINESS
It is not anticipated that any other business will arise during the
Annual Meeting as the management of the Bank has no other business
to present and does not know that any other person will present any
other business. However, if any other business should be presented
at the meeting, the persons named in the enclosed proxy intend to
take such action as will be in harmony with the policies of the
management of the Bank.
By Order of The Board of Directors
Dated: March 18, 1999 Stephen P. Wilson
President
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE
COMPLETE, DATE, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY, FOR WHICH
A RETURN ENVELOPE IS PROVIDED.<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
INDEPENDENT AUDITORS REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Income 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6-18
<PAGE>
REPORT OF J.D. CLOUD & CO. L.L.P. INDEPENDENT AUDITORS
To the Shareholders
Lebanon Citizens National Bank
Lebanon, Ohio
We have audited the accompanying balance sheets of the Lebanon
Citizens National Bank as of December 31, 1998 and 1997, and the
related statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Lebanon
Citizens National Bank as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ J.D. CLOUD & CO. L.L.P.
Certified Public Accountants
Cincinnati, Ohio
January 13, 1999
<PAGE>
<TABLE>
LEBANON CITIZENS NATIONAL BANK
BALANCE SHEETS
<CAPTION>
At December 31 ($000's)
1998 1997
<S> <C> <C>
ASSETS:
Cash and due from banks $ 16,907 12,961
Federal funds sold 3,800 17,400
--------- -------
Total cash and cash equivalents 20,707 30,361
Interest-bearing deposits in banks 5,492 4,000
Federal Reserve Bank stock 647 647
Securities available for sale, at market value 123,040 30,092
Securities held to maturity (market value
$70,853 in 1997) - 70,449
Loans, net 265,057 268,294
Premises and equipment, net 8,102 7,616
Accrued income receivable 3,017 2,989
Other assets 6,097 6,579
-------- -------
TOTAL ASSETS $ 432,159 421,027
======== =======
LIABILITIES:
Deposits -
Demand $ 49,972 41,556
NOW 54,910 45,879
Money fund deposits 23,942 26,660
Savings 74,982 59,174
IRA 29,888 30,899
Certificates - $100,000 and over 37,252 35,931
Other time certificates 116,095 137,310
-------- -------
Total deposits 387,041 377,409
Accrued interest and other liabilities 2,919 4,962
-------- -------
TOTAL LIABILITIES 389,960 382,371
--------- -------
SHAREHOLDERS' EQUITY:
Common stock, $60 par value, 176,000 shares
authorized and outstanding 10,560 10,560
Surplus 11,000 11,000
Retained earnings 19,993 17,010
Accumulated other comprehensive income,
net of taxes 646 86
-------- -------
TOTAL SHAREHOLDERS' EQUITY 42,199 38,656
-------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 432,159 421,027
======== =======
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
<TABLE>
LEBANON CITIZENS NATIONAL BANK
STATEMENTS OF INCOME
<CAPTION>
For the years ended December 31 ($000's, except per share amounts)
1998 1997 1996
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 23,047 21,385 19,322
Interest on federal funds sold 796 918 1,187
Interest on deposits in banks 289 239 39
Interest on Federal Reserve Bank stock 39 39 39
Interest on investment securities -
Taxable 4,612 4,354 4,521
Non-taxable 816 842 890
------ ------ ------
TOTAL INTEREST INCOME 29,599 27,777 25,998
------ ------ ------
INTEREST EXPENSE:
Interest on deposits -
Money fund and NOW accounts 1,706 1,616 1,473
Savings 1,769 1,741 1,576
IRA 1,737 1,680 1,560
Certificates - $100,000 and over 1,871 2,160 2,079
Other time certificates 6,949 7,101 6,514
------ ------ ------
Total interest on deposits 14,032 14,298 13,202
Interest on funds borrowed 48 46 40
------ ------ ------
TOTAL INTEREST EXPENSE 14,080 14,344 13,242
------ ------ ------
NET INTEREST INCOME 15,519 13,433 12,756
PROVISION FOR LOAN LOSSES 191 291 288
------ ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 15,328 13,142 12,468
------ ------ ------
OTHER OPERATING INCOME:
Trust income 1,082 1,118 805
Service charges and fees 2,007 1,673 1,684
Securities gains 234 - -
Other operating income 132 183 84
------ ------ ------
TOTAL OTHER OPERATING INCOME 3,455 2,974 2,573
------ ------ ------
OPERATING EXPENSES:
Salaries and wages 4,366 3,690 3,342
Pension and other employee benefits 1,007 944 816
Equipment expenses 475 431 323
Occupancy expense - net 867 690 574
State franchise tax 578 535 485
Marketing 423 317 323
Intangible amortization 611 178 -
Other operating expenses 2,583 2,118 1,988
------ ------ ------
TOTAL OPERATING EXPENSES 10,910 8,903 7,851
------ ------ ------
INCOME BEFORE INCOME TAXES 7,873 7,213 7,190
PROVISION FOR INCOME TAXES 2,426 2,178 2,195
------ ------ ------
NET INCOME $ 5,447 5,035 4,995
====== ====== ======
Basic earnings per share $ 30.95 28.61 28.38
====== ====== ======
Weighted average shares outstanding (000's) 176 176 176
====== ====== ======
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.<PAGE>
<TABLE>
LEBANON CITIZENS NATIONAL BANK
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31 ($000's)
<CAPTION>
Accumulated
Other Total
Common Retained Comprehensive Comprehensive Shareholders'
Shares Surplus Earnings Income Income Equity
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $10,560 11,000 10,764 - 32,324
Net income 4,995 4,995 4,995
=========
Cash dividends declared -
$9.50 per share (1,672) (1,672)
-------- -------- ------- ----------- --------
Balance, December 31, 1996 10,560 11,000 14,087 - 35,647
Net income 5,035 5,035 5,035
Net unrealized gain on available-
for-sale securities (net of
taxes of $44) 86 86 86
--------
Total comprehensive income 5,121
========
Cash dividends declared -
$12.00 per share (2,112) (2,112)
-------- -------- ------ ----------- -------
Balance, December 31, 1997 10,560 11,000 17,010 86 38,656
Net income 5,447 5,447 5,447
Transition adjustment for the
effect of a change in
accounting principle 473 473 473
Net unrealized gain on available-
for-sale securities (net of
taxes of $124) 241 241 241
Reclassification adjustment for
net realized gain on sale of
available-for-sale securities
included in net income (net
of taxes of $80) (154) (154) (154)
------
Total comprehensive income 6,007
======
Cash dividends declared -
$14.00 per share (2,464) (2,464)
------ ------ ------ ----- ------
Balance, December 31, 1998 $10,560 11,000 19,993 646 42,199
====== ====== ====== ===== ======
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
<TABLE>
LEBANON CITIZENS NATIONAL BANK
STATEMENTS OF CASH FLOWS
For the years ended December 31 ($000's)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,447 5,035 4,995
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 1,799 1,476 850
Deferred loan origination fees (585) (677) (452)
Provision for loan losses 191 291 288
Provision for deferred taxes (51) (62) 113
Realized gains on securities available for sale (234) - -
(Increase) decrease in interest receivable (35) (355) 229
Increase (decrease) in interest payable (110) 13 60
Increase (decrease) in other accrued expenses, net 227 (66) (160)
------ ------ ------
TOTAL ADJUSTMENTS 1,202 620 928
------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,649 5,655 5,923
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing deposits in banks (1,492) - (4,000)
Proceeds from sales of securities available for sale 8,315 - -
Proceeds from maturities of securities available for sale 10,201 1,076 -
Proceeds from maturities of securities held to maturity 32,010 32,666 52,268
Purchases of securities available for sale (69,032) (31,002) -
Purchases of securities held to maturity (3,076) (12,642) (34,551)
Net decrease (increase) in loans 3,245 (22,096) (34,364)
Purchases of premises and equipment (1,363) (1,932) (1,506)
Proceeds from certain asset sales 274 - 880
Net change due to acquisition of branch offices - 32,757 -
--------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (20,918) (1,173) (21,273)
--------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 7,079 (1,861) 14,857
Cash dividends paid (2,464) (2,112) (1,672)
--------- ------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 4,615 (3,973) 13,185
--------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS (9,654) 509 (2,165)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 30,361 29,852 32,017
--------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 20,707 30,361 29,852
========== ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR:
Interest $ 14,190 14,331 13,182
Income taxes 2,245 2,261 2,135
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Lebanon Citizens National Bank provides full banking services,
including trust services, to customers primarily in the southwestern
Ohio area of Warren, Hamilton, Clermont, Clinton and Butler
counties. The accounting and reporting policies of the Bank conform
with generally accepted accounting principles (GAAP) and with
general practices within the banking industry. Presented below is
a description of the significant accounting policies followed by the
Bank. Certain prior period amounts have been reclassified to
conform to current year presentation.
USE OF ESTIMATES-
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
INVESTMENT SECURITIES-
Debt securities which the Bank has the intent and ability to hold to
maturity are reported at amortized cost. Debt securities classified
as available for sale and all equity securities are reported at fair
value with unrealized holding gains and losses reported net of
income taxes as Accumulated Other Comprehensive Income, a separate
component of shareholders' equity. Amortization of premiums and
accretion of discounts are recognized as adjustments to interest
income using the level yield method. In 1998, the Bank adopted
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." To
enable the Bank in the future to designate a security as a hedged
item in accordance with the provisions of SFAS No. 133, securities
originally categorized as held-to-maturity were reclassified in 1998
as available-for-sale (see Recent Pronouncements and Accounting
Changes). Realized gains or losses from the sale of securities are
computed using the specific identification method. Federal Reserve
Bank stock is restricted in marketability and value. It is reported
at cost, which is its par value. Currently, the Bank does not hold
any derivatives or conduct hedging activities as defined by SFAS No.
133.
LOANS AND ALLOWANCE FOR LOAN LOSSES-
Loans are stated at the principal amount outstanding, net of
unearned income, including deferred loan fees, and an allowance for
loan losses. Interest on loans is calculated by using the simple
interest method on daily balances of the principal amount
outstanding. The accrual of interest on impaired loans is
discontinued when there is a clear indication that the borrower's
cash flow may not be sufficient to meet payments as they become due.
Subsequent cash receipts on nonaccrual loans are recorded as a
reduction of principal, and interest income is recorded once
principal recovery is reasonably assured. The current year's
accrued interest on loans placed on nonaccrual status is charged
against earnings. Previous years' accrued interest is charged
against the allowance for loan losses.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loan origination fees and certain direct loan origination costs are
deferred and the net amount amortized as an adjustment of loan
yields. These amounts are being amortized over the lives of the
related loans.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the
allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb possible
losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current
economic conditions that may affect the borrowers' ability to pay.
Loans are considered impaired when management believes, based on
current information and events, it is probable that the Bank will be
unable to collect all amounts due according to the contractual terms
of the loan agreement. Impaired loans are measured by the present
value of expected future cash flows using the loan's effective
interest rate. Impaired collateral-dependent loans may be measured
based on collateral value. Smaller-balance homogenous loans,
including residential mortgage and consumer installment loans, are
collectively evaluated for impairment.
PREMISES AND EQUIPMENT-
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on both the straight-line
and accelerated methods over the estimated useful lives of the
assets. Costs incurred for maintenance and repairs are expensed
currently.
MARKETING EXPENSE-
Marketing costs are expensed as incurred.
EMPLOYEE BENEFITS-
The Bank has a noncontributory pension plan covering full-time
employees. The retirement plan cost is made up of several
components that reflect different aspects of the Bank's financial
arrangements as well as the cost of benefits earned by employees.
These components are determined using the projected unit credit
actuarial cost method and are based on certain actuarial
assumptions.
INCOME TAXES-
Certain income and expenses are recognized in different periods for
financial reporting than for purposes of computing income taxes
currently payable. Deferred taxes are provided on such temporary
differences. These differences relate principally to the allowance
for loan losses, loan origination fees, pension expense and
depreciation.
STATEMENTS OF CASH FLOWS-
For purposes of reporting cash flows, cash equivalents include all
highly liquid investments with original maturities of three months
or less.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
EARNINGS PER SHARE-
Basic earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the
period. The Company's capital structure includes no potential for
dilution. There are no warrants, options or other arrangements that
would increase the number of shares outstanding.
RECENT PRONOUNCEMENTS AND ACCOUNTING CHANGES-
Effective January 1, 1998, the Bank adopted SFAS No. 130, "Reporting
Comprehensive Income." The new rules establish standards for
reporting comprehensive income and its components in financial
statements. Comprehensive income consists of net income and other
gains and losses affecting shareholders' equity that, under
generally accepted accounting principles, are excluded from net
income. For the Bank, such items consist solely of unrealized gains
and losses on investment securities available for sale. The
adoption of SFAS No. 130 did not have an impact on the Bank's
financial position or results of operations, but did affect the
presentation of the Bank's statement of changes in shareholders'
equity and balance sheet.
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" became effective in 1998. The nature of the
Bank's operations are such that there are no additional disclosure
requirements under SFAS No. 131.
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". In most instances the standard, once adopted,
precludes any held-to-maturity security from being designated as a
hedged item. The Bank adopted SFAS No. 133 in the fourth quarter of
1998. To provide the flexibility in the future to designate
securities as hedged items the Bank recatagorized its
held-to-maturity securities as available for sale. The amortized
cost and related unrealized net gain of the transferred securities
was $42,768,000 and $716,000, respectively, at the date of transfer.
This change in accounting principle had no effect on reported net
income. Comprehensive income increased $473,000 after income taxes
of $243,000 allocated to this component of other comprehensive
income.
NOTE 2 - ACQUISITION
On September 15, 1997, the Bank purchased three Ohio branch offices
of KeyBank N.A. located in Waynesville, Oxford and Okeana. The
transaction was accounted for as a purchase and, accordingly, the
results of operations of the acquired branches prior to September
15, 1997 are excluded from the Bank's financial statements. All
assets acquired and liabilities assumed were recorded at fair value.
The Bank received $33 million in cash, $10 million in loans, $1
million in premises and furnishings, and total deposits of $50
million. The intangible asset of $6 million, representing the
excess of the cost of the acquisition over the face value of net
tangible assets acquired, is being amortized using the straight-line
method over 10 years. At December 31, 1998 and 1997, the
intangible which
NOTE 2 - ACQUISITION (Continued)
is included in other assets in the balance sheets was $5.3 million
and $5.9 million, respectively. The Bank periodically reviews
intangible assets for possible impairment.
<PAGE>
<TABLE>
NOTE 3 - INVESTMENT SECURITIES
The amortized cost and estimated market value of investment
securities at December 31 are summarized as follows ($000's):
<CAPTION>
1998
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury notes $ 28,152 239 - 28,391
U.S. Agency notes 23,134 156 100 23,190
U.S. Agency mortgage-
backed securities 17,394 62 50 17,406
Corporate notes 24,318 91 33 24,376
Municipal securities 29,063 635 21 29,677
------- ----- ----- ------
$122,061 1,183 204 123,040
======== ====== ===== =======
</TABLE>
<TABLE>
1997
<CAPTION>
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury notes $ 1,005 15 - 1,020
U.S. Agency notes 8,038 38 - 8,076
U.S. Agency mortgage-
backed securities 8,205 12 11 8,206
Corporate notes 8,074 14 8 8,080
Municipal securities 4,639 77 6 4,710
----- ---- ---- ------
$29,961 156 25 30,092
======= ==== ===== =======
Securities held to maturity:
U.S. Treasury notes $56,188 194 37 56,345
Municipal securities 14,261 249 2 14,508
------ ---- ---- -------
$70,449 443 39 70,853
====== ==== ==== =======
</TABLE>
<PAGE>
NOTE 3 - INVESTMENT SECURITIES (Continued)
Contractual maturities of debt securities at December 31, 1998, were
as follows ($000's). Actual maturities may differ from contractual
maturities when borrowers have the right to call or prepay
obligations.
Available for Sale
Amortized Market
Cost Value
Due within one year $ 37,066 37,309
Due from one to five years 44,378 44,940
Due from five to ten years 20,010 20,136
Due after ten years 3,213 3,349
------- ---------
104,667 105,634
U.S. Agency mortgage-
backed securities 17,394 17,406
------- --------
$122,061 123,040
======= ========
Gross gains realized on sales of securities available for sale were
$234,000 for 1998. There were no realized losses during 1998.
There were no sales of investment securities during 1997 or 1996.
Investment securities with a carrying value of $45,186,000 and
$35,805,000 at December 31, 1998 and 1997, respectively, were
pledged to secure public deposits and for other purposes required or
permitted by law.
NOTE 4 - LOANS
Major classifications of loans at December 31 are as follows
($000's):
1998 1997
Commercial and industrial $ 20,640 13,905
Commercial, secured by real estate 53,907 51,088
Residential real estate 154,111 165,908
Consumer, excluding credit card 32,302 35,167
Agricultural 2,370 1,645
Credit card 2,574 2,461
Other 966 332
------- -------
266,870 270,506
Deferred costs (fees), net 187 (12)
------- -------
267,057 270,494
Allowance for loan losses (2,000) (2,200)
------- -------
Loans-net $265,057 268,294
======= =======
NOTE 4 - LOANS (Continued)
Mortgage loans serviced for the Federal Home Loan Mortgage
Corporation are not included in the accompanying balance sheets.
The unpaid principal balances of those loans at December 31, 1998
and 1997 were $14,747,000 and $5,102,000, respectively.
Changes in the allowance for loan losses were as follows ($000's):
1998 1997 1996
BALANCE-BEGINNING OF YEAR $2,200 2,000 1,800
Provision for loan losses 191 291 288
Charge offs (418) ( 122) ( 117)
Recoveries 27 31 29
------ ------ -------
BALANCE-END OF YEAR $2,000 2,200 2,000
====== ====== =======
There were no nonaccrual loans at December 31, 1998 or 1997.
Interest income that would have been recorded in 1998, 1997 and 1996
if nonaccrual loans had been current and in accordance with their
original terms, was not material. At December 31, 1998 and 1997,
the recorded investment in loans for which impairment has been
recognized in accordance with FASB Statement No. 114 was not
material. The Bank is not committed to lend additional funds to
debtors whose loans have been modified to provide a reduction or
deferral of principal or interest because of a deterioration in the
financial position of the borrower.
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized as follows
($000's):
1998 1997
Land $ 1,550 1,655
Buildings 7,254 6,819
Equipment 6,473 6,090
------ ------
Total 15,277 14,564
Less-Accumulated depreciation 7,175 6,948
------ ------
Premises and Equipment-Net $ 8,102 7,616
====== ======
Depreciation charged to income was $ 636,000 in 1998, $565,000 in
1997 and $396,000 in 1996.
NOTE 6 - DEPOSIT LIABILITIES
Contractual maturities of certificates of deposit at December 31,
1998 were as follows ($000's):
Certificates All other
over 100,000 Certificates Total
Year ending December 31
1999 $28,767 80,761 109,528
2000 6,032 25,324 31,356
2001 1,847 4,591 6,438
2002 406 3,886 4,292
2003 100 950 1,050
Thereafter 100 583 683
------- ------- -------
$37,252 116,095 153,347
======= ======= =======
NOTE 7 - EMPLOYEE BENEFITS
The Bank's noncontributory defined benefit retirement plan covers
all regular full-time employees. The benefits are based on years of
service and the employee's highest average compensation during five
consecutive years. Pension costs are funded based on the Plan's
actuarial cost method and are limited to amounts currently
deductible for federal income tax purposes.
The components of net periodic pension cost are summarized as
follows ($000's):
1998 1997 1996
Service cost $ 279 232 223
Interest cost 157 154 132
Expected return on Plan assets (140) (134) (118)
Amortization of unrecognized transition
obligation 17 17 17
Recognized net actuarial loss 43 50 37
----- ----- ----
Net periodic pension cost $ 356 319 291
===== ===== ====
<PAGE>
<TABLE>
NOTE 7 -EMPLOYEE BENEFITS (Continued)
A summary of the Plan's funded status and prepaid benefit cost,
the latter included in Other Assets on the Bank's balance sheets,
at December 31 follows ($000's):
<CAPTION>
1998 1997
<S> <C> <C>
Change in projected benefit obligations
Projected benefit obligation at beginning of year $ 3,008 2,789
Service cost 279 232
Interest cost 157 154
Actuarial losses (gains) 188 (66)
Benefits paid (356) (101)
------ ------
Projected benefit obligation at end of year 3,276 3,008
------ ------
Change in plan assets
Fair value of plan assets at beginning of year 2,646 2,214
Actual return on plan assets 111 132
Employer contribution 479 401
Benefits paid (356) (101)
Fair value of plan assets at end of year 2,880 2,646
Funded status (396) (362)
Unrecognized net actuarial loss 1,070 903
Unrecognized transition obligation 61 78
------ -----
Prepaid benefit cost $ 735 619
====== =====
</TABLE>
<PAGE>
The Plan's assets are exclusively certificates of deposit with the
Bank. In determining the actuarial present value of the projected
benefit obligation, the following assumptions were used:
1998 1997
Assumed discount rate 5.50% 5.50%
Expected long-term rate of return on Plan assets 5.50% 5.50%
Rate of increase in future compensation levels 4.00% 4.00%
The Bank has a benefit plan which permits eligible officers to defer
a portion of their compensation. The deferred compensation, with
accrued interest, is distributable in cash after retirement or
termination of employment. The amount of such deferred compensation
at December 31, 1998 and 1997, was $235,000 and $170,000,
respectively. The Bank also has a supplemental income plan which
provides a covered employee a certain sum based on a percentage of
average compensation, payable annually for ten years upon
retirement. The projected benefit obligation included in other
liabilities for this supplemental income plan at December 31, 1998
and 1997, is $51,000 and $32,000, respectively. The discount rate
used to determine the present value of the obligation was 6.5% in
1998 and 1997. The service cost associated with this plan in each of
the three years 1998, 1997 and 1996 was approximately $16,000.
Interest costs were not material. Both of these plans are
nonqualified and unfunded. Participation in each plan is limited to
a select group of management.
NOTE 8 - INCOME TAXES
The provision for federal income taxes consists of ($000's):
1998 1997 1996
Income taxes currently payable $2,477 2,290 2,082
Deferred income taxes resulting
from temporary differences-
Provision for loan losses 68 (68) (68)
Loan origination fees-net (73) (35) 136
Pension and deferred compensation 12 (14) (1)
Depreciation and amortization (58) 5 46
------ ----- -----
Total deferred income taxes (51) (112) 113
------ ----- -----
Provision for income taxes $2,426 2,178 2,195
====== ===== ======
A reconciliation between the statutory income tax rate and the
Bank's effective tax rate follows:
1998 1997 1996
Statutory tax rate 34.0% 34.0 34.0
Increase (decrease) resulting from-
Tax exempt interest (2.9) (3.4) (3.6)
Other-net ( .3) (.4) .1
---- ----- ----
Effective tax rate 30.8% 30.2 30.5
==== ===== ====
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes. The Bank has not recorded a valuation reserve related to
deferred tax assets. Deferred tax assets and liabilities at
December 31 consist of the following ($000's):
1998 1997
Deferred tax assets:
Allowance for loan losses $ 522 590
Amortization of intangibles 83 14
---- ----
605 604
---- ----
Deferred tax liabilities:
Depreciation of premises and equipment (144) (133)
Unrealized gains on securities available
for sale (333) ( 44)
Deferred loan fees (193) (266)
Pension and deferred compensation (153) (141)
----- -----
(823) (584)
----- -----
Net deferred tax $(218) 20
===== =====
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES
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 financial instruments include commitments to
extend credit. They involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the
statement of financial position.
The Bank had commitments to extend credit aggregating $54,417,000
and $39,728,000 at December 31, 1998 and 1997, respectively. The
Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
No significant losses are anticipated as a result of these
commitments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or
other termination clauses.
The Bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained if deemed
necessary by the Bank is based on management's credit evaluation of
the borrower. Collateral held varies, but may include accounts
receivable; inventory; property, plant and equipment; residential
realty; and income-producing commercial properties.
The Bank is party to various claims and proceedings arising in the
normal course of business. Management, after consultation with
legal counsel, believes that the liabilities, if any, arising from
such proceedings and claims will not be material to the financial
position of the Bank.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Bank has entered into related party transactions with various
directors and executive officers. Such transactions originate in
the normal course of the Bank's operations as a depository and
lending institution. At December 31, 1998 and 1997, certain
executive officers, directors and associates of such persons were
indebted to the Bank directly or as guarantors in the aggregate
amount of $ 3,280,000 and $3,021,000, respectively. During 1998,
$632,000 in new loans were made; repayments totaled $373,000.
<PAGE>
<TABLE>
NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts and estimated fair values of financial
instruments as of December 31, were as follows ($000's):
<CAPTION>
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents $ 20,707 20,707 30,361 30,361
Interest-bearing deposits in banks 5,492 5,492 4,000 4,000
Securities available for sale 123,687 123,687 30,739 30,739
Securities held to maturity - - 70,449 70,853
Loans, net 265,057 264,439 268,294 265,114
FINANCIAL LIABILITIES:
Deposits $387,041 388,176 377,409 377,476
</TABLE>
<PAGE>
The fair value of off-balance-sheet financial instruments at
December 31, 1998 and 1997, was not material.
Fair values of financial instruments are based on various
assumptions, including the discount rate and estimates of future
cash flows. Therefore, the fair values presented may not represent
amounts that could be realized in actual transactions. In addition,
because the required disclosures exclude certain financial
instruments and all nonfinancial instruments, any aggregation of the
fair value amounts presented would not represent the underlying
value of the Bank. The following methods and assumptions were used
to estimate the fair value of certain financial instruments:
Cash and cash equivalents
The carrying amounts presented are deemed to approximate fair value.
Interest-bearing deposits in banks
Fair value is estimated for these certificates of deposit by
discounting the future cash flows at current rates.
NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Investment Securities
Fair values are based on quoted market prices, if available. If a
quoted market price is not available, fair value is estimated using
quoted market prices for similar securities.
Loans
Fair value 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.
Deposits
The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for deposits
of similar remaining maturities.
NOTE 12 - REGULATORY MATTERS
The payment of dividends is subject to restriction by regulatory
authorities. The restrictions generally limit dividends to the
current and prior two years' retained net earnings. In addition,
dividend payments may not reduce capital levels below minimum
regulatory guidelines. Accordingly, future dividends may require
the prior approval of the Comptroller of Currency.
The Federal Reserve Act requires depository institutions to maintain
cash reserves with the Federal Reserve Bank. In 1998 and 1997, the
Bank was required to maintain average reserve balances of $6,538,000
and $4,597,000, respectively.
The Bank must meet certain minimum capital requirements set by
federal banking agencies. For various regulatory purposes,
institutions are classified into one of five categories based upon
capital adequacy. The categories range from
"well-capitalized" to "critically-undercapitalized." The
"well-capitalized" category requires total risk-based capital of at
least 10%, tier 1 risk-based capital of at least 6% and leverage
capital of at least 5%. The minimum regulatory capital ratios are
8% for total risk-based, 4% for Tier 1 risk-based, and 3% for
leverage. As of the most recent notification from its regulators,
the Bank was categorized as "well-capitalized" under the regulatory
framework for prompt corrective action. A summary of the regulatory
capital of the Bank at December 31 follows ($000's):
NOTE 12 - REGULATORY MATTERS (Continued)
1998 1997
Regulatory Capital:
Shareholders' equity $42,199 38,656
Goodwill and other intangibles (5,321) (5,932)
Net unrealized securities gains (646) (86)
------- ------
Tier 1 risk-based capital 36,232 32,638
Eligible allowance for loan losses 2,000 2,200
------ ------
Total risk-based capital $38,232 34,838
====== ======
Capital Ratios:
Total risk-based 15.1% 15.7%
Tier 1 risk-based 14.3% 14.8%
Tier 1 leverage 8.6% 7.9%
NOTE 13 - OTHER DEVELOPMENTS
On September 28, 1998, the Board of Directors adopted a plan of
reorganization to form a one-bank holding company. Under the
proposed plan, in the second quarter of 1999, each shareholder of
the Bank would receive ten common shares of the newly-formed holding
company in exchange for one common share of the Bank. The
shareholders of the Bank would retain the same percentage ownership
of the holding company as each shareholder held of the Bank's shares
prior to the reorganization. Thereafter, the Bank would be a
wholly-owned subsidiary of the holding company. The plan is subject
to approval by the Bank's shareholders and federal regulatory
authorities.
<PAGE>
APPENDIX A TO PROXY STATEMENT
PLAN AND AGREEMENT OF MERGER
This Plan and Agreement of Merger, dated as of __________, 1999, is
hereby entered into by and between Lebanon Citizens National Bank,
Lebanon, Ohio, a national banking association organized and existing
under the laws of the United States, whose address is 2 North
Broadway, Lebanon, Ohio, 45036 (the "Bank"), and LCNB Corp., a
corporation formed under the General Corporation Law of the State of
Ohio ("Holding Company"). In addition, as soon as reasonably and
legally possible Holding Company will form as a wholly-owned
subsidiary, a new national banking association organized and
existing under the laws of the United States ("New Bank") under the
name The LC Interim National Bank, which will upon such formation
become a party to this Agreement and to the Agreement of Merger
attached hereto and made a part hereof as Exhibit A. All
obligations of the New Bank will, until properly assumed by it by
its execution of this Agreement, be made and assumed on its behalf
by Holding Company. The Bank, Holding Company and the New Bank are
herein sometimes referred to collectively as the "Parties", and
individually as a "Party".
W I T N E S S E T H:
WHEREAS, Holding Company will, upon the formation of the New Bank be
the owner of all the outstanding shares of the capital stock of the
New Bank;
WHEREAS, the Parties desire and contemplate that on the Closing Date
(as hereinafter defined) the Bank shall merge with and into the New
Bank, with the New Bank as the corporation surviving, pursuant to
the Agreement of Merger attached hereto and made a part hereof as
Exhibit A (the "Agreement of Merger" or "Merger Agreement"), and
thereupon the New Bank, as successor to the Bank shall commence
business as a bank under the name Lebanon Citizens National Bank in
Warren County, Ohio;
WHEREAS, upon the consummation of the merger contemplated by the
Agreement of Merger (the "Merger") the shares of the outstanding
Common Stock, par value $60 per share, of the Bank (other than those
held by dissenting shareholders) ("Bank Common Stock") shall be
converted into newly issued shares of the Common Stock without par
value of Holding Company at the rate of ten (10) shares of the
Common Stock of Holding Company for each share of Bank Common Stock
issued and outstanding on the effective date of the Merger, and
immediately after the Closing Date, Holding Company will own all of
the outstanding shares of the New Bank, and the former shareholders
of the Bank will own all of the outstanding shares of Common Stock
of Holding Company; and
WHEREAS, this Agreement and the Agreement of Merger (collectively
the "Agreements"), and the transactions and other acts respectively
contemplated thereby, have been authorized and approved by the
Boards of Directors of the Bank and Holding Company, and upon its
formation by the Board of Directors of the New Bank.
NOW, THEREFORE, the Bank, Holding Company and the New Bank agree as
follows:
A. The Closing Date
The transactions contemplated by this Agreement shall be consummated
and the "Closing" shall occur as of the close of business on the
date (the "Closing Date") the Merger is approved in final form by
the Comptroller of the Currency (together with the issuance of all
requisite certificates).
B. Efforts Prior To The Closing
The Parties will each use all reasonable efforts to cause the
Closing to occur and the conditions set forth in Section D hereof to
be satisfied with all reasonable dispatch, and none of them will
undertake any course of action inconsistent with such intended
result.
C. The Closing
Upon the Closing, Holding Company will issue to such person or
persons as the Bank shall designate in writing the shares of Holding
Company's Common Stock, without par value, ("Holding Company
Common") necessary to consummate the merger under the Agreement of
Merger.
From and after the Closing each holder of a certificate or
certificates theretofore representing shares of Bank Common Stock
shall surrender such certificate or certificates to the Bank and
shall receive in exchange therefor, in respect of the certificate or
certificates so surrendered, a certificate or certificates
representing the number of shares of Holding Company Common into and
for which the shares of Bank Common Stock theretofore represented by
such surrendered certificate or certificates have been converted
pursuant to the provisions of Article III, Section 3.1 of the
Agreement of Merger.
Until surrendered pursuant to the provisions hereof, each
certificate or certificates theretofore representing shares of Bank
Common Stock shall be deemed for all purposes (other than for the
payment of dividends or other distributions, if any, to the
shareholders of Holding Company) to represent the number of shares
of Holding Company into and for which the shares of Bank Common
Stock theretofore represented thereby shall have been converted
pursuant to the provisions of Article III, Section 3.1 of the
Agreement of Merger.
No dividends or other distributions, if any, payable to the holders
of shares of Holding Company Common shall be paid to the holders of
a certificate or certificates theretofore representing shares of
Bank Common Stock; provided however, that upon the surrender and
exchange of such certificate or certificates theretofore
representing shares of Bank Common Stock pursuant to the provisions
hereof, there shall then be paid to the record holders of a
certificate or certificates for shares of Holding Company Common
issued in exchange therefor the amount, without interest thereon, of
all dividends and other distributions, if any, declared with respect
to shares of Holding Company Common to holders of record of shares
of Holding Company Common as of any record date after the Closing
and prior to or coincident with the date of such surrender and
exchange, with respect to the number of shares of Holding Company
Common represented thereby.
D. Conditions Precedent
The obligations of each of the Parties to cause the transactions
respectively contemplated by this Agreement, the Agreement of Merger
and thus the Closing to occur, shall be subject to the satisfaction
of the following conditions except as such Party may waive the same
in writing in accordance with Section E hereof:
(1) Action by Comptroller of the Currency. At or prior to the
Closing, the Comptroller of the Currency, the head of the federal
government agency that regulates national banks, shall have:
(a) approved in final form the incorporation and formation of the
New Bank as a national banking association under and pursuant to the
laws of the United States; and
(b) approved this Agreement and the Agreement of Merger, as well as
the Merger contemplated thereby, in accordance with the applicable
laws of the United States;
and each such approval shall be in full force and effect at the
Closing Date.
(2) Orders by the Board of Governors of the Federal Reserve System.
At or prior to the Closing, the Board of Governors of the Federal
Reserve System (i) shall have granted Holding Company's application
for approval to become a bank holding company pursuant to Section
3(a)(1) of the Bank Holding Company Act of 1956, as amended, and
consummation of the transactions contemplated by this Agreement
shall be in compliance with such approval, which shall be in full
force and effect at the Closing.
(3) Bank Shareholder Approval. This Agreement and the Agreement of
Merger shall have been duly adopted and approved by the affirmative
vote of the holders of at least two-thirds of the outstanding shares
of the Bank's Common Stock entitled to vote on the proposal to so
approve such Agreements.
(4) Securities Law Compliance. The Shares of the Holding Company's
Common Stock to be issued to the holders of Bank Common Stock upon
the consummation of the merger in exchange for their shares of Bank
Common Stock shall be duly registered under the Securities Act of
1933, as amended, under a registration statement on Form S-4 and in
accordance with the terms and conditions of the regulations of the
Securities and Exchange Commission, and also properly registered or
otherwise qualified under all other applicable state securities
laws, as legally required, and no stop order shall be in effect
under any such federal or state securities law.
(5) Tax Consequences. At or prior to the Closing, the Parties
shall be confident that for Federal income tax purposes (a) the
Merger will constitute a reorganization within the meaning of
Section 368(a)(1) of the Internal Revenue Code of 1986, as amended,
(b) no gain or loss will be recognized by any shareholder of the
Bank upon the exchange of Bank Common Stock for Holding Company
Common Stock in the Merger, (c) the basis of the Holding Company
Common Stock so received by a Bank shareholder upon the Merger will
be, in the hands of such shareholder, the same as the basis of the
Bank Common Stock surrendered in exchange therefor, and (d) the
holding period of the Holding Company Common Stock thus received by
a shareholder of the Bank will include the holding period of the
shares of Bank Common Stock surrendered in exchange therefor
provided that such shares are capital assets in the hands of the
shareholders.
(6) Shareholders Dissent. The shareholders of the Bank shall have
taken the action contemplated by paragraph D(3) herein and the
holders in the aggregate of not more than 8,800 shares (5% of the
176,000 total outstanding shares) of Bank Common Stock (or such
lesser number as may be required to comply with any conditions or
requirements imposed by the Comptroller of the Currency or the Board
of Governors of the Federal Reserve System) shall have either voted
against the Merger or given notice in writing at or prior to the
meeting at which the Merger was ratified and confirmed that they
dissent from the Merger, in accordance with applicable law.
(7) Litigation. On the Closing Date there shall be no court order
in effect enjoining or preventing consummation of any of the
transactions contemplated by this or any of the other Agreements;
and there shall be no litigation, governmental investigation or
proceeding pending or threatened for the purpose of enjoining or
preventing the consummation of any of the transactions contemplated
by this or any of the other Agreements or otherwise claiming that
such consummation is improper and which the Board of Directors of
the Bank shall in good faith determine, with advice of counsel, (i)
has a reasonable likelihood of being successfully prosecuted, and
(ii) if successfully prosecuted, would materially and adversely
affect the benefits intended for the shareholders of the Bank under
this Agreement.
(8) Opinion of Counsel. Messrs. Dinsmore & Shohl shall be prepared
to deliver to the Parties their opinion, dated the Closing Date, to
the effect that (i) Holding Company and the New Bank both are duly
incorporated, validly existing and in good standing, and have all
requisite power and authority to own properties and conduct the
business herein contemplated to be owned and conducted by each of
them after the Closing Date, under, in each case, the laws of each
corporation's state of incorporation; (ii) each of the Agreements,
as well as the transactions respectively contemplated thereby, have
been duly authorized and approved by all requisite corporate action
on the part of each of the respective parties thereto; (iii) the
Merger has become effective pursuant to all applicable federal laws
and all applicable laws of the State of Ohio, and upon becoming
effective each of the outstanding shares of Bank Common Stock
(excluding shares held by those shareholders of the Bank who
perfected their rights as dissenting shareholders under applicable
federal law) was converted into ten (10) shares of Holding Company
Common Stock as contemplated by the Merger Agreement; and (iv) all
of the outstanding shares of Holding Company Common Stock are duly
authorized, validly issued, fully paid and non-assessable. Messrs.
Dinsmore & Shohl shall also be prepared to give all such other
written opinions at the Closing Date as any of the Parties
reasonably may request.
(9) Board of Directors of Holding Company. Upon the Closing, the
Board of Directors of Holding Company shall consist of such persons
as shall have been elected by the shareholders of the Holding
Company, as sole shareholder of the New Bank, acting under the
direction of the Holding Company's Board of Directors.
(10) Holding Company Articles. Prior to Closing, Holding Company
shall not have amended its Articles of Incorporation to other than
the form set forth in Exhibit B attached hereto and made a part
hereof except to increase its authorized capital stock to 3,000,000
shares of Common Stock without par value. (Also attached hereto as
a part of Exhibit B but not subject to any restriction on amendment
are the Code of Regulations of Holding Company.)
(11) Holding Company Common Stock. The Shares of Common Stock into
which the Shares of Common Stock of the Bank will be converted upon
the consummation of the merger shall be validly issued and
outstanding fully paid and non-assessable.
E. Miscellaneous
(1) Termination. This Agreement may be terminated and the
Agreement of Merger may be terminated and abandoned prior to the
Closing, either before or after the meeting of the Bank's
shareholders herein provided for: (a) by mutual consent of the
Parties, authorized by their respective Boards of Directors; or (b)
by written notice from any Party to the other Parties, authorized by
the Board of Directors of the Party giving such notice, if any of
the other Parties shall have breached in any material respect any of
the obligations hereunder and such breach shall not have been
abated; or (c) by written notice from the Bank to the other Parties,
authorized by the Board of Directors of the Bank if the Closing
shall not have occurred by September 30, 1999.
(2) Waiver and Amendment. Any of the provisions of the Agreements
may be waived at any time by any Party which is, or the shareholders
which are, entitled to the benefit thereof upon the authority of the
Board of Directors of such Party, provided that as to such waiver
after the last vote of the shareholders of such Party with respect
to the Agreements, such waiver shall not, in the judgment of the
Board of Directors of such Party, materially and adversely affect
the benefits of such Party or its shareholders intended under the
Agreements. Any of the provisions of the Agreements may be modified
at any time prior to or after the vote hereon (or thereon as the
case may be) of shareholders of any Party, by agreement in writing
approved by the Board of Directors of each Party thereto and
executed in the same manner (but not necessarily by the same
persons) as such Agreement so to be modified, provided that such
modifications after the last vote of the shareholders of a Party
hereon shall not, in the judgment of the Board of Directors of such
Party, materially and adversely affect the benefits of such Party or
its shareholders intended under the Agreements.
(3) Delegation. To the extent permitted by law, the powers of the
Board of Directors of each Party under and with respect to this
Agreement may be delegated by such Board of Directors (which,
whenever referred to herein shall be understood to include the
Executive Committee of such Board, if any) to any officer or
officers of such Party, and any notices, consents or other action
referred to in this Agreement to be given or taken by any Party may
be given or taken on its behalf by any officer so authorized.
(4) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but such
counterparts taken together shall constitute one and the same
instrument.
Attest: Lebanon Citizens National Bank
("Bank")
By:______________________________
Its:_____________________________
LCNB Corp.
("Holding Company")
By:______________________________
Its:_____________________________
The LC Interim National Bank hereby agrees to and assumes all the
obligations and agreements contained herein which were agreed to and
assumed on its behalf by ____________ ______________.
The LC Interim National Bank ("New Bank")
By:____________________________________
Date:__________________________________
<PAGE>
APPENDIX A-1 TO
PROXY STATEMENT
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, dated as of __________, 1999, by and among
LC INTERIM NATIONAL BANK ("LC"), LEBANON CITIZENS NATIONAL BANK
("Bank"), and LCNB Corp. ("Parent"), an Ohio corporation;
W I T N E S S E T H:
WHEREAS, the Bank is a banking association organized under the laws
of the United States, being located at 2 North Broadway, Lebanon,
County of Warren, in the State of Ohio, with a capital of
$10,560,000, divided into 176,000 shares of Common Stock, each of
$60 par value, surplus of $__________, and retained earnings of
$_________ as of December 31, 1998;
WHEREAS, LC is a banking association in organization under the laws
of the United States, to be located at 2 North Broadway, County of
Warren, in the State of Ohio, with a capital of $___________,
divided into ________ shares of common stock, each of $_____ par
value, surplus of $________, with no retained earnings as of
December 31, 1998;
WHEREAS, Bank is authorized to have outstanding 176,000 shares of
Common Stock, of which, as of the date hereof, 176,000 shares are
issued and outstanding; and
WHEREAS, LC is authorized to have outstanding ______ shares of
Common Stock, of which ______ shares are presently subscribed ("Bank
Common"); and
WHEREAS, Parent, an Ohio corporation and principal subscriber to the
shares of LC, has agreed to make available to LC at the Closing that
number of shares of its Common Stock without par value of Parent
("Parent Common") necessary to consummate the merger contemplated
hereby; and
WHEREAS, the Directors of Bank and LC (such corporations being
hereinafter sometimes called the "Constituent Corporations") deem it
advisable for the mutual benefit of the Constituent Corporations,
their respective shareholders and others that Bank be merged into LC
upon the terms and conditions hereinafter set forth, and such
Directors have approved this Agreement of Merger;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained and in accordance with the laws of the
United States, Bank and LC hereby agree that, subject to the terms
and conditions hereinafter set forth, Bank shall be merged into LC
and that the terms and conditions of such merger, including the mode
of carrying the same into effect and the manner and basis of making
distribution to the shareholders of the Constituent Corporations,
shall be as follows:
ARTICLE I
1.1 Upon the Closing on the Closing Date, as defined in Article IV,
Section 4.1 below, Bank shall be merged into LC which shall be the
surviving corporation and shall continue to be governed by the
applicable federal laws. LC, as such surviving corporation, is
hereinafter sometimes referred to as the "Receiving Association."
ARTICLE II
2.1 Effective as of the time that this merger shall become
effective, as specified in the merger approval to be issued by the
Comptroller of the Currency, the Articles of Association of LC,
amended as hereinafter provided and attached hereto as Schedule 1,
shall be the Articles of Association of the Receiving Association
until the same shall thereafter be further amended in accordance
with law. Upon the Closing, Article FIRST of the Articles of
Association of LC shall be deemed amended to change the name of LC
to "LEBANON CITIZENS NATIONAL BANK." The Receiving Association
reserves the right to further amend, alter, change or repeal after
such merger any provision contained in its Articles of Association,
and all rights conferred in this Agreement of Merger are subject to
such reserved power.
2.2 The Board of Directors of the Receiving Association shall
consist of ten (10) persons until such time after the Closing as
such number may be changed in accordance with the Regulations of the
Receiving Association. The names and addresses of the first
Directors of the Receiving Association (each of whom shall serve
until the next annual meeting of shareholders and until his
successor is elected, or until his earlier resignation, removal from
office or death) at the time of the Closing are:
DIRECTOR ADDRESS
M. Russell Horn P.O. Box 59
Lebanon, Ohio 45036
Sam Kaufman P.O. Box 59
Lebanon, Ohio 45036
William H. Kaufman P.O. Box 59
Lebanon, Ohio 45036
George L. Leasure P.O. Box 59
Lebanon, Ohio 45036
James B. Miller P.O. Box 59
Lebanon, Ohio 45036
Corwin M. Nixon P.O. Box 59
Lebanon, Ohio 45036
Kathleen Porter Stolle P.O. Box 59
Lebanon, Ohio 45036
Howard E. Wilson P.O. Box 59
Lebanon, Ohio 45036
Stephen P. Wilson P.O. Box 59
Lebanon, Ohio 45036
Marvin E. Young P.O. Box 59
Lebanon, Ohio 45036
If upon the Closing or thereafter there exists a vacancy in the
Board of Directors of the Surviving Corporation, such vacancy may
be filled by the remaining members of the Board of Directors in the
manner provided by law and the regulations of the Receiving
Association.
2.3 The officers of Bank immediately prior to the Closing shall be
the officers of the Receiving Association and shall hold office,
subject to the regulations of the Receiving Association, at the
pleasure of the Board of Directors.
2.4 The business of the Receiving Association shall be that of a
national banking association and shall be conducted at its main
office, to be located at 2 North Broadway, Lebanon, Warren County,
Ohio, and its legally established branches.
2.5 Upon the Closing, the effect of the merger shall be as provided
by the applicable provisions of federal law. Without limiting the
foregoing, and subject thereto, upon the Closing, the existence of
Bank shall cease as a separate entity but shall continue in the
Receiving Association, subject to the rights of creditors which
shall be preserved unimpaired; the Receiving Association shall have,
without further act or deed, all property, rights, powers, duties
and obligations of each of the Constituent Corporations and trusts
and to the duties and liabilities connected therewith, and shall
perform every such trust or relation in the same manner as if it had
itself originally assumed the trust or relation and the obligation
and liabilities connected therewith within the limits of the charter
of the Receiving Association.
ARTICLE III
The terms of the merger, the mode of carrying the same into effect
and the manner and basis of making distribution to the shareholders
of the Constituent Corporations shall be as follows:
3.1 Forthwith upon the Closing, each share of Bank Common
outstanding immediately prior to the Closing (excluding shares held
by those shareholders of Bank who have perfected their rights as
dissenting shareholders) shall be converted into and become ten (10)
shares of Parent Common. The number of authorized shares of common
stock, $____ par value per share, of LC will, by virtue of the
merger, be _____ upon consummation of the merger, all of which will
be issued and outstanding and all of which will be canceled as a
result of the merger.
3.2 The amount of capital stock of LC shall be $________, divided
into ____ shares of common stock, each of $________ par value, and
at the time the merger shall become effective, the association shall
have a surplus of $_______, and undivided profits, including capital
reserves, which when combined with the capital and surplus will be
equal to the combined capital structures of Bank and of LC, as
stated in the preamble of this agreement, adjusted however, for
normal earnings and expenses (and if applicable, purchase accounting
adjustments) between ___________, 19____, and the effective time of
the merger.
3.3 The shares of Parent Common into which shares of Bank Common are
converted pursuant to the provisions of Section 3.1 above shall be
the shares furnished for such purpose by Parent as referred to in
the third recital clause at the beginning of this Agreement.
3.4 From and after the Closing each holder of a certificate or
certificates theretofore representing shares of Bank Common shall
surrender such certificate or certificates to Bank, and shall
receive in exchange therefor a certificate or certificates
representing the number of shares of Parent Common into and for
which the shares of Bank Common theretofore represented by such
surrendered certificate or certificates have been converted pursuant
to the provisions of Section 3.1 above.
3.5 Until surrendered pursuant to the provisions of Section 3.4
above, each certificate or certificates theretofore representing
shares of Bank Common shall be deemed for all purposes (other than
for the payment of dividends or other distributions, if any, to the
shareholders of Parent) to represent the number of shares of Parent
into and for which the shares of Bank Common thereto represented
thereby shall have been converted pursuant to the provisions of
Section 3.1 above.
3.6 No dividends or other distributions, if any, payable to the
holders of shares of Parent Common shall be paid to the holders of
a certificate or certificates theretofore representing shares of
Bank Common; provided however, that upon the surrender and exchange
of such certificate or certificates theretofore representing shares
of Bank Common pursuant to the provisions of Section 3.4 above,
there shall then be paid to the record holders of a certificate or
certificates for shares of Parent Common issued in exchange
therefor, the amount, without interest thereon, of all dividends and
other distributions, if any, declared with respect to shares of
Parent Common to holders of record of shares of Parent Common as of
any record date after the Closing and prior to or coincident with
the date of such surrender and exchange, with respect to the number
of shares of Parent Common represented thereby.
3.7 Upon the merger becoming effective in accordance with the terms
of Article IV hereof, Parent shall repurchase all shares of Parent
Common originally issued to the Incorporator of Parent to facilitate
Parent's organization. Such purchase shall be in an amount equal to
the amount expended by such person to originally purchase such
shares.
ARTICLE IV
4.1 The merger shall become effective, and the "Closing" shall
occur, as of the close of business on the date (the "Closing Date")
when the Merger is approved in final form by the Comptroller of the
Currency (together with the issuance of all requisite certificates).
ARTICLE V
5.1 If the Plan and Agreement of Merger among Parent, Bank and LC,
dated as of ______________, is terminated in accordance with the
terms thereof, then this Agreement of Merger shall simultaneously
terminate without further action by the Constituent Corporations.
In the event of such termination, the Board of Directors of each of
the Constituent Corporations shall direct its officers not to file
this Agreement of Merger as provided above, notwithstanding
favorable action on this Agreement of Merger by the shareholders of
the respective Constituent Corporations.
ARTICLE VI
6.1 This Agreement of Merger may be executed in any number of
counterparts, each of which shall be deemed to be an original, but
such counterparts together shall constitute one and the same
instrument.
6.2 Any of the provisions of this Agreement of Merger may be waived
at any time by the party which is, or the shareholders of which are,
entitled to the benefit thereof upon the authority of the Board of
Directors of such party, provided that as to such waiver after the
last vote of the shareholders of such party hereon such waiver shall
not, in the judgment of the Board of Directors of such party, affect
materially and adversely the benefits of such party or its
shareholders intended under this Agreement of Merger. Any of the
provisions of this Agreement of Merger may be modified at any time
prior to or after the vote hereon of shareholders of any party, by
agreement in writing approved by the Board of Directors of each
party and executed in the same manner (but not necessarily by the
same persons) as this Agreement of Merger, provided that such
modification after the last vote of the shareholders of a party
hereon shall not, in the judgment of the Board of Directors of such
party, affect materially and adversely the benefits of such party or
its shareholders intended under this Agreement of Merger.
IN WITNESS WHEREOF, Lebanon Citizens National Bank; The LC Interim
National Bank and LCNB Corp. have caused their respective corporate
seals to be hereunto affixed and these presents to be signed by
their respective officers thereunto duly authorized, all as of the
day and year aforesaid.
LEBANON CITIZENS NATIONAL BANK
Attest: ("Bank")
_________________________________
Name: __________________________
Its: ___________________________
LC INTERIM NATIONAL BANK
Attest: ("LC")
_________________________________
Name: __________________________
Its: ___________________________
LCNB CORP.
Attest: ("Parent")
_________________________________
Name: __________________________
Its: ___________________________
<PAGE>
APPENDIX A-2 TO
PROXY STATEMENT
ARTICLES OF INCORPORATION
OF
LCNB CORP.
The undersigned, desiring to form a corporation for profit, under
the General Corporation Law of Ohio, does hereby certify:
FIRST: The name of this Corporation shall be LCNB Corp.
SECOND: The place in Ohio where its principal office is to be
located is Lebanon, County of Warren.
THIRD: The purpose for which the Corporation is formed is to engage
in any lawful act or activity for which corporations may be formed
under Chapter 1701 of the Ohio Revised Code.
FOURTH: The maximum number of shares which the Corporation is
authorized to have outstanding is Eight Hundred Fifty (850) shares,
all of which shall be designated Common Stock and shall be without
par value.
FIFTH: The number of Directors of the Corporation shall be fixed
from time to time in accordance with the Corporation's Regulations
and may be increased or decreased as therein provided. The Board of
Directors shall be divided into three classes, as nearly equal in
number as the then total number of Directors constituting the whole
Board permits, it not being required that each class have the same
number of members if such is mathematically impossible with the term
of office of one class expiring each year. At the organizational
meeting of shareholders, Directors of the first class shall be
elected to hold office for a term expiring at the next succeeding
Annual Meeting; Directors of the second class shall be selected to
hold office for a term expiring at the second succeeding Annual
Meeting and Directors of the third class shall be selected to hold
office for a term expiring at the third succeeding Annual Meeting.
Thereafter, at each Annual Meeting of shareholders, the successors
to the class of Directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding
Annual Meeting after such election. In the event of any increase in
the number of Directors of the Corporation, the additional Directors
shall be so classified that all classes of Directors shall be
increased equally as nearly as may be possible. In the event of any
decrease in the number of Directors of the Corporation, all classes
of Directors shall be decreased equally as nearly as possible.
SIXTH: (A) Except as otherwise provided in Clause (B) of this
Article SIXTH:
(i) any merger or consolidation of the Corporation with or into any
other corporation;
(ii) any sale, lease, exchange or other disposition of all or any
substantial part of the assets of the Corporation to or with any
other corporation, person or other entity;
(iii) the issuance or transfer of any securities of the Corporation
to any other corporation, person or other entity in exchange for
assets or securities or a combination thereof (except assets or
securities or a combination thereof so acquired in a single
transaction or a series of related transactions having an aggregate
fair market value of less than $250,000), or
(iv) the issuance or transfer of any securities of the Corporation
by the Corporation to any other corporation, person or other entity
for cash;
shall require the affirmative vote of the holders of at least eighty
percent (80%) of the outstanding shares of capital stock of the
Corporation which are not beneficially owned by such other
corporation, person or other entity if, as of the record date for
the determination of shareholders entitled to notice thereof and to
vote thereon, such other corporation, person or entity is the
beneficial owner, directly or indirectly, of 10% or more of the
outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of Directors, considered for the
purposes of this Article SIXTH as one class. Such affirmative
vote shall be required notwithstanding the fact that no vote may be
required, or that some lesser percentage may be specified, by law or
in any agreement with any national securities exchange.
(B) The provisions of this Article SIXTH shall not apply to any
transaction described in clauses (i), (ii), (iii) or (iv) of Clause
(A) of this Article SIXTH, (i) with another corporation if a
majority, by vote, of the outstanding shares of all classes of
capital stock of such other corporation entitled to vote generally
in the election of Directors, considered for this purpose as one
class, is owned of record or beneficially by the Corporation and/or
its subsidiaries; (ii) with another corporation, person or other
entity if the Board of Directors of the Corporation shall by
resolution have approved a memorandum of understanding with such
other corporation, person or other entity with respect to and
substantially consistent with such transaction prior to the time
such other corporation, person or other entity became the beneficial
owner, directly or indirectly, of 10% or more of the outstanding
shares of capital stock of the Corporation entitled to vote
generally in the election of Directors; or (iii) approved by
resolution adopted by the affirmative vote of at least a majority of
the members of the whole Board of Directors of the Corporation at
any time prior to the consummation thereof.
(C) For the purposes of this Article SIXTH, a corporation, person
or other entity shall be deemed to be the beneficial owner of any
shares of capital stock of the corporation (i) which it has the
right to acquire pursuant to any agreement, or upon exercise of
conversion rights, warrants or options, or otherwise; or (ii) which
are beneficially owned, directly or indirectly (including shares
deemed owned through application of clause (i) above), by any other
corporation, person or other entity with which it or its "affiliate"
or "associate" (as defined below) has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of capital stock of the Corporation, or which is its
"affiliate" or "associate" as those terms were defined in Rule 12b-2
of the general rules and regulations under the Securities Exchange
Act of 1934. For the purposes of this Article SIXTH, the
outstanding shares of any class of capital stock of the Corporation
shall include shares deemed owned through the application of clauses
(i) and (ii) of this Clause (C) but shall not include any other
shares which may be issuable pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or otherwise.
(D) The Board of Directors of the Corporation shall have the power
and duty to determine for the purposes of this Article SIXTH, on the
basis of information then known to it, whether (i) any other
corporation, person or other entity beneficially owns, directly or
indirectly, 10% or more of the outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of
Directors, or is an "affiliate" or an "associate" (as defined above)
of another, (ii) any proposed sale, lease, exchange or other
disposition of part of the assets of the Corporation involves a
substantial part of the assets of the Corporation, (iii) assets or
securities, or a combination thereof, to be acquired in exchange for
securities of the Corporation, have an aggregate fair market value
of less than $250,000 and whether the same are proposed to be
acquired in a single transaction or a series of related
transactions, and (iv) the memorandum of understanding referred to
above is substantially consistent with the transaction to which it
relates. Any such determination by the Board shall be conclusive
and binding for all purposes of this Article SIXTH.
SEVENTH: The Board of Directors of the Corporation, when evaluating
any offer of another party to (i) purchase or exchange any
securities or property for any outstanding equity securities of the
Corporation, (ii) merge or consolidate the Corporation with another
corporation, or (iii) purchase or otherwise acquire all or
substantially all of the properties and assets of the Corporation,
shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Corporation and its
shareholders, give due consideration not only to the price or other
consideration being offered but also to all other relevant factors,
including without limitation the financial and managerial resources
and future prospects of the other party; the possible effects on the
business of the Corporation and its subsidiaries and on the
depositors, employees, and other constituents of the Corporation and
its subsidiaries; and the possible effects on the communities and
the public interest which the Corporation and its subsidiaries
serve. In evaluating any such offer, the Board of Directors shall
be deemed to be performing their duly authorized duties and acting
in good faith and in the best interests of the Corporation within
the meaning of Section 1701.13 of the Ohio Revised Code, as it may
be amended from time to time, and the Corporation's Regulations.
EIGHTH: When authorized by the affirmative vote of a majority of
the Board of Directors, without the action or approval of the
shareholders of this Corporation, this Corporation may redeem,
purchase, or contract to purchase, at any time and from time to
time, shares of any class issued by this Corporation for such prices
and upon and subject to such terms and conditions as the Board of
Directors may determine.
NINTH: The statutes of Ohio require that action on certain
specified matters at a shareholders' meeting shall be taken by the
affirmative vote of the holders of more than a majority of shares
entitled to vote thereon, unless other provision is made in the
Articles of Incorporation. On all these specified matters, action
may be taken by the affirmative vote of a two-thirds majority of
shares entitled to vote thereon or, if the vote is required to be by
classes, by the affirmative vote of a two-thirds majority of each
class of shares entitled to vote thereon as a class, except that any
amendment, alteration, addition to or repeal of Article FIFTH, SIXTH
or this Article NINTH and of any of the matters specified above in
Article SIXTH as requiring a vote other than the affirmative vote of
the holders of a two-thirds majority of the shares entitled to vote
thereon, may only be taken by the affirmative vote of the holders of
at least eighty percent (80%) of the outstanding shares of capital
stock of the Company entitled to vote thereon, considered for the
purposes of this Article as one class.
IN WITNESS WHEREOF, the Incorporator has hereunto subscribed his
name this _______ day of ________________, 1998.
___________________________
Dorothy Kim Corbett
<PAGE>
APPENDIX A-3 TO
PROXY STATEMENT
REGULATIONS
OF
LCNB CORP.
ARTICLE I
SEAL
The Board of Directors may from time to time adopt such seal or
seals, if any, as they deem appropriate for the use of the
Corporation in transacting its business.
ARTICLE II
SHAREHOLDERS
(a) Annual Meeting. The annual meeting of the shareholders shall
be held at the principal office of the Corporation, or at such other
place either within or without the State of Ohio as may be specified
in the notice required under paragraph (c) of this Article on a date
between the fourth Tuesday in January and the fourth Tuesday in
April of each year, at which time there shall be elected Directors
to serve until the end of the term to which they are elected and
until their successors are elected and qualified. Any other
business may be transacted at the annual meeting without specific
notice of such business being given, except such business as may
require specific notice by law.
(b) Special Meetings. Special meetings of the shareholders may be
called and held within or without the State of Ohio, as provided by
law.
(c) Notice. Notice of each annual or special meeting of the
shareholders shall be given in writing either by the President, any
Vice President, the Secretary, or any Assistant Secretary, not less
than ten (10) days before the meeting. Any shareholder may, at any
time, waive any notice required to be given under these Regulations.
(d) Quorum. The shareholders present in person or by proxy at any
meeting shall constitute a quorum unless a larger proportion is
required to take the action stated in the notice of the meeting, in
which case, to constitute a quorum, there shall be present in person
or by proxy the holders of record of shares entitling them to
exercise the voting power required by the Articles of Incorporation
of the Corporation or applicable law to take the action stated.
(e) Order of Business. At all shareholders' meetings the order of
business shall be as follows unless changed by a majority vote:
1. Reading of minutes of previous meeting and acting thereon;
2. Reports of Directors and Committees;
3. Financial report or statement;
4. Reports from Chairman, President or other officers;
5. Unfinished business;
6. Election of Directors;
7. New or miscellaneous business;
8. Adjournment.
(f) Organization. The Chairman of the Board shall preside at all
meetings of the shareholders, but in his absence the President shall
preside, and in his absence the shareholders shall elect another
officer or a shareholder to so preside. The Secretary of the
Corporation shall act as Secretary of all meetings of the
shareholders, but in the absence of the Secretary at any meeting of
the shareholders, the presiding officer may appoint any person to
act as Secretary of the meeting.
ARTICLE III
DIRECTORS
(a) Number. The Board of Directors shall be composed of not less
than five (5) nor more than fifteen (15) persons, as shall be fixed
by the shareholders in accordance with applicable law, who shall be
elected in accordance with the provisions of the Articles of
Incorporation by action of the shareholders. Any Director's office
created by the Directors by reason of an increase in their number
may be filled by action of a majority of the Directors then in
office.
(b) Changes. The number of Directors fixed in accordance with the
immediately preceding paragraph may also be increased or decreased
by the Directors at a meeting or by action in writing without a
meeting, and the number of Directors as so changed shall be the
number of Directors until further changed in accordance with this
Section; provided, that no such decrease in the number of Directors
shall have the effect of shortening the term of any incumbent
Director; and provided, further, that the number of Directors shall
not be increased by the Directors to more than three Directors
beyond the number of Directors as fixed at the most recently held
meeting of shareholders called for the purpose of electing
Directors.
(c) Nominations. Nominations for the election of Directors may be
made by the Board of Directors or a proxy committee appointed by the
Board of Directors or by any shareholder entitled to vote in the
election of Directors generally. However, any shareholder entitled
to vote in the election of Directors generally may nominate one or
more persons for election as Directors at a meeting only if written
notice of such shareholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the Corporation
not later than (1) with respect to an election to be held at an
annual meeting of shareholders, 45 days in advance of the
corresponding date for the date of the preceding year's annual
meeting of shareholders, and (2) with respect to an election to be
held at a special meeting of shareholders for the election of
Directors, the close of business on the seventh day following the
date on which notice of such meeting is first given to shareholders.
Each such notice shall set forth: (a) the name and address of the
shareholder who intends to make the nomination and of the person or
persons to be nominated; (b) a representation that the shareholder
is a holder of record of stock of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice;
(c) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; and (d) the consent
of each nominee to serve as a Director of the Corporation if so
elected. The chairman of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing
procedure.
(d) Age Limitation. No person shall be eligible to stand as a
candidate for election as a member of the Board of Directors who has
passed his or her 75th birthday. The foregoing age limitation shall
not apply to persons who are members of the Board of Directors as of
the date of adoption of these Regulations.
(e) Vacancies. Vacancies in the Board of Directors shall be filled
as provided by the laws of the State of Ohio then in effect.
(f) Time of Meeting. The Board of Directors shall meet at the
principal office of the Corporation, at least annually, immediately
following the annual meeting of the shareholders, but the Directors
shall have the authority to change the time and place of such
meeting by the adoption of By-Laws or by resolution.
(g) Call and Notice. Meetings of the Board of Directors other than
the annual meeting may be called at any time by the Chairman of the
Board and shall be called by the Chairman upon the request of two
members of the Board. Such meetings may be held at any place within
or without the State of Ohio. Notice of the annual meeting need not
be given and each director shall take notice thereof, but this
provision shall not be held to prevent the giving of notice in such
manner as the Board may determine. The Board shall decide what
notice shall be given and the length of time prior to the meetings
that such notice shall be given of all other meetings. Any meeting
at which all of the directors are present shall be a valid meeting
whether notice thereof was given or not and any business may be
transacted at such a meeting.
(h) Presence Through Communications Equipment. Meetings of the
Board of Directors, and meetings of any Committee thereof, may be
held through any communications equipment if all persons
participating can hear each other, and participation in a meeting
pursuant to this subparagraph (h) shall constitute presence at such
a meeting.
(i) By Laws. The Board of Directors may adopt By Laws for their
own government and that of the Corporation provided such By Laws are
not inconsistent with the Articles of Incorporation or these
Regulations.
ARTICLE IV
COMMITTEES
The Board of Directors may, by resolution, designate not less than
three (3) of its number to serve on an Executive Committee or such
other committee or committees as the Board may from time to time
constitute. The Board of Directors may delegate to any such
Executive Committee any of the authority of the Directors, however
conferred, other than that of filling vacancies among the Directors
or in any committee of the Directors and to incur debts, excepting
for current expenses, unless specifically authorized. The specific
duties and authority of any such committee or committees shall be
stated in the resolution constituting the same.
ARTICLE V
OFFICERS
(a) Number. The officers of the Corporation shall be a Chairman of
the Board, a President, one or more Vice Presidents, a Secretary and
a Treasurer. Any two or more of the offices may be held by the same
persons, but no officer shall execute, acknowledge, or verify any
instrument in more than one capacity if such instrument is required
to be executed, acknowledged or verified by two or more officers.
(b) Other Officers. The Board of Directors is authorized in its
discretion to establish the office of Executive Vice President, and
shall have the further power to provide for such other officers,
assistant officers and agents as it shall deem necessary from time
to time and may dispense with any of said offices and agencies at
any time.
(c) Election, Term and Removal. At the first meeting of the Board
of Directors after the annual meeting of shareholders, the Board
shall select one of its members by a majority vote to be Chairman of
the Board and shall select one of its members by a majority vote to
be President of the Corporation. It shall also select all other
officers of the Corporation by a majority vote, but none of such
other officers shall be required to be members of the Board, except
the Chairman of the Board and President. All officers of the
Corporation shall hold office for one year and until their
successors are elected and qualified.
(d) Vacancies and Absence. If any office shall become vacant by
reason of the death, resignation, disqualification, or removal of
the incumbent thereof, or other cause, the Board of Directors may
elect a successor to hold office for the unexpired term in respect
to which such vacancy occurred or was created. In case of the
absence of any officer of the Corporation or for any reason that the
Board of Directors may determine as sufficient, the said Board may
delegate the powers and duties of such officer to any other officer
or to any director, except where otherwise provided by these
Regulations or by statute, for the time being.
ARTICLE VI
DUTIES OF OFFICERS
(a) Chairman of the Board. The Chairman of the Board of Directors
shall preside at all meetings of the Board and of the shareholders,
appoint all special or other committees unless otherwise ordered by
the Board, confer with and advise all other officers of the
Corporation, and perform such other duties as may be delegated to
him from time to time by the Board.
(b) President. The President shall be the Chief Executive Officer
and active head of the Corporation, and in the recesses of the Board
of Directors and the Executive Committee, if the Board establishes
such a committee, shall have general control and management of all
its business and affairs. He shall make such recommendations to the
Board of Directors, or any committees thereof, as he thinks proper,
and he shall bring before said Board such information as may be
required touching the business and property of the Corporation. He
shall perform generally all the duties incident to the office of
President, as required or authorized by law and such as are usually
vested in the President of a similar corporation.
(c) Vice Presidents. The Vice Presidents, including the Executive
Vice President, if the Board establishes such office, shall perform
such duties as may be delegated to them by the Board of Directors,
or assigned to them from time to time by the Board of Directors or
the President. The Executive Vice President, if the Board
establishes such office, or the Vice President, or in the event
there shall be more than one Vice President, such Vice President as
may be designated by the Board, shall perform the duties and have
the powers of the President in case of the absence of the latter
from his office, and during such absence such Vice President shall
be authorized to exercise all the functions of the President and
shall sign all papers and perform all duties as acting President.
(d) Secretary. The Secretary shall keep a record of all
proceedings of the Board of Directors, and of all meetings of
shareholders, and shall perform such other duties as may be assigned
to him by the Board of Directors or the President.
(e) Treasurer. The Treasurer shall have charge of the funds and
accounts of the Corporation and shall keep proper books of account
showing all receipts, expenditures and disbursements of the
Corporation, with vouchers in support thereof. The Treasurer shall
also from time to time, as required, make reports and statements to
the Directors as to the financial condition of the Corporation, and
submit detailed statements of receipts and disbursements; he shall
perform such other duties as shall be assigned to him from time to
time by the Board of Directors or the President.
(f) Bonds of Officers. The Board of Directors shall determine
which officers, if any, of the Corporation shall give bond, and the
terms and amount thereof, the expense to be paid by the Corporation.
ARTICLE VII
INDEMNIFICATION
The Corporation shall indemnify each director and each officer of
the Corporation, and each person employed by the Corporation who
serves at the written request of the Chairman or President of the
Corporation as a director, trustee, officer, employee, or agent of
another corporation, domestic or foreign, non-profit or for profit,
partnership, joint venture, trust or other enterprise, to the full
extent permitted by Ohio law. The term "officer" as used in this
Article VII shall include the Chairman of the Board, the President,
each Vice President, the Treasurer, the Secretary, the Controller,
the Auditor, the Counsel and any other person who is specifically
designated as an "officer" within the operation of this Article VII
by action of the Board of Directors. The Corporation may indemnify
assistant officers, employees and others by action of the Board of
Directors to the extent permitted by Ohio law.
ARTICLE VIII
STOCK
(a) Certificates of Stock. Each shareholder of this Corporation
whose stock has been fully paid for shall be entitled to a
certificate or certificates, showing the number of shares registered
in his or her name on the books of the Corporation. Each
certificate shall be signed by the Chairman of the Board or the
President or any Vice President and by the Secretary, any Assistant
Secretary, the Treasurer or any Assistant Treasurer. A full record
of each certificate, as issued, shall be entered on the stub
thereof.
(b) Transfers of Stock. Shares shall be transferable on the books
of the Corporation by the holders thereof in person or by a duly
authorized attorney upon surrender of the Certificates therefor with
duly executed assignment endorsed thereon or attached thereto.
Evidence of authority to endorse any certificate and to request its
transfer shall be produced to the Corporation. In case of transfer
by executors, administrators, guardians or other legal
representatives or fiduciaries, appropriate legal evidence of their
authority to act shall be produced and may be required to be filed
with the Corporation. No transfer shall be made until the stock
certificate in question and such evidence of authority are delivered
to the Corporation.
(c) Transfer Agents and Registrars. The Board of Directors may
appoint an agent or agents to keep the records of the shares of the
Corporation, or to transfer or to register shares, or both, in Ohio
or any other state and shall define the duties and liabilities of
any such agent or agents.
(d) Lost, Destroyed or Mutilated Certificates. If any certificate
of stock in this Corporation becomes worn, defaced or mutilated, the
Directors, upon production and surrender thereof, may order the same
cancelled, and may issue a new certificate in lieu of the same. If
any certificate of stock be lost or destroyed, a new certificate may
be issued upon such terms and under such regulations as may be
adopted by the Board of Directors.
ARTICLE IX
AMENDMENTS
These Regulations, or any of them, may be altered, amended, added to
or repealed as provided by law and the Articles of Incorporation of
the Corporation.
<PAGE>
APPENDIX B TO
PROXY STATEMENT
OHIO REVISED CODE SECTION 1115.19
[Dissenting shareholders]
Unless the articles of incorporation of the state bank otherwise
provide, any shareholder of a state bank that has been consolidated
or merged with, or whose assets have been transferred to, another
state bank or a national bank, savings bank, or a savings
organization, who did not vote in favor of the consolidation,
merger, or transfer, shall be paid the fair cash value as of the day
before the vote was taken authorizing the action, of the shares
held, excluding from any such fair cash value any appreciation or
depreciation in consequence of the consolidation, merger, or
transfer which entitled the shareholder to this relief. Section
1701.85 of the Revised Code shall govern with respect to all rights
of such shareholder and any limitations on those rights. Any
shareholder who does not object and demand in writing the payment of
the fair cash value of the shares in the manner and at the time
provided in Section 1701.85 of the Revised Code shall be bound by
the vote of the board of directors or the assenting shareholders of
the state bank.
OHIO REVISED CODE SECTION 1701.85
[Relief to dissenting shareholder of domestic corporation.]
Sec. 1701.85(A)(1) A shareholder of a domestic corporation is
entitled to relief as a dissenting shareholder in respect of the
proposals 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 such proposal was taken at the meeting of the
shareholders, the 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, stating 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 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 corporation, whether 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, he, within
fifteen days from the date of the sending of such request, shall
deliver to the corporation the certificates requested, in order 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 shareholder. Failure on the part of the shareholder to deliver
such certificates terminates his rights as a dissenting shareholder,
at the option of the corporation, exercised by written notice sent
to him 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. Such
request 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 shall
have come to an agreement on the fair cash value per share of the
shares as to which he seeks relief, the shareholder or the
corporation, which in case of a merger or consolidation may be the
surviving or the new corporation, within three months after the
service of the demand by the shareholder, may file a complaint in
the court of common pleas of the county in which the principal
office of the corporation which issued such shares is located, or
was located at the time 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 the period of
three months, 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 complaint is
required. Upon the filing of the 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
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 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 as 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 that 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, under
no compulsion to sell, would be willing to accept, and that a
willing buyer, under no compulsion to purchase, would be willing to
pay, but in no event shall the fair cash value 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.
(D) 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:
(1) Such shareholder has not complied with this section, unless the
corporation by its directors waives such failure;
(2) The corporation abandons, or is finally enjoined or prevented
from carrying out, or the shareholders rescind their adoption, of
the action involved;
(3) The shareholder withdraws his demand, with the consent of the
corporation by its directors;
(4) The corporation and the dissenting shareholder shall not have
come to an agreement as to the fair cash value per share, and
neither the shareholder nor the corporation shall have filed or
joined in a complaint under division (B) of this section within the
period provided.
(E) From the time of giving 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 otherwise than by the purchase of
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.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Holding Company's Code of Regulations provides that the Holding
Company shall indemnify to the full extent permitted by law any
person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director, officer, trustee, or
employee of the Holding Company or of another corporation if serving
at the request of the Holding Company. Indemnification of agents of
the Holding Company is permitted at the discretion of the Board of
Directors.
In general, Ohio law provides that a corporation may indemnify such
persons against expenses, including attorneys' fees, judgments,
fines, and amounts paid in settlement actually and reasonably
incurred by them in connection with such suits, actions or
proceedings if the person seeking indemnification acted in good
faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful; provided, however, that in the case of an
action by or in the name of the claim or issue as to which such
person has been adjudged to be liable to negligence or misconduct
unless and to the extent that the court in which the action was
brought holds that indemnification is warranted.
The Holding Company's Code of Regulations, as permitted by Ohio law,
also provides that the Holding Company may purchase and maintain
insurance on behalf of any of the persons which it may indemnify, as
described, above against such types of liability.
Item 21. Exhibits and Financial Statement Schedules.
(a) The following exhibits are included as part of this Registration
Statement:
Exhibit No. Description
2 Plan and Agreement of Merger, including
Agreement of Merger
3.1 Articles of Incorporation of LCNB Corp.
3.2 Code of Regulations of LCNB Corp.
5, 23.2 Opinion and Consent of Messrs. Dinsmore & Shohl
21 Subsidiary of the Registrant
23.1 Opinion of J.D. Cloud & Co. LLP
25* Power of Attorney
99 Form of Proxy
- --------------
* Contained on the signature page to this Registration Statement on
Form S-4.
Item 22. Undertakings.
(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered
hereunder through use of a prospectus, which is a part of this
registration statement, by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the
applicable form.
(2) The registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the
Securities Act of 1933 and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) 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 the documents filed
subsequent to the effective date of the registration statement
through the date of responding to the request.
(4) 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.
<PAGE>
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 Lebanon, State of Ohio on this 21st day of January, 1999.
LCNB CORP.
By: /s/ Stephen P. Wilson
Stephen P. Wilson, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
persons, in the capacities indicated and on the dates indicated.
Each person whose signature appears below hereby appoints Stephen P.
Wilson to be his attorney-in-fact, for him or her in his or her
name, place and stead, in any capacity, to sign any and all
amendments relating to this Registration Statement, and to file the
same with the Securities and Exchange Commission.
Principal Executive Officer: Date:
/s/ Stephen P. Wilson January 21, 1999
Principal Financial Officer:
/s/ Steve P. Foster January 21, 1999
Principal Accounting Officer:
/s/ Donald E. Williams January 21, 1999
Directors: Date:
/s/ M. Russell Horn January 21, 1999
M. Russell Horn
/s/ Sam Kaufman January 21, 1999
Sam Kaufman
/s/ William H. Kaufman January 21, 1999
William H. Kaufman
/s/ George L. Leasure January 21, 1999
George L. Leasure
/s/ James B. Miller January 21, 1999
James B. Miller
/s/ Corwin M. Nixon January 21, 1999
Corwin M. Nixon
/s/ Kathleen Porter Stolle January 21, 1999
Kathleen Porter Stolle
/s/ Howard E. Wilson January 21, 1999
Howard E. Wilson
/s/ Stephen P. Wilson January 21, 1999
Stephen P. Wilson
/s/ Marvin E. Young January 21, 1999
Marvin E. Young
<PAGE>
EXHIBIT INDEX
Page in
Sequential
Numbering
Exhibit No. Description System
2 Plan and Agreement of Merger,
including Agreement of Merger*
3.1 Articles of Incorporation of
LCNB Corp.**
3.2 Code of Regulations of LCNB
Corp.***
5, 23.2 Opinion and Consent of Messrs.
Dinsmore & Shohl LLP
21 Subsidiary of the Registrant
23.1 Consent of Messrs. J.D. Cloud & Co. LLP
25 Power of Attorney****
99 Form of Proxy
* Contained as Appendices A and A-1 to Proxy Statement/Prospectus
** Contained as Appendix A-2 to Proxy Statement/Prospectus
*** Contained as Appendix A-3 to Proxy Statement/Prospectus
**** Contained in the Signature Pages to the Registration Statement
Exhibit 5, 23.2
Susan B. Zaunbrecher, Esq.
Telephone: (513) 977 8171
E-Mail: [email protected]
January 20, 1999
LCNB Corp.
P.O. Box 59
Lebanon, Ohio 45036
Ladies and Gentlemen:
This opinion is rendered for use in connection with the Registration
Statement on Form S-4, pursuant to the Securities Act of 1933, filed
by LCNB Corp. (the "Company") with the Securities and Exchange
Commission, under which up to approximately 1,760,000 shares of the
Company's Common Stock, without par value ("Common Stock") are to be
registered in connection with the proposed merger of LC Interim
National Bank with Lebanon Citizens National Bank (the "Merger") .
We hereby consent to the filing of this opinion as Exhibit 5 and
23.2 to the Registration Statement and to the reference to our name
in the Registration Statement.
As counsel to the Company, we have examined and are familiar with
originals or copies, certified or otherwise identified to our
satisfaction, of such statutes, documents, corporate records,
certificates of public officials, and other instruments as we have
deemed necessary for the purpose of this opinion, including the
Company's Articles of Incorporation and Regulations and the record
of proceedings of the shareholders and directors of the Company.
Based upon the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing
and in good standing as the corporation under the laws of the State
of Ohio.
2. When the Registration Statement shall have been declared
effective by order of the Securities and Exchange Commission and up
to 1,760,000 shares of Common Stock to be issued to the shareholders
of Lebanon Citizens National Bank pursuant to the Merger shall have
been so issued upon the terms set forth in the Registration
Statement, such shares will be legally and validly issued and
outstanding, fully-paid and nonassessable.
Very truly yours,
DINSMORE & SHOHL LLP
/s/ Susan B. Zaunbrecher
Susan B. Zaunbrecher<PAGE>
EXHIBIT 21
Subsidiary of Registrant
The Registrant has no subsidiaries.
Exhibit 23.1
The Board of Directors
Lebanon Citizens National Bank
We consent to the incorporation in the registration statement on
Form S-4 of Lebanon Citizens National Bank of our report dated
January 13, 1999, relating to the balance sheets for Lebanon
Citizens National Bank as of December 31, 1998 and 1997, and the
related statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December
31, 1998.
/s/ J.D. Cloud & Co., L.L.P.
Cincinnati, Ohio
January 20, 1999
Exhibit 99
PROXY
LEBANON CITIZENS NATIONAL BANK
P.O. Box 59
Lebanon, Ohio 45036
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS CALLED FOR
APRIL 13, 1999
THIS PROXY IS SOLICITED BY MANAGEMENT AND UNLESS OTHERWISE MARKED
WILL BE VOTED FOR THE PROPOSAL.
The undersigned, having received notice of the Special Meeting of
Shareholders of Lebanon Citizens National Bank, Lebanon, Ohio to be
held at 10:00 a.m., Tuesday, April 13, 1999, at the main office of
the bank, located at 2 North Broadway, Lebanon, Ohio, hereby
designates and appoints ______________________________________, or
any of them, as attorneys and proxies for the undersigned, with full
power of substitution, to vote for and in the name of the
undersigned all shares of the Common Stock of Lebanon Citizens
National Bank which the undersigned is entitled to vote at such
Special Meeting of Shareholders, or at any adjournment thereof, such
proxies being directed to vote as specified below on the following
proposal:
Management recommends a vote FOR the proposal.
Proposal To vote on the approval of the following Resolution:
RESOLVED, That the Plan and Agreement of Merger, dated as of
February 22, 1999, by and between Lebanon Citizens National Bank and
LCNB Corp., together with the Agreement of Merger appended thereto
as Exhibit A, providing for the merger of Lebanon Citizens National
Bank with and into LC Interim National Bank and the conversion of
Lebanon Citizens National Bank into a holding company structure, are
hereby approved, ratified, adopted and confirmed.
FOR______ AGAINST______ ABSTAIN______
If this Proxy is properly signed but one or more of the above
ballots are not marked, such proxies are authorized to vote the
shares represented by this proxy in accordance with their
discretion. It is the present intention of such proxies to vote for
the election of directors as nominated herein, for the merger
proposal and for the ratification of the auditors, and in the best
interest of the Bank, in the judgment of the proxies, concerning any
other matters presented at the meeting.
[OVER]
The undersigned reserves the right to revoke this Proxy at any time
until the Proxy is voted at the Special Meeting. The Proxy may be
revoked by a later dated Proxy, by giving written notice to the Bank
at any time before the Proxy is voted, or in open meeting.
DATED:____________________ ___________________________
Signature
__________________________ ___________________________
(Number of Shares) Signature
(Please sign Proxy as your name appears on your stock
certificate(s). Joint owners should each sign personally. When
signing as attorney, executor, administrator, trustee, guardian or
corporate officer, please give your full title as such.)
ALL FORMER PROXIES
ARE HEREBY REVOKED
PLEASE DATE, SIGN, AND MAIL THIS PROXY TO THE PROXY COMMITTEE, IN
CARE OF LEBANON CITIZENS NATIONAL BANK, P.O. BOX 59, LEBANON, OHIO
45036. A PRE-ADDRESSED ENVELOPE IS ENCLOSED.
