<PAGE>
As filed with the Securities and Exchange Commission on January 12, 2001
Registration No. 333-__________
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
Peoples Community Bancorp, Inc.
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 6306 31-1686242
----------------------------------------------------------------------------------------------------------------------------------
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
Peoples Community Bancorp, Inc.
11 S. Broadway
Lebanon, Ohio 45036
(513) 932-3876
--------------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------
Jerry D. Williams
President and Chief Executive Officer
Peoples Community Bancorp, Inc.
11 S. Broadway
Lebanon, Ohio 45036
(513) 932-3876
--------------------------------------------------------------------------------
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies To:
<TABLE>
<S> <C>
Kevin M. Houlihan, Esq. Cynthia A. Shafer, Esq.
Eric M. Marion, Esq. Vorys, Sater, Seymour and Pease LLP
Elias, Matz, Tiernan & Herrick L.L.P. Suite 2100, Atrium Two
12th Floor 221 East Fourth Street
734 15th Street, N.W. Cincinnati, Ohio 45202
Washington, D.C. 20005 (513) 723-4000
(202) 347-0300
</TABLE>
--------------------------------
Approximate Date of Commencement of the Proposed Sale of the
Securities to the Public: As soon as practicable after the effective date of
this Registration Statement and the satisfaction or waiver of all other
conditions to the merger described in the joint proxy statement/prospectus.
<PAGE>
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. / /
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Title Of Each Class Proposed Proposed
Of Securities Amount Maximum Maximum Amount Of
To Be To Be Offering Price Per Aggregate Registration
Registered Registered (1) Unit Offering Price (2) Fee (2)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, 818,636 shares N/A $7,140,717 $1,785.18
($.01 par value)
</TABLE>
--------------------
(1) This Registration Statement covers the maximum number of shares of
the Registrant's common stock expected to be issued upon
consummation of the merger of Market Financial Corporation with and
into the Registrant, pursuant to the Agreement and Plan of
Reorganization, dated as of September 19, 2000, by and between
Market Financial Corporation and the Registrant.
(2) The registration fee has been computed in accordance with Rule
457(f)(1) and Rule 457(f)(3) under the Securities Act of 1933, as
amended, based on $12.50, the average of the high and low prices for
a share of common stock of Market Financial Corporation, as reported
on the Nasdaq Stock Market's SmallCap Market on January 8, 2001,
multiplied by 1,259,439 the maximum number of shares of Market
Financial Corporation to be exchanged in the merger, reduced by
$8,602,271, the amount of cash to be paid by the Registrant.
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 BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
------------------------------------------------------------------------
<PAGE>
PEOPLES COMMUNITY BANCORP, INC.
11 SOUTH BROADWAY
LEBANON, OHIO 45036
(513) 932-3876
------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 28, 2001
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of the
Peoples Community Bancorp, Inc. will be held on Wednesday, February 28, 2001, at
10:00 a.m., eastern time, at the Sharonville Convention Center, 11355 Chester
Road, Cincinnati, Ohio 45246. A joint proxy statement/prospectus and proxy card
for the annual meeting are enclosed. The annual meeting will be held for the
purpose of considering and voting upon the following matters:
1. To approve and adopt an agreement and plan of reorganization, dated as
of September 19, 2000, by and among Peoples Community Bancorp, Inc.,
Peoples Community Bank, Market Financial Corporation and Market Bank,
and an agreement of merger dated September 19, 2000, by and between
Peoples Community Bancorp, Inc., and Market Financial Corporation, and
the transactions contemplated thereby, including the merger of Market
Financial Corporation into Peoples Community Bancorp, Inc. Each
outstanding share of Market common stock, no par value per share, will
be converted into the right to receive, at the election of the holder,
either shares of common stock of Peoples Community or $13.00 in cash,
subject to the election, allocation and proration procedures set forth
in the reorganization agreement;
2. To elect three directors for a three-year term expiring in 2004 and
until their successors are elected and qualified;
3. To consider and approve the adoption of the 2001 Stock Option Plan;
4. To consider and approve the adoption of the 2001 Recognition and
Retention Plan and Trust Agreement;
5. To ratify the appointment by the board of directors of Grant Thornton
LLP as Peoples Bancorp's independent auditors for the fiscal year
ending September 30, 2001; and
6. To transact such other business as may properly come before the meeting
or any adjournment thereof, including adjournment of the annual meeting
to allow for additional solicitation of shareholder votes in order to
obtain a quorum or to obtain the required vote to approve and adopt the
agreement and plan of reorganization and to approve the transactions
contemplated by the agreement and plan of reorganization. Management is
not aware of any other such business.
The board of directors of Peoples Community Bancorp, Inc. has
established January 19, 2001 as the record date for the determination of
stockholders entitled to receive notice of and to vote at the annual meeting and
at any adjournment or postponement of the annual meeting. Only record holders of
Peoples Community Bancorp, Inc. common stock as of the close of business on that
date will be entitled to vote at the annual meeting or any adjournment or
postponement of the annual meeting. IT IS IMPORTANT THAT YOUR SHARES BE
REPRESENTED AT THE ANNUAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING, PLEASE COMPLETE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN
THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
By Order of the Board of Directors,
Jerry D. Williams
President
Lebanon, Ohio
January 26, 2001
<PAGE>
MARKET FINANCIAL CORPORATION
7522 HAMILTON AVENUE
MT. HEALTHY, OHIO 45231
(513) 521-9772
------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 28, 2001
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of
Market Financial Corporation will be held on Wednesday, February 28, 2001, at
9:00 a.m., Eastern Standard Time, at the Hampton Inn, located at 430 Kolb Drive,
Fairfield, Ohio. A joint proxy statement/prospectus and proxy card for the
annual meeting are enclosed. The annual meeting will be held for the purpose of
considering and voting upon the following matters:
1. To approve an amendment to the Articles of Incorporation of Market
Financial to delete Article Seventh;
2. To approve and adopt an agreement and plan of reorganization, dated as
of September 19, 2000, by and among Peoples Community Bancorp, Inc.,
Peoples Community Bank, Market Financial Corporation and Market Bank,
and an agreement of merger dated September 19, 2000, by and between
Peoples Community Bancorp, Inc., and Market Financial Corporation, and
the transactions contemplated thereby, including the merger of Market
Financial Corporation into Peoples Community Bancorp, Inc. Each
outstanding share of Market Financial common stock, no par value per
share, will be converted into the right to receive, at the election of
the holder, either shares of common stock of Peoples Bancorp or $13.00
in cash, subject to the election, allocation and proration procedures
set forth in the reorganization agreement;
3. To reelect four directors of Market for terms expiring in 2003;
4. To ratify the selection of Grant Thornton LLP as the auditors of Market
for the current fiscal year; and
5. Such other business incident to the conduct of the annual meeting as
may properly come before the annual meeting and any adjournment or
postponement of the annual meeting, including adjournment of the annual
meeting to allow for additional solicitation of shareholder votes in
order to obtain the required vote to approve and adopt the agreement
and plan of reorganization and to approve the transactions contemplated
by the agreement and plan of reorganization.
The board of directors of Market has established January 19, 2001 as
the record date for the determination of stockholders entitled to receive notice
of and to vote at the annual meeting and at any adjournment or postponement of
the annual meeting. Only record holders of Market common stock as of the close
of business on that date will be entitled to vote at the annual meeting or any
adjournment or postponement of the annual meeting. IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED AT THE ANNUAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND
THE ANNUAL MEETING, PLEASE COMPLETE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY
CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
THE MARKET FINANCIAL BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE MATTERS PROPOSED.
By Order of the Board of Directors,
John T. Larimer
President
Mt. Healthy, Ohio
January 26, 2001
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
<PAGE>
PEOPLES COMMUNITY BANCORP, INC. MARKET FINANCIAL CORPORATION
PROXY STATEMENT AND PROXY STATEMENT
PROSPECTUS FOR 816,636 SHARES OF COMMON STOCK NASDAQ SMALLCAP MARKET - "MRKF"
NASDAQ NATIONAL MARKET - "PCBI"
The Boards of Directors of Peoples Community Bancorp, Inc. and Market
Financial Corporation provide this joint proxy statement/prospectus to you to
solicit your vote on the merger of Market Financial Corporation into Peoples
Community Bancorp, Inc. In addition, each of us is soliciting the votes of our
stockholders on other matters, as described in the Notices of Annual Meeting and
discussed in this joint proxy statement/prospectus.
If the merger takes place, stockholders of Market Financial will have
the right to receive either $13.00 in cash or shares of Peoples Community
Bancorp, Inc. common stock for each share of Market Financial they own as
described under "Summary - Merger Consideration" on page 5. It is intended that
the receipt of Peoples Bancorp common stock be tax-free, but the receipt of cash
in the transaction will be taxable. On January 8, 2001, the closing price for
the Peoples Bancorp common stock was $15.625 on the Nasdaq Stock Market.
We cannot complete the merger unless we receive the affirmative vote of
at least a majority of the stockholders of each of Market Financial and Peoples
Bancorp. Each of us will hold a meeting to consider and vote on this merger
proposal and other matters. YOUR VOTE IS VERY IMPORTANT. Whether or not you plan
to attend the annual meeting, please take the time to vote by completing and
mailing the enclosed proxy card to us. If you sign, date and mail your proxy
card without indicating how you want to vote, your proxy card will be counted as
a vote FOR the merger and FOR the other matters to be considered. If you do not
return your proxy card or you do not instruct your broker how to vote any shares
held for you in "street name," the effect will be a vote against the merger.
The dates, times, and places of the annual meetings are as follows:
<TABLE>
<S> <C>
Peoples Community Bancorp, Inc. meeting: Market Financial Corporation meeting:
February 28, 2001 February 28, 2001
10:00 a.m. Eastern Standard Time 9:00 a.m. Eastern Standard Time
Sharonville Convention Center Hampton Inn
11355 Chester Road 430 Kolb Drive
Cincinnati, Ohio 45246 Fairfield, Ohio 45014
</TABLE>
This document contains a more detailed description of the annual
meetings and the proposed merger. WE URGE YOU TO READ THIS ENTIRE DOCUMENT
CAREFULLY, INCLUDING THE SECTION ON RISK FACTORS THAT BEGINS ON PAGE 12.
We enthusiastically support the merger and we strongly urge that you
vote in favor of the merger.
<TABLE>
<S> <C>
Jerry D. Williams John T. Larimer
President, Peoples Community Bancorp, Inc. President, Market Financial Corporation
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED WHETHER THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE. IT IS ILLEGAL FOR ANYONE TO TELL
YOU OTHERWISE. THESE SECURITIES ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER
OBLIGATIONS OF ANY BANK OR NONBANK SUBSIDIARY OF ANY OF THE PARTIES, AND THEY
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE
FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY GOVERNMENTAL AGENCY.
January ____, 2001
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Questions and Answers About the Merger............................................................................... 1
Summary.............................................................................................................. 3
Comparative Common Stock Price and Dividend Information.............................................................. 8
Selected Pro Forma Consolidated Comparative Per Share Data (Unaudited)............................................... 9
Selected Historical Consolidated Financial Data of Peoples Bancorp................................................... 10
Selected Historical Consolidated Financial Data of Market Financial.................................................. 11
Risk Factors......................................................................................................... 12
Forward-looking Statements........................................................................................... 14
The Annual Meeting of Stockholders of Peoples Bancorp................................................................ 15
The Annual Meeting of Stockholders of Market Financial............................................................... 16
The Merger........................................................................................................... 19
Pro Forma Condensed Consolidated Financial Statements (Unaudited).................................................... 45
Management's Discussion and Analysis of Financial Condition and Results of Operations of Peoples Bancorp............. 49
Business of Peoples Bancorp.......................................................................................... 58
Regulation of Peoples Bancorp........................................................................................ 72
Taxation of Peoples Bancorp.......................................................................................... 79
Comparison of The Rights of Stockholders of Peoples Bancorp and Market Financial..................................... 81
Description of Capital Stock of Peoples Bancorp...................................................................... 85
Election of Directors of Peoples Bancorp............................................................................. 86
Proposal to Adopt the Peoples Bancorp 2001Stock Option Plan.......................................................... 93
Proposal to Adopt the Peoples Bancorp 2001 Recognition and Retention Plan and Trust Agreement........................ 98
Ratification of Appointment of Peoples Bancorp's Auditors............................................................ 100
Stockholder Proposals for the 2002 Annual Meeting of Peoples Bancorp ................................................ 100
Election of Directors of Market Financial............................................................................ 101
Amendment of Market Financial's Articles............................................................................. 109
Ratification of Appointment of Market Financial's Auditors........................................................... 111
Stockholder Proposals for the 2002 Annual Meeting of Market Financial................................................ 111
Legal Matters........................................................................................................ 111
Experts.............................................................................................................. 111
Change in Auditors................................................................................................... 111
Where You Can Find More Information.................................................................................. 112
Index to Peoples Bancorp Financial Statements........................................................................ F-1
Appendix A Agreement and Plan of Reorganization Dated as of September 19, 2000....................................... A-1
Appendix B Opinion of McDonald Investments, Inc...................................................................... B-1
Appendix C Ohio Business Corporation Law Regarding Dissenters' Rights................................................ C-1
Appendix D 2001 Stock Option Plan of Peoples Bancorp................................................................. D-1
Appendix E 2001 Recognition and Retention Plan and Trust Agreement of Peoples Bancorp................................ E-1
Accompanying Documents
o Market Financial Corporation's 2000 Annual Report to Shareholders
o Peoples Community Bancorp's 2000 Annual Report to Stockholders
</TABLE>
i
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following are frequently asked questions. You should read this
entire joint proxy statement/ prospectus, including the Risk Factors beginning
on page 12, for more information.
Q: WHY ARE PEOPLES BANCORP AND MARKET FINANCIAL PROPOSING THE MERGER?
A: We are proposing the merger because we believe that it will create a
strong Southwest Ohio banking organization. We believe that our
combined companies will create a more effective competitor of other
financial institutions in our Ohio market area. The merger will also
permit each company to diversify beyond its current businesses and its
current strengths by expanding the marketing of its products and
services to the customers now served by the other, and will enable the
combined company to continue to provide a broad array of innovative
financial services and products to the customers and communities
currently served by each.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Stockholders of Market Financial will be able to elect to receive
either cash consideration of $13.00 or shares of Peoples Bancorp common
stock with a market value of $13.00 for each share of Market Financial
common stock they own.
Q: WHAT STOCKHOLDER APPROVALS ARE NEEDED?
A: The affirmative vote of the holders of a majority of the outstanding
shares of Peoples Bancorp common stock and Market Financial's common
stock entitled to vote on the merger is required to adopt the
reorganization agreement. In addition, because Article Seventh of the
Articles of Incorporation of Market Financial prohibits the merger, the
affirmative vote of the holders of a majority of the outstanding shares
of Market Financial entitled to vote on the matter must approve the
amendment in order for the merger to occur. Each holder of common stock
is entitled to one vote per share. As of the record date, Peoples
Bancorp's directors and executive officers and their affiliates owned
14.6% of the outstanding shares of Peoples Bancorp common stock. As of
the record date, Market Financial and Market Bank's directors, Market
Financial's executive officers, and their affiliates owned
approximately 21.6% of the outstanding shares of Market Financial
common stock. The directors of Market Financial and Market Bank are
parties to a voting agreement and have agreed to vote all their shares
of Market Financial common stock in favor of the adoption of the
reorganization agreement.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in
this joint proxy statement/prospectus, please respond by completing,
signing and dating your proxy card or voting instructions and returning
it in the enclosed postage paid envelope as soon as possible so that
your shares may be represented at the annual meeting of your company.
Q: WHAT IF I DON'T VOTE?
A: If you fail to respond, it will have the same effect as a vote against
the merger. If you respond and do not indicate how you want to vote,
your proxy will be counted as a vote in favor of the merger. If you
respond and abstain from voting, your proxy will have the same effect
as a vote against the merger.
1
<PAGE>
Q: CAN I CHANGE MY VOTE AFTER I HAVE DELIVERED MY PROXY?
A: Yes. You can change your vote at any time before your proxy is voted at
the annual meeting. You can do this in one of three ways. First, you
can revoke your proxy. Second, you can submit a new proxy. If you
choose either of these two methods, you must submit your notice of
revocation or your new proxy to the secretary of Peoples Bancorp or
Market Financial, as appropriate, before the annual meeting. If your
shares are held in an account at a brokerage firm or bank, you should
contact your brokerage firm or bank to change your vote. Third, if your
shares are held of record in your name, you can attend the annual
meeting and vote in person.
Q: SHOULD I SEND IN MY MARKET FINANCIAL STOCK CERTIFICATES NOW?
A: No. After the merger is completed, you will receive written
instructions from the exchange agent on how to exchange your Market
Financial stock certificates for shares of Peoples Bancorp common
stock. Please do not send in your stock certificates with your proxy.
Q: WHERE WILL MY SHARES OF PEOPLES BANCORP COMMON STOCK BE LISTED?
A: We will apply to have the shares of Peoples Bancorp common stock to be
issued in the merger approved for quotation on the Nasdaq Stock Market.
Peoples Bancorp common stock currently trades on the Nasdaq Stock
Market under the symbol "PCBI."
Q: WILL I RECEIVE DIVIDENDS ON MY PEOPLES BANCORP SHARES?
A: Presently, Peoples Bancorp does not intend to pay quarterly cash
dividends on the common stock.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger as quickly as possible. We expect
to complete the merger during the first quarter of calendar 2001.
Q: IF I DO NOT FAVOR THE TRANSACTION, WHAT ARE MY RIGHTS?
A: If you are a stockholder of Market Financial as of the record date and
you do NOT vote in favor of the reorganization agreement, you will
have the right under Section 1701.85 of Ohio's General Corporation Law
to demand the fair cash value for your common shares of Market
Financial. The right to make this demand is known as "dissenters'
rights." To perfect your dissenters' rights, you must deliver to Market
Financial a written demand for payment of the fair cash value of your
shares and otherwise comply strictly with all of the requirements of
Section 1701.85. You must state in your notice the amount that, in your
opinion, is the fair cash value of your common shares. Your written
demand must be delivered to Market Financial not later than ten days
after the Market Financial annual meeting. For additional information
on your dissenters' rights, see the section of this document entitled
"Market Financial stockholders have dissenters' rights in the merger."
Q: WHO CAN HELP ANSWER QUESTIONS?
A: If you have any questions about the merger or how to submit your proxy,
or if you need additional copies of this joint proxy
statement/prospectus or the enclosed proxy card or voting instructions,
you should contact:
Jerry D. Williams John T. Larimer
Peoples Community Bancorp, Inc. Market Financial Corporation
11 South Broadway 7522 Hamilton Avenue
Lebanon, Ohio 45036 Mt. Healthy, Ohio 45231
2
<PAGE>
SUMMARY
This summary highlights selected information from this joint proxy
statement/prospectus and may not contain all of the information that is
important to you. You should read carefully this entire document, including the
reorganization agreement and the other documents to which we have referred you.
See "Where Can You Find More Information" on page 112.
THE PARTIES TO THE MERGER (PAGE 19)
MARKET FINANCIAL CORPORATION
7522 Hamilton Avenue
Mt. Healthy, Ohio 45231
(513) 521-9772
Market Financial is a thrift holding company incorporated under Ohio
law. Market Financial operates Market Bank, which has its main office in Mt.
Healthy, Ohio, and one full-service branch office in North Bend, Ohio. At
September 30, 2000, Market Financial had total assets of $56.1 million, deposits
of $40.3 million and stockholders' equity of $14.8 million.
PEOPLES COMMUNITY BANCORP, INC.
11 South Broadway
Lebanon, Ohio 45036
(513) 932-3876
Peoples Bancorp is a thrift holding company incorporated under
Delaware law. Peoples Bancorp operates Peoples Community Bank, which has six
full-service bank offices in Hamilton, Warren and Clinton Counties in Ohio. At
September 30, 2000, Peoples Bancorp had total assets of $320.6 million, deposits
of $151.4 million and stockholders' equity of $31.7 million.
THE ANNUAL MEETING OF STOCKHOLDERS OF PEOPLES BANCORP (PAGE 15)
An annual meeting of Peoples Bancorp's stockholders will be held on
Wednesday, February 28, 2001, at 10:00 a.m., Eastern Standard Time, at the
Sharonville Convention Center, 11355 Chester Road, Cincinnati, Ohio 45246. At
the Peoples Bancorp annual meeting, the stockholders of Peoples Bancorp will be
asked to:
1. approve and adopt the reorganization agreement under
which Market Financial will merge with and into Peoples
Bancorp and Market Bank will merge with and into Peoples
Community Bank;
2. elect three directors of Peoples Bancorp for a three-year term
expiring in 2004 and until their successors are elected and
qualified;
3. consider and approve the adoption of the 2001 Stock Option
Plan;
4. consider and approve the adoption of the 2001 Recognition and
Retention Plan and Trust Agreement;
5. ratify the appointment by the board of directors of Grant
Thornton LLP as Peoples Bancorp's independent auditors for the
fiscal year ending September 30, 2001; and
3
<PAGE>
6. act on any other items that may be submitted to a vote at the
annual meeting, including a motion to adjourn the annual
meeting for the purpose of soliciting additional proxies in
order to approve the merger of Market Financial and Peoples
Bancorp.
THE ANNUAL MEETING OF STOCKHOLDERS OF MARKET FINANCIAL (PAGE 16)
An annual meeting of Market Financial's stockholders will be held on
Wednesday, February 28, 2001, at 9:00 a.m., Eastern Standard Time, at the
Hampton Inn located at 430 Kolb Drive, Fairfield, Ohio. At the Market Financial
annual meeting, the stockholders of Market Financial will be asked:
1. to approve an amendment to the Articles of Incorporation of
Market Financial to eliminate Article Seventh;
2. to approve and adopt the reorganization agreement under which
Market Financial will merge with and into Peoples Bancorp and
Market Bank will merge with and into Peoples Community Bank;
3. to reelect three directors of Market Financial for terms
expiring in 2003;
4. to ratify the selection by the board of directors of Grant
Thornton LLP as Market Financial's independent auditors for
the current fiscal year; and
5. to act on any other items that may be submitted to a vote at
the annual meeting, including a motion to adjourn the annual
meeting for the purpose of soliciting additional proxies in
order to approve the merger of Market Financial and Peoples
Bancorp.
WHO CAN VOTE AT THE PEOPLES BANCORP ANNUAL MEETING; WHAT VOTE IS REQUIRED FOR
APPROVAL OF THE REORGANIZATION AGREEMENT (PAGES 15 AND 16)
You can vote at the annual meeting of Peoples Bancorp's stockholders
if you owned Peoples Bancorp common stock at the close of business on January
19, 2001. You can cast one vote for each share of Peoples Bancorp common stock
that you owned. In order to approve the merger, the holders of a majority of the
shares of Peoples Bancorp common stock entitled to vote on the merger must vote
in favor of the merger.
WHO CAN VOTE AT THE MARKET FINANCIAL ANNUAL MEETING; WHAT VOTE IS REQUIRED FOR
APPROVAL OF THE REORGANIZATION AGREEMENT (PAGES 17 AND 18)
You can vote at the annual meeting of Market Financial if you owned
Market Financial common stock at the close of business on January 19, 2001. You
can cast one vote for each share of Market Financial common stock that you
owned. In order to approve the merger, the holders of a majority of the shares
of Market Financial common stock entitled to vote on the merger must vote in
favor of the merger.
THE MERGER (PAGE 19)
We propose to merge Market Financial with and into Peoples Bancorp
and Market Bank with and into Peoples Community Bank. We hope to complete these
mergers by March 31, 2001. We have attached the agreement and plan of
reorganization to this document as Appendix A. Please read the reorganization
agreement. It is the legal document that governs the merger of Market Financial
with and into Peoples Bancorp.
4
<PAGE>
BACKGROUND OF THE MERGER; OUR REASONS FOR THE MERGER (PAGES 20 TO 23)
Peoples Bancorp and Market Financial are proposing to merge because
we believe that by combining the two companies, we can create a stronger and
more diversified company that will provide significant benefits to our
stockholders and customers alike and strengthen our position as a competitor in
the financial services business. Market Financial's board of directors also
believes that the transaction is financially attractive to the Market Financial
stockholders, because it gives them the opportunity to receive a favorable price
in cash or in stock.
MERGER CONSIDERATION (PAGE 29)
Each share of Market Financial common stock you own will be
exchanged for either $13.00 in cash or shares of Peoples Bancorp common stock.
The number of shares of Peoples Bancorp common stock you receive will be based
upon dividing $13.00 by the daily average closing price of Peoples Bancorp
common stock on the Nasdaq Stock Market as of the close of trading for each of
the 20 trading days prior to the closing of the merger. In total, based upon the
anticipated number of Market Financial shares outstanding (assuming currently
issued options are cancelled and converted into the right to receive cash) at
the date of the merger and an assumed price per share of $15.00 for Peoples
Bancorp common stock, Peoples Bancorp will exchange approximately 545,757 shares
of its common stock and $8.6 million in cash for all of the outstanding shares
of Market Financial (including cash to be paid for outstanding options to
purchase Market Financial common stock).
Shares of Market Financial common stock will be exchanged for either
Peoples Bancorp common stock or cash as chosen by you, subject to certain
procedures and limitations described in detail in the reorganization agreement
as discussed elsewhere in this joint proxy statement/prospectus. The total
consideration to all Market Financial stockholders is payable 50% in Peoples
Bancorp common stock and 50% in cash. If the merger is closed, Market Financial
stockholders will be sent a form on which they may specify whether they wish to
receive all cash, all Peoples Bancorp common stock or make no election as to
receiving cash or Peoples Bancorp common stock in payment for their Market
Financial shares. Your choice will be honored to the extent possible, but
because of the overall limitation on the amount of cash and shares of Peoples
Bancorp common stock available, whether you receive the amount of cash or stock
you request will depend in part on how many other Market Financial stockholders
submit instructions, how many choose to receive cash and how many choose to
receive stock. Peoples Bancorp will not issue fractional shares. Instead, you
will receive the value of any fractional share in cash based on the daily
average closing price of Peoples Bancorp common stock on the Nasdaq Stock Market
as of the close of trading for each of the 20 trading days prior to the closing
of the merger.
WHEN AND HOW TO CHOOSE THE METHOD OF PAYMENT FOR YOUR SHARES OF MARKET FINANCIAL
(PAGE 31)
If you are a Market Financial stockholder, detailed instructions on
how to choose your preferred method of payment will be sent to you if the merger
is closed. As a Market Financial stockholder, you will then have a period of
almost three weeks in which to complete the form and return it as instructed
with your stock certificates. After the forms have been received and processed
and the merger consideration has been determined, you will be sent the cash
and/or Peoples Bancorp common stock to which you are entitled.
IF YOU HAVE A PREFERENCE AS TO THE FORM OF CONSIDERATION YOU WISH TO
RECEIVE FOR YOUR SHARES OF MARKET FINANCIAL COMMON STOCK, YOU SHOULD NOTIFY US
ON THE FORMS THAT WILL BE PROVIDED TO YOU. SHARES AS TO WHICH A CHOICE HAS BEEN
MADE WILL BE GIVEN PRIORITY IN PROVIDING SUCH CONSIDERATION OVER SHARES AS TO
WHICH NO CHOICE HAS BEEN MADE.
NEITHER THE BOARD OF DIRECTORS OF MARKET FINANCIAL NOR MARKET
FINANCIAL'S FINANCIAL ADVISOR MAKES ANY RECOMMENDATION AS TO WHETHER MARKET
FINANCIAL STOCKHOLDERS SHOULD CHOOSE TO RECEIVE THE CASH CONSIDERATION OR THE
STOCK CONSIDERATION IN THE MERGER. YOU MUST MAKE YOUR OWN DECISION ON SUCH
CHOICE.
5
<PAGE>
TAX CONSEQUENCES FOR MARKET FINANCIAL STOCKHOLDERS (PAGE 40)
For United States federal income tax purposes, your exchange of
shares of Market Financial common stock for shares of Peoples Bancorp common
stock generally will not cause you to have any gain or loss. You will, however,
recognize gain, if any, up to the amount of cash received, depending upon your
basis in the Market Financial stock you own. Similarly, if you are a dissenting
Market Financial stockholder who receives cash in payment for your Market
Financial common stock, generally you will be required to recognize gain, if
any, up to the amount of the cash you receive, based upon your basis in your
Market Financial stock.
The requirement to complete the merger depends on our receipt of
legal opinions about the federal income tax treatment of our companies and our
stockholders. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR FOR A FULL UNDERSTANDING
OF THE MERGER'S TAX CONSEQUENCES THAT ARE PARTICULAR TO YOU.
THE DIRECTORS OF MARKET FINANCIAL AND MARKET BANK HAVE ENTERED INTO A
STOCKHOLDER AGREEMENT WITH PEOPLES BANCORP TO VOTE FOR THE REORGANIZATION
AGREEMENT (PAGE 42)
In conjunction with the reorganization agreement, Peoples Bancorp
has entered into stockholder agreements, dated as of September 19, 2000, with
the directors of Market Financial and Market Bank. Pursuant to such stockholder
agreements, each such director has agreed not to sell, pledge, transfer or
otherwise dispose of his or her shares of Market Financial common stock and to
vote such shares of Market Financial common stock in favor of the reorganization
agreement.
DISSENTERS' RIGHTS IN THE MERGER (PAGE 42)
Ohio law provides Market Financial stockholders with dissenters'
rights in the merger. This means that if you strictly comply with certain
procedures under Ohio law, you have the right to receive payment for your shares
of Market Financial common stock based upon an independent determination of
their fair market value. In addition to the summary of the dissenters' rights
beginning on page 43, a copy of the provisions of Ohio law regarding dissenters'
rights is attached to this joint proxy statement/prospectus as Appendix C.
Failure to follow these provisions may result in a loss of your dissenters'
rights.
Under Delaware law, Peoples Bancorp stockholders are not entitled to
dissenters' rights in connection with the merger.
ACCOUNTING TREATMENT OF THE MERGER (PAGE 40)
We will account for the merger as a "purchase." In addition, because
Peoples Bancorp is paying more for the Market Financial common stock than the
fair market value of Market Financial's net assets, Peoples Bancorp will record
an asset called "goodwill," currently estimated to be approximately $800,000.
Peoples Bancorp will write off this goodwill as an expense over approximately
the next 15 years, reducing net income during that period.
INTERESTS OF MARKET FINANCIAL'S DIRECTORS AND OFFICERS IN THE MERGER THAT ARE
DIFFERENT FROM YOUR INTERESTS (PAGE 32)
Some of Market Financial's directors and officers have interests in
the merger that are in addition to their interests as Market Financial
stockholders. Market Bank has employment agreements with John T. Larimer and
Julie M. Bertsch, the President and the Chief Financial Officer, respectively,
that provide for payments and benefits in the event of a change of control of
Market Financial. The merger of Market Financial into Peoples Bancorp will
constitute a change of control and the officers will receive payments and
benefits under the employment agreements. In addition, awards under Market
Financial's recognition and retention plan are expected to vest prior to closing
of the merger; stock options held by directors and officers of Market Financial
will be exchanged for cash
6
<PAGE>
in the merger; and officers of Market Financial and Market Bank who participate
in Market Financial's employee stock ownership plan are expected to receive an
early allocation and distribution of benefits pursuant to that plan. The amount
of such benefits cannot yet be determined.
DIFFERENCES IN THE RIGHTS OF PEOPLES BANCORP'S AND MARKET FINANCIAL'S
STOCKHOLDERS (PAGE 81)
After the merger is completed, Market Financial's stockholders who
receive Peoples Bancorp common stock will become stockholders of Peoples
Bancorp. Peoples Bancorp is a company governed by its existing Certificate of
Incorporation and Bylaws, as well as Delaware law. As a result, certain rights
of Market Financial's stockholders will change.
OUR RECOMMENDATION TO STOCKHOLDERS (PAGES 15 AND 17)
The boards of directors of Peoples Bancorp and Market Financial
believe that the terms of the reorganization agreement are fair to, and in the
best interests of, Peoples Bancorp and Market Financial and our stockholders.
The boards of Peoples Bancorp and Market Financial unanimously recommend that
you vote "FOR" the proposal to approve the reorganization agreement.
THE CONSIDERATION IS FAIR TO STOCKHOLDERS ACCORDING TO MARKET FINANCIAL'S
FINANCIAL ADVISOR (PAGE 23)
McDonald Investments, Inc., Market Financial's financial advisor,
has delivered to the Market Financial board of directors its opinion that, as of
the date of this document, the merger consideration is fair to Market Financial
stockholders from a financial point of view. McDonald's opinion is attached to
this document as Appendix B.
WHAT WE NEED TO DO TO COMPLETE THE MERGER (PAGE 35)
The completion of the merger depends on a number of conditions being
met.
TERMINATING THE REORGANIZATION AGREEMENT (PAGE 40)
We can agree at any time to terminate the reorganization agreement
without completing the merger even if Peoples Bancorp's and Market Financial's
stockholders have approved it. Under certain circumstances, either Peoples
Bancorp or Market Financial may unilaterally terminate the reorganization
agreement.
AMENDING PROVISIONS OF THE REORGANIZATION AGREEMENT (PAGE 39)
We can agree to amend the reorganization agreement and each of us
can waive our right to require the other party to adhere to the terms and
conditions of the reorganization agreement, where the law allows. However, we
may not do so after Market Financial stockholders approve the reorganization
agreement if the amendment or waiver reduces or changes the consideration that
Market Financial stockholders will receive. In that case, Market Financial
stockholders would have to approve the amendment or waiver for it to be adopted.
7
<PAGE>
COMPARATIVE COMMON STOCK PRICE AND DIVIDEND INFORMATION
Peoples Bancorp common stock is included for quotation on the Nasdaq
National Market under the symbol "PCBI," and Market Financial common stock is
included for quotation on the Nasdaq SmallCap Market under the symbol "MRKF."
The following table sets forth the high and low sale prices of shares of Market
Financial common stock and Peoples Bancorp common stock as reported in the
Nasdaq National Market and Nasdaq SmallCap Market, respectively, and the
quarterly cash dividends declared per share, for the periods indicated. The
Peoples Bancorp common stock began trading on March 30, 2000.
<TABLE>
<CAPTION>
PEOPLES BANCORP COMMON STOCK MARKET FINANCIAL COMMON STOCK
----------------------------------------- --------------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------- ----- --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1998
Quarter ended December 31............... $ NA $ NA $ NA $16.80 $14.75 $ .07
Quarter ended March 31.................. NA NA NA 17.75 15.38 .07
Quarter ended June 30................... NA NA NA 20.81 12.75 3.57
Quarter ended September 30.............. NA NA NA 14.00 10.75 .07
1999
Quarter ended December 31............... $ NA $ NA $ NA $12.63 $10.00 $ .07
Quarter ended March 31.................. NA NA NA 12.38 8.38 .07
Quarter ended June 30................... NA NA NA 10.38 8.25 .07
Quarter ended September 30.............. NA NA NA 13.75 9.00 .07
2000
Quarter ended December 31............... $ NA $ NA $ NA $11.25 $ 8.25 $ .08
Quarter ended March 31.................. NA NA NA 10.00 8.00 .08
Quarter ended June 30................... 12.94 9.25 -- 8.13 7.06 .08
Quarter ended September 30.............. 12.69 10.37 -- 12.50 7.50 .08
</TABLE>
The following table sets forth the last reported sale price per
share of Peoples Bancorp common stock and Market Financial common stock, as
reported on the Nasdaq National Market and Nasdaq SmallCap Market, respectively,
on (i) September 18, 2000, the last business day preceding public announcement
of the signing of the reorganization agreement and (ii) January ___, 2001, a
recent trading date prior to the mailing of this joint proxy
statement/prospectus:
<TABLE>
<CAPTION>
PEOPLES BANCORP MARKET FINANCIAL
COMMON STOCK COMMON STOCK
---------------- ----------------
<S> <C> <C>
September 18, 2000................................... $11.875 $9.50
January ____, 2001................................... $ $
</TABLE>
You should obtain current market quotations for Peoples Bancorp
common stock and Market Financial common stock since the market price of Peoples
Bancorp common stock will continue to fluctuate between the date of this
document and the date on which the merger is completed and thereafter. Because
the number of shares of Peoples Bancorp common stock that Market Financial
stockholders will receive is based upon the closing price of Peoples Bancorp
common stock on the Nasdaq National Market on the 20 trading days preceding the
completion of the merger, the total value of the shares of Peoples Bancorp
common stock that you receive will fluctuate during those 20 trading days and
after the merger.
8
<PAGE>
SELECTED PRO FORMA
CONSOLIDATED COMPARATIVE PER SHARE DATA
(Unaudited)
The following table sets forth information about earnings per share,
dividends per share and book value per share, and similar information reflecting
the merger of Market Financial with and into Peoples Bancorp. You can use this
table to understand how the merger would have affected Peoples Bancorp's
earnings, dividends and book value, all on a per share basis, if the merger had
taken effect on the first day of the period described below. The first item
listed in each category gives you historical information relating to Peoples
Bancorp. The information set forth below is only a summary and you should read
it together with the historical financial statements and related notes contained
in the annual reports and other information that Peoples Bancorp and Market
Financial have either included in or attached to this document or have filed
previously with the SEC. See "Where You Can Find More Information" on page 112.
The pro forma and pro forma equivalent per share data in the
following table are presented for comparative purposes only and are not
necessarily indicative of what the combined financial position or results of
operations would have been had the merger been consummated during the period or
as of the date for which such pro forma table is presented.
<TABLE>
<CAPTION>
At or for the Year Ended
September 30, 2000
------------------------
<S> <C>
Cash dividend per common share:
Peoples Bancorp...................................................... $ N/A
Market Financial..................................................... $ .32
Peoples Bancorp pro forma (1)........................................ $ N/A
Per equivalent Market Financial share (2)............................ $ N/A
Book value per common share:
Peoples Bancorp...................................................... $16.01
Market Financial..................................................... $11.72
Peoples Bancorp pro forma (3)........................................ $15.06
Per equivalent Market Financial share (2)............................ $12.05
Basic earnings per common share:
Peoples Bancorp(4)................................................... $ N/A
Market Financial..................................................... $ .26
Peoples Bancorp pro forma (4)........................................ $ N/A
Per equivalent Market Financial share (4)............................ $ N/A
Diluted earnings per common share:
Peoples Bancorp(4)................................................... $ N/A
Market Financial..................................................... $ .26
Peoples Bancorp pro forma(4)......................................... $ N/A
Per equivalent Market Financial share (4)............................ $ N/A
</TABLE>
-----------------------------
(1) Peoples Bancorp has not paid any dividends on its common stock.
(2) Represents the Peoples Bancorp pro forma amounts (assuming
conversion of 50% of the outstanding shares of Market Financial
common stock into shares of Peoples Bancorp common stock) multiplied
by the assumed number of shares of Peoples Bancorp common stock to
be issued for Market Financial common stock. Assuming a $15.00
average share price of Peoples Bancorp common stock, the number of
shares issued would be 545,757.
(3) Reflects (i) estimated purchase accounting adjustments to be
recorded in connection with the merger, consisting of mark-to-market
valuation adjustments for assets acquired and liabilities assumed
and adjustments for intangible assets established, and the resultant
amortization/accretion of all such adjustments over appropriate
future periods, (ii) and issuance of 545,757 shares of Peoples
Bancorp common stock (assuming conversion of 50% of the outstanding
shares of Market Financial common stock into shares of Peoples
Bancorp common stock at an exchange ratio of 0.8667).
(4) Earnings per share are not applicable for fiscal 2000 since the
conversion was completed on March 29, 2000.
9
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF PEOPLES BANCORP
The following tables set forth selected historical consolidated
financial and other data of Peoples Bancorp for the five years ended September
30, 2000. The financial information for the five years ended September 30, 2000
of Peoples Bancorp is derived from the audited consolidated financial statements
and related notes of Peoples Bancorp. This is only a summary and should be read
in conjunction with historical financial statements and related notes included
elsewhere in this joint proxy statement/prospectus.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA: (1)
Total assets............................................ $320,620 $107,313 $107,024 $105,516 $99,900
Cash and cash equivalents............................... 4,627 5,183 7,748 7,234 7,874
Loans receivable, net................................... 196,485 94,551 90,448 89,900 84,402
Mortgage-backed securities available for sale........... 94,050 1,185 1,529 1,529 1,552
Investment securities available for sale................ 8,211 3,650 4,645 3,866 3,256
Deposits................................................ 151,353 91,018 87,324 85,434 82,698
Federal Home Loan Bank advances......................... 134,500 -- 4,000 6,000 4,000
Stockholders' equity (2)................................ 31,664 14,677 13,940 12,665 11,384
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended September 30,
------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(In Thousands)
SELECTED OPERATING DATA: (1)
Interest income............................................ $ 15,429 $ 7,872 $ 7,973 $ 7,775 $ 7,130
Interest expense........................................... 10,091 4,581 4,891 4,777 4,434
------- -------- -------- -------- -------
Net interest income........................................ 5,338 3,291 3,082 2,998 2,696
Provision for losses on loans.............................. 156 175 48 1 12
--------- --------- -------- ----------- -------
Net interest income after provision for losses on loans.... 5,182 3,116 3,034 2,997 2,684
Other income............................................... 101 20 116 30 194
General, administrative and other expense.................. 4,273 2,030 1,738 1,573 2,141
-------- -------- -------- -------- -------
Earnings before income taxes............................... 1,010 1,106 1,412 1,454 737
Federal income taxes....................................... 462 371 475 576 229
--------- --------- --------- --------- -------
Net earnings............................................... $ 548 $ 735 $ 937 $ 978 $ 508
========= ======== ========= ========= =======
Earnings per share - basic and diluted(3).................. N/A N/A N/A N/A N/A
Cash dividends declared (per share)........................ N/A N/A N/A N/A N/A
Dividend payout ratio...................................... N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
At or For the Year Ended September 30,
------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
KEY OPERATING RATIOS: (1)
PERFORMANCE RATIOS: (4)
Return on average assets................................... .26% .70% .88% .95% .54%
Return on average equity................................... 2.41 5.14 7.04 8.14 4.61
Average interest-earning assets to average
interest-bearing liabilities.............................. 110.39 115.48 114.45 111.39 111.38
Interest rate spread(5).................................... 2.12 2.48 2.28 2.47 2.39
Net interest margin(5)..................................... 2.63 3.17 2.95 3.02 2.95
General and administrative expenses to average assets...... 2.04 1.92 1.64 1.53 2.26
ASSET QUALITY RATIOS:
Non-performing assets to total assets at end of period (6). .43% 1.01% .66% .96% .59%
Allowance for losses on loans to non-performing loans at
end of period............................................. 60.67 38.46 34.10 20.50 35.00
Allowance for losses on loans to total loans at end
of period................................................. .36 .42 .26 .25 .26
CAPITAL AND OTHER RATIOS:
Average equity to average assets........................... 10.84% 13.54% 12.52% 11.70% 11.62%
Tangible equity to tangible assets at end of period........ 8.10 12.80 12.08 11.29 10.87
Total capital to risk-weighted assets...................... 18.10 24.60 23.92 23.75 22.47
</TABLE>
------------------------------------------------
(1) The information as of and for the fiscal years ended September 30, 1996
through 1999, inclusive, has been restated to reflect the effects of the
merger with The Oakley Improved Building and Loan Company in March 2000.
(2) Consists solely of retained earnings at September 30, 1999 and prior.
(3) Earnings per share are not applicable for fiscal 2000 since the conversion
was completed on March 29, 2000.
(4) All ratios are based on average monthly balances during the respective
periods.
(5) Interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities; net interest margin represents net interest
income as a percentage of average interest-earning assets.
(6) Nonperforming assets consist of non-accrual loans, loans past due 90 days
or more and still accruing interest and real estate acquired through
foreclosure or by deed-in-lieu thereof.
10
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF MARKET FINANCIAL
The following tables set forth selected historical consolidated
financial and other data of Market Financial for the five years ended September
30, 2000. The financial information for the five years ended September 30, 2000
of Market Financial is derived from the consolidated financial statements and
related notes of Market Financial which should be read in conjunction with the
consolidated financial statements and related notes incorporated by reference in
this joint proxy statement/prospectus.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total amount of:
Assets................................................................. $56,087 $55,451 $54,608 $56,121 $45,547
Cash and cash equivalents.............................................. 766 2,291 5,381 2,248 4,082
Certificates of Deposit in other financial institutions................ 300 290 3,790 6,690 7,040
Investment securities held to maturity - at cost...................... 11,400 12,800 9,300 17,257 9,062
Investment securities designated as available for sale - at market..... 1,160 1,116 1,448 1,029 712
Mortgage-backed securities held to maturity - at cost.................. 1,830 2,047 859 1,268 1,549
Loans receivable - net................................................. 37,879 35,219 32,816 26,502 21,996
Deposits............................................................... 40,260 39,907 37,745 35,303 37,282
Unrealized gains on securities designated as available for sale-net.... 752 722 937 660 451
Shareholders' equity-restricted (1)(2)................................. 14,755 14,575 15,078 19,895 7,514
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended September 30,
------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income........................................................ $3,798 $3,733 $3,885 $3,513 $3,261
Interest expense....................................................... 1,861 1,803 1,734 1,689 1,758
----- ----- ----- ----- -----
Net interest income.................................................... 1,937 1,930 2,151 1,824 1,503
Provision for losses on loans.......................................... -- -- -- -- 13
------ ------ ------ ----- -----
Net interest income after provision for losses on loans................ 1,937 1,930 2,151 1,824 1,490
Gain on sale of investments............................................ -- 463 -- -- --
Other operating income................................................. 11 11 7 6 7
General, administrative and other expense.............................. 1,477 1,346 1,322 1,069 1,153
------ ----- ----- ----- -----
Earnings before income taxes........................................... 471 1,058 836 761 344
Federal income taxes................................................... 160 360 284 259 120
------- --- --- --- ---
Net earnings........................................................... $ 311 $ 698 $ 552 $ 502 $ 224
======= ====== ====== ====== =====
Earnings per share - Basic $.26 $.58 $.45 N/A N/A
- Diluted $.26 $.57 $.45 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
At or For the Year Ended September 30,
------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on average assets (3)(4)(5)..................................... 0.56% 1.27% 1.00% 0.99% 0.49%
Return on average equity (4)(5)(6)..................................... 2.12 4.71 3.16 3.66 3.05
Interest rate spread (7)............................................... 2.63 2.58 2.60 2.42 2.66
Net interest margin (8)................................................ 3.71 3.70 4.07 3.67 3.36
Operating expenses to average assets (4)(5)............................ 2.65 2.45 2.39 2.10 2.53
Equity to assets (9)................................................... 26.31 26.28 27.61 35.45 16.50
Dividend payout ratio.................................................. 123.08 48.28 8,400.00 N/A N/A
ASSET QUALITY RATIOS:
Nonperforming assets to total assets................................... 0.48% 0.21% 0.31% 0.34% 0.31%
Nonperforming loans to total loans..................................... 0.71 0.34 0.52 0.72 0.63
Allowance for losses on loans to total loans........................... 0.13 0.15 0.16 0.20 0.24
Allowance for losses on loans to nonperforming loans................... 19.12 43.70 30.41 27.23 37.41
Average interest earning-assets to average interest-bearing
liabilities........................................................... 130.41 132.17 144.88 136.77 117.78
OTHER DATA:
Number of full service offices 2 2 2 2 2
</TABLE>
--------------------------
(1) See Notes G, I and K of the Notes to Consolidated Financial Statements in
Market Financial's Annual Report which accompanies this document regarding
restrictions on equity.
(2) Consists solely of retained earnings at September 30, 1996.
(3) Net earnings divided by average assets.
(4) Based on arithmetic average of beginning and ending balances.
(5) Excluding the effect of the one-time Savings Association Insurance Fund
recapitalization assessment, the return on average assets, the return on
average equity and the operating expenses to average assets ratios would
have been .85%, 5.21% and 1.99%, respectively, for the fiscal year ended
September 30, 1996.
(6) Net earnings divided by average equity capital.
(7) Average yield on interest-earning assets less average cost of
interest-bearing liabilities.
(8) Net interest income as a percentage of average interest-earning assets.
(9) At the end of the respective periods.
11
<PAGE>
RISK FACTORS
In addition to the other information contained in this joint proxy
statement/prospectus, you should carefully consider the following risk factors
in deciding whether to vote for adoption of the reorganization agreement.
THE MERGER CONSIDERATION IS NOT FIXED AND MAY FLUCTUATE OVER TIME.
If the merger closes, each outstanding share of Market Financial
common stock will be cancelled on the effective day of the closing in exchange
for either:
o $13.00 cash; or
o Peoples Bancorp common stock equal in value to $13.00, as
measured during the 20 trading days ending the trading day
before the effective date of the merger.
If you elect to receive Peoples Bancorp common stock for your Market
Financial common stock, the number of shares of Peoples Bancorp common stock you
will receive on the effective date of the merger will depend on the closing sale
price of Peoples Bancorp common stock over the twenty trading days ending the
trading day before the effective date of the merger. Because the value of the
Peoples Bancorp common stock to be received for each share of Market Financial
common stock has been fixed at $13.00, higher closing prices for the Peoples
Bancorp common stock during the twenty-day period will result in a reduction in
the number of shares of Peoples Bancorp common stock you receive and, therefore,
a reduction in the percentage of the total outstanding common stock of Peoples
Bancorp you will receive. On September 18, 2000, the business day immediately
preceding the public announcement of the merger, Peoples Bancorp common stock
closed at $11.875 per share. On January __, 2001, Peoples Bancorp's common stock
closed at $____ per share.
If you elect to receive Peoples Bancorp common stock for your Market
Financial common stock, the market value of the Peoples Bancorp common stock you
receive may also be reduced below $13.00 for each Market Financial share by the
time you actually receive the Peoples Bancorp common stock. Due to the
procedures for making your election and surrendering your Market Financial stock
certificates, you will not receive your Peoples Bancorp stock certificates
immediately upon closing. The market price of Peoples Bancorp common stock may
be substantially higher or lower before the date of the Market Financial annual
meeting, during the twenty-day period over which the exchange ratio will be
determined and between the effective date of the merger and the time you receive
your Peoples Bancorp common stock. The market price of Peoples Bancorp common
stock is subject to change at all times based on the financial condition and
operating results of Peoples Bancorp, market conditions and other factors. If
the average market price of the Peoples Bancorp common stock over the twenty-day
period is higher than the market price of the Peoples Bancorp common stock on
the effective date of the merger or the date on which you receive your Peoples
Bancorp common stock, then the total market value of the Peoples Bancorp common
stock you actually receive in exchange for each of your Market Financial shares
will be less than $13.00 on the date of the closing or on the date your receive
your Peoples Bancorp common stock. To the extent that such average is higher
than the market price of Peoples Bancorp common stock on the day of closing or
thereafter, stockholders of Market Financial who receive Peoples Bancorp common
stock will be adversely affected.
MARKET FINANCIAL STOCKHOLDERS MAY NOT RECEIVE THE FORM OF CONSIDERATION THEY
PREFER.
Although Market Financial stockholders will be asked to indicate
whether they prefer cash or Peoples Bancorp stock in exchange for their Market
Financial stock, there is no assurance that you will receive your preferred form
of consideration. Approximately 50% of the total value of the consideration paid
by Peoples Bancorp in the merger will be paid in the form of cash, and
approximately 50% will be paid in the form of Peoples Bancorp common stock. The
form of consideration you receive will depend, therefore, upon not only your
expressed preference but also the preferences indicated by all other Market
Financial stockholders. Once the period for electing a form of consideration has
passed, Peoples Bancorp will allocate cash and stock on a pro rata basis,
attempting to meet expressed preferences as much as possible but ultimately
paying a total of approximately half in cash and approximately half in stock.
12
<PAGE>
PEOPLES BANCORP ONLY RECENTLY CONVERTED TO STOCK FORM AND ACQUIRED TWO OTHER
FINANCIAL INSTITUTIONS AND HAS EXPRESSED AN INTEREST IN ACQUIRING ADDITIONAL
COMPANIES.
On March 29, 2000, Peoples Community Bank completed its conversion
to stock form and completed mergers with two other financial institutions. On
that date, the following transactions were completed:
o The Oakley Improved Building and Loan Company was merged with
and into Peoples Bank;
o Peoples Bank converted to a federally chartered stock savings
bank and Peoples Bancorp sold 1,190,000 shares of its common
stock; and
o Peoples Bancorp acquired Harvest Home Financial Corporation
and its wholly owned subsidiary, Harvest Home Savings Bank.
The recent conversion of Peoples Bancorp to stock form and the
acquisition of the two other financial institutions has resulted in many changes
to the operations of Peoples Bancorp, including the responsibilities and
expenses of a public company and the integration of the personnel and customers
of three institutions. There cannot be any assurance at this time that
difficulties, such as the loss of employees and customers, will not be
encountered due to such recent changes in structure. Such difficulties may have
an adverse impact on the market value of the Peoples Bancorp stock received on
the effective date of the merger.
Moreover, as Peoples Bancorp has indicated an interest in
considering the acquisition of additional financial institutions in the future,
Peoples Bancorp may encounter additional similar difficulties, as well as
disruption of ongoing business and possible inconsistencies in standards,
controls, procedures and policies. In addition, continued acquisitions can cause
stock prices to drop due to the uncertainties caused by such possible problems.
PEOPLES BANCORP MAY FAIL TO REALIZE THE ANTICIPATED BENEFITS OF THE MERGER.
Peoples Bancorp and Market Financial may not be able to integrate
their operations without encountering difficulties, including the loss of key
employees and customers, the disruption of their respective ongoing businesses
or possible inconsistencies in standards, controls, procedures and policies.
Additionally, in determining that the merger is in the best interests of Peoples
Bancorp and Market Financial, as the case may be, each of the Peoples Bancorp
and the Market Financial boards of directors considered that enhanced earnings
may result from the consummation of the merger, including from cross-marketing
opportunities. However, there can be no assurance that any enhanced earnings
will result from the merger.
GEOGRAPHIC CONCENTRATION IN ONE MARKET MAY UNFAVORABLY IMPACT PEOPLES BANCORP.
The operations of Peoples Bancorp and Market Financial are
concentrated in the State of Ohio. As a result of this geographic concentration,
Peoples Bancorp's and Market Financial's results depend largely on economic
conditions in this area. A deterioration in economic conditions in this market
could:
o increase loan delinquencies;
o increase problem assets and foreclosures;
o increase claims and lawsuits;
o decrease the demand for Peoples Bancorp's products and
services; and
o decrease the value of collateral for loans, especially real
estate, in turn reducing customers' borrowing power, the value
of assets associated with problem loans and collateral
coverage.
HIGHER INTEREST RATES WOULD HURT PEOPLES BANCORP'S PROFITABILITY.
Peoples Bancorp's ability to earn a profit depends on net interest
income, which is the difference between the interest income it earns on
interest-earning assets, such as mortgage loans, and the interest expense it
pays on interest-bearing liabilities, such as deposits and borrowings. Because
most loans held by Peoples Bancorp and Market Financial have fixed interest
rates, Peoples Bancorp's net interest income could be adversely affected when
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the rates it pays on deposits and borrowings are increasing. In addition, the
market value of fixed-rate assets would decline if interest rates increase.
GOODWILL WILL REDUCE PEOPLES BANCORP'S NET EARNINGS.
Peoples Bancorp will record approximately $800,000 in goodwill as a
result of the merger with Market Financial. Peoples Bancorp will amortize this
goodwill over 15 years. As a result, Peoples Bancorp's net earnings will be
reduced by approximately $53,000 a year during the amortization period. Peoples
Bancorp cannot assure you that its earnings after the effect of goodwill costs,
as well as anticipated increases in other costs due to planned capital
improvements, increases in personnel and costs from stock benefit plans, will be
sufficient to produce returns deemed acceptable by investors.
PEOPLES BANCORP DOES NOT INTEND TO PAY QUARTERLY CASH DIVIDENDS.
Presently, Peoples Bancorp does not intend to pay quarterly cash
dividends on the common stock. Instead Peoples Bancorp plans to use its
resources to continue its growth and expand the products it offers.
PEOPLES BANCORP'S OPERATIONS ARE SUBJECT TO REGULATORY AND LEGISLATIVE CHANGES.
Peoples Bancorp is subject to extensive government regulation,
supervision and examination. The regulatory authorities have extensive
discretion in connection with their supervisory and enforcement activities. Any
change in regulation, whether by the Office of Thrift Supervision, the FDIC or
the U.S. Congress, could have a significant impact on Peoples Bancorp and its
operations.
FORWARD-LOOKING STATEMENTS
This document, the documents incorporated by reference in this
document, or any other written or oral statements made by or on behalf of
Peoples Bancorp and Market Financial may include forward-looking statements with
respect to the financial condition, results of operations and business of
Peoples Bancorp and Market Financial based on management's belief and
information currently available to management. Such forward-looking statements
are subject to risks, uncertainties and assumptions. Actual results may vary
materially from those anticipated, estimated, projected or expected. Among the
factors that may cause variations from such forward-looking statements are:
o fluctuations in the economy, especially in the market areas of
Peoples Bancorp and Market Financial;
o changes in the interest rate environment;
o Peoples Bancorp's ability to realize anticipated cost savings
or revenue enhancements relating to the merger;
o changes in the amount of merger-related expenses;
o changes in real estate values;
o the continued growth of the markets in which Peoples Bancorp
and Market Financial operate; and
o the enactment of legislation impacting Peoples Bancorp.
Readers are cautioned not to place undue reliance on any
forward-looking statements made by or on behalf of Peoples Bancorp and Market
Financial. Additional information with respect to factors that may cause the
results to differ materially from those contemplated by such forward-looking
statements is included in Peoples Bancorp's and Market Financial's current and
subsequent filings with the SEC.
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THE ANNUAL MEETING OF STOCKHOLDERS OF PEOPLES BANCORP
DATE, TIME AND PLACE; PURPOSE OF ANNUAL MEETING. If you are a
stockholder of Peoples Bancorp, this document and the accompanying proxy card
are being furnished to you in connection with solicitation of proxies by the
Peoples Bancorp board of directors to be used at its annual meeting. The annual
meeting is scheduled to be held on Wednesday, February 28, 2001, at 10:00 a.m.,
Eastern Standard Time, at the Sharonville Convention Center, 11355 Chester Road,
Cincinnati, Ohio 45246. At the annual meeting, Peoples Bancorp's stockholders
will be asked to vote upon:
o a proposal to approve and adopt the reorganization agreement
and an agreement of merger pursuant to which Market Financial
will merge with and into Peoples Bancorp and Market Bank will
merge with and into Peoples Community Bank;
o a proposal to elect three directors for a three-year term
expiring in 2004 and until their successors are elected and
qualified;
o a proposal to consider and approve the adoption of the 2001
Stock Option Plan;
o a proposal to consider and approve the adoption of the 2001
Recognition and Retention Plan and Trust Agreement;
o a proposal to ratify the appointment by the board of directors
of Grant Thornton LLP as Peoples Bancorp's independent
auditors for the fiscal year ending September 30, 2001; and
o other matters properly brought before the annual meeting. As
of the date hereof, the Peoples Bancorp board knows of no
business that will be presented for consideration at the
Peoples Bancorp annual meeting, other than matters described
in this document.
YOU ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY
CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID, ADDRESSED ENVELOPE.
RECOMMENDATION OF THE PEOPLES BANCORP BOARD. The Peoples Bancorp
board of directors has unanimously approved the reorganization agreement and has
determined that the terms of the merger and the reorganization agreement are
fair to and in the best interests of Peoples Bancorp and its stockholders. The
Peoples Bancorp board unanimously recommends that Peoples Bancorp's stockholders
vote "FOR" approval and adoption of the reorganization agreement, the election
of the nominees for director, approval of the 2001 Stock Option Plan, approval
of the 2001 Recognition and Retention Plan and the appointment of independent
auditors.
WHO CAN VOTE ON MATTERS ADDRESSED IN THIS DOCUMENT. The Peoples
Bancorp board of directors has fixed the close of business on January 19, 2001,
as the record date for determining which stockholders are entitled to receive
notice of and to vote at the annual meeting. Only holders of record of Peoples
Bancorp common stock at the close of business on the record date are entitled to
receive notice of and to vote at the annual meeting.
VOTING AND SOLICITATION OF PROXIES. Each record holder of Peoples
Bancorp common stock is entitled to cast one vote for each share of Peoples
Bancorp common stock owned. The presence in person or by proxy of the holders of
at least a majority of the outstanding shares of Peoples Bancorp common stock on
the record date is necessary to constitute a quorum at the annual meeting.
The shares of Peoples Bancorp common stock represented by properly
executed proxies received at or prior to the annual meeting and not subsequently
revoked prior to the vote at the annual meeting will be voted as directed in
such proxies. If instructions are not given, shares represented by properly
executed proxies will be voted for approval and adoption of the reorganization
agreement. If any other matters incident to the conduct of the annual meeting
are properly brought before the annual meeting for consideration, including a
motion to adjourn the annual meeting to another time or place for the purpose of
soliciting additional proxies or otherwise, shares represented by properly
executed proxies will be voted in the discretion of the persons named in the
proxy card enclosed herewith in accordance with their best judgment. However, no
proxy which is voted against the proposal to approve the reorganization
agreement will be voted in favor of any adjournment of the annual meeting to
solicit further proxies for such proposal.
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Any holder of Peoples Bancorp common stock who has executed and
delivered a proxy may revoke it at any time before it is voted by attending the
annual meeting and voting in person, by giving timely notice of revocation in
writing, or by submitting a signed proxy card bearing a later date to the
Secretary of Peoples Bancorp at 11 South Broadway, Lebanon, Ohio 45036. In order
to be timely, the notice or proxy card must actually be received by Peoples
Bancorp before the vote of Peoples Bancorp's stockholders.
IF YOU ARE A PEOPLES BANCORP STOCKHOLDER WHOSE SHARES ARE NOT
REGISTERED IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR
RECORD HOLDER IN ORDER TO VOTE YOUR SHARES AT THE ANNUAL MEETING IN PERSON.
EXAMPLES OF SUCH ADDITIONAL DOCUMENTS INCLUDE AN OMNIBUS PROXY, CONFIRMING YOUR
OWNERSHIP OF SHARES.
VOTES REQUIRED. As of the record date, there were a total of
1,977,733 shares of Peoples Bancorp common stock outstanding. Each share of
Peoples Bancorp common stock is entitled to one vote on each of the proposals.
The affirmative vote of at least a majority of the shares entitled to vote on
the merger is required in order to approve and adopt the reorganization
agreement. Under Delaware law, only votes cast in favor of a proposal count as
being voted for the proposal. Therefore, abstentions and brokers non-votes will
have the effect of a vote against the reorganization agreement. Directors are
elected by a plurality of the votes cast with a quorum present. Abstentions are
considered in determining the presence of a quorum and will not affect the
plurality vote required for the election of directors. No stockholder may
cumulate votes for the election of directors. The affirmative vote of the
holders of a majority of the total votes eligible to be cast in person or by
proxy at the annual meeting is required for approval of the proposals to approve
the 2001 Stock Option Plan and the 2001 Recognition and Retention Plan and Trust
Agreement. Under rules applicable to broker-dealers, the proposals to approve
the option plan and the recognition plan are considered "non-discretionary"
items upon which brokerage firms may not vote in their discretion on behalf of
their clients if such clients have not furnished voting instructions and for
which there may be "broker non-votes" at the meeting. Because of the required
votes, abstentions and broker non-votes will have the same effect as a vote
against the proposals to approve the option plan and the recognition plan. The
affirmative vote of the holders of a majority of the total votes present in
person or by proxy is required to ratify the appointment of the independent
auditors. Under rules applicable to broker-dealers, the proposal for
ratification of the auditors is considered a "discretionary" item upon which
brokerage firms may vote in their discretion on behalf of their clients if such
clients have not furnished voting instructions and for which there will not be
"broker non-votes."
As of the record date, Peoples Bancorp's directors and executive
officers and their affiliates (14 persons) had voting power with respect to an
aggregate of 288,134 shares, or approximately 14.6% of the outstanding shares,
of Peoples Bancorp common stock.
SOLICITATION OF PROXIES. Peoples Bancorp will bear all the costs and
expenses that are incurred in printing and mailing this document. Peoples
Bancorp will pay all other costs of soliciting proxies for the Annual Meeting of
Stockholders of Peoples Bancorp. Such solicitation will be made by mail, but
also may be made by telephone or in person by the directors, officers and
employees of Peoples Bancorp (who will receive no additional compensation for
doing so). Peoples Bancorp has retained ______________, a proxy solicitation
firm, to assist in such solicitation. The fee to be paid to such firm is not
expected to exceed $______, plus reasonable out-of-pocket costs and expenses
authorized by Peoples Bancorp. In addition, Peoples Bancorp will make
arrangements with brokerage firms and other custodians, nominees and
fiduciaries, if any, for the forwarding of solicitation materials to the
beneficial owners of Peoples Bancorp common stock held of record by such
persons.
THE ANNUAL MEETING OF STOCKHOLDERS OF MARKET FINANCIAL
DATE, TIME AND PLACE; PURPOSE OF ANNUAL MEETING. If you are a
stockholder of Market Financial, this document and the accompanying proxy card
are being furnished to you in connection with a solicitation of proxies by the
Market Financial board of directors to be used at its annual meeting. The annual
meeting is scheduled to be held on Wednesday, February 28, 2001, at 9:00 a.m.,
Eastern Standard Time, at the Hampton Inn located at 430 Kolb Drive, Fairfield,
Ohio. At the annual meeting, Market Financial stockholders will be asked to vote
upon:
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o the following resolution:
RESOLVED, that the Articles of Incorporation of Market
Financial Corporation, as amended, be amended by deleting
Article SEVENTH in its entirety and substituting therefor the
following:
SEVENTH: Deleted
o the following resolution:
RESOLVED, that the Agreement and Plan of Reorganization, dated
September 19, 2000, by and among Peoples Community Bancorp,
Inc., Peoples Community Bank, Market Financial Corporation and
Market Bank, and the Agreement of Merger dated September 19,
2000, by and between Peoples Community Bancorp, Inc., and
Market Financial Corporation, copies of which are attached to
the joint proxy statement/prospectus of Peoples Community
Bancorp, Inc., and Market Financial Corporation dated
__________, 2001, and the transactions contemplated thereby,
including the merger of Market Financial Corporation into
Peoples Community Bancorp, Inc., be, and they hereby are,
approved and adopted.
o a proposal to reelect four directors for terms expiring in
2003:
o a proposal to ratify the selection by the board of directors
of Grant Thornton LLP as Market Financial's independent
auditors for the current fiscal year; and
o other matters properly brought before the annual meeting,
including adjournment of the annual meeting to allow for
additional solicitation of shareholder votes in order to
obtain the required vote to approve and adopt the agreement
and plan of reorganization and to approve the transactions
contemplated by the agreement and plan of reorganization. As
of the date hereof, the Market Financial board of directors
knows of no business that will be presented for consideration
at the Market Financial annual meeting, other than matters
described in this document.
YOU ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY
CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID, ADDRESSED ENVELOPE.
YOU SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH YOUR PROXY CARDS.
RECOMMENDATION OF THE MARKET FINANCIAL BOARD. The Market Financial
board of directors has unanimously approved the reorganization agreement and has
determined that the terms of the merger and the reorganization agreement are
fair to and in the best interests of Market Financial and its stockholders. The
Market Financial board unanimously recommends that Market Financial's
stockholders vote "FOR" approval and adoption of the reorganization agreement,
the elimination of Article Seventh of the Articles of Incorporation, the
reelection of the director nominees and the appointment of independent auditors.
WHO CAN VOTE ON MATTERS ADDRESSED IN THIS DOCUMENT. The Market
Financial board of directors has fixed the close of business on January 19,
2001, as the record date for determining which stockholders are entitled to
receive notice of and to vote at the annual meeting. Only holders of record of
Market Financial common stock at the close of business on the record date are
entitled to receive notice of and to vote at the annual meeting.
VOTING AND SOLICITATION OF PROXIES. Each record holder of Market
Financial common stock is entitled to cast one vote for each share of Market
Financial common stock owned. The presence in person or by proxy of the holders
of at least a majority of the outstanding shares of Market Financial common
stock on the record date is necessary to constitute a quorum at the annual
meeting.
The shares of Market Financial common stock represented by properly
executed proxies received at or prior to the annual meeting and not subsequently
revoked prior to the vote at the annual meeting will be voted as directed in
such proxies. If instructions are not given, shares represented by properly
executed proxies will be voted FOR approval and adoption of the reorganization
agreement, the elimination of Article Seventh of the Articles of Incorporation,
the reelection of the director nominees and the ratification of the selection of
the auditors. If any other matters incident to the conduct of the annual meeting
are properly brought before the annual meeting for
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consideration, including a motion to adjourn the annual meeting to another time
or place for the purpose of soliciting additional proxies or otherwise, shares
represented by properly executed proxies will be voted in the discretion of the
persons named in the proxy card enclosed herewith in accordance with their best
judgment. However, no proxy that is voted against the proposal to approve the
reorganization agreement will be voted in favor of any adjournment of the annual
meeting to solicit further proxies for such proposal.
Any holder of Market Financial common stock who has executed and
delivered a proxy may revoke it at any time before it is voted by attending the
annual meeting and voting in person, by giving timely notice of revocation in
writing, or by submitting a signed proxy card bearing a later date to the
Secretary of Market Financial at 7522 Hamilton Avenue, Mt. Healthy, Ohio 45231.
In order to be timely, the notice or proxy card must actually be received by
Market Financial before the vote of Market Financial stockholders.
IF YOU ARE A MARKET FINANCIAL STOCKHOLDER WHOSE SHARES ARE NOT
REGISTERED IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR
RECORD HOLDER IN ORDER TO VOTE YOUR SHARES AT THE ANNUAL MEETING IN PERSON.
EXAMPLES OF SUCH ADDITIONAL DOCUMENTS INCLUDE AN OMNIBUS PROXY, CONFIRMING YOUR
OWNERSHIP OF SHARES.
VOTES REQUIRED. As of the record date, there were a total of
1,259,439 shares of Market Financial common stock outstanding. Each share of
Market Financial common stock is entitled to one vote on the proposals. The
affirmative vote of at least a majority of the shares entitled to vote on the
merger is required in order to adopt the amendment to the Articles of
Incorporation and to approve and adopt the reorganization agreement. Under Ohio
law, only votes cast in favor of a proposal count as being voted for the
proposal. Therefore, abstentions and broker non-votes will have the effect of a
vote against the amendment to the Articles of Incorporation and the
reorganization agreement. Under Ohio law and Market Financial's Code of
Regulations, the four nominees receiving the greatest number of votes will be
elected as directors. Shares as to which the authority to vote is withheld are
not counted toward the election of directors or toward the election of the
individual nominees specified in the enclosed proxy. If the enclosed proxy is
signed and dated but no vote is specified, the shares will be voted FOR the
re-election of the three nominees. No stockholder may cumulate votes in the
election of directors. The affirmative vote of the holders of a majority of the
total votes present in person or by proxy at the annual meeting is required to
ratify the appointment of the independent auditors. Under rules applicable to
broker-dealers, the proposal for ratification of the auditors is considered a
"discretionary" item upon which brokerage firms may vote in their discretion on
behalf of their clients if such clients have not furnished voting instructions
and for which there will not be "broker non-votes."
As of the record date, Market Financial's and Market Bank's
directors, Market Financial's executive officers, and their affiliates (9
persons) had voting power with respect to an aggregate of 199,340 shares, or
approximately 15.8% of the outstanding common shares, of Market Financial common
stock (exclusive of shares of Market Financial common stock that may be acquired
upon the exercise of outstanding stock options). The directors of Market
Financial and Market Bank have each signed a stockholder's agreement, which
provides, among other things, that they will vote any shares of Market Financial
common stock over which they have voting power, other than shares held in a
fiduciary capacity, in favor of the reorganization agreement. The directors of
Market Financial and Market Bank, who signed the stockholder's agreement,
beneficially owned 148,170 shares or 11.8% of the Market Financial common stock
outstanding on the record date (exclusive of shares of Market Financial common
stock that may be acquired upon the exercise of outstanding stock options and
shares held in a fiduciary capacity).
SOLICITATION OF PROXIES. Peoples Bancorp will bear all the costs and
expenses that are incurred in printing and mailing this document. Market
Financial will pay its costs of soliciting proxies. Such solicitation will be
made by mail, but also may be made by telephone or in person by the directors,
officers and employees of Market Financial (who will receive no additional
compensation for doing so). Market Financial has retained _______________, a
proxy solicitation firm, to assist in such solicitation. The fee to be paid to
such firm is not expected to exceed $______, plus reasonable out-of-pocket costs
and expenses authorized by Market Financial. In addition, Market Financial will
make arrangements with brokerage firms and other custodians, nominees and
fiduciaries, if any, for the forwarding of solicitation materials to the
beneficial owners of Market Financial common stock held of record by such
persons.
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THE MERGER
The following information relates to matters contained in the
reorganization agreement. It describes the material aspects of the merger but is
not a complete description of the reorganization agreement. The reorganization
agreement is attached as Appendix A and incorporated by reference in this joint
proxy statement/prospectus. You are urged to read the reorganization agreement
carefully.
PARTIES TO THE MERGER
Peoples Bancorp is a Delaware corporation organized in December 1999
for the purpose of becoming a unitary savings and loan holding company of
Peoples Community Bank and facilitating the conversion of Peoples Community from
an Ohio-chartered mutual savings and loan association to a federally-chartered
stock savings bank. In connection with its conversion from mutual to stock form,
on March 29, 2000, Peoples Community Bank acquired The Oakley Improved Building
and Loan Company. On the same date, Peoples Bancorp acquired Harvest Home
Financial Corporation, the parent of Harvest Home Savings Bank, which merged
with and into Peoples Community Bank. Peoples Bancorp conducts operations
through six full service branch offices in southwestern Ohio located in Warren,
Hamilton and Clinton Counties, with its largest market presence being in
Hamilton County, where it operates three full service branch offices.
Peoples Bancorp's primary market area includes a mixture of rural,
suburban and urban markets, with Hamilton County being the most populous and
more urban of the markets. Peoples Bancorp's market area has a fairly
diversified economy, with services, wholesale/retail trade, manufacturing, and
state and local government constituting the basis of the three county primary
market area it serves.
Peoples Bancorp's principal business consists of attracting deposits
from the general public and investing such deposits in real estate loans secured
by liens on residential and commercial properties, consumer loans, commercial
business loans, securities and interest-earning deposits. Substantially all of
Peoples Bancorp's deposits are received from residents of their principal market
area and most loans are secured by properties in southwestern Ohio. In addition,
Peoples Bancorp utilizes borrowed funds, including primarily advances from the
Federal Home Loan Bank of Cincinnati, to fund Peoples Bancorp's investment
portfolio. Peoples Bancorp invests in securities issued by the U.S. government
and agencies and other investments permitted by federal law and regulations.
Market Financial Corporation is a unitary savings and loan holding
company which was organized under Ohio law in April 1996 and which owns all of
the issued and outstanding common shares of Market Bank, a savings and loan
association incorporated under Ohio law.
Market Financial is principally engaged in the business of
originating mortgage loans secured by first mortgages on one- to four-family
residential real estate located in its primary market area of Hamilton County,
Ohio, and portions of the contiguous counties. Market Financial also originates
a limited number of loans for the construction of one- to four-family
residential real estate, permanent mortgage loans secured by multifamily real
estate (over four units) and nonresidential real estate in its primary market
area, and secured consumer loans. For liquidity and interest rate risk
management purposes, Market Financial invests in interest-bearing deposits in
other financial institutions, U.S. Government and agency obligations and
mortgage-backed securities. Funds for lending and other investment activities
are obtained primarily from savings deposits, which are insured up to applicable
limits by the Federal Deposit Insurance Corporation, and loan principal
repayments.
Interest on loans and investments is Market Financial's primary
source of income. Market Financial's principal expense is interest paid on
deposit accounts. Operating results are dependent to a significant degree on the
net interest income of Market Financial, which is the difference between
interest income earned on loans, mortgage- backed securities and other
investments and interest paid on deposits. Like most thrift institutions, Market
Financial's interest income and interest expense are significantly affected by
general economic conditions and by the policies of various regulatory
authorities.
Market Financial conducts business from its main office in Mt.
Healthy, Ohio, and from its full-service branch office located in North Bend,
Ohio. Market Financial's primary market area for lending and deposit activity is
Hamilton County, Ohio, which includes the City of Cincinnati within its
boundaries.
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GENERAL
Market Financial will be merged with and into Peoples Bancorp, and
Market Financial's stockholders will receive the consideration discussed under
"-Market Financial Stockholders Will Receive Shares of Peoples Bancorp Common
Stock or Cash for Each Market Financial Share." Peoples Bancorp will be the
surviving corporation in the merger and will continue its corporate existence
under Delaware law. After the merger, the separate corporate existence of Market
Financial will terminate. The merger is subject to the satisfaction of certain
conditions, including the receipt of all necessary regulatory approvals, the
adoption of the reorganization agreement and amendment of the Articles of
Incorporation by the requisite vote of the stockholders of Market Financial. See
"- Conditions to the Merger." Immediately following the merger of Market
Financial into Peoples Bancorp, Market Bank will be merged into Peoples
Community Bank.
BACKGROUND AND MARKET FINANCIAL'S AND MARKET BANK'S REASONS FOR THE MERGER
In 1997, Market Bank converted from a state-chartered mutual savings
and loan association to a state- chartered stock savings and loan association.
In connection with the conversion, Market Financial was formed as a savings and
loan holding company and issued 1,335,725 common shares to depositors of Market
Bank and others. The Prospectus dated February 12, 1997, of Market Financial
used in connection with the conversion offering disclosed as an investment risk
factor that the returns on assets and equity of Market Financial had
historically been low. The board of directors of Market Financial tried since
the completion of the conversion to find ways to increase the returns on both
equity and assets. As part of such effort, the directors monitored the financial
performance of Market Financial not only in relation to comparable thrifts and
banks in general, but also in view of industry trends and developments. In
addition, management met periodically with investment bankers to discuss Market
Financial's performance and position in the market in relation to its peers.
Between 1997 and 1999, Market Financial took various specific
actions to increase its return on assets and return on equity. In fiscal year
1999, for example, Market Financial purchased a total of 76,286 shares of Market
Financial in open market transactions. In addition, in fiscal 1998, Market
Financial paid a capital distribution of $3.78 per share to its shareholders,
all of which constituted a "tax free" return of capital. During such time,
Market Financial also considered acquisitions of other thrifts, as well as
acquisitions of branch offices. Despite such efforts, Market Financial's returns
on assets and equity remained well below levels considered by management to be
adequate.
As the directors contemplated the future prospects of Market
Financial and strategies for increasing shareholder value, they considered
whether Market Financial could become reasonably profitable in an industry in
which competition was affected not only by significant technological change, but
also by the proliferation of alternative deposit products, independent mortgage
lenders and an increased array of financial services permitted to be sold by
financial institutions under recent legislation. The implementation of various
products and services was considered and discussed in relation to such
competition, with the eventual recognition that there were many products and
services which Market Financial could not offer because of the expense of
implementation. As a result, the directors became increasingly concerned about
whether shareholder value could be increased if the competition could not be
met.
In February 2000, the board of directors decided that Market
Financial should formally retain a financial advisor to advise the directors on
methods of enhancing shareholder value, including the possible merger of Market
Financial with another financial institution. On February 15, 2000, at the
request of the board of directors, McDonald Investments, Inc., reviewed with the
directors an analysis of potential alternatives to remaining independent. During
the meeting, the directors discussed hypothetical merger scenarios. After such
meeting, the directors contemplated the future of Market Financial as an
independent company in view of the scenarios discussed.
In May 2000, the board of directors met again to discuss the
information provided by McDonald, Market Financial's business plan and the
effect of current competitive pressures and industry and market factors. At that
meeting, the board of directors determined that Market Financial should consider
a merger with another financial institution as a means of enhancing shareholder
value. The board of directors agreed to engage McDonald as a financial advisor.
McDonald was retained on May 18, 2000.
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Later in May 2000, the board of directors met again with McDonald to
review information on specific companies which might be interested in a merger
with Market Financial and which could provide a satisfactory return to Market
Financial's shareholders. At the meeting, McDonald presented a list of 31 bank
and thrift holding companies and insurance companies. After an extensive
discussion of the list and on the basis of historic financial performance and a
variety of other factors, the directors authorized McDonald to contact each of
the 31 and, if such contact revealed any interest, to send the interested
candidate a Confidentiality Agreement. After the Confidentiality Agreement was
signed, McDonald sent a volume of financial and other materials on Market
Financial to the interested candidates.
Of the 31 candidates contacted, 22 signed Confidentiality Agreements
and received a package of detailed information. Of the 22 interested candidates,
five returned non-binding indications of interest. On July 11, 2000, the board
of directors met with McDonald to discuss the five proposals. McDonald provided
the board of directors with a detailed analysis of each of the indications of
interest, including a comprehensive financial and market analysis and additional
relevant information. The board of directors discussed at length each indication
of interest and analysis. During the discussion, the directors eliminated two of
the five on the basis that the value of each proposal was below the value of the
other three. The three not eliminated included Peoples Bancorp and two other
thrift holding companies.
During July 2000, the three entities performed an extensive review
of the books and records of Market Financial. The Market Financial board of
directors met with representatives of Peoples Bancorp and one of the two thrift
holding companies. The other thrift holding company declined such a meeting and
then decided not to proceed with the preparation and submission of a final
proposal. The board of directors of Market Financial reviewed publicly available
and other information on each of the remaining two companies. After the
completion of such due diligence, the two entities presented final, non-binding
proposals on August 4, 2000.
At a meeting of the board of directors on August 7, 2000, the
directors discussed each proposal with McDonald and counsel. The other thrift
holding company proposal provided for an exchange of Market Financial common
shares for a fixed number of shares of the thrift holding company. The Peoples
Bancorp proposal provided for an exchange of Market Financial common shares for
a fixed purchase price in the form of a mix of cash and Peoples Bancorp stock.
McDonald then engaged in further discussions with both of the companies. During
such discussions, Peoples Bancorp increased its proposed price to an amount
above the other thrift holding company on a comparative basis.
In addition to the higher value, the directors of Market Financial
focused on a number of other factors in comparing the two offers. Such other
factors were examined in the light of a variety of external influences. The
directors recognized, for example, that the stock market in general had been
very volatile for a significant period of time. In addition, the directors knew
that since late 1998, bank and thrift holding company stocks were in the midst
of a downward trend. Moreover, the directors realized that because of the need
for shareholder and regulatory approval of any merger, the time between the
execution of a merger agreement and the closing of a merger would be six to nine
months. In view of such influences, one of the objectives of the directors was
to obtain a fair value for Market Financial without subjecting such value to the
risks inherent in a volatile market during the six to nine months between the
execution of the merger agreement and the closing.
The other thrift holding company offered a fixed exchange rate for
the number of shares of the company to be issued on the closing date in exchange
for each Market Financial share. As a result of the fixed exchange rate, the
directors realized that the value of the consideration offered by the other
thrift holding company could go up or down between the date of the signing of
the merger agreement and the date of the closing, depending on its market price.
In view of the recent volatility of the stock market in general and financial
institution stocks in particular, such possible fluctuation in value concerned
the directors.
The board of directors believed that the Peoples Bancorp offer did
not present a similar risk. First, the cash component of the offer did not
involve any market risk. Moreover, in view of the ability of Market Financial's
shareholders to elect either cash or stock, the board of directors believed
that, depending on the elections of all shareholders, shareholders who were
particularly concerned about market risk might be able to exchange their Market
Financial shares for 100% cash and thereby eliminate such risk completely.
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<PAGE>
Second, because the offer was based on a fixed purchase price, the
number of Peoples Bancorp shares to be exchanged for Market Financial shares
would fluctuate until a few weeks before the closing. Given the volatility in
financial institution stocks during the past year in general and the relatively
stable performance of Peoples Bancorp's stock since its initial public offering,
the board of directors believed that the risk of value fluctuations in a merger
with the Peoples Bancorp would be less than the risk of value fluctuations in
the all stock, fixed exchange rate offer of the other thrift holding company.
In addition to the foregoing, the board of directors discussed and
considered at length the recent merger of two financial institutions into
Peoples Bancorp and the difficulty of evaluating the performance of the combined
entity. Based upon a review of information about the companies and the
familiarity of Market Financial management with the management of Peoples
Bancorp, the board of directors determined that the lack of extensive combined
historical operations was outweighed by the many advantages of the Peoples
Bancorp proposal.
Between August 7 and September 19, 2000, Market Financial and
Peoples Bancorp negotiated the terms and conditions of the merger agreement and
its exhibits. During such time, management of Market Financial, its legal
counsel and McDonald performed an extensive review of the books and records of
Peoples Bancorp. At a joint meeting of the boards of directors of Market
Financial and Market Bank on September 19, 2000, McDonald and counsel reviewed
the terms of the negotiated merger agreement and its exhibits and the
contemplated transaction. Included in such review was a detailed analysis by
McDonald of the financial terms of the merger agreement. Following considerable
discussion, McDonald stated that, as of September 19, 2000, the financial
consideration provided in the merger agreement was fair to the shareholders of
Market Financial from a financial point of view. The directors then unanimously
agreed that the Peoples Bancorp transaction would be in the best interests of
the Market Financial shareholders and voted unanimously to approve the merger
agreement and the agreement of merger.
The foregoing discussion of the information and factors considered
by the board of directors is not intended to be exhaustive, but constitutes the
material factors considered by the board of directors. In reaching its
determination to approve and recommend the merger agreement, the directors did
not assign any relative or specific weights to the foregoing factors, and
individual directors may have weighed factors differently. The terms of the
merger agreement were the product of arm's length negotiations between
representatives of Market Financial and Peoples Bancorp.
FOR THE REASONS SET FORTH ABOVE, THE BOARD OF DIRECTORS OF MARKET
FINANCIAL HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT THE
SHAREHOLDERS OF MARKET FINANCIAL VOTE FOR THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
PEOPLES BANCORP'S REASONS FOR THE MERGER; RECOMMENDATION OF THE PEOPLES BANCORP
BOARD OF DIRECTORS
In the course of reaching a determination to approve the
reorganization agreement, the Peoples Bancorp board consulted with legal counsel
with respect to its legal duties and the terms of the reorganization agreement.
The following discussion of the information and factors considered
by the Peoples Bancorp board is not intended to be exhaustive, but does include
all material factors considered by the board. In reaching its decision to
approve the reorganization agreement, the Peoples Bancorp board considered the
following:
o The financial terms of the transaction, including (a) the
price of $13.00 per share and (b) the ability to offer cash
and stock.
o That Market Financial and Peoples Bancorp serve contiguous
market areas with similar communities and that the expanded
reach of the combined company would benefit existing customers
and make the combined company more attractive to potential
customers.
o The current operating environment, including the continued
consolidation and increasing competition in the banking and
financial services industries and the prospect for further
changes in these industries.
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<PAGE>
o The detailed financial analyses, pro forma and other
information, including the anticipated effects of purchase
accounting on the combined company on a prospective basis.
o The likelihood of the merger and related transactions being
approved by the appropriate regulatory authorities. See
"-Regulatory Approval Needed to Complete the Merger."
o The anticipated cost savings and operating efficiencies
available to the combined institution from the merger.
In reaching its determination to approve and recommend the
reorganization agreement, the Peoples Bancorp board did not assign any specific
weights to the foregoing factors, and apart from the financial terms of the
transaction, individual directors may have weighed factors differently.
In considering the reorganization agreement, the Peoples Bancorp
board also took into account the various expenses which would be incurred due to
the merger.
ACCORDINGLY, THE PEOPLES BANCORP BOARD UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT.
OPINION OF MARKET FINANCIAL'S FINANCIAL ADVISOR
GENERAL. Pursuant to an engagement letter dated May 18, 2000 between
Market Financial and McDonald, Market Financial retained McDonald to act as its
sole financial advisor in connection with a possible merger and related matters.
As part of its engagement, McDonald agreed, if requested by Market Financial, to
render an opinion with respect to the fairness, from a financial point of view,
to the holders of Market Financial common shares, of the merger consideration as
set forth in the reorganization agreement. McDonald is a nationally recognized
specialist in the financial services industry in general, and in Midwestern
banks and thrifts in particular. McDonald is regularly engaged in evaluations of
similar businesses and in advising institutions with regard to mergers and
acquisitions, as well as raising debt and equity capital for such institutions.
Market Financial selected McDonald as its financial advisor based upon
McDonald's qualifications, expertise and reputation in such capacity.
On September 19, 2000, McDonald delivered its oral opinion that the
merger consideration was fair to Market Financial stockholders, from a financial
point of view, as of the date of such opinion. McDonald also delivered to the
Market Financial board of directors a written opinion dated as of September 19,
2000, confirming its oral opinion as of such date. McDonald updated its
September 19, 2000 opinion as of the date of this joint proxy
statement/prospectus. No limitations were imposed by Market Financial on
McDonald with respect to the investigations made or the procedures followed in
rendering its opinion.
THE FULL TEXT OF McDONALD'S WRITTEN OPINION TO THE MARKET FINANCIAL
BOARD, DATED AS OF THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS ATTACHED
AS APPENDIX B AND IS INCORPORATED HEREIN BY REFERENCE. THE OPINION SETS FORTH
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND EXTENT OF REVIEW BY McDONALD. IT
SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONJUNCTION WITH THIS JOINT
PROXY STATEMENT/PROSPECTUS. THE FOLLOWING SUMMARY OF McDONALD'S OPINION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
McDONALD'S OPINION IS ADDRESSED TO THE MARKET FINANCIAL BOARD AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF MARKET FINANCIAL AS TO HOW
SUCH STOCKHOLDER SHOULD VOTE AT THE MARKET FINANCIAL ANNUAL MEETING DESCRIBED IN
THIS DOCUMENT.
23
<PAGE>
McDonald, in connection with rendering its opinion:
o reviewed Market Financial's Annual Report to Stockholders and
Annual Report on Form 10-KSB for the year ended September 30,
1999, September 30, 1998 and September 30, 1997, including the
audited financial statements contained therein, and Market
Financial's Quarterly Report on Form 10- QSB for each of the
quarters ended June 30, 2000, March 31, 2000, and December 31,
1999;
o reviewed Peoples Bancorp's Form S-1/A dated February 11, 2000,
including the audited financial statements contained therein
of The People's Building, Loan and Savings Company, The Oakley
Improved Building and Loan Company and Harvest Home Financial
Corporation, and Peoples Bancorp's Quarterly Report on Form
10-QSB for each of the quarters ended June 30, 2000 and March
31, 2000;
o reviewed certain other public and non-public information,
primarily financial in nature, relating to the respective
businesses, earnings, assets and prospects of Market Financial
and Peoples Bancorp provided to McDonald or publicly
available;
o participated in meetings and telephone conferences with
members of senior management of Market Financial and Peoples
Bancorp concerning the financial condition, business, assets,
financial forecasts and prospects of the respective companies,
as well as other matters McDonald believed relevant to its
inquiry;
o reviewed certain stock market information for Market Financial
common stock and Peoples Bancorp common stock and compared it
with similar information for certain companies, the securities
of which are publicly traded;
o compared the results of operations and financial condition of
Market Financial and Peoples Bancorp with that of certain
companies that McDonald deemed to be relevant for purposes of
this opinion;
o reviewed the financial terms, to the extent publicly
available, of certain acquisition transactions that McDonald
deemed to be relevant for purposes of this opinion;
o reviewed the reorganization agreement dated September 19, 2000
and its schedules and exhibits and certain related documents;
and
o performed such other reviews and analyses as McDonald deemed
appropriate.
The oral and written opinions provided by McDonald to Market
Financial were necessarily based upon economic, monetary, financial market and
other relevant conditions as of the dates thereof.
In connection with its review and arriving at its opinion, McDonald
relied upon the accuracy and completeness of the financial information and other
pertinent information provided by Market Financial and Peoples Bancorp to
McDonald for purposes of rendering its opinion. McDonald did not assume any
obligation to verify independently any of the provided information as being
complete and accurate in all material respects. With regard to the financial
forecasts established and developed for Market Financial and Peoples Bancorp
with the input of the respective managements, as well as projections of cost
savings, revenue enhancements and operating synergies, McDonald assumed that
these materials had been reasonably prepared on bases reflecting the best
available estimates and judgments of Market Financial and Peoples Bancorp as to
the future performance of the separate and combined entities and that the
projections provided a reasonable basis upon which McDonald could formulate its
opinion. Neither Market Financial nor Peoples Bancorp publicly discloses such
internal management projections of the type utilized by McDonald in connection
with McDonald's role as financial advisor to Market Financial with respect to
the review of the merger. Therefore, such projections cannot be assumed to have
been prepared with a view towards public disclosure. The projections were based
upon numerous variables and
24
<PAGE>
assumptions that are inherently uncertain, including, among others, factors
relative to the general economic and competitive conditions facing Market
Financial and Peoples Bancorp. Accordingly, actual results could vary
significantly from those set forth in the respective projections.
McDonald does not claim to be an expert in the evaluation of loan
portfolios or the allowance for loan losses with respect thereto and therefore
assumes that such allowances for Market Financial and Peoples Bancorp are
adequate to cover such losses. In addition, McDonald does not assume
responsibility for the review of individual credit files and did not make an
independent evaluation, appraisal or physical inspection of the assets or
individual properties of Market Financial or Peoples Bancorp, nor was McDonald
provided with such appraisals. Furthermore, McDonald assumes that the merger
will be consummated in accordance with the terms set forth in the reorganization
agreement, without any waiver of any material terms or conditions by Market
Financial, and that obtaining the necessary regulatory approvals for the merger
will not have an adverse effect on either separate institution or the combined
entity. Moreover, in each analysis that involves per share data for Market
Financial, McDonald adjusted the data to reflect the effect of the redemption of
outstanding stock options for cash. McDonald assumes that the merger will be
recorded as a "purchase" in accordance with generally accepted accounting
principles.
In connection with rendering its September 19, 2000 opinion to
Market Financial's board, McDonald performed a variety of financial and
comparative analyses, which are briefly summarized below. Such summary of
analyses does not purport to be a complete description of the analyses performed
by McDonald. Moreover, McDonald believes that these analyses must be considered
as a whole and that selecting portions of such analyses and the factors
considered by it, without considering all such analyses and factors, could
create an incomplete understanding of the scope of the process underlying the
analyses and, more importantly, the opinion derived from them. The preparation
of a financial advisor's opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analyses or a summary
description of such analyses. In its full analysis, McDonald also included
assumptions with respect to general economic, financial market and other
financial conditions. Furthermore, McDonald drew from its past experience in
similar transactions, as well as its experience in the valuation of securities
and its general knowledge of the banking industry as a whole. Any estimates in
McDonald's analyses were not necessarily indicative of actual future results or
values, which may significantly diverge more or less favorably from such
estimates. Estimates of company valuations do not purport to be appraisals nor
to necessarily reflect the prices at which companies or their respective
securities actually may be sold. None of the analyses performed by McDonald were
assigned a greater significance by McDonald than any other in deriving its
opinion.
COMPARABLE COMPANY ANALYSIS: McDonald reviewed and compared actual
stock market data and actual and estimated selected financial information for
Market Financial with corresponding information as of June 30, 2000, for 10
publicly traded thrifts headquartered in the Midwest with assets less than $100
million and an equity- to-assets ratio greater than 10.0%, (the "Market Peer
Group"). The following is the Market Peer Group:
1. CKF Bancorp, Inc. Danville, KY
2. First Lancaster Bancshares, Inc.* Lancaster, KY
3. First Niles Financial Inc. Niles, OH
4. Home Financial Bancorp Spencer, IN
5. Kentucky First Bancorp Cynthiana, KY
6. MSB Financial, Inc. Marshall, MI
7. NS&L Bancorp, Inc. Neosho, MO
8. Peoples Financial Corporation Massillon, OH
9. Perry County Financial Corporation Perryville, MO
10. Statefed Financial Corporation Des Moines, IA
*Financial data as of March 31, 2000.
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<PAGE>
The following table represents a summary analysis of the Market Peer
Group based on market prices as of September 18, 2000, and the latest publicly
available financial data as of or for the twelve months ended June 30, 2000:
<TABLE>
<CAPTION>
MARKET
MEAN MEDIAN FINANCIAL
---- ------ ---------
<S> <C> <C> <C>
Price to last twelve month earnings 15.8x 13.5x 31.7x
Price to book value 81.5% 79.2% 82.0%
Price to tangible book value 81.5% 79.2% 82.0%
Dividend yield 4.66% 4.23% 3.37%
Return on average assets 0.89% 0.91% 0.64%
Return on average equity 5.33% 5.64% 2.43%
Leverage ratio 16.21% 15.79% 26.08%
Efficiency ratio 62.2% 58.8% 73.0%
</TABLE>
McDonald reviewed and compared actual stock market data and actual
and estimated selected financial information for Peoples Bancorp with
corresponding information as of June 30, 2000, for 13 publicly traded Midwestern
thrifts with assets between $200 million and $500 million and an
equity-to-assets ratio between 8.0% and 15.0% and ROAA less than 1.00%, (the
"Peoples Bancorp Peer Group"). The following is the Peoples Bancorp Peer Group:
1. Bank West Financial Corporation Grand Rapids, MI
2. Big Foot Financial Corporation* Long Grove, IL
3. Cameron Financial Corporation Cameron, MO
4. Citizens First Financial Corp. Bloomington, IL
5. First Capital, Inc. Corydon, IN
6. FSF Financial Corp. Hutchinson, MN
7. Hemlock Federal Financial Corp. Oak Forest, IL
8. Kankakee Bancorp, Inc. Kankakee, IL
9. Landmark Bancshares, Inc. Dodge City, KS
10. MFB Corp. Mishawaka, IN
11. Pulaski Financial Corp. St. Louis, MO
12. Wells Financial Corp. Wells, MN
13. Western Ohio Financial Corporation Springfield, OH
*Financial data as of March 31, 2000.
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<PAGE>
The following table represents a summary analysis of the Peoples
Bancorp Peer Group based on market prices as of September 18, 2000, and the
latest publicly available financial data as of or for the last twelve months
ended June 30, 2000:
<TABLE>
<CAPTION>
PEOPLES
MEAN MEDIAN BANCORP
---- ------ -------
<S> <C> <C> <C>
Price to last twelve months earnings 12.7x 12.0x 12.5x*
Price to 2000 estimated earnings 16.7x 16.9x 11.9x*
Price to book value 81.1% 77.8% 75.6%
Price to tangible book value 82.5% 79.2% 89.6%
Dividend yield 3.35% 3.38% Nil
Return on average assets 0.70% 0.78% 0.71%
Return on average equity 6.22% 5.56% 6.58%
Leverage ratio 10.25% 10.05% 8.60%
Efficiency ratio 66.4% 65.6% NA
</TABLE>
*Based on annualized EPS since initial public offering.
NA = Not available
COMPARABLE TRANSACTION ANALYSIS: McDonald reviewed and compared
actual information for groups of comparable pending (through September 15, 2000)
and completed transactions (since December 1, 1999) it deemed pertinent to an
analysis of the merger. The implied acquisition price was compared to the median
ratios of (i) price to last twelve months earnings, (ii) price to book value,
(iii) price to tangible book value, and (iv) price to assets for each of the
following five pending and recently completed transaction comparable groups:
o all thrift acquistions with the selling thrift headquartered
in the midwest ("Comparable Regional Deals");
o all thrift acquisitions with the selling thrift having assets
less than $100 million ("Comparable Asset Size");
o all thrift acquisitions with the selling thrift having an
equity to assets ratio greater than 12.5% ("Comparable
Capitalization");
o all thrift acquisitions with the selling thrift having a
return on average assets less than 1.00% ("Comparable
Profitability"); and
o all thrift acquisitions with the selling thrift having a
nonperforming assets to assets ratio of less than 0.50%
("Comparable Asset Quality").
McDonald calculated an implied valuation for Market Financial by
applying the median price to book value, tangible book value, earnings and
assets for each of the five groups of pending comparable transactions described
above to Market Financial's current book value, tangible book value, earnings,
and assets. McDonald concluded that this analysis implied a valuation range of
$11.7 million to $14.5 million for Market Financial as compared to the $16.8
million Peoples Bancorp proposal.
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<PAGE>
CONTRIBUTION ANALYSIS: McDonald analyzed the contribution of each
company to the resulting combined company relative to the approximate ownership
of the resulting combined company. The analysis indicated that Market
stockholders would hold approximately 25.8% of the pro forma basic shares (42.6%
assuming100% stock consideration). Market Financial's approximate contributions
are listed below by category:
<TABLE>
<CAPTION>
MARKET
FINANCIAL
-------------
<S> <C>
Assets 15.3%
Loans 16.9%
Deposits 21.6%
Equity 32.0%
Tangible equity 35.7%
Last twelve month earnings 53.6%
2000 estimated earnings 37.6%
2001 estimated earnings 19.7%
</TABLE>
ACCRETION/DILUTION ANALYSIS: On the basis of financial projections
and estimates of on-going cost savings accruing to the resulting combined
company provided to McDonald by management, as well as estimated one-time costs
related to the transaction, McDonald compared per share equivalent earnings,
cash dividends, book value and tangible book value of the resulting combined
company to the stand-alone projections for Market Financial and Peoples Bancorp.
The accretion/dilution analysis demonstrated, among other things,
that the merger would result in:
o a 174.3% accretion to earnings per share for Market Financial
stockholders in fiscal 2001, the assumed first full year of
combined operations, and increasing over the period of the
analysis;
o a 9.3% dilution to earnings per share for Peoples Bancorp
stockholders in fiscal 2001 and over the period of the
analysis;
o elimination of cash dividends for Market Financial
stockholders, assuming the Peoples Bancorp board maintains its
current dividend policy;
o no change in cash dividends for Peoples Bancorp stockholders;
o 46.3% and 22.7% accretion to book value and tangible book
value per share for Market Financial stockholders initially,
and increasing over the period of the analysis; and
o 5.0% and 8.4% dilution to book value and tangible book value
per share for Peoples Bancorp stockholders over the period of
the analysis.
DISCOUNTED CASH FLOW ANALYSIS: McDonald performed a discounted cash
flow analysis with regard to Market Financial in an acquisition scenario. This
analysis utilized a range of discount rates of 9.5% to 12.5% and a range of
terminal earnings multiples of 10.5x to 25.0x. The analysis resulted in a range
of present values of $11.7 million to $25.4 million for Market Financial as
compared to the $16.8 million Peoples Bancorp proposal. As indicated above, this
analysis was based on Market Financial's and Peoples Bancorp's senior management
estimates and is not necessarily indicative of actual values or actual future
results and does not purport to reflect the prices at which any securities may
trade at the present or at any time in the future. McDonald noted that the
discounted cash flow analysis was included because it is a widely used valuation
methodology, but noted that the results of such
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<PAGE>
methodology are highly dependent upon the numerous assumptions that must be
made, including earnings growth rates, discount rates, and terminal values.
OTHER ANALYSES: McDonald also reviewed certain other information
including pro forma estimated balance sheet composition, pro forma financial
performance and pro forma deposit market share.
NO COMPANY USED AS A COMPARISON IN THE ABOVE ANALYSES IS IDENTICAL
TO MARKET FINANCIAL, PEOPLES BANCORP OR THE COMBINED ENTITY, AND NO OTHER
TRANSACTION IS IDENTICAL TO THE MERGER. ACCORDINGLY, AN ANALYSIS OF THE RESULTS
OF THE FOREGOING IS NOT PURELY MATHEMATICAL; RATHER, SUCH ANALYSES INVOLVE
COMPLEX CONSIDERATIONS AND JUDGMENTS CONCERNING DIFFERENCES IN FINANCIAL MARKET
AND OPERATING CHARACTERISTICS OF THE COMPANIES AND OTHER FACTORS THAT COULD
AFFECT THE PUBLIC TRADING VOLUME OF THE COMPANIES TO WHICH MARKET FINANCIAL,
PEOPLES BANCORP AND THE COMBINED ENTITY ARE BEING COMPARED.
IN CONNECTION WITH DELIVERY OF ITS OPINION DATED AS OF THE DATE OF
THIS JOINT PROXY STATEMENT/ PROSPECTUS, McDONALD PERFORMED PROCEDURES TO UPDATE,
AS NECESSARY, CERTAIN OF THE ANALYSES DESCRIBED ABOVE AND REVIEWED THE
ASSUMPTIONS ON WHICH SUCH ANALYSES DESCRIBED ABOVE WERE BASED AND THE FACTORS
CONSIDERED IN CONNECTION THEREWITH. McDONALD DID NOT PERFORM ANY ANALYSES IN
ADDITION TO THOSE DESCRIBED ABOVE IN UPDATING THE OPINION.
For its financial advisory services provided to Market Financial,
McDonald has been paid fees of $50,000 to date and will be paid a fee of
approximately $265,000 at the time of closing of the merger. In addition, Market
Financial has agreed to reimburse McDonald for all reasonable out-of-pocket
expenses incurred by it on Market Financial's behalf, as well as indemnify
McDonald against certain liabilities, including any which may arise under the
federal securities laws.
McDonald is a member of all principal securities exchanges in the
United States and in the conduct of its broker-dealer activities has from time
to time purchased securities from, and sold securities to, Market Financial
and/or Peoples Bancorp. As a market maker, McDonald may also have purchased and
sold the securities of both Market Financial and Peoples Bancorp for McDonald's
own account and for the accounts of its customers.
MARKET FINANCIAL STOCKHOLDERS WILL RECEIVE SHARES OF PEOPLES BANCORP COMMON
STOCK OR CASH FOR EACH MARKET FINANCIAL SHARE
Upon completion of the merger, each outstanding share of Market
Financial common stock will be converted into the right to receive, at the
election of each Market Financial stockholder and subject to the election,
allocation and proration procedures set forth in the reorganization agreement
and described below, either the stock consideration or the cash consideration,
in each case, as determined pursuant to the reorganization agreement. See
"-Merger Consideration," "- Election Procedures" and "- Allocation Procedures"
below. No fractional shares of Peoples Bancorp common stock will be issued in
connection with the merger. Instead, Peoples Bancorp will make a cash payment to
each Market Financial stockholder who would otherwise receive a fractional share
in the amount of the product of the fraction multiplied by $13.00.
THE FORM OF THE CONSIDERATION ULTIMATELY RECEIVED BY YOU WILL DEPEND
UPON THE ELECTION, ALLOCATION AND PRORATION PROCEDURES DESCRIBED BELOW AND THE
CHOICES OF OTHER STOCKHOLDERS. ACCORDINGLY, NO GUARANTEE CAN BE GIVEN THAT THE
CHOICE OF ANY GIVEN STOCKHOLDER OF MARKET FINANCIAL WILL BE HONORED. In
addition, because the tax consequences of receiving the cash consideration will
differ from the tax consequences of receiving the stock consideration, Market
Financial stockholders are urged to read carefully the information set forth
below under "- Federal Income Tax Consequences for Market Financial
Stockholders."
MERGER CONSIDERATION. Assuming a $15.00 average share price of
Peoples Bancorp common stock during the 20 day period prior to the consummation
of the merger, Peoples Bancorp will exchange a total of
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<PAGE>
approximately 545,757 shares of its common stock and pay approximately $8.6
million in cash (including cash to be paid for outstanding options to purchase
Market Financial common stock) for all of the outstanding shares of common stock
of Market Financial. The reorganization agreement provides that each holder of
Market Financial common stock will be entitled to receive for each share of
Market Financial common stock either $13.00 in cash or a number of shares of
Peoples Bancorp common stock equal to the quotient of $13.00 divided by the
daily average of the closing price per share of Peoples Bancorp common stock on
the Nasdaq National Market as of the close of trading for each of the twenty
trading days immediately preceding the effective time of the merger. Each Market
Financial stockholder will be given the opportunity to indicate the
stockholder's preference for either cash or stock of Peoples Bancorp. The
reorganization agreement provides, however, that no more than 50% of the
aggregate consideration will consist of cash and no more than 50% will consist
of Peoples Bancorp common stock. Thus, allocations of cash and stock will be
made among the Market Financial stockholders in order to make the total cash and
total stock consideration approximately equal. Market Financial stockholders may
not, therefore, receive the form of consideration they have elected, as further
described below.
The following table sets forth examples of the number of shares of
Peoples Bancorp that a Market Financial stockholder may receive depending on the
average closing price of a share of Peoples Bancorp common stock during the
relevant 20-trading-day period. We will not know the exact average share price
until the closing of the merger.
<TABLE>
<CAPTION>
Number of shares
of Peoples Bancorp
Assumed average Relevant exchange received in exchange for
Peoples Bancorp share ratio ($13.00 divided a share of Market Per Share
price by assumed average) Financial(1) Cash Consideration
----------------------------------- ---------------------------- ------------------------- -------------------
<S> <C> <C> <C>
$10 1.3000 1.3000 $13.00
15 0.8667 0.8667 13.00
20 0.6500 0.6500 13.00
</TABLE>
----------------
(1) Peoples Bancorp will not issue fractional shares. If you are entitled to a
fractional share of Peoples Bancorp common stock, you will receive cash in
an amount equal to the fractional share interest multiplied by the daily
average closing price of a share of Peoples Bancorp common stock as
reported on the Nasdaq Stock Market as of the close of trading for each of
the 20 trading days immediately preceding the closing of the merger.
You are urged to obtain current market prices for Peoples Bancorp
common stock in connection with voting your shares at the annual meeting and
making your election decision. For a discussion of the risk associated with the
fluctation in Peoples Bancorp common stock, see "Risk Factors - The Merger
Consideration is Fixed and May Fluctuate Over Time" on page 12.
ELECTIONS. No later than five days following the completion of the
merger, each Market Financial stockholder will be sent an election form and
transmittal letter with instructions for exchanging certificates representing
Market Financial common stock for your merger consideration. The election form
will permit you to elect to receive for each share of your Market Financial
common stock either (i) shares of Peoples Bancorp common stock or (ii) $13.00
cash per share.
ELECTION PROCEDURES. To make an effective election with respect to
your shares of Market Financial common stock, you must, in accordance with the
election form:
o properly complete and return the letter of transmittal and
election forms to the company designated by Peoples Bancorp
and approved by Market Financial to receive these materials;
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o deliver the election form with your stock certificates
representing such shares (or an appropriate guarantee of
delivery of such certificates); and
o deliver with the election forms any other required documents,
prior to the deadline for returning the letter of transmittal
and election form.
The deadline for surrendering all documentation required for an
effective election will be set forth in the election instructions and will be 20
days following but not including the mailing of the election form.
MARKET FINANCIAL STOCKHOLDERS SHOULD NOT RETURN THEIR STOCK
CERTIFICATES WITH THE ENCLOSED PROXY, AND STOCK CERTIFICATES SHOULD NOT BE
FORWARDED TO THE DESIGNATED AGENT UNTIL YOU HAVE RECEIVED THE LETTER OF
TRANSMITTAL AND ELECTION FORM.
If you have a particular preference as to the form of consideration
to be received for your shares of Market Financial common stock, you should make
an election because shares as to which an election has been made will be given
priority in allocating such consideration over shares as to which an election is
not received. Neither the Market Financial board nor its financial advisor makes
any recommendation as to whether stockholders should elect to receive the cash
consideration or the stock consideration in the merger. You must make your own
decision with respect to such election, bearing in mind the tax consequences of
the election you choose. See "- Federal Income Tax Consequences for Market
Financial Stockholders."
Even if you have no preference, it is suggested that you return your
transmittal and election forms by the election deadline date, indicating that
you have no preference, so that you may receive the merger consideration
allocable to you promptly following consummation of the merger, rather than
following completion of exchange procedures after the merger is consummated. See
"Procedures for Exchanging Your Stock Certificates."
ALLOCATION PROCEDURES. The ability of any Market Financial
stockholder to receive either all cash or all stock is subject to a requirement
that the aggregate cash consideration to be paid in exchange for Market
Financial common stock may not exceed $8.2 million (assuming 1,259,439 shares of
Market Financial common stock are outstanding prior to the completion of the
merger and options to purchase 125,558 shares of Market Financial remain
unexercised). If the total cash elections are greater, or less, than the
aggregate cash consideration, the elections will be allocated as follows so that
the resultant exchange for cash is as close as practical to the aggregate cash
consideration:
If the total amount of cash elected is more than the maximum
aggregate cash consideration, then:
o Those persons who have elected to receive cash will receive
cash on a pro rata basis in order to make the total cash
consideration paid equal the total cash consideration required
to be paid under the reorganization agreement;
o The remainder of the consideration to be paid for the Market
Financial shares for which cash was elected will be exchanged
for Peoples Bancorp common stock; and
o The remainder of the Market Financial shares (both shares for
which stock was elected and shares with respect to which a
timely election was not made) will be exchanged for Peoples
Bancorp common stock.
If the total amount of cash elected is less than the maximum
aggregate cash consideration to be paid, then:
o Those persons who have elected to receive Peoples Bancorp
common stock will receive Peoples Bancorp common stock on a
pro rata basis in order to make the total Peoples Bancorp
common
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<PAGE>
stock consideration paid equal the total Peoples Bancorp
common stock required to be paid pursuant to the
reorganization agreement;
o The remainder of the consideration to be paid for Market
Financial shares for which Peoples Bancorp common stock was
elected will be exchanged for cash; and
o The remainder of the Market Financial shares (both shares for
which cash was elected and shares with respect to which a
timely election was not made) will be exchanged for cash.
Upon completion of the merger, any shares of Market Financial common
stock that are owned by Market Financial as treasury stock or that are held
directly or indirectly by Peoples Bancorp, other than in a fiduciary capacity,
will be canceled and retired and no payment will be made with respect to those
shares and such shares will not be considered for purposes of the foregoing
allocation procedures.
PROCEDURES FOR EXCHANGING YOUR MARKET FINANCIAL STOCK CERTIFICATES
The exchange agent selected by Peoples Bancorp will send to each
Market Financial stockholder a transmittal letter with instructions for
exchanging your Market Financial stock certificates for your merger
consideration. Upon surrender of a stock certificate for Market Financial common
stock for exchange and cancellation to the designated agent, together with a
duly executed letter of transmittal, the holder of such certificate will be
entitled to receive the merger consideration allocated to the holders, and the
certificate for Market Financial common stock so surrendered will be canceled.
No interest will be paid or accrued on any cash constituting merger
consideration (including the cash in lieu of fractional shares) and any unpaid
dividends and distributions, if any, payable to holders of stock certificates
for Market Financial common stock.
No stock certificates representing fractional shares of Peoples
Bancorp common stock will be issued upon the surrender for exchange of Market
Financial stock certificates. Instead of issuing fractional shares, Peoples
Bancorp will pay an amount in cash determined by multiplying the fraction of a
share of Peoples Bancorp common stock that a holder would otherwise be entitled
to receive pursuant to the reorganization agreement by the daily closing price
of Peoples Bancorp common stock on the Nasdaq Stock Market as of the close of
trading for each of the 20 trading days immediately preceding the closing of the
merger.
If you receive shares of Peoples Bancorp common stock in the merger,
you will receive dividends on Peoples Bancorp common stock or other
distributions declared after the completion of the merger only if you have
surrendered your Market Financial stock certificates. Only then will you be
entitled to receive all previously withheld dividends and distributions, without
interest.
After completion of the merger, no transfers of Market Financial
common stock issued and outstanding immediately prior to the completion of the
merger will be allowed. Market Financial stock certificates that are presented
for transfer after the completion of the merger will be canceled and exchanged
for the merger consideration.
If your Market Financial stock certificates have been lost, stolen
or destroyed, you will have to prove your ownership of those certificates and
that they were lost, stolen or destroyed before you receive any consideration
for your shares. The agent designated by Peoples Bancorp will send you
instructions on how to provide this evidence.
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER THAT ARE DIFFERENT FROM YOUR
INTERESTS
Some members of Market Financial's management and the Market
Financial board of directors may have interests in the merger that are in
addition to or different from the interests of stockholders. The Peoples Bancorp
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and Market Financial boards were aware of these interests and considered them in
approving the reorganization agreement.
EXISTING EMPLOYMENT, SEVERANCE AND CHANGE IN CONTROL AGREEMENTS.
Certain officers of Market Bank will receive termination benefits. Market
Financial has employment agreements with John T. Larimer and Julie M. Bertsch
that provide severance payments and other benefits in the event of involuntary
termination of employment in connection with any change of control. Peoples
Bancorp has agreed to pay the severance payments under the employment agreements
for Mr. Larimer and Ms. Bertsch, which will be approximately $329,250 and
$55,000, respectively.
EMPLOYEE BENEFIT PLANS. All employees of Market Financial or Market
Bank immediately prior to completion of the merger who are employed by Peoples
Bancorp or Peoples Community Bank (the "employers") immediately following the
merger ("transferred employees") will be covered by the employers' employee
benefit plans on substantially the same basis as any employee of the employers
in a comparable position. Notwithstanding the foregoing, Peoples Bancorp may
determine to continue any of the Market Financial benefit plans for transferred
employees in lieu of offering participation in the employers' benefit plans
providing similar benefits (e.g., medical and hospitalization benefits), to
terminate any of Market Financial's benefit plans, or to merge any such benefit
plans with the employers' benefit plans, provided the result is the provision of
benefits to transferred employees that are substantially similar to the benefits
provided to the employers' employees generally. Except as otherwise prohibited
by law, transferred employees' service with Market Financial or Market Bank
shall be recognized as service with the employers for purposes of eligibility to
participate and vesting, if applicable (but not for purposes of benefit accrual)
under the employers' benefit plans, subject to applicable break-in-service
rules. Peoples Bancorp has agreed that any pre-existing condition, limitation or
exclusion in its medical, long-term disability and life insurance plans shall
not apply to transferred employees or their covered dependents who are covered
under a medical or hospitalization indemnity plan maintained by Market Financial
or Market Bank at the closing of the merger and who then change coverage to the
employers' medical or hospitalization indemnity health plan at the time such
transferred employees are first given the option to enroll.
At or before the completion of the merger, Market Financial will
terminate the Market Financial employee stock ownership plan and will file an
Application for Determination with the IRS regarding tax qualification upon
termination. All amounts accrued on the financial statements of Market Financial
as Market ESOP expense through the end of the month immediately before the month
of the completion of the merger will be contributed by Market Financial to the
Market ESOP trustee and will be paid by the Market ESOP trustee to Market
Financial to reduce the outstanding balance of the current exempt loan from
Market Financial to the Market ESOP. After reduction of the loan balance, an
appropriate number of shares of Market Financial common stock will be allocated
as promptly as possible by the Market ESOP trustee to the accounts of Market
ESOP participants (as defined in the Market ESOP) in accordance with the
allocation provisions of the Market ESOP and applicable law. All shares of
Market Financial common stock held by the trustee of the Market ESOP at the
completion of the merger will be exchanged by the Market ESOP trustee for the
per share stock consideration. The trustee will dispose of shares held in the
suspense account of the Market ESOP for the purpose of retiring the ESOP loan.
Any shares and other assets remaining in the suspense account following the
repayment of the loan in full will be allocated as promptly as possible by the
Market ESOP trustee to participants in accordance with the allocation provisions
of the Market ESOP in Section 17.02 and applicable law. It is the intent of
Market Financial and Peoples Bancorp that the Market ESOP be terminated
concurrently with the completion of the merger and that the distributions be
made as soon after completion of the merger as possible. No distribution will be
made until a final determination letter is received from the IRS.
In the event that the IRS determines that the allocation of assets
remaining in the suspense account following repayment of the loan in full is
subject to the limits on annual additions pursuant to the tax code, then Peoples
Bancorp will make all reasonable efforts, to the extent permissible under
applicable provisions of the code and related Treasury regulations, to continue
the Market ESOP Trust through the last day of the Market ESOP plan
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<PAGE>
year following the Market ESOP plan year during which the completion of the
merger occurs. The Market ESOP would be continued in effect solely for the
benefit of those individuals who are participants in the Market ESOP immediately
before the completion of the merger, and the remaining assets would be allocated
to Market ESOP participants in accordance with the terms of the Market ESOP to
the full extent permissible under the tax code between the completion of the
merger and the last day of the Market ESOP plan year following the Market ESOP
plan year during which the completion of the merger occurs. In the event that
all assets held by the Market ESOP Trust are allocated prior to the last day of
the Market ESOP plan year during which the completion of the merger occurs, the
Market ESOP Trust shall be immediately terminated and participants' Market ESOP
accounts will be distributed as soon as practicable thereafter.
MARKET FINANCIAL STOCK OPTIONS. Outstanding and exercisable options
to purchase shares of Market Financial common stock under Market Financial's
1998 Stock Option and Incentive Plan will be canceled with a cash payment to be
made in an amount equal to the difference between $13.00 and the exercise price
per share. As of December 31, 2000, options to purchase 125,558 shares were
outstanding, of which the directors and executive officers of Market Financial
held options to purchase a total of 92,501 shares. John T. Larimer will receive
$115,040 and all other directors and officers will receive payments aggregating
$191,370.
PROTECTION OF DIRECTORS, OFFICERS AND EMPLOYEES AGAINST CLAIMS.
Peoples Bancorp has also agreed to protect and hold harmless each present and
former director, officer and employee of Market Financial and Market Bank from
any costs, expenses, judgments, fines, losses, claims, or liabilities incurred
in connection with any claim, suit, proceeding or investigation relating to
matters existing or occurring at or prior to the completion of the merger. These
people will be protected for a period of three years after completion of the
merger.
Moreover, Peoples Bancorp will maintain Market Financial's and
Market Bank's existing directors' and officers' liability insurance policy for a
period of three years following the merger, provided that annual premiums do not
exceed 150% of the current annual premium.
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
Peoples Bancorp expects to achieve significant consolidation
efficiencies following the consummation of the merger, although there can be no
assurance that the anticipated efficiencies will be achieved. The efficiencies
are expected to be achieved primarily through the elimination of duplicative
costs for compensation, computer systems and services.
EMPLOYEE MATTERS
Each Market Financial or Market Bank employee whose employment is
not specifically terminated will become an employee of Peoples Bancorp or
Peoples Community Bank. However:
o Market Financial's continuing employees will not be, or act
as, officers of Peoples Bancorp or Peoples Community Bank,
unless elected or appointed to that position by Peoples
Bancorp or Peoples Community Bank.
o No employee of Market Financial will become a contractual
employee of Peoples Bancorp or Peoples Community Bank unless
the contract is in writing with Peoples Bancorp or Peoples
Community Bank.
o Each Market Financial employee who becomes an employee of
Peoples Bancorp or Peoples Community Bank will be eligible to
participate in Peoples Bancorp or Peoples Community Bank
employee plans, on the same basis as any newly-hired employee
of Peoples Bancorp or Peoples Community Bank. However, with
respect to each Peoples Bancorp or Peoples Community Bank
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<PAGE>
employee plan, service with Market Financial or Market Bank
will be treated as service with Peoples Bancorp or Peoples
Community Bank to determine eligibility to participate,
vesting and entitlement to benefits but not for purposes of
benefit accrual. Service will not be recognized to the extent
that it would result in a duplication of benefits.
CONDITIONS TO THE MERGER
The obligations of Peoples Bancorp and Market Financial to complete
the merger are conditioned on the following being satisfied at or prior to the
completion of the merger:
o all corporate action necessary to authorize the execution of
the reorganization agreement and the completion of the merger
must have been duly and validly taken by Peoples Bancorp and
Market Financial;
o Peoples Bancorp's and Market Financial's stockholders must
approve the reorganization agreement;
o the requisite regulatory or governmental approvals, consents
and waivers must be obtained and all statutory waiting periods
must have expired;
o any necessary material third-party consents, waivers or
approvals must be obtained or made;
o no approval or consent will have imposed any condition or
requirement that would materially and adversely impact the
economic or business benefits to either party giving effect to
the merger;
o no party to the merger will be subject to any order, decree or
injunction that prohibits closing any of the merger's
transactions;
o no statute, rule or regulation will prohibit completion of the
merger's transactions;
o the registration statement will have been declared effective
by the SEC and the SEC will not be taking actions to stop the
merger from proceeding;
o all required approvals by state securities or "blue sky"
authorities will have been obtained;
o holders of Market Financial common stock who dissent from the
merger under Ohio law will not hold more than 10% of the
Market Financial common stock immediately before the merger;
o all parties will have performed their respective obligations
under the reorganization agreement;
o subject to prior disclosure of any necessary qualifications,
the representations and warranties made by the parties in the
reorganization agreement will be materially true when the
merger closes. Each party will furnish the other with a
certificate attesting to this fact;
o Peoples Bancorp and Market Financial will have received an
opinion from Elias, Matz, Tiernan & Herrick L.L.P., dated as
of the completion of the merger, that the merger will be
treated for federal income tax purposes as a reorganization
within the meaning of the IRS code; and
o the delivery to each of Peoples Bancorp and Market Financial
of various letters, certificates and other documents.
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<PAGE>
The obligation of each of Market Financial and Peoples Bancorp to
complete the merger is also conditioned on there being no material adverse
changes in the financial condition, assets, liabilities or business of the other
since the execution of the reorganization agreement.
We cannot guarantee when, or whether, the regulatory consents and
approvals necessary to complete the merger will be obtained or whether all of
the other conditions to the merger will be satisfied or waived by the party
permitted to do so. See "- Regulatory Approvals Needed to Complete the Merger"
below. If the merger is not completed on or before June 30, 2001, the
reorganization agreement may be terminated by Peoples Bancorp's or Market
Financial's board of directors. However, the failure to complete the merger by
that date cannot be due to the breach of the reorganization agreement by the
party seeking to terminate.
REGULATORY APPROVAL NEEDED TO COMPLETE THE MERGER
HOLDING COMPANY APPLICATION. Completion of the merger is subject to
approval from the Office of Thrift Supervision. Peoples Bancorp has applied to
the Office of Thrift Supervision pursuant to Section 10(e)(1)(A) of the Home
Owners' Loan Act of 1933 to merge Market Financial with and into Peoples
Bancorp.
The period for the Office of Thrift Supervision's review of any
proposed acquisition, such as the acquisition of Market Financial, commences
upon receipt by the Office of Thrift Supervision of an application deemed
sufficient by the Office of Thrift Supervision. Once an application is deemed
sufficient, the Office of Thrift Supervision generally has a 60-day period for
review of the application, which may be extended by the Office of Thrift
Supervision for up to an additional 30 days.
BANK MERGER. The merger of Peoples Community Bank and Market Bank is
subject to the approval of the Office of Thrift Supervision under Section 18(c)
of the Federal Deposit Insurance Act and 12 C.F.R. Section 563.22(a). We have
filed an Interagency Bank Merger Act Application seeking Office of Thrift
Supervision approval of the bank merger. Generally, the decision to approve the
application will consider the capital level of Peoples Community Bank after the
merger, financial and managerial resources of each bank, future prospects of the
banks, convenience and needs of the communities they serve, conformity of the
merger to applicable laws and regulations, fairness, disclosure, compensation of
officers, accounting and tax treatment of the merger, fees paid for professional
services and other factors.
The competitive impact of the merger will also be considered by the
Office of Thrift Supervision. As part of its review, the Office of Thrift
Supervision requested reports from the Department of Justice, the Comptroller of
the Currency, the Federal Reserve Board and the FDIC on the competitive factors
of the merger. The Department of Justice and three banking agencies have thirty
days to respond to the request for reports. Notice was published first when the
application was filed and on a weekly basis during the period allowed for
furnishing reports. At any point during this time, comments will be accepted by
the Office of Thrift Supervision. The application is deemed to be approved
automatically by the Office of Thrift Supervision 30 days after sending us
written notice that the application is complete, unless certain conditions set
forth in the Office of Thrift Supervision regulations exist. The period for
review may be extended by the Office of Thrift Supervision for up to an
additional 30 days.
There can be no assurance that the necessary regulatory authorities
will approve the merger, and if the merger is approved, there can be no
assurance as to the dates of such approvals. There can also be no assurance that
any such approval will not contain a condition or requirement that would cause
such approval to fail to satisfy one of the conditions to consummation of the
merger set forth in the reorganization agreement. There can likewise be no
assurance that the Department of Justice will not challenge the merger or, if
such a challenge is made, as to the results thereof. In the event the merger is
not completed on or before June 30, 2001, the reorganization agreement may be
terminated by either Peoples Bancorp or Market Financial.
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<PAGE>
Peoples Bancorp is not aware of any other regulatory approvals that
would be required for completion of the merger, except as described above. If
any other approvals are required, it is presently contemplated that such
approvals would be sought. There can be no assurance that any other approvals,
if required, will be obtained.
The approval of any application merely implies the satisfaction of
regulatory criteria for approval, which do not include review of the merger from
the standpoint of the adequacy of the consideration to be received by Market
Financial stockholders. Further, regulatory approvals do not constitute an
endorsement or recommendation of the merger.
CONDUCT OF BUSINESS PENDING THE MERGER
Except as expressly provided for in the reorganization agreement and
except to the extent required by law or by regulatory authorities, Peoples
Bancorp and Market Financial have agreed that, during the period from September
19, 2000 to the completion of the merger, Market Financial and Market Bank will
use their best efforts to:
o conduct their business in the regular, ordinary and usual
course consistent with past practice; and
o preserve intact their business organization and advantageous
business relationships, retain the services of their
employees, and preserve the goodwill of their customers.
Further, except as otherwise provided in the reorganization
agreement, during the period from September 19, 2000 to the completion of the
merger, Market Financial has agreed that neither it nor Market Bank will take
certain actions unless permitted by Peoples Bancorp or permitted or required by
the reorganization agreement. These include:
o change any provision of their Articles of Incorporation or
other similar governing documents, Code of Regulations or
Bylaws, except the elimination of one specified article from
the Articles of Incorporation of Market Financial and the
Articles of Incorporation of Market Bank;
o except for the issuance of Market Financial common stock
pursuant to the present terms of stock options that are
outstanding as of September 19, 2000 and have been previously
disclosed (i) change the number of shares of its authorized or
issued capital stock, (ii) issue or grant any option, warrant,
call, commitment, subscription, award, right to purchase or
agreement of any character relating to the authorized or
issued capital stock of Market Financial or Market Bank, or
any securities convertible into shares of such capital stock,
or (iii) split, combine or reclassify any shares of its
capital stock, or redeem or otherwise acquire any shares of
such capital stock;
o declare or pay any dividends on, or make other distributions
in respect of the Market Financial capital stock, other than
normal quarterly dividends not in excess of $0.08 per share of
Market Financial common stock;
o (i) grant any severance or termination pay (other than
pursuant to binding contracts of Market Financial previously
disclosed under the terms of the reorganization agreement),
to, or enter into or amend any employment, consulting or
compensation agreement with, any of its directors, officers or
employees, except that employment agreements with Julie M.
Bertsch and Jane F. Gibson may be renewed in March 2001 for
one year pursuant to the terms of the agreements; or (ii)
award any increase in compensation or benefits to its
directors, officers or employees, except, in the case of
officers or employees an increase in compensation not in
excess of the cost of living index for the year ended December
31, 1999 and except bonuses through December 31, 2000
consistent with amounts accrued for the six months ended June
30, 2000;
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<PAGE>
o (i) enter into or modify (except as may be required by
applicable law or as may be required by the reorganization
agreement) any pension, retirement, stock option, stock
purchase, stock grant, stock appreciation right, savings,
profit sharing, deferred compensation, consulting, bonus,
group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers
or employees; or (ii) make any contributions to the Market
ESOP or any other defined contribution plan or any defined
benefit pension or retirement plan other than in the ordinary
course of business consistent with past practice;
o (i) sell or dispose of any significant assets or incur any
significant liabilities other than in the ordinary course of
business consistent with past practices and policies and other
than obtaining Federal Home Loan Bank advances, or (ii)
acquire in any manner whatsoever (other than to realize upon
collateral for a defaulted loan) any business or entity;
o make any capital expenditures in excess of $50,000 in the
aggregate, other than pursuant to binding commitments existing
as of September 19, 2000, other than expenditures necessary to
maintain existing assets in good repair and other than as
previously disclosed under the reorganization agreement;
o file any applications or make any contract with respect to
branching or site location or relocation, except as previously
disclosed under the reorganization agreement;
o make any material change in accounting methods or practices,
other than changes required by generally accepted accounting
principles, or change any of its methods of reporting income
and deductions for federal income tax purposes, except as
required by changes in laws or regulations;
o change its lending, investment, deposit or asset and liability
management or other banking policies in any material respect,
except as may be required by applicable law;
o engage in any transaction with an "affiliated person" or
"affiliate," as defined in the reorganization agreement,
except for payments permitted to one affiliate under the
reorganization agreement;
o enter into any futures contract, option or other agreement or
take any other action for purposes of hedging the exposure of
its interest-earning assets and interest-bearing liabilities
to changes in market rates of interest;
o make or commit to make any loan(s) to any one person or
entity, together with affiliates of such person or entity, in
excess of $200,000 in the aggregate or in excess of a 80%
loan-to-value ratio;
o waive any rights of material value or cancel any material
debts or claims;
o acquire any stock or other equity interest in any corporation,
partnership, trust, joint venture or other entity;
o purchase any brokered loans, although Market Financial may
submit written requests to Peoples Bancorp for approval to
purchase loans of up to $200,000 from one named source;
o take any action that would result in any of its
representations and warranties contained in Article II of the
reorganization agreement not being true and correct in any
material respect upon completion of the merger; or
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<PAGE>
o agree to do any of the foregoing.
Except as provided in the reorganization agreement, during the
period from September 19, 2000 to the completion of the merger, Peoples Bancorp
has agreed that neither it nor Peoples Community Bank will, or will agree to,
sell or dispose of any significant assets or incur any significant liabilities
other than in the ordinary course of business consistent with past practices and
policies, unless permitted to by Market Financial or permitted or required by
the reorganization agreement.
REPRESENTATIONS AND WARRANTIES MADE BY PEOPLES BANCORP AND MARKET FINANCIAL IN
THE REORGANIZATION AGREEMENT
Pursuant to the execution of the reorganization agreement, both
Peoples Bancorp and Market Financial have made customary representations and
warranties relating to their businesses. For detailed information on these
representations and warranties, see Articles II and III in the reorganization
agreement attached as Appendix A. Such representations and warranties generally
must remain true in all material respects through the completion of the merger
unless facts that caused a breach of a representation or warranty do not have a
material negative impact on the party's business, financial condition or results
of operations, or the breach results from a change of law or general economic
conditions.
WHAT HAPPENS IF A THIRD PARTY OFFERS TO BUY MARKET FINANCIAL
Market Financial has agreed not to encourage or solicit an outside
third party to merge with, buy substantial assets or liabilities of, or buy
shares of capital stock of Market Financial or Market Bank, or any other similar
acquisition transactions. However, the Market Financial board of directors may
provide information to or enter into negotiations or discussions with anyone who
makes an unsolicited possible acquisition transaction if, after receiving
written advice of counsel, it determines in the exercise of its fiduciary
responsibilities that such action is required. Market Financial will provide
Peoples Bancorp with immediate written notice of any proposed acquisition
transaction.
WAIVING AND AMENDING PROVISIONS IN, OR TERMINATING, THE REORGANIZATION AGREEMENT
Prior to the completion of the merger, any provision of the
reorganization agreement may be waived, amended or modified by the parties.
However, after the vote by the stockholders of Market Financial or Peoples
Bancorp, no amendment or modification may be made that would modify the amount
or the form of merger consideration to be received by Market Financial's
stockholders under the terms of the merger.
The reorganization agreement also may be terminated at any time
prior to the completion of the merger, either before or after approval of the
merger by the Market Financial and Peoples Bancorp stockholders, by:
o the mutual consent of both parties;
o either party (i) if the merger is not completed by June 30,
2001 or (ii) if the stockholders of Market Financial or
Peoples Bancorp do not approve the reorganization agreement,
unless the failure of such occurrence is due to the breach of
any representation, warranty or covenant contained in the
reorganization agreement by the party seeking to terminate;
o either party upon written notice to the other 30 or more days
after the date upon which any application for a regulatory or
governmental approval necessary to consummate the merger is
denied or withdrawn at the request or recommendation of the
applicable regulatory agency or governmental authority, unless
the denial or withdrawal is due to the failure of the party
seeking
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<PAGE>
to terminate the agreement to perform its agreements as
required before the completion of the merger;
o either party if there is a material breach by the other party
of any of the covenants or agreements set forth in the
reorganization agreement. Each party must give the other party
30 days to cure the breach. The party seeking to terminate the
reorganization agreement cannot be in material breach of any
representation, warranty, covenant or other agreement in the
reorganization agreement; or
o either party, if any of the applications for prior approval by
third parties and governmental bodies are approved contingent
upon the satisfaction of any non-standard condition or
requirement which, in the reasonable opinion of the Peoples
Bancorp board, would materially impair the value of Market
Financial and Market Bank to Peoples Bancorp, and the time
period for appeals and requests for reconsideration has run.
In the event of termination of the reorganization agreement by
either Peoples Bancorp or Market Financial as set forth above, the
reorganization agreement shall become void and have no effect, except that the
provisions of the reorganization agreement relating to confidentiality of
information and expenses shall survive any such termination. Notwithstanding the
foregoing, neither Peoples Bancorp nor Market Financial shall be relieved or
released from any liabilities or damages arising out of its breach of any
provision of the reorganization agreement.
ACCOUNTING TREATMENT OF THE MERGER
The merger will be accounted for under the purchase method of
accounting in accordance with generally accepted accounting principles. This
means that Peoples Bancorp and Market Financial will be treated as one company
as of the date of the combination, and that Peoples Bancorp will record the fair
market value of Market Financial's assets and liabilities on its financial
statements. Any difference between the purchase price and the fair value of the
identifiable net assets is recorded as goodwill. The income statements
incorporate the recorded income of Market Financial's operations beginning at
the completion of the merger.
FEDERAL INCOME TAX CONSEQUENCES FOR MARKET FINANCIAL STOCKHOLDERS
The following is a discussion of the material federal income tax
consequences of the merger to Peoples Bancorp, Market Financial and holders of
Market Financial common stock. The discussion is based upon the Internal Revenue
Code, Treasury regulations, IRS rulings, and judicial and administrative
decisions in effect as of the date of this document, all of which are subject to
change. This discussion assumes that Market Financial common stock is generally
held for investment. In addition, this discussion does not address all of the
tax consequences that may be relevant to a holder of Market Financial common
stock in light of his or her particular circumstances or to holders subject to
annual rules, such as foreign persons, financial institutions, tax-exempt
organizations, dealers in securities or foreign currencies or insurance
companies. HOLDERS OF MARKET FINANCIAL COMMON STOCK SHOULD CONSULT THEIR TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER.
The opinions of counsel referred to in this section will be based
on facts existing at the completion of the merger. In rendering its opinions,
counsel will require and rely upon representations contained in certificates of
officers of Peoples Bancorp, Market Financial and others.
It is a condition to the obligation of Peoples Bancorp and Market
Financial to complete the merger that the parties each will have received an
opinion of Elias, Matz, Tiernan & Herrick L.L.P., dated as of the completion of
the merger, that the merger will qualify as a reorganization under Section
368(a) of the Internal Revenue Code. No gain or loss will be recognized by
Peoples Bancorp or Market Financial as a result of the merger.
40
<PAGE>
The federal income tax consequences of the merger to a Market
Financial stockholder generally will depend on whether the stockholder receives
cash, Peoples Bancorp common stock or a combination thereof in exchange for such
stockholder's Market Financial common stock.
No gain or loss will be recognized by a Market Financial stockholder
who receives solely Peoples Bancorp common stock in exchange for all of such
stockholder's shares of Market Financial common stock pursuant to the merger
(except to the extent such a stockholder receives cash in lieu of a fractional
share interest in Peoples Bancorp common stock). Such stockholder's tax basis in
the Peoples Bancorp common stock received pursuant to the merger will equal such
stockholder's tax basis in the shares of Market Financial common stock being
exchanged reduced by any amount allocable to a fractional share interest of
Peoples Bancorp common stock for which cash is received. The holding period of
Peoples Bancorp common stock received will include the holding period of the
shares of Market Financial common stock being exchanged.
A Market Financial stockholder who receives both Peoples Bancorp
common stock and cash consideration in exchange for all of his or her shares of
Market Financial common stock will generally recognize gain, but not loss, to
the extent of the lesser of:
(1) the excess of (a) the sum of the aggregate fair market value
of the Peoples Bancorp common stock received and the amount of
cash received over (b) the stockholder's aggregate tax basis
for the shares of Market Financial common stock exchanged; and
(2) the amount of cash received by such stockholder.
For this purpose, gain or loss must be calculated separately for
each identifiable block of shares surrendered in the exchange, and a loss
realized on one block of shares may not be used to offset gain realized on
another block of shares. Any such gain will be long-term capital gain if the
shares of Market Financial common stock exchanged were held for more than one
year, unless the receipt of cash has the effect of a distribution of a dividend
(determined with application of Section 318(a) of the Internal Revenue Code on a
shareholder-by- shareholder basis) under the provisions of the IRS, in which
case such gain will be treated as a dividend to the extent of such stockholder's
ratable share of the undistributed accumulated earnings and profits of Market
Financial. Market Financial stockholders should consult their tax advisors as to
the possibility that all or a portion of any cash received in exchange for their
Market Financial common stock will be treated as a dividend.
Such stockholder's aggregate tax basis in the Peoples Bancorp common
stock received pursuant to the merger will equal such stockholder's aggregate
tax basis in the shares of Market Financial common stock being exchanged,
reduced by the amount of any cash consideration received, and increased by the
amount of gain, if any, recognized by such stockholder in the merger (including
any portion of such gain that is treated as a dividend). The holding period of
Peoples Bancorp common stock received will include the holding period of the
shares of Market Financial common stock being exchanged.
A Market Financial stockholder who receives solely cash in exchange
for all of such stockholder's shares of Market Financial common stock pursuant
to the merger will generally recognize capital gain or loss in an amount equal
to the difference between the amount of cash received and the stockholder's
aggregate tax basis for such shares of Market Financial common stock, which gain
or loss will be long-term capital gain or loss if such shares of Market
Financial common stock were held for more than one year. If, however, any such
Market Financial stockholder constructively owns shares of Market Financial
common stock that are exchanged for shares of Peoples Bancorp common stock in
the merger or owns shares of Peoples Bancorp common stock actually or
constructively after the merger, the consequences to such stockholder may be
similar to the consequences described above, except that the amount of
consideration, if any, treated as a dividend may not be limited to the amount of
such stockholder's gain. Market Financial stockholders should consult their tax
advisors as to the possibility that all or a
41
<PAGE>
portion of any cash received in exchange for their shares of Market Financial
common stock will be treated as a dividend.
No fractional shares of Peoples Bancorp common stock will be issued
in the merger. A Market Financial stockholder who receives cash in lieu of such
a fractional share will be treated as having received such fractional share
pursuant to the merger and then as having exchanged such fractional share for
cash in a redemption by Peoples Bancorp. A Market Financial stockholder will
generally recognize capital gain or loss on such a deemed redemption of the
fractional share in an amount determined by the excess of the amount of cash
received or the stockholder's tax basis in the fractional share. Any capital
gain or loss will be long-term capital gain or loss if the Market Financial
common stock exchanged was held for more than one year.
A dissenting stockholder of Market Financial who receives a payment
in cash for such stockholder's Market Financial common stock will recognize
capital gain or loss, if the Market Financial common stock sold was held by such
stockholder as a capital asset at the effective time of the merger, equal to the
excess of (a) the amount of cash received by such stockholder over (b) such
stockholder's aggregate tax basis for the shares of Market Financial common
stock sold, provided that the cash payment received by such stockholder is not
essentially equivalent to a dividend within the meaning of Section 302 of the
Internal Revenue Code. A sale of Market Financial common stock pursuant to an
exercise of dissenters' rights will not constitute a "dividend" if, as a result
of the exercise, the stockholder owns no stock in Peoples Bancorp after the
merger, either actually or constructively within the meaning of Section 318 of
the Internal Revenue Code.
SELLING THE PEOPLES BANCORP COMMON STOCK YOU RECEIVE IN THE MERGER
The shares of Peoples Bancorp common stock to be issued in the
merger will be registered under the Securities Act and will be freely
transferable under the Securities Act except for shares issued to any Market
Financial stockholder who may be deemed to control Market Financial, such as an
executive officer, director or someone who owns a significant amount of Market
Financial's stock. These controlling persons may not sell their shares of
Peoples Bancorp common stock acquired in connection with the merger except under
an effective registration statement under the Securities Act covering such
shares or in compliance with an applicable exemption from the registration
requirements of the Securities Act. This document does not cover any resales of
Peoples Bancorp common stock received in the merger by persons who may be deemed
to be controlling persons of Market Financial.
MARKET FINANCIAL STOCKHOLDERS HAVE DISSENTERS' RIGHTS IN THE MERGER
Section 1701.84 of the Ohio General Corporation Law provides that
all Market Financial stockholders entitled to vote on the merger may exercise
dissenters' rights with respect to the merger. The following is a summary of the
principal steps a Market Financial stockholder must take to exercise dissenters'
rights under Section 1701.85 of the Ohio corporation law. The following is not a
complete statement of the law and is qualified in its entirety by the full text
of Section 1701.85 attached as Appendix C to this joint proxy
statement/prospectus. If you are a Market Financial stockholder who desires to
exercise dissenters' rights, you are urged to review carefully Section 1701.85
and to consult a legal advisor before electing or attempting to exercise your
rights. A Market Financial stockholder must strictly comply with all of the
procedural and other requirements of Section 1701.85. All references to
"stockholder" in Section 1701.85 and "Market Financial stockholder" or a "holder
of Market Financial common stock" in this summary are to the record holder of
the shares as to which dissenters' rights are asserted.
A Market Financial stockholder who wishes to perfect the rights of a
dissenting stockholder in the event the reorganization agreement is adopted and
the merger is approved:
42
<PAGE>
o must have been a record holder of the Market Financial shares
as to which the shareholder seeks relief on the record date
for the annual meeting;
o must not have voted the stockholder's Market Financial shares
in favor of adoption and approval of the reorganization
agreement; and
o must deliver to Market Financial, not later than ten days
after the annual meeting, a written demand for payment of the
fair cash value of the shares as to which the shareholder
seeks relief. Such written demand must state the name and
address of the stockholder, the number of shares as to which
the shareholder seeks relief and the amount claimed as the
fair cash value thereof.
A vote against the adoption and approval of the reorganization
agreement will not satisfy the requirements of a written demand for payment. Any
written demand for payment should be mailed or delivered to: Mr. John T.
Larimer, Market Financial Corporation, 7522 Hamilton Avenue, Mt. Healthy, Ohio
45231. As the written demand must be delivered within the ten-day period
following the annual meeting, it is recommended, although not required, that a
stockholder using the mails should use certified mail or registered mail, return
receipt requested, to confirm that the delivery has been timely.
If Market Financial sends the dissenting stockholder, at the address
specified in the stockholder's demand, a request for the certificate(s)
representing the stockholder's shares, the stockholder must deliver the
certificate(s) to the requesting company within 15 days of the sending of the
request. Market Financial may endorse the certificate(s) with a legend to the
effect that the stockholder has demanded the fair cash value of the shares
represented by the certificate(s). Failure to deliver the certificate(s) within
15 days of the request terminates the stockholder's rights as a dissenting
stockholder. Market Financial must notify the stockholder of its election to
terminate the rights of the stockholder as a dissenting stockholder within 20
days after the lapse of the 15-day period.
Unless the dissenting stockholder and Market Financial agree on the
fair cash value per share of the Market Financial common stock, either may,
within three months after the service of the written demand by the stockholder,
file a petition in the Court of Common Please of Hamilton County, Ohio. If the
court find that the stockholder is entitled to be paid the fair cash value of
any shares, the court may appoint one or more appraisers to receive evidence and
to recommend a decision on the amount of the fair cash value.
Fair cash value: (1) will be determined as of the day prior to the
annual meeting, (2) will be the amount a willing seller and a willing buyer
would accept or pay with neither being under compulsion to sell or buy, (3) will
not exceed the amount specified in the stockholder's written demand, and (4)
will exclude any appreciation or depreciation in market value resulting from the
merger. The court will make a finding as to the fair cash value of a share and
render judgment against Market Financial for its payment with interest at such
rate and from such date as the court considers equitable. The costs of
proceedings shall be assessed or apportioned as the court considers equitable.
The rights of any dissenting stockholder will terminate if (1) the
dissenting stockholder has not complied with Section 1701.85, unless Market
Financial, by its board of directors, waives such failure, (2) Market Financial
abandons or is finally enjoined or prevented from carrying out, or the
stockholders of Market Financial rescind their adoption of the merger agreement,
(3) the dissenting stockholder withdraws his written demand, with the consent of
Market Financial, by its board of directors, or (4) Market Financial and the
dissenting stockholder have not agreed upon the fair cash value of the Market
Financial common shares and neither has timely filed or joined in a petition in
an appropriate court for a determination of the fair cash value of the shares.
For a discussion of the tax consequences to a stockholder who exercises
dissenters' rights, see "Federal Income Tax Consequences for Market Financial
Stockholders."
43
<PAGE>
Because a proxy that does not contain voting instructions will be
voted for the adoption of the reorganization agreement, a stockholder who wishes
to exercise dissenters' rights must either (1) not sign and return a proxy or,
(2) if the stockholder signs and returns a proxy, vote against or abstain from
voting on the adoption and approval of the reorganization agreement.
Market Financial stockholders who are not in favor of the merger but
who do not wish to exercise their dissenters' rights may, in the alternative,
attempt to sell their shares on the open market at the then current market
price.
WHO PAYS FOR WHAT
All costs and expenses incurred in connection with the merger will
be paid by the party incurring such expense. However, Peoples Bancorp will bear
all costs of printing, mailing and filing this document.
In addition, Market Financial will pay Peoples Bancorp a fee of
$500,000 if a "purchase event" occurs prior to the completion of the merger or
termination of the reorganization agreement other than a termination by Peoples
Bancorp as a result of willful breach of any representation, warranty covenant
or agreement of Market Financial and Market Bank. A purchase event is defined
under the reorganization agreement as any of the following that occurs prior to
September 30, 2001:
o Market Financial or Market Bank enters into an acquisition
transaction with any entity other than Peoples Bancorp or
Peoples Community Bank;
o The board of directors of Market Financial recommends that
Market Financial stockholders accept any acquisition
transaction with any entity other than Peoples Bancorp; or
o after a third party proposes to acquire Market Financial (i)
Market Financial or Market Bank breaches any covenant or
obligation in the reorganization agreement which would allow
Peoples Bancorp to terminate the reorganization agreement,
(ii) Market Financial stockholders fail to approve the
reorganization agreement or the Market Financial annual
meeting is not held or is cancelled prior to termination of
the reorganization agreement or (iii) the board of directors
of Market Financial withdraws or adversely modifies its
recommendation to approve the reorganization agreement.
Separately, if either party willfully defaults in its obligations
under the reorganization agreement, the other party may pursue any remedy
available for all damages, costs and expenses. If the non-defaulting party
prevails, the damages, costs and expenses will be no less than $250,000.
WHEN WILL THE MERGER BE COMPLETED
The merger will become effective at the time set forth in the
certificate of merger that will be filed with the Secretary of State of the
State of Delaware and Secretary of State of the State of Ohio. The certificate
of merger will be filed on the fifth business day following the satisfaction or
waiver of certain conditions to the merger, unless another date is agreed to in
writing by Peoples Bancorp and Market Financial. See "- Conditions to the
Merger." The closing of the transactions contemplated by the reorganization
agreement is expected to take place as of the date of such filing. It is
expected that a period of time will elapse between the Market Financial and
Peoples Bancorp annual meetings and the completion of the merger while the
parties seek to obtain the regulatory approvals required to complete the merger.
There can be no assurance that the regulatory approvals will be obtained or that
the Department of Justice will not challenge the merger. See "-Regulatory
Approval Needed to Complete the Merger." The reorganization agreement may be
terminated by either party if the merger has not been completed on
44
<PAGE>
or before June 30, 2001. See "- Waiving and Amending Provisions In, or
Terminating, the Reorganization Agreement."
STOCKHOLDERS AGREEMENT
In conjunction with the reorganization agreement, Peoples Bancorp
has also entered into a stockholders agreement with the directors of Market
Financial and Market Bank. Pursuant to such stockholders agreement, the
directors of Market Financial and Market Bank have agreed not to sell, pledge,
transfer or otherwise dispose of their shares of Market Financial common stock
prior to the record date established in connection with the Market Financial
annual meeting and to vote such shares of Market Financial common stock in favor
of the reorganization agreement.
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
The following statements contain selected consolidated financial
information for Peoples Bancorp and Market Financial, on an unaudited pro forma
condensed consolidated basis giving effect to the merger applying the purchase
method of accounting. The pro forma condensed statements of earnings reflecting
the merger assume the merger with Market Financial was completed on the first
day of the year ended September 30, 2000.
The unaudited pro forma condensed statement of financial condition
presents the combined financial position of Peoples Bancorp and Market Financial
as of September 30, 2000. The unaudited pro forma condensed balance sheet
reflects (1) the merger of Market Financial with Peoples Bancorp applying the
purchase method of accounting; and (2) certain adjustments that are directly
attributable to the merger, including allocation of the purchase price for the
merger. The pro forma condensed statement of financial condition assumes that
the merger of Market Financial with and into Peoples Bancorp was completed as of
September 30, 2000.
The unaudited pro forma condensed financial statements have been
prepared based upon currently available information and assumptions deemed
appropriate by management of Peoples Bancorp and Market Financial. This pro
forma information may not be indicative of what actual results would have been,
nor does such data purport to represent the combined financial results of
Peoples Bancorp and Market Financial for future periods.
There may be certain cost savings and/or revenue enhancements that
will result from the merger. The information furnished in the statements does
not reflect the expected revenue enhancements or the expected cost savings, that
may or may not be achieved.
45
<PAGE>
CONDENSED PRO FORMA STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
As of September 30, 2000
------------------------------------------------------------------------------
As reported
------------------------
Peoples Market Pro Forma Pro Forma
Bancorp Financial Combined Adjustments Combined
------- --------- -------- ----------- ---------
Dr Cr
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Total cash and cash equivalents ................ $ 4,627 $ 766 $ 5,393 $ 8,200(1) $ 8,186(2) $ 5,180
473(3) 700(4)
Investment securities ............................ 8,211 12,860 21,071 -- -- 21,071
Mortgage-backed securities ....................... 94,050 1,830 95,880 -- 8,200(1) 87,680
Loans receivable ................................. 196,485 37,879 234,364 -- 600(5) 233,764
Office premises and equipment .................... 3,244 1,471 4,715 -- -- 4,715
Real estate acquired through foreclosure ......... 110 -- 110 -- -- 110
Federal Home Loan Bank stock ..................... 6,852 482 7,334 -- -- 7,334
Accrued interest receivable ...................... 1,415 371 1,786 -- -- 1,786
Prepaid expenses and other assets ................ 439 265 704 -- 700(4) 4
Goodwill ......................................... 4,692 -- 4,692 800(7) -- 5,492
Prepaid federal income taxes ..................... 495 163 658 -- -- 658
--------- --------- --------- --------- --------- ---------
Total assets ......................... $ 320,620 $ 56,087 $ 376,707 $ 9,473 $ 18,386 $ 367,794
========= ========= ========= ========= ========= =========
Deposits ......................................... $ 151,353 $ 40,260 $ 191,613 $ -- $ -- $ 191,613
Advances from the Federal Home Loan Bank ......... 134,500 -- 134,500 -- -- 134,500
Advances by borrowers for taxes and insurance .... 137 70 207 -- -- 207
Accrued interest payable ......................... 558 105 663 -- -- 663
Other liabilities ................................ 1,615 272 1,887 -- 916(8) 2,803
Deferred federal income taxes .................... 793 625 1,418 408(6) -- 495
204(5) --
311(8) --
--------- --------- --------- --------- --------- ---------
Total liabilities .............................. 288,956 41,332 330,288 923 916 330,281
Common stock ..................................... 20 -- 20 5(4) 25
Additional paid-in capital ....................... 17,140 8,160 25,300 8,568(7) 5,792(4) 22,232
700(4) 408(6)
Retained earnings ................................ 13,974 7,892 21,866 6,891(7) 13,974
396(5)
605(8)
Shares acquired by stock benefit plans ........... (857) (1,211) (2,068) 738(7) (857)
473(3)
Treasury shares .................................. -- (838) (838) 838(7) --
Accumulated comprehensive income ................. 1,387 752 2,139 752(7) 752(4) 2,139
Total stockholders' equity ..................... 31,664 14,755 46,419 17,912 9,006 37,513
--------- --------- --------- --------- --------- ---------
Total liabilities and stockholders' equity ..... $ 320,620 $ 56,087 $ 376,707 $ 18,835 $ 9,922 $ 367,794
========= ========= ========= ========= ========= =========
</TABLE>
-------------
(1) Assumed sale of mortgage-backed securities by Peoples Bancorp to
fund cash portion of acquisition price.
(2) Cash paid by Peoples Bancorp for 50% of Market Financial outstanding
shares.
(3) Receipt of cash from ESOP trust.
(4) Issuance of shares by Peoples Bancorp, net of estimated expenses
totaling $700,000.
(5) Fair value adjustment applied to loan portfolio.
(6) Deferred tax benefits of stock benefit plan terminations.
(7) Elimination of Market Financial equity accounts.
(8) Liability established for severance benefits and stock option
payments.
46
<PAGE>
CONDENSED PRO FORMA STATEMENT OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended September 30, 2000
----------------------------------------------------------------
As reported
-------------------
Peoples Market Pro Forma Pro Forma
Bancorp Financial Combined Adjustments Combined
------- --------- -------- ----------- --------
Dr Cr
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans .............................................. $10,857 $ 2,758 $13,615 $ -- $ -- $13,615
Mortgage-backed securities ......................... 3,810 146 3,956 574(1) -- 3,382
Investment securities .............................. 530 801 1,331 -- -- 1,331
Interest-bearing deposits and other ................ 232 93 325 -- -- 325
------- ------- ------- ------- ------- -------
Total interest income ............................ 15,429 3,798 19,227 574 -- 18,653
INTEREST EXPENSE:
Deposits ......................................... 5,910 1,861 7,771 -- -- 7,771
Borrowings ....................................... 4,181 -- 4,181 -- -- 4,181
------- ------- ------- ------- ------- -------
Total interest expense ........................ 10,091 1,861 11,952 -- -- 11,952
------- ------- ------- ------- ------- -------
Net interest income ........................... 5,338 1,937 7,275 574 -- 6,701
Provision for losses on loans ................... 156 -- 156 -- -- 156
------- ------- ------- ------- ------- -------
Net interest income after
provision for losses on loans ............... 5,182 1,937 7,119 574 -- 6,545
OTHER INCOME:
Gain on sale of investment and mortgage-backed
securities ...................................... 19 -- 19 -- -- 19
Other operating .................................. 82 11 93 -- -- 93
------- ------- ------- ------- ------- -------
Total other income .............................. 101 11 112 -- -- 112
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE:
Employee compensation and benefits ................. 1,915 906 2,821 -- -- 2,821
Occupancy and equipment ............................ 209 78 287 -- -- 287
Federal deposit insurance premiums ................. 34 12 46 -- -- 46
Franchise taxes .................................... 219 172 391 -- -- 391
Data processing .................................... 167 70 237 -- -- 237
Other operating .................................... 472 239 711 -- -- 711
Merger-related expenses ............................ 1,010 -- 1,010 -- -- 1,010
Amortization of goodwill ........................... 247 -- 247 53(2) -- 300
------- ------- ------- ------- ------- -------
Total general, administrative and other expense 4,273 1,477 5,750 53 -- 5,803
------- ------- ------- ------- ------- -------
Net earnings before taxes ..................... 1,010 471 1,481 627 -- 854
Federal income taxes ............................... 462 160 622 -- 195(3) 427
------- ------- ------- ------- ------- -------
Net Earnings ..................................... $ 548 $ 311 $ 859 $ 627 $ 195 $ 427
======= ======= ======= ======= ======= =======
Basic earnings per share ......................... N/A $ 0.26
Diluted earnings per share ....................... N/A $ 0.26
</TABLE>
---------------------
(1) Interest income foregone on mortgage-backed securities sold to fund cash
portion of purchase, computed at 7.00%.
(2) Amortization of goodwill computed over a fifteen year period.
(3) Tax effect of reduction in interest income computed at 34%.
47
<PAGE>
PEOPLES COMMUNITY BANCORP, INC.
Notes to Pro Forma Condensed Consolidated Financial Statements
As of and for the Year Ended September 30, 2000
The accompanying pro forma consolidated financial statements reflect
the merger based on assumed cash consideration equal to 50% of Market
Financial's remaining outstanding shares, coupled with the assumed issuance of
545,757 of Peoples Bancorp's shares at fair value. The pro forma cost of the
acquisition also reflects assumed transaction expenses of $700,000. Detailed
explanations of the Notes to Pro Forma Condensed Consolidated Financial
Statements follows:
a) Reflects the elimination of Market Financial's historic equity using the
purchase method of accounting coupled with (i) the issuance of 545,757
common shares from Peoples Bancorp at fair value; (ii) payment of $8.2
million in cash consideration for 50% of Market Financial's remaining
outstanding shares; and (iii) payment of expenses related to the merger.
The foregoing assumptions result in 2,523,490 pro forma shares outstanding
as of and for the year ended September 30, 2000. Fully-diluted earnings
per share is not presented.
b) Under purchase accounting, Market Financial's assets and liabilities are
adjusted to their estimated fair values at the time of the closing of the
merger. The estimated fair value adjustments have been determined by
Peoples Bancorp based upon information set forth in the notes to Market
Financial's consolidated financial statements and other information
available to Peoples Bancorp's management. No assurance can be given that
such estimated fair values represent fair values that would ultimately be
determined at the time of the closing of the merger. Following are the pro
forma adjustments made to reflect Market Financial's estimated fair values
at September 30, 2000:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Total consideration of cash and Peoples Bancorp common shares paid for Market
Financial common stock at fair value, including estimated transaction costs....... $ 15,435
Less: Market Financial stockholders' equity............................................. (15,031)
Cost in excess of fair value before consideration of
purchase price adjustments........................................................ 404
Purchase price adjustments (Dr)Cr:
Loans................................................................................. 600
Deferred income tax asset related to above............................................ (204)
--------
Costs in excess of fair value of net assets acquired.................................. $ 800
========
</TABLE>
c) For purposes of determining the pro forma effect of the merger on the
Peoples Bancorp's consolidated statements of earnings for the year ended
September 30, 2000, the following pro forma adjustments have been made:
<TABLE>
<CAPTION>
Year Ended
September 30,
2000
-------------
(In thousands)
<S> <C>
1. Decrease in interest income resulting from the sale of mortgage-
backed securities for cash component of merger $(574)
2. Amortization of purchase price in excess of fair value of net
assets acquired over 15 years (53)
3. Decrease in income tax provision associated with adjustment 195
-----
Total pro forma adjustment $(432)
=====
</TABLE>
48
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PEOPLES BANCORP
GENERAL
Peoples Bancorp's profitability depends primarily on net interest
income, which is the difference between interest and dividend income on
interest-earning assets, principally loans, mortgage-backed securities,
investment securities and interest-earning deposits in other financial
institutions, and interest expense on interest-bearing deposits and borrowings
from the Federal Home Loan Bank of Cincinnati. Net interest income is dependent
upon the level of interest rates and the extent to which such rates are
changing. Peoples Bancorp's profitability also depends, to a lesser extent, on
the level of other income, the provision for losses on loans, general,
administrative and other expenses and federal income taxes.
Peoples Bancorp's operations and profitability are subject to
changes in interest rates, applicable statutes and regulations and general
economic conditions, as well as other factors beyond management's control.
On March 29, 2000 the following transactions were completed:
o The Oakley Improved Building and Loan was merged with and into
Peoples Community;
o Peoples Community converted to a federally chartered stock
savings bank and Peoples Bancorp sold 1,190,000 shares of its
common stock; and
o Peoples Bancorp acquired Harvest Home Financial Corporation
and its wholly owned subsidiary, Harvest Home Savings Bank.
Peoples Bancorp's consolidated financial statements give effect to
the conversion, the merger between Peoples Community and Oakley using the
pooling of interests method of accounting and the merger between Peoples Bancorp
and Harvest Home Financial using the purchase method of accounting. In the
conversion, Peoples Bancorp issued 1,190,000 shares of common stock, which
resulted in net proceeds of approximately $10.3 million. In addition, Peoples
Bancorp issued 787,733 common shares in connection with the acquisition of
Harvest Home.
On September 19, 2000, Peoples Bancorp entered into an Agreement and
Plan of Reorganization with Market Financial Corporation. The Agreement and Plan
of Reorganization provides for the merger of Market Financial Corporation with
and into Peoples Bancorp. Under the terms of the agreement, Peoples Bancorp will
pay $13.00 in either cash or Peoples Bancorp's common stock for each of the
1,259,439 outstanding shares of common stock of Market Financial. The merger is
subject to regulatory and stockholder approval and is currently expected to be
completed in the first quarter of 2001.
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CHANGE
Certain statements are made in this document as to what management
expects may happen in the future. These statements usually contain the words
"believe," "estimate," "project," "expect," "anticipate," "intend" or similar
expressions. Because these statements look to the future, they are based on
management's current expectations and beliefs. Actual results or events may
differ materially from those reflected in the forward-looking statements.
Management's current expectations and beliefs as to future events are subject to
change at any time, and no assurances can be provided that the future events
will actually occur.
49
<PAGE>
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID
The following table presents for the periods indicated the total
dollar amount of interest income from average interest-earning assets and the
resultant yields, as well as interest expense on average interest-bearing
liabilities, expressed both in dollars and rates, and the net interest margin.
All average balances are based on monthly balances. Management does not believe
that the monthly averages differ significantly from the daily average balances.
<TABLE>
<CAPTION>
Year ended September 30,
--------------------------------------------------------------------------------------------------
2000 1999 1998
-------------------------------- ------------------------------- -------------------------------
Average Interest Average Interest Average Interest
Outstanding earned/ Yield/ Outstanding earned/ Yield/ outstanding earned/ Yield/
Balance paid rate Balance paid rate Balance paid rate
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1)............... $138,907 $10,857 7.82% $ 90,999 $7,265 7.98% $ 90,254 $7,293 8.08%
Mortgage-backed securities......... 49,878 3,810 7.64 1,364 96 7.04 1,536 100 6.51
Investment securities (2).......... 9,199 530 5.76 5,129 212 4.13 5,428 235 4.33
Interest-earning deposits............ 4,629 232 5.01 6,293 299 4.75 7,316 345 4.75
-------- ------- -------- ------ -------- ------
Total interest-earning assets..... 202,613 15,429 7.62 103,785 7,872 7.58 104,534 7,973 7.63
Non-interest-earning assets.......... 7,296 1,890 1,736
-------- -------- --------
Total assets...................... $209,909 $105,675 $106,270
======== ======== ========
Interest-bearing liabilities:
Passbook and NOW accounts............ 13,199 365 2.77 $ 5,678 202 3.56 $ 6,293 228 3.62
Money market deposit accounts........ 21,392 816 3.81 19,074 776 4.07 18,073 740 4.09
Certificates of deposit.............. 87,626 4,729 5.40 64,411 3,564 5.53 63,441 3,734 5.89
Federal Home Loan Bank
advances........................... 61,321 4,181 6.82 710 39 5.49 3,530 189 5.53
-------- ------- -------- ------ -------- ------
Total interest-bearing
liabilities..................... 183,538 10,091 5.50 89,873 4,581 5.10 91,337 4,891 5.35
------- ---- ------ ---- ------ ----
Non-interest-bearing liabilities..... 3,608 1,494 1,630
-------- -------- --------
Total liabilities.................. 187,146 91,367 92,267
Stockholders' equity.............. 22,763 14,308 13,303
-------- -------- --------
Total liabilities and
stockholders' equity........... $209,909 $105,675 $106,270
======== ======== ========
Net interest income.................. $ 5,338 $3,291 $3,082
======== ====== ======
Interest rate spread................. 2.12% 2.48% 2.28%
==== ==== ====
Net interest margin (3).............. 2.63% 3.17% 2.95%
==== ==== ====
Average interest-earning
assets to average interest-
bearing liabilities................ 110.39% 115.48% 114.45%
====== ====== ======
</TABLE>
-----------------------------------
(1) Includes non-accruing loans.
(2) Includes Federal Home Loan Bank stock.
(3) Equals net interest income divided by average interest-earning assets.
50
<PAGE>
RATE/VOLUME ANALYSIS
The following table shows the extent to which changes in interest
rates and changes in volume of interest-related assets and liabilities affected
Peoples Bancorp's interest income and expense during the periods indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (change
in volume multiplied by prior year rate), and (ii) changes in rate (change in
rate multiplied by prior year volume). The combined effect of changes in both
rate and volume has been allocated proportionately to the change due to rate and
the change due to volume.
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------------------------------------------
2000 vs. 1999 1999 vs. 1998
----------------------------- ----------------------------
Increase (decrease) Increase (decrease)
due to due to
------------------- -------------------
Rate Volume Total Rate Volume Total
---- ------ ----- ---- ------ -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable ......................... $ (55) $ 3,647 $ 3,592 $ (85) $ 57 $ (28)
Mortgage-backed securities ............... 10 3,704 3,714 7 (11) (4)
Investment securities (1) ................ 102 216 318 4 (27) (23)
Interest-earning deposits ................ 15 (82) (67) (7) (39) (46)
Total interest-earning assets ......... 72 7,485 7,557 (81) (20) (101)
Interest-bearing liabilities:
Passbook and NOW accounts ................ (54) 217 163 (4) (22) (26)
Money market deposit accounts ............ (52) 92 40 (3) 39 36
Certificates of deposit .................. (86) 1,251 1,165 (225) 55 (170)
Federal Home Loan Bank advances .......... 10 4,132 4,142 1 (151) (150)
Total interest-bearing liabilities..... (182) 5,692 5,510 (231) (79) (310)
------- ------- ------- ------- ------- -------
Increase in net interest income ............. $ 254 $ 1,793 $ 2,047 $ 150 $ 59 $ 209
======= ======= ======= ======= ======= =======
</TABLE>
----------------
(1) Includes Federal Home Loan Bank stock and certificates of deposit at other
institutions.
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM SEPTEMBER 30, 1999 TO
SEPTEMBER 30, 2000
At September 30, 2000, Peoples Bancorp's total assets amounted to
$320.6 million, an increase of $213.3 million, or 198.8%, as compared to the
$107.3 million total at September 30, 1999. The acquisition of Harvest Home
comprised approximately $118.0 million of the increase in total assets.
Additionally, growth in total assets was funded by an increase in advances from
the Federal Home Loan Bank of $90.6 million and an increase in stockholders'
equity of $11.1 million.
Cash and cash equivalents totaled $4.6 million at September 30,
2000, a decrease of $556,000, or 10.7%, compared to September 30, 1999.
Investment securities totaled $8.2 million at September 30, 2000, an increase of
$5.0 million, or 152.6%, over the total at September 30, 1999. This increase was
due entirely to investment securities obtained through the Harvest Home
acquisition. Mortgage-backed securities totaled $94.1 million at September 30,
2000, as purchases of $63.0 million during fiscal 2000 and the $44.6 million of
such securities obtained through the Harvest Home acquisition were partially
offset by principal repayments of $12.9 million and sales of $2.1 million.
Purchases of mortgage-backed securities were funded primarily through borrowings
from the Federal Home Loan Bank.
Loans receivable totaled $196.5 million at September 30, 2000, an
increase of $101.9 million, or 107.8%, over September 30, 1999 levels. The
increase in loans attributable to the Harvest Home acquisition was $62.3
51
<PAGE>
million. During fiscal 2000, loan disbursements amounted to $73.7 million and
principal repayments totaled $34.0 million. The volume of loan disbursements
during fiscal 2000 exceeded fiscal 1999 volume by $43.6 million, or 144.5%. The
overall growth in the loan portfolio was comprised primarily of $66.1 million in
one- to four-family residential real estate, $7.4 million in multi-family
residential real estate, $16.4 million in residential construction loans and
$21.7 million in nonresidential real estate loans and non-residential real
estate construction loans.
Peoples Community's allowance for loan losses amounted to $762,000
at September 30, 2000, compared to $415,000 at September 30, 1999, which
represented .36% and .42% of the total loan portfolio at those respective dates.
Nonperforming loans totaled $1.3 million and $1.1 million at September 30, 2000
and 1999, respectively, representing .59% and 1.09% of total loans at those
respective dates. Although management believes that the allowance for loan
losses is adequate at September 30, 2000, based upon the available facts and
circumstances, there can be no assurance that additions to the allowance will
not be necessary in future periods. Additions to the allowance would adversely
affect Peoples Bancorp's results of operations.
Deposits totaled $151.4 million at September 30, 2000, an increase
of $60.3 million, or 66.3%, over the total at September 30, 1999. This increase
was primarily due to the $63.3 million of deposits obtained in the Harvest Home
acquisition, which were partially offset by net withdrawals totaling $2.9
million, generally used to fund stock purchases in the conversion.
Advances from the Federal Home Loan Bank totaled $134.5 million at
September 30, 2000, comprised of $44.0 million assumed in the Harvest Home
acquisition and $90.6 million in net new borrowings. Proceeds from borrowings
were generally used to fund purchases of investment and mortgage-backed
securities and loan disbursements.
Stockholders' equity totaled $31.7 million at September 30, 2000, an
increase of $17.0 million, or 115.7%, over September 30, 1999 levels. The
increase was due primarily to net proceeds from the conversion totaling $10.3
million, $5.9 million of common stock issued in the Harvest Home acquisition,
and fiscal 2000 net earnings of $548,000.
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2000
AND 1999
GENERAL. The inclusion of the fiscal 2000 acquisition of Harvest
Home significantly contributed to the increases in the level of income and
expenses during the fiscal year ended September 30, 2000, compared to the fiscal
year ended September 30, 1999. In accordance with the purchase method of
accounting, the statement of earnings for the fiscal year ended September 30,
1999, was not restated for this acquisition of Harvest Home.
Peoples Bancorp recorded net earnings of $548,000 for the fiscal
year ended September 30, 2000, a decrease of $187,000, or 25.4%, compared to
fiscal 1999. Net earnings for the year ended September 30, 2000, reflect the
effects of the recognition of one-time merger-related charges totaling $1.0
million. Excluding these charges, Peoples Bancorp's net earnings would have been
approximately $1.1 million for the fiscal year ended September 30, 2000.
NET INTEREST INCOME. For the fiscal year ended September 30, 2000,
the average balance of interest-earning assets increased substantially compared
to the 1999 period, reflecting the utilization of Federal Home Loan Bank
advances to fund increases in various categories of interest-earning assets, in
particular mortgage-backed securities. The average balance of interest-earning
assets also increased as a result of the merger with Oakley and the conversion,
both of which were completed in March 2000. An increase in yields on
interest-earning assets was partially offset by an increase in the rates paid on
interest-bearing liabilities, due to the increase in the general level of market
interest rates.
Interest income on loans totaled $10.9 million for the fiscal year
ended September 30, 2000, an increase of $3.6 million, or 49.4%, over fiscal
1999. This increase was due primarily to a $47.9 million, or 52.6%, increase in
the weighted-average balance of loans outstanding during the year, which was
significantly affected by the addition
52
<PAGE>
of $62.3 million in loans from the Harvest Home acquisition. Interest income on
investment and mortgage-backed securities totaled $4.3 million for the fiscal
year ended September 30, 2000, an increase of $4.0 million over fiscal 1999. The
increase was due primarily to a $52.6 million increase in the weighted-average
balance outstanding and a 261 basis point increase in yield year to year. This
increase was significantly affected by the addition of $44.6 million in
mortgage-backed securities through the Harvest Home acquisition and additional
purchases totaling $63.0 million during the year.
Interest expense totaled $10.1 million for the fiscal year ended
September 30, 2000, an increase of $5.5 million, or 120.3%, over the $4.6
million recorded in fiscal 1999. Interest expense on deposits increased by $1.4
million, or 30.1%, due primarily to a $33.1 million increase in the
weighted-average balance of deposits outstanding year to year, which included
the addition of $63.3 million in deposits from the acquisition of Harvest Home.
The increase in average deposits was partially offset by a decrease in the
weighted-average cost of deposits of 26 basis points, to 4.84% for fiscal 2000.
Interest expense on borrowings totaled $4.2 million for fiscal 2000, an increase
of $4.1 million over fiscal 1999, which was due to the addition of $44.0 million
in advances through the acquisition of Harvest Home and a net increase of $90.6
million in advances during the year.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $2.0 million, or 62.2%, during fiscal
2000 compared to fiscal 1999. The interest rate spread amounted to 2.12% for
fiscal 2000 compared to 2.48% for fiscal 1999. The net interest margin totaled
2.63% and 3.17% for the fiscal years ended September 30, 2000 and 1999,
respectively.
PROVISION FOR LOSSES ON LOANS. It is Peoples Community's policy to
provide valuation allowances for estimated losses on loans based on past loan
loss experience, changes in the composition of the loan portfolio, trends in the
level of delinquent and problem loans, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral
and current and anticipated economic conditions in the primary lending area. The
allowance for loan losses is increased by charges to earnings and decreased by
charge-offs (net of recoveries). After considering the above factors,
management elected to record a provision for losses on loans totaling $156,000
and $175,000 for the fiscal years ended September 30, 2000 and 1999,
respectively. The provision for losses on loans recorded in fiscal 2000 was
predicated upon the overall growth in the loan portfolio, coupled with a
moderate increase of $200,000 in nonperforming loans. There can be no assurance
that Peoples Community's allowance for loan losses will be adequate to cover
losses on nonperforming loans in the future.
OTHER INCOME. Other income totaled $101,000 for the fiscal year
ended September 30, 2000, an increase of $81,000 over fiscal 1999. The increase
was due primarily to a $19,000 gain on sale of mortgage-backed securities
recorded in fiscal 2000, coupled with a $62,000 increase in other operating
income. Other operating income was comprised primarily of rental income and fees
on NOW accounts and ATM transactions.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative
and other expense totaled $4.3 million for the fiscal year ended September 30,
2000, an increase of $2.2 million, or 110.5%, compared to fiscal 1999. The
increase was due primarily to one-time merger-related charges of $1.0 million
and $247,000 of goodwill amortization recorded in fiscal 2000. The acquisition
of Harvest Home accounted for approximately $760,000 of the overall increase in
general, administrative and other expense, since fiscal 1999 balances were not
restated to give effect to the merger with Harvest Home. Exclusive of the
effects of the Harvest Home acquisition, employee compensation and benefits
increased by approximately $143,000, or 10.4%, occupancy and equipment increased
by $11,000, or 12.8%, and other operating expense increased by $70,000, or
24.1%. The increase in employee compensation and benefits was due primarily to
an increase in staffing levels, the costs of stock benefit plans and normal
merit increases year to year. The increase in occupancy and equipment expense
was due primarily to an increase in depreciation expense following capital
expenditures for building improvements and equipment during fiscal 2000 and
1999.
FEDERAL INCOME TAXES. Peoples Bancorp recorded a tax provision
totaling $462,000 for the fiscal year ended September 30, 2000, compared to a
provision of $371,000 for the same period in 1999. The increase was due
primarily to the effects of non-deductible merger-related expenses totaling
$105,000 and goodwill amortization
53
<PAGE>
of $247,000 recorded during fiscal 2000, which were partially offset by a
$96,000, or 8.7%, decrease in pretax earnings year to year. The effective tax
rates amounted to 45.7% and 33.5% for the fiscal year ended September 30, 2000
and 1999, respectively.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
GENERAL. Net earnings amounted to $735,000 for the fiscal year ended
September 30, 1999, compared to $937,000 in fiscal 1998, a decrease of $202,000,
or 21.6%. The decrease in earnings resulted primarily from a $292,000 increase
in general, administrative and other expense, a $96,000 decrease in other income
and a $127,000 increase in the provision for losses on loans, which were
partially offset by a $209,000 increase in net interest income and a $104,000
decrease in federal income tax expense.
NET INTEREST INCOME. Interest income totaled $7.9 million for the
fiscal year ended September 30, 1999, a decrease of $101,000, or 1.2%, from
fiscal 1998. The decline was due primarily to a 5 basis point decrease in the
weighted-average yield, coupled with a decrease of $749,000, or .7%, in the
average outstanding balance of interest-earning assets year to year. Interest
income on loans amounted to $7.3 million for the fiscal year ended September 30,
1999, a decrease of $28,000, or .4%, from fiscal 1998, due primarily to a 10
basis point decline in yield, which was partially offset by a $745,000, or .8%,
increase in the weighted-average balance of loans outstanding year to year.
Interest income on investments, mortgage-backed securities and other
interest-earning deposits totaled $607,000 for fiscal 1999, a decrease of
$73,000, or 10.7%, compared to fiscal 1998. The decrease resulted primarily from
a $1.5 million, or 10.5%, decrease in the weighted-average balance outstanding
year to year.
Interest expense amounted to $4.6 million for the fiscal year ended
September 30, 1999, a decrease of $310,000, or 6.3%, compared to fiscal 1998.
The decrease was primarily due to a decline of $2.8 million in the average
balance of Federal Home Loan Bank advances outstanding year to year, partially
offset by a $1.4 million increase in the average balance of total deposits and a
reduction in the average cost of interest-bearing liabilities decreased by 25
basis points, to 5.10% in fiscal 1999.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $209,000, or 6.7%, to $3.3 million for
fiscal 1999, from $3.1 million for fiscal 1998. The interest rate spread
increased from 2.28% for fiscal 1998 to 2.48% for fiscal 1999, while the ratio
of average interest-earning assets to average interest-bearing liabilities also
increased from 114.45% to 115.48% during the same period. The net interest
margin increased to 3.17% for fiscal 1999 from 2.95% for fiscal 1998.
PROVISION FOR LOSSES ON LOANS. As a result of an analysis of
historical experience, the volume and type of lending conducted by Peoples
Community, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to Peoples
Community's market area, and other factors related to the collectibility of
Peoples Community's loan portfolio, management recorded a $175,000 provision for
losses on loans during fiscal 1999, an increase of $127,000 over fiscal 1998.
The fiscal 1999 provision was due primarily to growth in the loan portfolio
during the year, coupled with an increase in the level of nonperforming loans.
OTHER INCOME. Other income totaled $20,000 for the fiscal year ended
September 30, 1999, a decrease of $96,000, or 82.8%, compared to fiscal 1998.
This decline was due primarily to the absence of a $91,000 gain recognized on
the sale of investment securities during fiscal 1998.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative
and other expense amounted to $2.0 million for the fiscal year ended September
30, 1999, an increase of $292,000, or 16.8%, compared to fiscal 1998. The
increase was due primarily to an increase of $255,000, or 22.8%, in employee
compensation and benefits, as a result of the addition of management staff and
an increase in retirement benefit expense for directors added through a merger
with The Peoples Building and Loan Co. of Blanchester.
FEDERAL INCOME TAXES. The provision for federal income taxes
amounted to $371,000 for the fiscal year ended September 30, 1999, a decrease of
$104,000, or 21.9%, compared to fiscal 1998, due primarily to a $306,000
54
<PAGE>
decrease in pretax earnings year to year. Peoples Bancorp's effective tax rates
were 33.5% and 33.6% for fiscal 1999 and 1998, respectively.
EXPOSURE TO CHANGES IN INTEREST RATES
Peoples Bancorp's ability to maintain net interest income depends
upon its ability to earn a higher yield on assets than the rates paid on
deposits and borrowings. Peoples Community's interest-earning assets consist
primarily of long-term residential mortgage loans which have fixed rates of
interest. Peoples Community's ability to maintain a positive spread between the
interest earned on assets and the interest paid on deposits and borrowings can
be adversely affected when market rates of interest rise. Although Peoples
Community's mortgage loans contain a provision which permits the loans to be
called due at any time after three years from origination, which theoretically
offers some protection from changing interest rates, management has never used
that provision to call a loan due. Because long-term, fixed-rate mortgage loans
make up the dominant portion of Peoples Community's interest-earning assets,
Peoples Community may be particularly susceptible to the risk of changing
interest rates. During fiscal 2000, Peoples Community began to emphasize the
origination of adjustable-rate mortgage ("ARM") loans and shorter-term loans
secured by non-residential real estate, in an effort to improve its interest
rate risk position.
QUANTITATIVE ANALYSIS
The Office of Thrift Supervision provides a quarterly report on the
potential impact of interest rate changes upon the market value of portfolio
equity. Management reviews the quarterly reports from the Office of Thrift
Supervision which show the impact of changing interest rates on net portfolio
value. Net portfolio value is the difference between incoming and outgoing
discounted cash flows from assets, liabilities, and off-balance sheet contracts.
An institution has greater than "normal" interest rate risk if it would suffer a
loss of net portfolio value exceeding 2.0% of the estimated market value of its
assets in the event of a 200 basis point increase or decrease in interest rates.
A resulting change in net portfolio value of more than 2.0% of the estimated
market value of an institution's assets will require the institution to deduct
from its risk-based capital 50% of that excess change, if and when a rule
adopted by the Office of Thrift Supervision takes effect. Under the rule, an
institution with greater than "normal" interest rate risk will be subject to a
deduction of its interest rate risk component from total capital for purposes of
calculating the risk-based capital requirement. However, the Office of Thrift
Supervision has indicated that no institution will be required to deduct capital
for interest rate risk until further notice. Because a 200 basis point increase
in interest rates would have resulted in Peoples Community's net portfolio value
decreasing by more than 2.0% of the estimated market value of its assets as of
September 30, 2000, Peoples Community would have been subject to a capital
deduction of $2.9 million as of September 30, 2000 if the regulation had been
effective as of such date.
The following tables present Peoples Community's net portfolio value
as of September 30, 2000 and 1999, as calculated by the Office of Thrift
Supervision, based on information provided to the Office of Thrift Supervision
by Peoples Community. The information presented is based on the feature in
Peoples Community's mortgage loans which permits the loans to be called any time
after three years from the date of origination and the assumed repricing of
called loans at a higher rate in a rising rate environment.
55
<PAGE>
<TABLE>
<CAPTION>
September 30, 2000
-----------------------------------------------------------------------------------------------------------------------------
Net Portfolio Change in Net
Change in Interest Value as % of Portfolio Value as %
Rate in Basis Points Net Portfolio Value Portfolio Value of of Portfolio Value of
(Rate Shock) Amount $ Change % Change Assets Assets
-------------------- ------ ------------------- -------- ------------------- ---------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
300 $8,922 $(19,293) (68)% 2.97% (586)bp
200 15,960 (12,256) (43) 5.19 (364)
100 22,319 (5,896) (21) 7.12 (172)
0 28,216 -- -- 8.83 --
(100) 31,395 3,180 11 9.74 90
(200) 33,902 5,687 20 10.44 161
(300) 36,599 8,384 30 11.20 237
</TABLE>
As shown by the table above, increases in interest rates will result
in declines in Peoples Community's net portfolio value based on Office of Thrift
Supervision calculations as of September 30, 2000, primarily due to Peoples
Community's significant holdings of long-term fixed-rate loans.
<TABLE>
<CAPTION>
September 30, 1999
-----------------------------------------------------------------------------------------------------------------------------
Net Portfolio Change in Net
Change in Interest Value as % of Portfolio Value as %
Rate in Basis Points Net Portfolio Value Portfolio Value of of Portfolio Value of
(Rate Shock) Amount $ Change % Change Assets Assets
-------------------- ------ ------------------- -------- ------------------- ---------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
300 $12,569 $(3,150) (20)% 11.64% (292)bp
200 13,945 (1,775) (11) 12.92 (164)
100 14,997 (722) (4) 13.89 (67)
0 15,719 -- -- 14.56 --
(100) 16,194 474 3 15.00 44
(200) 16,694 975 6 15.46 90
(300) 17,349 1,630 10 16.07 151
</TABLE>
QUALITATIVE ANALYSIS
Peoples Community's fixed-rate loans help its profitability if
interest rates are stable or declining, since these loans have yields that
exceed its cost of funds. However, if interest rates increase, Peoples Community
would have to pay more on its deposits and new borrowings, which would adversely
affect its interest rate spread. In order to counter the potential effects of
dramatic increases in market rates of interest, Peoples Community has focused
primarily on maintaining a strong deposit base. Historically, Peoples Community
has been able to maintain relatively stable levels of net interest income
despite the interest rate risk inherent in its operations. Peoples Community
expects to reduce potential exposure to interest rate risk by:
(1) Originating one-year and three-year adjustable rate mortgage loans;
(2) Increasing originations of nonresidential real estate mortgage loans,
which generally have higher yields and shorter terms to maturity than
single-family residential mortgage loans;
(3) Originating home equity lines of credit with interest rates that adjust
monthly based on an index; and
(4) Originating unsecured lines of credit with interest rates that adjust
monthly based on an index.
56
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Peoples Community is required under applicable federal regulations
to maintain specified levels of "liquid" investments in qualifying types of U.S.
Government, federal agency and other investments having maturities of five years
or less. Current regulations require that a savings institution maintain liquid
assets of not less than 4% of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less. At September 30,
2000, Peoples Community's liquidity was 27.6%, or substantially in excess of the
minimum 4% requirement.
At September 30, 2000, Peoples Community had outstanding commitments
to originate loans totaling $7.1 million, commitments for unused lines of credit
under home equity lines totaling $5.2 million and had letters of credit under
commercial loans of $85,000. In addition, as of September 30, 2000, the amount
of certificates of deposit which were scheduled to mature in the following 12
months totaled $71.2 million. Peoples Community believes that it has adequate
resources to fund all of its commitments and that it can adjust the rate on
certificates of deposit to retain deposits in changed interest rate
environments. If Peoples Community requires funds beyond its internal funding
capabilities, advances from the Federal Home Loan Bank of Cincinnati are
available as an additional source of funds.
Peoples Community is required to maintain regulatory capital
sufficient to meet tangible, core and risk-based capital ratios of at least
1.5%, 4.0% and 8.0%, respectively. At September 30, 2000, Peoples Community
exceeded each of its capital requirements, with tangible, core and risk-based
capital ratios of 8.1%, 8.1% and 18.1%, respectively.
The net proceeds contributed to Peoples Community upon completion of
the conversion in March 2000 substantially increased Peoples Community's
liquidity.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data
presented herein regarding Peoples Bancorp have been prepared in accordance with
generally accepted accounting principles, which generally require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in relative purchasing power over time due
to inflation. Unlike most industrial companies, virtually all of Peoples
Bancorp's assets and liabilities are monetary in nature. As a result, interest
rates generally have a more significant impact on Peoples Bancorp's performance
than does the effect of inflation. Interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services,
since such prices are affected by inflation to a larger extent than interest
rates.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which requires entities to
recognize all derivatives in their financial statements as either assets or
liabilities measured at fair value. Statement of Financial Accounting Standards
No. 133 also specifies new methods of accounting for hedging transactions,
prescribes the items and transactions that may be hedged, and specifies detailed
criteria to be met to qualify for hedge accounting.
The definition of a derivative financial instrument is complex, but
in general, it is an instrument with one or more underlyings, such as an
interest rate or foreign exchange rate, that is applied to a notional amount,
such as an amount of currency, to determine the settlement amount(s). It
generally requires no significant initial investment and can be settled net or
by delivery of an asset that is readily convertible to cash. Statement of
Financial Accounting Standards No. 133 applies to derivatives embedded in other
contracts, unless the underlying of the embedded derivative is clearly and
closely related to the host contract.
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<PAGE>
Statement of Financial Accounting Standards No. 133, as amended by
Statement of Financial Accounting Standards no. 137, is effective for fiscal
years beginning after June 15, 2000. On adoption, entities are permitted to
transfer held-to-maturity debt securities to the available-for-sale or trading
category without calling into question their intent to hold other debt
securities to maturity in the future. Peoples Bancorp adopted Statement of
Financial Accounting Standards No. 133 as of October 1, 2000, as required,
without material effect on financial condition or results of operations.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities", which revises the standards for accounting
for securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but carries over most of the provisions of
Statement of Financial Accounting Standards No. 125 without reconsideration.
Statement of Financial Accounting Standards No. 140 is effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. The Statement is effective for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
Statement of Financial Accounting Standards No. 140 is not expected to have a
material effect on Peoples Bancorp's financial position or results of
operations.
BUSINESS OF PEOPLES BANCORP
GENERAL
Peoples Community Bancorp, Inc. was organized in December 1999 at
the direction of the Board of Directors of Peoples Community Bank, formerly, The
People's Building, Loan and Savings Company for the purpose of holding all of
the capital stock of Peoples Community and in order to facilitate the conversion
of Peoples Community from an Ohio-chartered mutual savings and loan association
to a federally-chartered stock savings bank. (Unless the context otherwise
requires, reference to Peoples Bancorp includes Peoples Community and its other
subsidiaries). Peoples Bancorp is a unitary savings and loan holding company
whose assets consist primarily of the outstanding shares of common stock of
Peoples Community, investments made with the portion of the net proceeds from
the issuance of Peoples Bancorp shares to the public retained by Peoples Bancorp
and Peoples Bancorp's loan to the employee stock ownership plan. Peoples Bancorp
has no significant liabilities. The management of Peoples Bancorp and Peoples
Community are substantially identical and Peoples Bancorp neither owns nor
leases any property but instead uses the premises, equipment and furniture of
Peoples Community. Peoples Community is a federally-chartered stock savings bank
that was originally organized in 1889. Peoples Community conducts its business
from six offices in Hamilton, Warren and Clinton Counties in Ohio. Peoples
Community is primarily engaged in attracting deposits from the general public
and using those funds to originate loans and invest in securities. Peoples
Community's primary lending emphasis has been, and continues to be, loans
secured by first liens on single-family (one- to-four units) residential
properties located in Hamilton, Warren and Clinton Counties in Ohio. Peoples
Community also originates construction and land development loans, multi-family
residential real estate loans, commercial real estate loans, home equity loans
and other loans. At September 30, 2000, Peoples Bancorp had $320.5 million in
total assets, $151.4 million in deposits and $31.7 million of stockholders'
equity.
Immediately prior to the Conversion, The Oakley Improved Building
and Loan Company, an Ohio-chartered mutual savings and loan association, merged
with and into Peoples Community. No consideration was exchanged in the Oakley
merger. The Oakley merger was accounted for on a pooling of interests basis
whereby prior year amounts are restated to include the assets and liabilities of
Oakley. Simultaneously with the Conversion, Harvest Home Financial Corporation,
an Ohio corporation with its principal place of business in Ohio, merged with
and into Peoples Bancorp. In connection with the Harvest Home merger, each
outstanding share of Harvest Home Financial common stock, no par value per
share, was converted into the right to receive 0.9 of a share of Peoples Bancorp
Common Stock and $9.00 in cash. The Harvest Home merger was accounted for using
the purchase method of accounting and as such, prior period amounts are not
restated. The Conversion, the Oakley merger and the Harvest Home merger were
interdependent transactions.
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<PAGE>
On September 19, 2000, Peoples Bancorp entered into an Agreement and
Plan of Reorganization with Market Financial Corp. Market Financial Corp. is an
Ohio-chartered bank holding company for Market Bank. Market Bank is an
Ohio-chartered savings and loan association. The Agreement and Plan of
Reorganization provides for the merger of Market Financial Corp. with and into
Peoples Bancorp and Market Bank with and into Peoples Community. Under the terms
of the agreement, Peoples Bancorp will pay $13.00 in either cash or Peoples
Bancorp common stock for each of the 1,259,439 outstanding shares of common
stock of Market Financial. The merger is currently expected to be completed in
the first quarter of 2001. At September 30, 2000, Market Financial had $56.1
million in total assets, $40.3 million in deposits and $14.8 million in
stockholders' equity.
Peoples Community is subject to examination and comprehensive
regulation by the Office of Thrift Supervision, which is Peoples Community's
chartering authority and primary federal regulator. Peoples Community is also
regulated by the Federal Deposit Insurance Corporation, administrator of the
Savings Association Insurance Fund. Peoples Community is also subject to certain
reserve requirements established by the Federal Reserve Board and is a member of
the Federal Home Loan Bank of Cincinnati, which is one of the 12 regional banks
comprising the FHLB System.
PEOPLES BANCORP LENDING ACTIVITIES
GENERAL. At September 30, 2000, the net loan portfolio of Peoples
Bancorp totaled $196.5 million, representing approximately 61.3% of total assets
at that date. The principal lending activity of Peoples Bancorp is the
origination of one- to four-family (which are also known as single-family)
residential loans. At September 30, 2000, conventional first mortgage, one- to
four-family residential loans amounted to $153.6 million, or 78.1% of the net
loan portfolio. To a lesser extent, Peoples Bancorp originates commercial real
estate and land loans and multi-family residential mortgage loans and
residential construction loans. At September 30, 2000, commercial real estate
and land loans totaled $20.4 million, or 10.4% of the net loan portfolio,
multi-family residential mortgage loans amounted to $9.0 million, or 4.6% of the
net loan portfolio and construction loans amounted to $27.1 million, or 13.8% of
the net loan portfolio.
The types of loans that Peoples Bancorp may originate are subject to
federal and state laws and regulations. Interest rates charged on loans are
affected principally by the demand for such loans and the supply of money
available for lending purposes and the rates offered by its competitors. These
factors are affected by general and economic conditions, the monetary policy of
the federal government, including the Federal Reserve Board, legislative and tax
policies, and governmental budgetary matters.
A savings institution generally may not make loans to one borrower
and related entities in an amount which exceeds 15% of its unimpaired capital
and surplus. However, loans in an amount equal to an additional 10% of
unimpaired capital and surplus may be made to a borrower if the loans are fully
secured by readily marketable securities. At September 30, 2000, Peoples
Community's regulatory limit on loans-to-one borrower was $4.0 million and its
five largest loans or groups of loans-to-one borrower, including related
entities, aggregated $3.1 million, $2.5 million, $2.4 million, $2.1 million and
$1.8 million. All of Peoples Bancorp's five largest loans or groups of loans
were performing in accordance with their terms at September 30, 2000. See "Asset
Quality - Classified Assets."
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<PAGE>
LOAN PORTFOLIO COMPOSITION. The following table sets forth the
composition of Peoples Bancorp's loans at the dates indicated.
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------------------
2000 1999 1998
--------------------- --------------------- --------------------
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
------ ---------- ------ ---------- ------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Single-family residential ............. $ 153,627 78.1% $ 87,574 92.6% $ 80,191 88.6
Multi-family residential .............. 8,999 4.6 1,588 1.7 1,611 1.8
Commercial real estate and land ....... 20,440 10.4 5,935 6.3 6,143 6.8
Construction loans .................... 27,056 13.8 3,473 3.7 5,217 5.8
--------- ----- --------- ----- --------- -----
Total mortgage loans ............... 210,122 106.9 98,570 104.3 93,162 103.0
Other loans ............................. 1,307 0.7 133 0.1 141 0.2
--------- ----- --------- ----- --------- -----
Total loans receivable ............. 211,429 107.6 98,703 104.4 93,303 103.2
Less:
Undisbursed portion of loans in process (13,546) (6.9) (3,337) (3.6) (2,214) (2.5)
Allowance for loan losses ............. (762) (0.4) (415) (0.4) (235) (0.3)
Deferred loan fees .................... (636) (0.3) (400) (0.4) (406) (0.4)
--------- ----- --------- ----- --------- -----
Loans receivable, net ................... $ 196,485 100.0% $ 94,551 100.0% $ 90,448 100.0%
========= ===== ========= ===== ========= =====
</TABLE>
ORIGINATION OF LOANS. The lending activities of Peoples Bancorp are
subject to the written underwriting standards and loan origination procedures
established by the Board of Directors and management. Loan originations are
obtained through a variety of sources, including referrals from real estate
brokers, builders and existing customers. Written loan applications are taken by
loan officers. The loan officers also supervise the procurement of credit
reports, appraisals and other documentation involved with a loan. Property
valuations are performed by independent outside appraisers approved by the Board
of Directors of Peoples Bancorp.
Under the real estate lending policy of Peoples Bancorp, a title
opinion must be obtained for each real estate loan. Peoples Bancorp also
requires fire and extended coverage casualty insurance, in order to protect the
properties securing its real estate loans. Borrowers must also obtain flood
insurance policies when the property is in a flood hazard area as designated by
the Department of Housing and Urban Development. Peoples Bancorp does not
require borrowers to advance funds to an escrow account for the payment of real
estate taxes or hazard insurance premiums.
Peoples Bancorp's loan approval process is intended to assess the
borrower's ability to repay the loan, the viability of the loan and the adequacy
of the value of the property that will secure the loan. The Board of Directors
has granted authority to approve loans as follows: loans up to $500,000 must be
approved by two senior executive officers; loans between $500,000 and $1.0
million must be approved by the executive committee; and loans greater than $1.0
million must be approved by the Board of Directors.
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<PAGE>
ACTIVITY IN LOANS. The following table shows the activity in Peoples
Bancorp's loans during the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Total loans held at beginning of period .................. $ 98,703 $ 93,303 $ 91,846
Originations of loans:
Mortgage loans:
Single-family residential (1) ...................... 58,271 28,236 21,552
Multi-family residential ........................... 6,362 484 900
Commercial real estate and land .................... 17,255 2,514 1,914
Other loans ............................................ 2,044 50 55
--------- --------- ---------
Total originations (2) .......................... 83,932 31,284 24,421
Increase due to Harvest Home Financial Corp. acquisition.. 62,334 -- --
--------- --------- ---------
Total increases ................................. 146,266 31,284 24,421
Loans sold ............................................... -- -- --
Transfers to real estate owned ........................... (110) -- --
Charge-offs .............................................. (4) -- (15)
Other .................................................... 563 121 (268)
Repayments ............................................... (33,989) (26,005) (22,681)
--------- --------- ---------
Net activity in loans .................................... 112,726 5,400 1,457
--------- --------- ---------
Gross loans held at end of period ........................ $ 211,429 $ 98,703 $ 93,303
========= ========= =========
</TABLE>
--------------------------
(1) Includes construction loan originations made during the fiscal year.
(2) Undisbursed portions of loans in process totaled $13.6 million, $3.3
million and $2.2 million at September 30, 2000, 1999 and 1998,
respectively.
Although federal laws and regulations permit savings institutions to
originate and purchase loans secured by real estate located throughout the
United States, Peoples Bancorp generally confines its lending activity to its
primary market area of Warren, Clinton and Hamilton Counties, Ohio. Subject to
its loans-to-one borrower limitation, Peoples Community is permitted to invest
without limitation in residential mortgage loans and up to 400% of its capital
in loans secured by non-residential or commercial real estate. Peoples Community
may also invest in secured and unsecured consumer loans in an amount not
exceeding 35% of total assets. This 35% limitation may be exceeded for certain
types of consumer loans, such as home equity and property improvement loans
secured by residential real property. In addition, Peoples Community may invest
up to 10% of its total assets in secured and unsecured loans for commercial,
corporate, business or agricultural purposes. At September 30, 2000, Peoples
Community was well within each of the above lending limits.
ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LOANS. The primary real
estate lending activity of Peoples Bancorp is the origination of loans secured
by first mortgage liens on one- to four-family residences. At September 30,
2000, $153.6 million or 72.7% of the total loan portfolio of Peoples Bancorp,
before net items, consisted of conventional first mortgage, one- to four-family
residential loans compared to $87.6 million or 88.7% at September 30, 1999.
The loan-to-value ratio, maturity and other provisions of the loans
made by Peoples Bancorp generally have reflected the policy of making less than
the maximum loan permissible under applicable regulations, in accordance with
sound lending practices, market conditions and underwriting standards
established by Peoples Bancorp. Peoples Bancorp's lending policies on one- to
four-family residential mortgage loans generally limit the maximum loan-to-value
ratio to 80% of the lesser of the appraised value or purchase price of the
property.
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<PAGE>
Residential mortgage loans are amortized on a monthly basis with principal and
interest due each month. The loans generally include "due-on-sale" clauses.
The residential mortgage loans originated by Peoples Bancorp consist
of fixed rate and adjustable rate loans. Presently, the single-family fixed rate
residential mortgage loans originated by Peoples Bancorp have terms of up to 30
years. Previously, these loans contained a three-year demand provision which
permitted Peoples Bancorp to accelerate the due date of a mortgage loan at any
time at or after three years from the date of origination (although Peoples
Bancorp has never utilized this provision). In addition, Peoples Bancorp
originates adjustable rate mortgage loans on which the interest rate adjusts
every one or three years based upon the one-year or three-year rate on T-bills
plus a specified margin. At September 30, 2000, $150.6 million, or 98.1% of our
single-family residential loans were adjustable rate (including those fixed rate
loans with a three year call provision), and $3.0 million, or 1.9% were
fixed-rate. The single-family residential mortgage loans presently being
originated by Peoples Bancorp generally conform to Fannie Mae and Freddie Mac
requirements.
COMMERCIAL REAL ESTATE AND LAND LOANS. Peoples Bancorp's commercial
real estate and land loan portfolio primarily consists of loans secured by
professional offices and churches located within Peoples Bancorp's primary
market area. Commercial real estate and land loans amounted to $20.4 million, or
9.7% of the total loan portfolio at September 30, 2000, with an average loan
balance of approximately $151,000. This compares to $5.9 million, or 6.0% at
September 30, 1999, with an average loan balance of approximately $60,000.
The commercial real estate loans of Peoples Bancorp typically have a
loan-to-value ratio of 75% or less and generally have higher interest rates than
single-family residential mortgage loans. The maximum term of Peoples Bancorp's
commercial real estate loans is 25 years. Otherwise, the commercial real estate
loans of Peoples Bancorp have terms which are substantially similar to its
single-family residential mortgage loans, including the three-year demand
provision. The land loans of Peoples Bancorp also have a loan-to-value ratio of
75% or less and are amortized over a five-year period or over a 15-year period
with a balloon payment of the remaining principal amount due at five years from
the date of origination. Land loans generally are secured by single-family
residential lots or undeveloped land being held for residential development.
Peoples Bancorp expects to increase the amount of commercial real estate loans
that Peoples Bancorp originates because they generally have higher yields and
shorter terms to maturity than single-family residential mortgage loans. In
addition, Peoples Bancorp believes that it can be a niche lender to small and
medium sized businesses in its market area.
Commercial real estate lending is generally considered to involve a
higher degree of risk than one- to four-family residential lending. Such
lending typically involves large loan balances concentrated in a single borrower
or groups of related borrowers for rental or business properties. In addition,
the payment experience on loans secured by income-producing properties is
typically dependent on the success of the operation of the related project and
thus is typically affected by adverse conditions in the real estate market and
in the economy. Peoples Bancorp generally attempts to mitigate the risks
associated with its commercial real estate lending by, among other things,
lending primarily in its market area and using low loan-to-value ratios in the
underwriting process.
Land development and acquisition loans involve significant
additional risks when compared with loans on existing residential properties.
These loans may involve larger loan balances to single borrowers, and the
payment experience may be dependent on the successful development of the land
and the sale of the lots. These risks can be significantly impacted by supply
and demand conditions.
MULTI-FAMILY RESIDENTIAL LOANS. Peoples Bancorp also has a
relatively small amount of multi-family (over four units) residential loans. The
multi-family residential mortgage loans of Peoples Bancorp are underwritten on
substantially the same basis as its commercial real estate loans, although
loan-to-value ratios are limited to 80%. At September 30, 2000, Peoples Bancorp
had $9.0 million in multi-family residential mortgage loans which amounted to
4.3% of Peoples Bancorp's total portfolio compared to $1.6 million, or 1.6% at
September 30, 1999.
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<PAGE>
CONSTRUCTION LOANS. At September 30, 2000, Peoples Bancorp had
approximately $27.1 million in construction loans compared to $3.5 million at
September 30, 1999. The increase in construction loans during fiscal 2000, was
due primarily to increased originations of construction loans to builders and
individuals and to a lesser extent to the acquisition of Harvest Home. The
construction loans of Peoples Bancorp are comprised largely of loans made to
builders on a pre-sold basis, as well as to borrowers to construct their homes.
Generally, the construction loan and the permanent mortgage loan are originated
at one closing as a construction/permanent loan. Peoples Bancorp's construction
loans to builders are generally with terms not to exceed twelve months.
Interest-only payments are required during the construction period, which is
typically six to twelve months. Peoples Bancorp also originates a limited amount
of construction loans to local developers to build homes on a speculative or
unsold basis. Peoples Bancorp generally limits the number of unsold homes under
construction to its builders. This number is dependent on the reputation of the
builder, the present exposure of the builder, the location of the property and
the financial strength of the builder.
Peoples Bancorp also originates loans for the construction of
commercial real estate such as small office buildings and warehouses. These
loans are typically originated as construction/permanent loans with interest
only payments during the construction period and converting to a permanent loan
at the end of the construction period. The loan to value ratio is generally
limited to 75% on these loans.
Prior to making a commitment to fund a construction loan, Peoples
Bancorp requires an appraisal of the property. Peoples Bancorp's also reviews
and inspects each project at the commencement of construction and prior to every
disbursement of funds during the term of the construction loan. Loan proceeds
are disbursed after inspections of the project based on a percentage of
completion.
Construction lending is generally considered to involve a higher
degree of risk of loss than long-term financing on improved, owner-occupied real
estate because of the uncertainties of construction, including the possibility
of costs exceeding the initial estimates and the need to obtain a tenant or
purchaser if the property will not be owner-occupied. Peoples Bancorp generally
attempts to mitigate the risks associated with construction lending by, among
other things, lending in its market area, using conservative underwriting
guidelines, and monitoring the construction process.
OTHER LOANS. Peoples Bancorp's other loans consist of loans secured
by deposit accounts and home equity line of credit loans. At September 30, 2000,
other loans amounted to $1.3 million, or 0.6% of Peoples Bancorp's total loan
portfolio.
LOAN ORIGINATION AND OTHER FEES. In addition to interest earned on
loans, Peoples Bancorp receives loan origination fees or "points" for
originating loans. Loan points are a percentage of the principal amount of the
mortgage loan and are charged to the borrower in connection with the origination
of the loan. In accordance with Statement of Financial Accounting Standards
No. 91, loan origination fees and certain related direct loan origination costs
are offset, and the resulting net amount is deferred and amortized as interest
income over the contractual life of the related loans as an adjustment to the
yield of such loans. At September 30, 2000, Peoples Bancorp had $636,000 of
deferred loan fees compared to $400,000 of deferred loan fees at September 30,
1999.
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<PAGE>
CONTRACTUAL PRINCIPAL REPAYMENTS AND INTEREST RATES. The following
table sets forth scheduled contractual amortization of Peoples Bancorp loans at
September 30, 2000 as well as the dollar amount of such loans which are
scheduled to mature after one year which have fixed or adjustable interest
rates. Demand loans, loans having no schedule of repayments and no stated
maturity and overdraft loans are reported as due in one year or less.
<TABLE>
<CAPTION>
Principal Repayments Contractually Due
in Year(s) Ended September 30,
-------------------------------------------------------------------------------------
Total at
September 2004- 2006- 2012- There-
30, 2000 2001 2002 2003 2005 2011 2017 after
-------- ---- ---- ---- ---- ---- ---- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Single-family residential ..... $153,627 $ 3,458 $ 3,738 $ 4,041 $ 9,091 $ 37,554 $ 58,908 $ 36,837
Multi-family residential ...... 8,999 369 399 431 970 4,008 2,822 --
Commercial real estate and land 20,440 611 718 776 1,747 7,215 8,735 638
Construction loans ............ 27,056 5,807 6,295 6,805 8,149 -- -- --
Other loans ....................... 1,307 1,030 208 69 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total (1) .................. $211,429 $ 11,275 $ 11,358 $ 12,122 $ 19,957 $ 48,777 $ 70,465 $ 37,475
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
--------------------------------
(1) Of the $200.2 million of loan principal payments contractually due after
September 30, 2001, $95.9 million have fixed rates of interest (including
those with a call provision after three years) and $104.3 million have
adjustable rates of interest.
Scheduled contractual maturities of loans do not necessarily reflect
the actual expected term of the loan portfolio. The average life of mortgage
loans is substantially less than their average contractual terms because of
prepayments. The average life of mortgage loans tends to increase when current
mortgage loan rates are higher than rates on existing mortgage loans and,
conversely, decrease when rates on current mortgage loans are lower than
existing mortgage loan rates (due to refinancing of adjustable-rate and
fixed-rate loans at lower rates). Under the latter circumstance, the
weighted-average yield on loans decreases as higher yielding loans are repaid or
refinanced at lower rates.
ASSET QUALITY
GENERAL. Peoples Bancorp mails delinquent notices to borrowers when
a borrower fails to make a required payment within 15 days of the date due.
Additional notices begin when a loan becomes 30 days past due. If a loan becomes
60 days past due, Peoples Bancorp refers it to an attorney to commence
foreclosure. In most cases, deficiencies are cured promptly. While Peoples
Bancorp generally prefers to work with borrowers to resolve such problems,
Peoples Bancorp will institute foreclosure or other collection proceedings when
necessary to minimize any potential loss.
Loans are placed on non-accrual status when management believes the
probability of collection of interest is insufficient to warrant further
accrual. When a loan is placed on non-accrual status, previously accrued but
unpaid interest is deducted from interest income. As a matter of policy, Peoples
Bancorp generally discontinues the accrual of interest income when the loan
becomes 90 days past due as to principal or interest.
Real estate acquired by Peoples Bancorp as a result of foreclosure
or by deed-in-lieu of foreclosure are classified as real estate owned until
sold. Peoples Bancorp had $110,000 in real estate owned at September 30, 2000,
and none at September 30, 1999 or 1998.
DELINQUENT LOANS. The following table sets forth information
concerning delinquent mortgage loans at the dates indicated, in dollar amounts
and as a percentage of each category of Peoples Bancorp's loan portfolio. The
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<PAGE>
amounts presented represent the total outstanding principal balances of the
related loans, rather than the actual payment amounts which are past due.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------------------------
2000 1999 1998
--------------------- ------------------------- ---------------------
60-89 Days 60-89 Days 60-89 Days
Delinquent Delinquent Delinquent
--------------------- ------------------------- ---------------------
Percent of Percent of Percent of
Loan Loan Loan
Amount Category Amount Category Amount Category
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Single-family....................... $1,486 1.06% $1,112 1.32% $1,044 1.22%
Multi-family........................ 124 1.38% - - % - - %
Commercial real estate and land..... - - % 111 .54% 126 2.05%
------ ------ ------
Total............................... $1,610 .81% $1,223 1.28% $1,170 1.28%
====== ====== ======
</TABLE>
NON-PERFORMING ASSETS. The following table sets forth information
with respect to non-performing assets identified by Peoples Bancorp, including
non-accrual loans, loans more than 90 days past due and still accruing interest
and other real estate owned.
<TABLE>
<CAPTION>
At September 30,
----------------------------
2000 1999 1998
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Loans past due 90 days or more and still accruing:
Single-family residential .................... $ -- $ 223 $147
Commercial real estate and land .............. -- 166 --
------ ------ ----
Total ..................................... -- 389 147
Non-accrual loans:
Single-family residential .................... 1,062 690 557
Multi-family residential ..................... 194 -- --
Commercial real estate and land .............. -- -- --
Construction loans ........................... -- -- --
Other loans .................................. -- -- --
------ ------ ----
Total non-accruing loans .................. 1,256 690 557
------ ------ ----
Total non-performing loans ................... 1,256 1,079 704
Other real estate owned, net ..................... 110 -- --
------ ------ ----
Total non-performing assets .................. $1,366 $1,079 $704
====== ====== ====
Non-performing assets to total assets ............ 0.43% 1.01% 0.66%
Non-performing loans to total loans .............. 0.65% 1.09% 0.75%
</TABLE>
If the $1.3 million of non-accruing and nonperforming loans of
Peoples Bancorp had been current in accordance with their terms during fiscal
2000, the gross income on such loans would have been approximately $47,000. A
total of approximately $29,000 of interest income was actually recorded by
Peoples Bancorp on such loans in the fiscal year ended September 30, 2000.
CLASSIFIED ASSETS. Federal regulations require that each insured
savings institution classify its assets on a regular basis. In addition, in
connection with examinations of insured institutions, federal examiners have
authority to identify problem assets and, if appropriate, classify them. There
are three classifications for problem assets: "substandard," "doubtful" and
"loss." Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values
65
<PAGE>
questionable, and there is a higher possibility of loss. An asset classified
loss is considered uncollectible and of such little value that continuance as an
asset of the institution is not warranted. Another category designated "special
mention" also must be established and maintained for assets which do not
currently expose an insured institution to a sufficient degree of risk to
warrant classification as substandard, doubtful or loss. Assets classified as
substandard or doubtful require the institution to establish general allowances
for loan losses. If an asset or portion thereof is classified loss, the insured
institution must either establish specific allowances for loan losses in the
amount of 100% of the portion of the asset classified loss, or charge-off such
amount. General loss allowances established to cover possible losses related to
assets classified substandard or doubtful may be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses do not qualify as regulatory capital. Federal examiners may disagree with
an insured institution's classifications and amounts reserved.
Peoples Bancorp's total classified assets at September 30, 2000
(excluding loss assets specifically reserved for) amounted to $3.0 million, of
which $1.7 million and $1.3 million were classified as substandard and special
mention, respectively. The largest classified asset at September 30, 2000
consisted of a $194,000 residential loan. The remaining $2.8 million of
classified assets at September 30, 2000 consisted of approximately $2.7 million
of residential real estate loans and $160,000 of commercial real estate and lot
loans.
ALLOWANCE FOR LOAN LOSSES. At September 30, 2000, Peoples Bancorp's
allowance for loan losses amounted to $762,000 or .36% of the total loan
portfolio. The loan portfolio of Peoples Bancorp consists primarily of
residential mortgage loans. Due to the predominance of residential mortgage
loans, Peoples Bancorp does not allocate its respective allowance for loan
losses to particular types of loans. The allocation of the loan loss reserve
based on portfolio percentages at September 30, 2000 was as follows:
<TABLE>
<CAPTION>
Balance Percent
------- -------
<S> <C> <C>
Residential real estate ................ $688,000 90.3%
Non-residential real estate............. 74,000 9.7
-------- -----
$762,000 100.0%
======== =====
</TABLE>
The loan loss allowance is maintained by management at a level
considered adequate to cover estimated losses inherent in the existing portfolio
based on prior loan loss experience, known and probable risks in the portfolio,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, general economic conditions, and
other factors and estimates which are subject to change over time. Peoples
Bancorp increased its allowance for loan losses in fiscal 2000 by recording a
$156,000 provision for losses on loans due to an increase in the volume of
loans, as well as an increase in commercial real estate and land loans and
construction loans which are generally considered to involve a higher degree of
risk than residential lending. Such increase in the provision for losses on
loans by Peoples Bancorp in fiscal 2000 was also due to the $177,000 increase in
total non-performing loans during the year. The allowance for loan losses was
further increased by $195,000 as a result of the acquisition of Harvest Home
Financial Corporation. Peoples Bancorp intends to continue to increase its
allowance for loan losses as its loan portfolio increases and the composition of
the portfolio changes. While management believes that it determines the size of
the allowance based on the best information available at the time, the allowance
will need to be adjusted as circumstances change and assumptions are updated.
Future adjustments to the allowance could significantly affect net earnings.
66
<PAGE>
The following table sets forth the activity in Peoples Bancorp's
allowance for loan losses during the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
2000 1999 1998
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Allowance at beginning of period ....................................... $ 415 $ 240 $ 207
Increase due to Harvest Home Financial Corp. acquisition ............... 195 -- --
Provisions ............................................................. 156 175 48
Charge-offs:
Single-family residential ........................................ 4 -- 15
Multi-family residential ......................................... -- -- --
Commercial real estate and land .................................. -- -- --
Construction ..................................................... -- -- --
Other loans ...................................................... -- -- --
----- ----- -----
Total charge-offs ............................................. 4 -- 15
Recoveries:
Single-family residential ........................................ -- -- --
Multi-family residential ......................................... -- -- --
Commercial real estate and land .................................. -- -- --
Construction ..................................................... -- -- --
Other loans ...................................................... -- -- --
----- ----- -----
Total recoveries .............................................. -- -- --
Net loans charged-off to allowance for losses on loans ................. (4) -- (15)
----- ----- -----
Allowance at end of period ............................................. $ 762 $ 415 $ 240
===== ===== =====
Allowance for loans losses to total nonperforming loans at end of period 60.67% 38.46% 34.09%
Allowance for loan losses to total loans at end of period .............. 0.36% 0.42% 0.26%
</TABLE>
INVESTMENT SECURITIES
Peoples Bancorp has authority to invest in various types of
securities, including mortgage-backed securities, United States Treasury
obligations, securities of various federal agencies and of state and municipal
governments, certificates of deposit at federally-insured banks and savings
institutions, certain bankers' acceptances and federal funds. Each significant
purchase of an investment security is approved by the Board of Directors.
At September 30, 2000, Peoples Bancorp's investment securities
portfolio consisted of $94.1 million of mortgage-backed securities, $8.2 million
of investment securities and $6.9 million in stock of the Federal Home Loan
Bank.
67
<PAGE>
The following table sets forth information regarding the carrying
and fair value of Peoples Bancorp's securities at the dates indicated.
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------------------------
2000 1999 1998
-------------------- -------------------- --------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- ----- --------- ----- --------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities ..................... $ 93,943 $ 94,050 $ 1,190 $ 1,185 $ 1,225 $ 1,220
U.S. Government and agency obligations ......... 6,169 6,166 1,301 1,300 1,796 1,805
Federal Home Loan Mortgage Corp. stock ......... 48 2,045 48 1,950 48 1,940
-------- -------- -------- -------- -------- --------
Total ....................................... $100,160 $102,261 $ 2,539 $ 4,435 $ 3,069 $ 4,965
======== ======== ======== ======== ======== ========
Held to maturity:
Certificates of deposit ........................ $ -- $ -- $ 400 $ 400 $ 900 $ 900
Federal Home Loan Bank stock ................... 6,852 6,852 1,021 1,021 949 949
-------- -------- -------- -------- -------- --------
Total ....................................... $ 6,852 $ 6,852 $ 1,421 $ 1,421 $ 1,849 $ 1,849
======== ======== ======== ======== ======== ========
</TABLE>
The following table sets forth the activity in Peoples Bancorp's
aggregate securities portfolio during the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Securities at beginning of period .................................. $ 5,856 $ 6,814 $ 6,755
Purchases(1) ....................................................... 66,591 566 1,068
Sales of available for sale securities ............................. (2,122) -- (93)
Amortization of premiums and discounts ............................. (552) -- --
Repayments, prepayments and maturities ............................. (14,305) (1,527) (1,445)
Securities acquired through acquisition - net ...................... 53,509 -- --
Increase in unrealized gains on available-for-sale securities....... 136 3 529
--------- --------- ---------
Securities at end of period(2) ..................................... $ 109,113 $ 5,856 $ 6,814
========= ========= =========
</TABLE>
-----------
(1) Includes increases in Federal Home Loan Bank stock from purchases and
dividends.
(2) At September 30, 2000, $89.9 million or 82.4% of Peoples Bancorp's
securities portfolio consisted of adjustable rate securities, as compared
to no adjustable rate securities at September 30, 1999 and 1998,
respectively.
Mortgage-backed securities represent a participation interest in a
pool of one- to four-family or multi-family mortgages. The mortgage originators
use intermediaries (generally U.S. Government agencies and government-sponsored
enterprises) to pool and repackage the participation interests in the form of
securities, with investors receiving the principal and interest payments on the
mortgages. Such U.S. Government agencies and government-sponsored enterprises
guarantee the payment of principal and interest to investors.
Mortgage-backed securities are typically issued with stated
principal amounts, and the securities are backed by pools of mortgages that have
loans with interest rates that are within a range and have varying maturities.
The underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well
as prepayment risk, are passed on to the certificate holder. The life of a
mortgage-backed pass-through security approximates the life of the underlying
mortgages.
The mortgage-backed securities of Peoples Bancorp consist of
Government National Mortgage Association, Federal Home Loan Mortgage Corporation
and Federal National Mortgage Association securities. The Government National
Mortgage Association is a government agency within the Department of Housing and
Urban Development which is intended to help finance government-assisted housing
programs. Government National
68
<PAGE>
Mortgage Association securities are backed by loans insured by the Federal
Housing Administration, or guaranteed by the Veterans Administration, and the
timely payment of principal and interest on Government National Mortgage
Association securities are guaranteed by the Government National Mortgage
Association and backed by the full faith and credit of the U.S. Government.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk. In addition, mortgage-backed
securities are more liquid than individual mortgage loans and may be used to
collateralize borrowings or other obligations of Peoples Bancorp.
The following table sets forth certain information regarding the
maturities of Peoples Bancorp's investment and mortgage-backed securities at
September 30, 2000.
<TABLE>
<CAPTION>
Contractually Maturing
--------------------------------------------------------------------------------
Weighted Weighted Weighted Weighted
Under 1 Average Average Average Over 10 Average
Year Yield 1-5 Years Yield 6-10 Years Yield Years Yield
---- ----- --------- ----- ---------- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed
Securities $ 269 6.00% $ 2,951 6.18% $ 4,123 6.47% $ 86,707 5.83%
U.S. Government and
Federal agency obligations 6,166 5.52 -- -- -- -- -- --
Federal Home Loan Mortgage 2,045 1.23 -- -- -- -- -- --
Corporation stock
Federal Home Loan
Bank stock 6,852 1.71 -- -- -- -- -- --
------- ---- --------- ---- --------- ---- ---------- ----
$15,332 3.27% $ 2,951 6.18% $ 4,123 6.47% $ 86,707 5.83%
======= ==== ========= ==== ========= ==== ========== ====
</TABLE>
SOURCES OF FUNDS
GENERAL. Deposits are the primary source of Peoples Bancorp's funds
for lending and other investment purposes. In addition to deposits, principal
and interest payments on loans and mortgage-backed securities are a source of
funds. Loan repayments are a relatively stable source of funds, while deposit
inflows and outflows are significantly influenced by general interest rates and
money market conditions. Borrowings may also be used on a short-term basis to
compensate for reductions in the availability of funds from other sources and on
a longer-term basis for general business purposes.
DEPOSITS. Deposits are attracted by Peoples Bancorp principally from
within its primary market area. Deposit account terms vary, with the principal
differences being the minimum balance required, the time periods the funds must
remain on deposit and the interest rate. Peoples Bancorp offers traditional
passbook savings accounts, money market accounts, checking accounts and
certificates of deposit.
Peoples Bancorp obtains deposits primarily from residents of
southwestern Ohio. Peoples Bancorp has not solicited deposits from outside Ohio
or paid fees to brokers to solicit funds for deposit.
Interest rates paid, maturity terms, service fees and withdrawal
penalties are established on a periodic basis. Management determines the rates
and terms based on rates paid by competitors, the need for funds or liquidity,
growth goals and federal and state regulations.
69
<PAGE>
The following table sets forth the activity in Peoples Bancorp
deposits during the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Beginning balance ..................................... $ 91,018 $ 87,324 $ 85,435
Net increase (decrease) before interest credited....... 54,384 1,416 (464)
Interest credited ..................................... 5,951 2,278 2,353
-------- -------- --------
Net increase in deposits .............................. 60,335 3,694 1,889
-------- -------- --------
Ending balance ........................................ $151,353 $ 91,018 $ 87,324
======== ======== ========
</TABLE>
The following table sets forth by various interest rate categories
the certificates of deposit with Peoples Bancorp at the dates indicated.
<TABLE>
<CAPTION>
September 30,
---------------------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
0.00% to 2.99%................................ $ - $ 198 $ -
3.00% to 3.99%................................ - - -
4.00% to 4.99%................................ 4,300 20,958 2,973
5.00% to 6.99%................................ 93,195 44,330 48,759
7.00% to 8.99%................................ 9,561 768 10,703
--------- -------- -------
Total......................................... $107,056 $66,254 $62,435
========= ======== =======
</TABLE>
The following table sets forth the amount and remaining maturities
of Peoples Bancorp certificates of deposit at September 30, 2000.
<TABLE>
<CAPTION>
Over Six Over One Over Two
Months Year Years
Six Months Through One Through Two Through Over Three
and Less Year Years Three Years Years
-------- ----------- ----------- ----------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
4.00% to 4.99%................................ $ 1,954 $ 1,379 $ 619 $ 320 $ 28
5.00% to 6.99%................................ 34,319 31,838 12,136 6,571 8,331
7.00% to 8.99%................................ - 1,752 7,420 - 389
------- ------- ------- ------ ------
Total......................................... $36,273 $34,969 $20,175 $6,891 $8,748
======= ======= ======= ====== ======
</TABLE>
As of September 30, 2000, the aggregate amount of outstanding time
certificates of deposit at Peoples Bancorp in amounts greater than or equal to
$100,000, was approximately $27.1 million. The following table presents the
maturity of these time certificates of deposit at such dates.
<TABLE>
<CAPTION>
September 30, 2000
------------------
(In Thousands)
<S> <C>
3 months or less.................................................................................. $ 224
Over 3 months through 6 months.................................................................... 4,533
Over 6 months through 12 months................................................................... 8,791
Over 12 months.................................................................................... 13,584
-------
$27,132
=======
</TABLE>
70
<PAGE>
The following table sets forth the dollar amount of deposits in
various types of deposits offered by Peoples Bancorp at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------------
Amount Percentage Amount Percentage Amount Percentage
------ ---------- ------ ---------- ------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook and NOW accounts....... $ 19,787 13.07% $ 5,408 5.94% $ 6,462 7.40%
Certificates of deposit ........ 107,056 70.73 66,254 72.79 62,435 71.50
Money market accounts .......... 24,510 16.20 19,356 21.27 18,427 21.10
-------- ------ -------- ------ -------- ------
Total .......................... $151,353 100.00% $ 91,018 100.00% $ 87,324 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
Peoples Bancorp attempts to control the flow of deposits by pricing
its accounts to remain generally competitive with other financial institutions
in its market area.
BORROWINGS. Peoples Bancorp may obtain advances from the Federal
Home Loan Bank of Cincinnati upon the security of the common stock Peoples
Bancorp owns in that bank and certain of its residential mortgage loans and
mortgage-backed securities, provided certain standards related to
creditworthiness have been met. These advances are made pursuant to several
credit programs, each of which has its own interest rate and range of
maturities. Federal Home Loan Bank advances are generally available to meet
seasonal and other withdrawals of deposit accounts and to permit increased
lending. As of September 30, 2000, Peoples Bancorp was permitted to borrow up to
$137.0 million from the Federal Home Loan Bank of Cincinnati.
The following table shows certain information regarding the
borrowings of Peoples Bancorp at or for the dates indicated:
<TABLE>
<CAPTION>
At or for the Year
Ended September 30,
-----------------------------------
2000 1999
------ ------
(Dollars in Thousands)
<S> <C> <C>
Federal Home Loan Bank advances:
Average balance outstanding.................................................. $ 61,321 $ 10
Maximum amount outstanding at any month-end during the period................ $134,500 $4,000
Balance outstanding at end of period......................................... $134,500 $ -
Average interest rate during the period...................................... 6.82% 5.49%
Weighted average interest rate at end of period.............................. 6.67% N/A
</TABLE>
SUBSIDIARIES
At September 30, 2000, other than Peoples Community, Peoples Bancorp
did not have any subsidiaries.
TOTAL EMPLOYEES
Peoples Bancorp had 40 full-time employees and 7 part-time employees
at September 30, 2000. None of these employees are represented by a collective
bargaining agent, and Peoples Bancorp believes that it enjoys good relations
with its personnel.
COMPETITION
Peoples Bancorp faces significant competition both in attracting
deposits and in making loans. Its most direct competition for deposits has come
historically from commercial banks, credit unions and other savings institutions
located in its primary market area, including many large financial institutions
which have greater financial and marketing resources available to them. In
addition, it faces significant competition for investors' funds from short-term
money market securities, mutual funds and other corporate and government
securities. Peoples
71
<PAGE>
Bancorp does not rely upon any individual group or entity for a material portion
of its deposits. The ability of Peoples Bancorp to attract and retain deposits
depends on its ability to generally provide a rate of return, liquidity and risk
comparable to that offered by competing investment opportunities.
Peoples Bancorp's competition for real estate loans comes
principally from mortgage banking companies, commercial banks, other savings
institutions and credit unions. It competes for loan originations primarily
through the interest rates and loan fees it charges, and the efficiency and
quality of services it provides borrowers. Factors which affect competition
include general and local economic conditions, current interest rate levels and
volatility in the mortgage markets. Competition may increase as a result of the
continuing reduction of restrictions on the interstate operations of financial
institutions and the anticipated slowing of refinancing activity.
PROPERTIES
At September 30, 2000, Peoples Bancorp conducted its business from
its main office in Lebanon, Ohio and branch offices in Blanchester and Cheviot
and three branch offices in Cincinnati. The following table sets forth the net
book value (including leasehold improvement, furnishings and equipment) and
certain other information with respect to the offices and other properties of
Peoples Bancorp at September 30, 2000.
<TABLE>
<CAPTION>
Net Book Value of
Property and
Lease Leasehold Deposits at
Owned or Expiration Improvements at September 30,
Location Leased Date September 30, 2000 2000
--------------------------------- -------- ---------- ------------------ -------------
<S> <C> <C> <C> <C>
MAIN OFFICE: (In Thousands)
11 South Broadway
Lebanon, Ohio 45036 Owned N/A $1,246 $64,178
BRANCH OFFICES:
112 E. Main Street
Blanchester, Ohio 45107 Leased 06/03 7 8,234
3924 Isabella
Cincinnati, Ohio 45209 Owned N/A 15 12,887
3621 Harrison Avenue
Cheviot, Ohio 45211 Owned N/A 664 39,505
3663 Ebenezer Road
Cincinnati, Ohio 45248 Owned N/A 282 10,647
7030 Hamilton Avenue
Cincinnati, Ohio 45231 Owned N/A 81 15,902
Union Centre Boulevard
West Chester, Ohio Owned N/A 949 -
</TABLE>
LEGAL PROCEEDINGS
Peoples Community and Peoples Bancorp are not involved in any
pending legal proceedings other than nonmaterial legal proceedings occurring in
the ordinary course of business.
REGULATION OF PEOPLES BANCORP
The following is a summary of certain statutes and regulations
affecting Peoples Bancorp and Peoples Community Bank. This summary is qualified
in its entirety by such statutes and regulations. A change in applicable laws or
regulations may have a material effect on Peoples Bancorp, Peoples Community
Bank and the business of Peoples Bancorp and Peoples Community Bank.
72
<PAGE>
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state law. Consequently, the growth and earnings
performance of Peoples Bancorp and Peoples Community Bank can be affected not
only by management decisions and general economic conditions, but also by the
statutes administered by, and the regulations and policies of, various
governmental regulatory authorities. Those authorities include, but are not
limited to, the Office of Thrift Supervision, the Federal Reserve Board, the
FDIC, the Internal Revenue Service, and state taxing authorities. The effect of
such statutes, regulations and policies can be significant, and cannot be
predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to
financial institutions and their holding companies regulate, among other things,
the scope of business, investments, reserves against deposits, capital levels
relative to operations, lending activities and practices, the nature and amount
of collateral for loans, the establishment of branches, mergers, consolidations
and dividends. The system of supervision and regulation applicable to Peoples
Bancorp and Peoples Community Bank establishes a comprehensive framework for
their respective operations and is intended primarily for the protection of the
FDIC's deposit insurance funds, the depositors of Peoples Community Bank and the
public, rather than stockholders of Peoples Community Bank or Peoples Bancorp.
Federal law and regulations establish supervisory standards
applicable to the lending activities of Peoples Community Bank, including
internal controls, credit underwriting, loan documentation and loan-to-value
ratios for loans secured by real property.
PEOPLES COMMUNITY BANCORP, INC.
HOLDING COMPANY ACQUISITIONS. Peoples Bancorp is a registered
savings and loan holding company within the meaning of Section 10 of the Home
Owners' Loan Act, and is subject to Office of Thrift Supervision examination and
supervision as well as certain reporting requirements. Federal law generally
prohibits a savings and loan holding company, without prior Office of Thrift
Supervision approval, from acquiring the ownership or control of any other
savings institution or savings and loan holding company, or all, or
substantially all, of the assets or more than 5% of the voting shares thereof.
These provisions also prohibit, among other things, any director or officer of a
savings and loan holding company, or any individual who owns or controls more
than 25% of the voting shares of such holding company, from acquiring control of
any savings institution not a subsidiary of such savings and loan holding
company, unless the acquisition is approved by the Office of Thrift Supervision.
HOLDING COMPANY ACTIVITIES. Peoples Bancorp operates as a unitary
savings and loan holding company. As a result of recently enacted legislation,
the activities of a new unitary savings and loan holding company like Peoples
Bancorp and its non-savings institution subsidiaries are restricted to
activities traditionally permitted to multiple savings and loan holding
companies and to financial holding companies under newly added provisions of the
Bank Holding Company Act. Multiple savings and loan holding companies may:
o furnish or perform management services for a savings
association subsidiary of a savings and loan holding company;
o hold, manage or liquidate assets owned or acquired from a
savings association subsidiary of a savings and loan holding
company;
o hold or manage properties used or occupied by a savings
association subsidiary of a savings and loan holding company;
o engage in activities determined by the Federal Reserve to be
closely related to banking and a proper incident thereto; and
73
<PAGE>
o engage in services and activities previously determined by the
Federal Home Loan Bank Board by regulation to be permissible
for a multiple savings and loan holding company as of March 5,
1987.
The activities financial holding companies may engage in include:
o lending, exchanging, transferring or investing for others, or
safeguarding money or securities;
o insuring, guaranteeing or indemnifying others, issuing
annuities, and acting as principal, agent or broker for
purposes of the foregoing;
o providing financial, investment or economic advisory services,
including advising an investment company;
o issuing or selling interests in pooled assets that a bank
could hold directly;
o underwriting, dealing in or making a market in securities; and
o merchant banking activities.
If the Office of Thrift Supervision determines that there is
reasonable cause to believe that the continuation by a savings and loan holding
company of an activity constitutes a serious risk to the financial safety,
soundness or stability of its subsidiary savings institution, the Office of
Thrift Supervision may impose such restrictions as deemed necessary to address
such risk. These restrictions include limiting the following:
o the payment of dividends by the savings institution;
o transactions between the savings institution and its
affiliates; and
o any activities of the savings institution that might create a
serious risk that the liabilities of the holding company and
its affiliates may be imposed on the savings institution.
Every savings institution subsidiary of a savings and loan holding
company is required to give the Office of Thrift Supervision at least 30 days'
advance notice of any proposed dividends to be made on its guarantee, permanent
or other non-withdrawable stock, or else such dividend will be invalid. See
"Peoples Community Bank - Capital Distributions."
RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES. Transactions between a
savings institution and its "affiliates" are subject to quantitative and
qualitative restrictions under Sections 23A and 23B of the Federal Reserve Act
and Office of Thrift Supervision regulations. Affiliates of a savings
institution generally include, among other entities, the savings institution's
holding company and companies that are controlled by or under common control
with the savings institution.
In general, a savings institution or its subsidiaries may engage in
certain "covered transactions" with affiliates up to certain limits. In
addition, a savings institution and its subsidiaries may engage in covered
transactions and certain other transactions only on terms and under
circumstances that are substantially the same, or at least as favorable to the
savings institution or its subsidiary, as those prevailing at the time for
comparable transactions with nonaffiliated companies. A "covered transaction" is
defined to include a loan or extension of credit to an affiliate; a purchase of
investment securities issued by an affiliate; a purchase of assets from an
affiliate, with certain exceptions; the acceptance of securities issued by an
affiliate as collateral for a loan or extension of credit to any party; or the
issuance of a guarantee, acceptance or letter of credit on behalf of an
affiliate. In addition, a savings institution may not:
74
<PAGE>
o make a loan or extension of credit to an affiliate unless the
affiliate is engaged only in activities permissible for bank
holding companies;
o purchase or invest in securities of an affiliate other than
shares of a subsidiary;
o purchase a low-quality asset from an affiliate; or
o engage in covered transactions and certain other transactions
between a savings institution or its subsidiaries and an
affiliate except on terms and conditions that are consistent
with safe and sound banking practices.
With certain exceptions, each loan or extension of credit by a
savings institution to an affiliate must be secured by collateral with a market
value ranging from 100% to 130% (depending on the type of collateral) of the
amount of the loan or extension of credit.
FEDERAL SECURITIES LAWS. Peoples Bancorp registered its common stock
with the Securities and Exchange Commission under Section 12(g) of the
Securities Exchange Act of 1934. Peoples Bancorp is subject to the proxy and
tender offer rules, insider trading reporting requirements and restrictions, and
certain other requirements under the Exchange Act. Pursuant to Office of Thrift
Supervision regulations and the Plan of Conversion, Peoples Bancorp has agreed
to maintain such registration for a minimum of three years following the
conversion in March 2000.
PEOPLES COMMUNITY BANK
GENERAL. Peoples Community Bank is a federally chartered stock
savings bank. The Office of Thrift Supervision is the chartering authority and
primary federal regulator of Peoples Community Bank. The Office of Thrift
Supervision has extensive authority over the operations of federally chartered
savings institutions. As part of this authority, federally chartered savings
institutions are required to file periodic reports with the Office of Thrift
Supervision and are subject to periodic examinations by the Office of Thrift
Supervision and the FDIC. Peoples Community Bank also is subject to regulation
and examination by the FDIC and to requirements established by the Federal
Reserve Board. The investment and lending authority of savings institutions are
prescribed by federal laws and regulations, and such institutions are prohibited
from engaging in any activities not permitted by such laws and regulations. Such
regulation and supervision is primarily intended for the protection of
depositors and the Savings Association Insurance Fund.
The Office of Thrift Supervision's enforcement authority over all
savings institutions and their holding companies includes, among other things,
the ability to assess civil money penalties, to issue cease and desist or
removal orders and to initiate injunctive actions. In general, these enforcement
actions may be initiated for violations of laws and regulations and unsafe or
unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with the
Office of Thrift Supervision.
INSURANCE OF ACCOUNTS. The deposits of Peoples Community Bank are
insured to the maximum extent permitted by the Savings Association Insurance
Fund, which is administered by the FDIC, and are backed by the full faith and
credit of the U.S. Government. As insurer, the FDIC is authorized to conduct
examinations of, and to require reporting by, FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious threat to the FDIC. The FDIC
also has the authority to initiate enforcement actions against savings
institutions, after giving the Office of Thrift Supervision an opportunity to
take such action. Currently, FDIC deposit insurance rates generally range from
zero basis points to 27 basis points, depending on the assessment risk
classification assigned to the depository institution.
The FDIC may terminate the deposit insurance of any insured
depository institution, including Peoples Community Bank, if it determines after
a hearing that the institution has engaged or is engaging in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations, or has
violated any applicable law,
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regulation, order or any condition imposed by an agreement with the FDIC. It
also may suspend deposit insurance temporarily during the hearing process for
the permanent termination of insurance, if the institution has no tangible
capital. If insurance of accounts is terminated, the accounts at the institution
at the time of the termination, less subsequent withdrawals, shall continue to
be insured for a period of six months to two years, as determined by the FDIC.
Management is aware of no existing circumstances which would result in
termination of the deposit insurance of Peoples Community Bank.
REGULATORY CAPITAL REQUIREMENTS. Federally insured savings
institutions are required to maintain minimum levels of regulatory capital. The
Office of Thrift Supervision has established capital standards applicable to all
savings institutions. These standards generally must be as stringent as the
comparable capital requirements imposed on national banks. The Office of Thrift
Supervision also is authorized to impose capital requirements in excess of these
standards on individual institutions on a case-by-case basis.
Current Office of Thrift Supervision capital standards require
savings institutions to satisfy three different capital requirements. Under
these standards, savings institutions must maintain "tangible" capital equal to
at least 1.5% of adjusted total assets, "core" capital generally equal to at
least 4.0% of adjusted total assets, except for those institutions with the
highest examination rating and aceptable levels of risk and "total" capital (a
combination of core and "supplementary" capital) equal to at least 8.0% of
"risk-weighted" assets. Core capital generally consists of common stockholders'
equity (including retained earnings). Tangible capital generally equals core
capital minus intangible assets, with only a limited exception for purchased
mortgage servicing rights.
In determining compliance with the risk-based capital requirement, a
savings institution is allowed to include both core capital and supplementary
capital in its total capital, provided that the amount of supplementary capital
included does not exceed the savings institution's core capital. Supplementary
capital generally consists of general allowances for loan losses up to a maximum
of 1.25% of risk-weighted assets, together with certain other items. In
determining the required amount of risk-based capital, total assets, including
certain off-balance sheet items, are multiplied by a risk weight based on the
risks inherent in the type of assets. The risk weights range from 0% for cash
and securities issued by the U.S. Government or unconditionally backed by the
full faith and credit of the U.S. Government to 100% for loans (other than
qualifying residential loans weighted at 50%) and repossessed assets.
In August 1993, the Office of Thrift Supervision adopted a final
rule incorporating an interest-rate risk component into the risk-based capital
regulation. Under the rule, an institution with greater than "normal" interest
rate risk will be subject to a deduction of its interest rate risk component
from total capital for purposes of calculating its risk-based capital. As a
result, such an institution will be required to maintain additional capital in
order to comply with the risk-based capital requirement. An institution has
greater than "normal" interest rate risk if it would suffer a loss of net
portfolio value exceeding 2.0% of the estimated market value of its assets in
the event of a 200 basis point increase or decrease in interest rates. The
interest rate risk component will be calculated, on a quarterly basis, as
one-half of the difference between an institution's measured interest rate risk
and 2.0% multiplied by the market value of its assets. The rule also authorizes
the Office of Thrift Supervision to waive or defer an institution's interest
rate risk component on a case-by-case basis. Because of continuing delays by the
Office of Thrift Supervision, the interest rate risk component has never been
operative.
Savings institutions must value securities available for sale at
amortized cost for regulatory capital purposes. This means that in computing
regulatory capital, savings institutions should add back any unrealized losses
and deduct any unrealized gains, net of income taxes, on debt securities
reported as a separate component of generally accepted accounting principles
capital.
At September 30, 2000, Peoples Community Bank exceeded all of its
regulatory capital requirements, with tangible, core and risk-based capital
ratios of 8.1%, 8.1% and 18.1%, respectively.
Any savings institution that fails any of the capital requirements
is subject to possible enforcement actions by the Office of Thrift Supervision
or the FDIC. Such actions could include a capital directive, a cease and desist
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order, civil money penalties, the establishment of restrictions on the
institution's operations, termination of federal deposit insurance and the
appointment of a conservator or receiver. The Office of Thrift Supervision's
capital regulation provides that such actions, through enforcement proceedings
or otherwise, could require one or more of a variety of corrective actions.
PROMPT CORRECTIVE ACTION. The following table shows the amount of
capital associated with the different capital categories set forth in the prompt
corrective action regulations.
<TABLE>
<CAPTION>
TOTAL TIER 1 TIER 1
CAPITAL CATEGORY RISK-BASED CAPITAL RISK-BASED CAPITAL LEVERAGE CAPITAL
---------------- ------------------ ------------------ ----------------
<S> <C> <C> <C>
Well capitalized............................................ 10% or more 6% or more 5% or more
Adequately capitalized...................................... 8% or more 4% or more 4% or more
Undercapitalized............................................ Less than 8% Less than 4% Less than 4%
Significantly undercapitalized.............................. Less than 6% Less than 3% Less than 3%
</TABLE>
In addition, an institution is "critically undercapitalized" if it
has a ratio of tangible equity to total assets that is equal to or less than
2.0%. Under specified circumstances, a federal banking agency may reclassify a
well capitalized institution as adequately capitalized and may require an
adequately capitalized institution or an undercapitalized institution to comply
with supervisory actions as if it were in the next lower category (except that
the FDIC may not reclassify a significantly undercapitalized institution as
critically undercapitalized).
An institution generally must file a written capital restoration
plan which meets specified requirements within 45 days of the date that the
institution receives notice or is deemed to have notice that it is
undercapitalized, significantly undercapitalized or critically undercapitalized.
A federal banking agency must provide the institution with written notice of
approval or disapproval within 60 days after receiving a capital restoration
plan, subject to extensions by the agency. An institution which is required to
submit a capital restoration plan must concurrently submit a performance
guaranty by each company that controls the institution. In addition,
undercapitalized institutions are subject to various regulatory restrictions,
and the appropriate federal banking agency also may take any number of
discretionary supervisory actions.
At September 30, 2000, Peoples Community Bank was deemed a well
capitalized institution for purposes of the above regulations and as such is not
subject to the above mentioned restrictions.
SAFETY AND SOUNDNESS GUIDELINES. The Office of Thrift Supervision
and the other federal banking agencies have established guidelines for safety
and soundness, addressing operational and managerial standards, as well as
compensation matters for insured financial institutions. Institutions failing to
meet these standards are required to submit compliance plans to their
appropriate federal regulators. The Office of Thrift Supervision and the other
agencies have also established guidelines regarding asset quality and earnings
standards for insured institutions. Peoples Community Bank believes that it is
in compliance with these guidelines and standards.
LIQUIDITY REQUIREMENTS. All savings institutions are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. At the present time, the required minimum
liquid asset ratio is 4%. Peoples Community Bank is in compliance with the
liquidity requirements.
CAPITAL DISTRIBUTIONS. Office of Thrift Supervision regulations
govern capital distributions by savings institutions, which include cash
dividends, stock repurchases and other transactions charged to the capital
account of a savings institution to make capital distributions. A savings
institution must file an application for Office of Thrift Supervision approval
of the capital distribution if either (1) the total capital distributions for
the applicable
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calendar year exceed the sum of the institution's retained net income for that
year to date plus the institution's retained net income for the preceding two
years, (2) the institution would not be at least adequately capitalized
following the distribution, (3) the distribution would violate any applicable
statute, regulation, agreement or Office of Thrift Supervision-imposed
condition, or (4) the institution is not eligible for expedited treatment of its
filings. If an application is not required to be filed, a savings institution
that is a subsidiary of a holding company (as well as certain other
institutions) must still file a notice with the Office of Thrift Supervision at
least 30 days before the board of directors declares a dividend or approves a
capital distribution.
COMMUNITY REINVESTMENT ACT AND THE FAIR LENDING LAWS. Savings
institutions have a responsibility under the Community Reinvestment Act of 1977
and related regulations of the Office of Thrift Supervision to help meet the
credit needs of their communities, including low- and moderate-income
neighborhoods. In addition, the Equal Credit Opportunity Act and the Fair
Housing Act prohibit lenders from discriminating in their lending practices on
the basis of characteristics specified in those statutes. An institution's
failure to comply with the provisions of the Community Reinvestment Act could,
at a minimum, result in regulatory restrictions on its activities. Failure to
comply with fair lending laws could result in enforcement actions by the Office
of Thrift Supervision, as well as other federal regulatory agencies, and the
Department of Justice.
QUALIFIED THRIFT LENDER TEST. All savings institutions are required
to meet a qualified thrift lender test to avoid certain restrictions on their
operations. A savings institution can comply with the qualified thrift lender
test by either qualifying as a domestic building and loan association as defined
in the Internal Revenue Code or by maintaining at least 65% of its portfolio
assets in certain housing and consumer-related assets such as:
o loans made to purchase, refinance, construct, improve or
repair domestic residential housing;
o home equity loans;
o most mortgage-backed securities;
o stock issued by the Federal Home Loan Bank of Cincinnati; and
o direct or indirect obligations of the FDIC.
A savings institution that does not meet the qualified thrift lender
test must either convert to a bank charter or comply with certain restrictions
on its operations.
At September 30, 2000, the qualified thrift investments of Peoples
Community Bank were approximately 78.2% of its portfolio assets.
FEDERAL HOME LOAN BANK SYSTEM. Peoples Community Bank is a member of
the Federal Home Loan Bank of Cincinnati, which is one of 12 regional Federal
Home Loan Banks that administers the home financing credit function of savings
institutions. Each Federal Home Loan Bank serves as a reserve or central bank
for its members within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the Federal Home Loan Bank
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the board of directors of the Federal Home Loan
Bank.
As a member, Peoples Community Bank is required to purchase and
maintain stock in the Federal Home Loan Bank of Cincinnati in an amount equal to
at least 1% of its aggregate unpaid residential mortgage loans or similar
obligations at the beginning of each year. At September 30, 2000, Peoples
Community Bank had $6.9 million in Federal Home Loan Bank stock, which was in
compliance with this requirement.
The Federal Home Loan Banks are required to provide funds for the
resolution of troubled savings institutions and to contribute to affordable
housing programs through direct loans or interest subsidies on advances targeted
for community investment and low- and moderate-income housing projects. These
contributions have
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adversely affected the level of Federal Home Loan Bank dividends paid in the
past and could do so in the future. These contributions also could have an
adverse effect on the value of Federal Home Loan Bank stock in the future.
FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all
depository institutions to maintain reserves against their transaction accounts
(primarily NOW and Super NOW checking accounts) and non-personal time deposits.
Because required reserves must be maintained in the form of vault cash or a
noninterest-bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce an institution's earning assets.
TAXATION OF PEOPLES BANCORP
FEDERAL TAXATION
GENERAL. Peoples Bancorp and Peoples Community Bank are subject to
the corporate tax provisions of the Internal Revenue Code, and Peoples Community
Bank is subject to certain additional provisions which apply to thrifts and
other types of financial institutions. The following discussion of federal
taxation is intended only to summarize certain pertinent federal income tax
matters relevant to the taxation of Peoples Bancorp and Peoples Community Bank
and is not a comprehensive discussion of the tax rules applicable to Peoples
Bancorp and Peoples Community Bank.
FISCAL YEAR. Peoples Bancorp and Peoples Community Bank file federal
income tax returns on the basis of a calendar year ending on December 31.
BAD DEBT RESERVES. In 1996, legislation was enacted that repealed
the reserve method of accounting (including the percentage of taxable income
method) previously used by many savings institutions to calculate their bad debt
reserve for federal income tax purposes. Savings institutions with $500 million
or less in assets may, however, continue to use the experience method. Peoples
Community Bank must recapture that portion of its reserve which exceeds the
amount that could have been taken under the experience method for post-1987 tax
years. At December 31, 1995, Peoples Community Bank's post-1987 excess reserves
amounted to approximately $1.1 million. The recapture will occur over a six-year
period, which commenced January 1, 1998. The legislation also requires savings
institutions to account for bad debts for federal income tax purposes on the
same basis as commercial banks for tax years beginning after December 31, 1995.
This change in accounting method and recapture of excess bad debt reserves is
adequately provided for in Peoples Community Bank's deferred tax liability.
At September 30, 2000, the federal income tax reserves of Peoples
Community Bank included $3.7 million for which no federal income tax has been
provided. Because of these federal income tax reserves and the liquidation
account established for the benefit of certain depositors of Peoples Community
Bank in connection with the recent conversion, the retained earnings of Peoples
Community Bank are substantially restricted.
DISTRIBUTIONS. If Peoples Bancorp were to distribute cash or
property to its stockholders, and the distribution was treated as being from its
accumulated bad debt reserves, the distribution would cause Peoples Bancorp to
have additional taxable income. A distribution is from accumulated bad debt
reserves if (a) the reserves exceed the amount that would have been accumulated
on the basis of actual loss experience, and (b) the distribution is a
"non-qualified distribution." A distribution with respect to its stock is a
non-qualified distribution to the extent that, for federal income tax purposes,
o it is in redemption of its shares,
o it is pursuant to a liquidation of the institution, or
o in the case of a current distribution, together with all other
such distributions during the taxable year, it exceeds the
institution's current and post-1951 accumulated earnings and
profits.
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The amount of additional taxable income created by a non-qualified
distribution is an amount that when reduced by the tax attributable to it is
equal to the amount of the distribution.
MINIMUM TAX. The Internal Revenue Code imposes an alternative
minimum tax at a rate of 20%. The alternative minimum tax generally applies to a
base of regular taxable income plus certain tax preferences ("alternative
minimum taxable income") and is payable to the extent such alternative minimum
taxable income is in excess of an exemption amount. Tax preference items include
the following:
o depreciation, and
o 75% of the excess (if any) of:
(1) alternative minimum taxable income determined without
regard to this preference and prior to reduction by net
operating losses, over
(2) adjusted current earnings as defined in the Internal
Revenue Code.
Peoples Bancorp has not been subject to the alternative minimum tax
or had any such amounts available as credits for carry over.
CAPITAL GAINS AND CORPORATE DIVIDENDS-RECEIVED DEDUCTION. Corporate
net capital gains are taxed at a maximum rate of 35%. Corporations which own 20%
or more of the stock of a corporation distributing a dividend may deduct 80% of
the dividends received. Corporations which own less than 20% of the stock of a
corporation distributing a dividend may deduct 70% of the dividends received.
However, a corporation that receives dividends from a member of the same
affiliated group of corporations may deduct 100% of the dividends received.
OTHER MATTERS. Federal legislation is introduced from time to time
that would limit the ability of individuals to deduct interest paid on mortgage
loans. Individuals are currently not permitted to deduct interest on consumer
loans. Significant increases in tax rates or further restrictions on the
deductibility of mortgage interest could adversely affect Peoples Bancorp.
Peoples Bancorp's federal income tax returns for the tax years ended
1999, 1998 and 1997 are open under the statute of limitations and are subject to
review by the IRS. Peoples Bancorp has not been audited by the IRS during the
last five years.
STATE TAXATION
OHIO TAXATION. Peoples Bancorp is subject to the Ohio corporation
franchise tax, which is a tax measured by both net earnings and net worth. The
rate of tax is the greater of (i) 5.1% on the first $50,000 of computed Ohio
taxable income and 8.9% of computed Ohio taxable income in excess of $50,000 or
(ii) 0.582% times taxable net worth.
In computing Peoples Bancorp's tax under the net worth method, 100%
of the investment in the capital stock of Peoples Community Bank after the
conversion may be excluded, as reflected on the balance sheet, in computing
taxable net worth as long as Peoples Bancorp owns at least 25% of the issued and
outstanding capital stock of Peoples Community Bank. The calculation of the
exclusion from net worth is based on the ratio of the excludable investment (net
of any appreciation or goodwill included in such investment) to total assets
multiplied by the net value of the stock. As a holding company, Peoples Bancorp
may be entitled to various other deductions in computing taxable net worth that
are not generally available to operating companies.
A special litter tax is also applicable to all corporations,
including Peoples Bancorp, subject to the Ohio corporation franchise tax other
than "financial institutions." If the franchise tax is paid on the net income
basis, the litter tax is equal to 0.11% of the first $50,000 of computed Ohio
taxable income and 0.22% of computed Ohio
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taxable income in excess of $50,000. If the franchise tax is paid on the net
worth basis, the litter tax is equal to 0.014% times taxable net worth.
Peoples Community Bank is a "financial institution" for State of
Ohio tax purposes. As such, it is subject to the Ohio corporate franchise tax on
"financial institutions," which is imposed annually at a rate of 1.3% of Peoples
Community Bank's book net worth determined in accordance with generally accepted
accounting principles. As a "financial institution," Peoples Community Bank is
not subject to any tax based upon net income or net profits imposed by the State
of Ohio.
DELAWARE TAXATION. As a Delaware holding company not earning income
in Delaware, Peoples Bancorp is exempt from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware. The tax is imposed as a percentage of the capital base of
Peoples Bancorp with an annual maximum of $150,000.
COMPARISON OF THE RIGHTS OF STOCKHOLDERS OF PEOPLES BANCORP AND MARKET
FINANCIAL
Peoples Bancorp is a corporation organized under the laws of the
State of Delaware. Market Financial is a corporation organized under the laws of
the State of Ohio. The rights of Market Financial stockholders have been
governed by Ohio corporate law and the Articles of Incorporation and Code of
Regulations of Market Financial. Upon the completion of the merger, each Market
Financial stockholder who is allocated shares of Peoples Bancorp common stock
will become a stockholder of Peoples Bancorp. Accordingly, after the merger, the
rights of such stockholders will be governed by Delaware corporation law and the
Certificate of Incorporation and Bylaws of Peoples Bancorp. The following is a
comparison of the differences as well as certain important similarities between
Ohio and Delaware law, which statutes change from time to time, and the
Certificate of Incorporation and Bylaws of Peoples Bancorp and Articles of
Incorporation and Code of Regulations of Market Financial, which also may be
changed.
MEETINGS OF STOCKHOLDERS
Under Peoples Bancorp's Certificate of Incorporation, special
meetings of stockholders may be called only by the board of directors pursuant
to a resolution approved by the affirmative vote of at least three-fourths of
the directors then in office.
Under Market Financial's Code of Regulations, meetings of
stockholders may be called only by (i) the board of directors by action at a
meeting, or a majority of directors without a meeting, (ii) the chairman of the
board, (iii) the president, or in the case of his absence, death or disability
an authorized vice president, (iv) the secretary, or (v) holders of at least 25%
of the outstanding shares entitled to vote at the meeting.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS
Peoples Bancorp's Certificate of Incorporation provides that no
amendment may be made unless it is first approved by a majority of the Peoples
Bancorp board of directors and thereafter is approved by the holders of 80% of
the shares of Peoples Bancorp common stock entitled to vote generally in an
election of directors, voting together as a single class. However, any amendment
adopted by two-thirds of the Peoples Bancorp board only requires the affirmative
vote of the holders of a majority of the shares of Peoples Bancorp common stock.
Market Financial's Articles of Incorporation provide for amendment by a majority
of stockholders and, in addition, require the affirmative vote of the holders of
at least 75% of the shares of Market Financial common stock entitled to vote if
the Market Financial board of directors recommends against the amendment.
Peoples Bancorp's Bylaws may be amended by a majority vote of the
Peoples Bancorp board of directors or by the affirmative vote of the holders of
a majority of the shares of Peoples Bancorp common stock entitled to vote
generally in an election of directors, voting together as a single class, with
the exception of Sections 2.4
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(special stockholders' meetings), 2.14 (stockholder proposals), 4.1 (powers of
directors), 4.2 (classification of directors), 4.3 (number of directors), 4.4
(vacancies in the board of directors), 4.5 (removal of directors), 4.15
(nominations of directors) and Article VI (personal liability of directors) of
the Bylaws, which may not be amended without the affirmative vote of the holders
of at least 80% of the shares of Peoples Bancorp common stock entitled to vote
generally in an election of directors. Market Financial's Code of Regulations
provides that it may be amended by the affirmative vote of the holders of at
least a majority of the shares entitled to vote.
CUMULATIVE VOTING
The respective Certificate of Incorporation and Articles of
Incorporation of Peoples Bancorp and Market Financial do not permit stockholders
to cumulate their votes in the election of directors.
STOCKHOLDER NOMINATIONS AND PROPOSALS
Peoples Bancorp's Bylaws provide that all nominations for election
to the Peoples Bancorp board of directors, other than those made by the Peoples
Bancorp board or a committee thereof, be made by a stockholder who has complied
with the notice provisions in Peoples Bancorp's Bylaws. Written notice of a
stockholder nomination must be communicated to the attention of the Secretary of
Peoples Bancorp and either delivered to, or mailed and received at, the
principal executive offices of Peoples Bancorp not less than 120 days prior to
the anniversary date of the mailing of proxy materials in connection with the
immediately preceding annual meeting of stockholders of Peoples Bancorp. Each
such notice shall set forth the information required by Article 4.15 of Peoples
Bancorp's Bylaws.
Peoples Bancorp's Bylaws also provide that only such business as
shall have been properly brought before an annual meeting of stockholders shall
be conducted at the annual meeting. For business to be properly brought before
an annual meeting, such business must be (a) specified in the notice given by or
at the direction of the Peoples Bancorp board of directors or (b) otherwise
properly brought before the meeting by a stockholder who has given timely notice
thereof in writing to the Secretary of Peoples Bancorp. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive office of Peoples Bancorp not less than 120 days prior to
the anniversary date of the mailing of proxy materials in connection with the
immediately preceding annual meeting. A stockholder's notice to the Secretary
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting the information required by Article 2.14 of Peoples Bancorp's
Bylaws. The presiding officer of an annual meeting shall determine and declare
to the meeting whether the business was properly brought before the meeting in
accordance with the provisions of the Peoples Bancorp Bylaws, and any such
business not properly brought before the annual meeting shall not be transacted.
Market Financial's Code of Regulations also provides for notice and
information requirements for stockholder nominations for the election of
directors. Nominations for the election of directors may be made by the Market
Financial board of directors or by any Market Financial stockholder entitled to
vote generally in the election of directors. In order for a Market Financial
stockholder to have any nomination considered at an annual meeting, he or she
must give written notice thereof, delivered or mailed by first class U.S. mail,
postage prepaid, to the Secretary of Market Financial on the October 31st
immediately preceding such annual meeting, or the 60th day before the first
anniversary of the most recent annual meeting of stockholders of Market
Financial. If the annual meeting is not held on or before the 31st day following
the anniversary date, then the written notice must be received by the Secretary
within a reasonable time before the annual meeting. In the case of a special
meeting, written notice of a proposed nominee must be received by the Secretary
of Market Financial no later than the close of business on the 7th day following
the day on which notice of the special meeting was mailed to stockholders. The
stockholder's written notice must contain the information required by Market
Financial's Code of Regulations. The chairman of the annual meeting will
determine and declare to the meeting whether the nomination or proposal was
properly brought before the meeting in accordance with the provisions of the
Market Financial Code of Regulations, and any such defective nomination or
proposal will be disregarded.
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REMOVAL OF DIRECTORS; VACANCIES
Under Peoples Bancorp's Certificate of Incorporation, any director
may be removed from office only with cause by an affirmative vote of not less
than 80% of the total votes eligible to be cast by stockholders at a duly
constituted meeting of stockholders called expressly for such purpose. In
addition, under Peoples Bancorp's Certificate of Incorporation, vacancies in
Peoples Bancorp's board of directors, including vacancies created by newly
created directorships resulting from an increase in the number of directors, may
be filled by Peoples Bancorp's board, acting by a vote of a majority of the
directors then in office, even if less than a quorum, and any director so chosen
shall serve for the remainder of the term of the class of directors in which the
vacancy occurred and until his successor is elected and qualified.
Market Financial's Code of Regulations provides that directors may
be removed with or without cause by the vote of the holders of a majority of the
shares of Market Financial common stock entitled to vote in an election of
directors. Vacancies in Market Financial's board of directors may be filled by
Market Financial's board of directors, acting by a vote of a majority of the
directors then in office, even if less than a quorum.
CLASSIFIED BOARD
Peoples Bancorp's Bylaws provides for the division of its board
directors into three classes of approximately equal size. Directors of Peoples
Bancorp's board of directors are elected for three-year terms, and the terms of
office of approximately one-third of the members of the classified board of
directors expire each year. This classification of the board of Peoples Bancorp
may make it more difficult for a stockholder to acquire immediate control of
Peoples Bancorp and remove managment by means of a hostile takeover. Since the
terms of aproximately one-third of the incumbent directors expire each year, at
least two annual elections are necessary for the stockholders to replace a
majority of directors, whereas a majority of the directors of a non-classified
board of directors may be replaced in one annual meeting.
The Market Financial board of directors is also classified and
divided into three classes. Directors serve for terms of three years and until
their respective successors are duly elected and qualified. As a result of the
classification of the Market Financial board of directors, a minimum of two
annual meetings of stockholders would be necessary for a majority of the members
of the Market Financial board of directors to stand for election.
INDEMNIFICATION AND LIMITATIONS OF LIABILITY OF DIRECTORS AND OFFICERS
Peoples Bancorp's Certificate of Incorporation states that Peoples
Bancorp shall eliminate the personal liability of a director to the fullest
extent permitted by the Delaware corporation law. Such liability includes
monetary damages for breach of his fiduciary duty as a director. This
elimination does not apply and does not eliminate personal liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, (iii) for
illegal distribution of dividends, or (iv) for any transaction from which the
director derived an improper personal benefit.
Peoples Bancorp's Certificate of Incorporation states that Peoples
Bancorp shall indemnify its directors, officers, employees, agents and former
directors, officers, employees and agents, and any other persons serving at the
request of Peoples Bancorp, against expenses incurred in connection with any
legal proceeding, with respect to which such director, officer, employee, agent
or other person is a party, to the full extent permitted by the Delaware
corporation law. However, Peoples Bancorp will not be liable for any amounts
which may be due to any person in connection with a settlement of any action,
suit or proceeding effected without its prior written consent or any action,
suit or proceeding initiated by any person seeking indemnification hereunder
without its prior written consent. This indemnification is not exclusive of any
other right to which any person seeking indemnification may be entitled under
any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
any other capacity.
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Peoples Bancorp has obtained directors and officers liability
insurance covering, subject to certain exceptions, actions taken by Peoples
Bancorp's directors and officers in their capacities as such.
Market Financial's Code of Regulations provides that Market
Financial will indemnify any officer or director of Market Financial who is a
party to a legal proceeding, by reason of his position with Market Financial,
against expenses incurred by him in connection with the legal proceeding if he
acted in good faith and in a manner reasonably believed to be in the best
interests of Market Financial. However, Market Financial will not indemnify an
officer or director who is judged by a court to be liable for acting with
reckless disregard for the best interests of Market Financial or misconduct
(other than negligence) unless the court shall nonetheless determine that the
officer or director is fairly and reasonably entitled to such indemnity.
Indemnification required by the Code of Regulations will be made by Market
Financial only upon a determination that such indemnification of the officer or
director is proper in the circumstances because the officer or director has met
the applicable standard of conduct. Expenses may be paid in advance, but only if
the officer or director agrees to repay all amounts if it is determined he is
not entitled to be indemnified by Market Financial or he is judged liable for
acting with reckless disregard for the best interests of Market Financial or
misconduct (other than negligence) in the performance of his duty to Market
Financial.
PROVISIONS AFFECTING BUSINESS COMBINATIONS AND CONTROL SHARE ACQUISITIONS
Peoples Bancorp's Certificate of Incorporation provides that no
person may directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of the issued and outstanding shares of any class of
Peoples Bancorp's securities. However, this restriction does not apply to any
offer with a view toward public resale made exclusively to Peoples Bancorp by
underwriters or a selling group acting on its behalf, any tax-qualified employee
benefit plan or arrangement established by Peoples Bancorp and any trustee of
such a plan or arrangement, and any other offer or acquisition approved in
advance by the affirmative vote of two-thirds of Peoples Bancorp's board of
directors. In the event shares are acquired in excess of 10%, those shares will
be considered excess shares. These excess shares may be treated in the following
manner:
o they shall not be counted as shares entitled to vote and shall
not be voted by any person or counted as voting shares in
connection with any matters submitted to stockholders for a
vote;
o Peoples Bancorp is authorized to refuse to recognize a
transfer or attempted transfer of any shares of its equity
securities to any person who is the beneficial owner, or as
the result of such transfer would become the beneficial owner,
of excess shares; and
o the board of directors may cause such excess shares to be
transferred to an independent trustee for sale on the open
market or otherwise, with the expenses of such trustee to be
paid out of the proceeds of the sale.
Market Financial's Articles of Incorporation provide that for a
period of five years from the date of the acquisition of Market Financial of the
capital stock of Market Bank on March 27, 1997 no person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of any class of any equity security of Market Financial. However, this
prohibition will not apply to the purchase of shares by underwriters in
connection with a public offering, or to the purchase of up to 25% of any class
of equity security of Market Financial by a tax-qualified employee stock benefit
plan. In the event that any shares of Market Financial are acquired in violation
of the Articles of Incorporation, all shares beneficially owned by any person in
excess of 10% of any class of equity security of Market Financial will not be
counted as shares entitled to vote, will not be voted by any person and will not
be counted as voting shares in connection with any matter submitted to the
stockholders for a vote. At the Market Financial annual meeting, stockholders
will be asked to vote on a proposal to delete this provision in order to allow
for the merger of Market Financial into Peoples Bancorp.
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<PAGE>
PREEMPTIVE RIGHTS
Neither Peoples Bancorp's Certificate of Incorporation nor Market
Financial's Articles of Incorporation provides for preemptive rights for its
stockholders.
DESCRIPTION OF CAPITAL STOCK OF PEOPLES BANCORP
GENERAL
Peoples Bancorp is authorized to issue 10,000,000 shares of common
stock having a par value of $0.01 per share, and 1,000,000 shares of preferred
stock having a par value of $0.01 per share. Each share of Peoples Bancorp
common stock has the same relative rights as, and is identical in all aspects
with, each other share of Peoples Bancorp common stock. Presented below is a
description of all aspects of Peoples Bancorp's capital stock which are deemed
material to an investment decision with respect to the merger proposal.
COMMON STOCK
DISTRIBUTIONS. Peoples Bancorp can pay dividends if, as, and when
declared by its board, subject to compliance with limitations which are imposed
by law. The holders of Peoples Bancorp common stock are entitled to receive and
share equally in such dividends as may be declared by the board out of funds
legally available therefor. If Peoples Bancorp issues preferred stock, the
holders of the preferred stock may have a priority over the holders of Peoples
Bancorp common stock with respect to dividends.
VOTING RIGHTS. The holders of Peoples Bancorp common stock possess
exclusive voting rights in Peoples Bancorp. They elect Peoples Bancorp's board
and act on such other matters as are required to be presented to them under
Delaware law or Peoples Bancorp's Certificate of Incorporation or as are
otherwise presented to them by the board of directors. Each holder of Peoples
Bancorp common stock is entitled to one vote per share and does not have any
right to cumulate votes in the election of directors. If Peoples Bancorp issues
preferred stock, holders of the preferred stock may also possess voting rights.
LIQUIDATION. In the event of any liquidation, dissolution or winding
up of Peoples Community Bank, Peoples Bancorp, as holder of Peoples Community
Bank's capital stock, would be entitled to receive, after payment or provision
for payment of all debts and liabilities of Peoples Community Bank (including
all deposit accounts and accrued interest thereon) and after distribution of the
balance in the annual liquidation account to certain depositors of Peoples
Community Bank, all assets of Peoples Community Bank available for distribution.
In the event of liquidation, dissolution or winding up of Peoples Bancorp, the
holders of its common stock would be entitled to receive, after payment or
provision for payment of all its debts and liabilities, all of the assets of
Peoples Bancorp available for distribution. If preferred stock is issued, the
holders of the preferred stock may have a priority over the holders of the
common stock in the event of liquidation or dissolution.
PREEMPTIVE RIGHTS. Holders of Peoples Bancorp common stock do not
have preemptive rights with respect to any shares which may be issued. Peoples
Bancorp common stock is not subject to redemption.
PREFERRED STOCK
None of the shares of Peoples Bancorp's authorized preferred stock
has been issued. Such stock may be issued with such preferences and designations
as the board of directors may from time to time determine. The board of
directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights which could dilute the voting
strength of the holders of Peoples Bancorp common stock and may assist
management in impeding an unfriendly takeover or attempted change in control.
85
<PAGE>
ELECTION OF DIRECTORS OF PEOPLES BANCORP
BENEFICIAL OWNERSHIP OF PEOPLES BANCORP COMMON STOCK BY PEOPLES BANCORP
MANAGEMENT
The following table sets forth, as of the voting record date,
certain information as to the Peoples Bancorp common stock beneficially owned by
(i) each person or entity, including any "group" as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, who or which was
known to Peoples Bancorp to be the beneficial owner of more than 5% of the
issued and outstanding common stock, (ii) the directors of Peoples Bancorp,
(iii) certain executive officers of Peoples Bancorp; and (iv) all directors and
executive officers of Peoples Bancorp as a group.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL AMOUNT AND NATURE PERCENT OF
OWNER OR NUMBER OF OF BENEFICIAL OWNERSHIP AS OF PEOPLES BANCORP
PERSONS IN GROUP JANUARY 19, 2001(1) COMMON STOCK
-------------------- ------------------- ------------
<S> <C> <C>
Directors:
Paul E. Hasselbring.......................... 30,000(2) 1.5%
Jerry D. Williams............................ 45,000(3) 2.3%
Richard S. Johnston.......................... 2,500 *
Zane M. Brant................................ 10,000 *
John L. Buchanan............................. 32,000(4) 1.6%
Donald L. Hawke.............................. 15,000 *
Nicholas N. Nelson........................... 21,200(5) 1.1%
James R. Van DeGrift......................... 20,100(6) 1.0%
Thomas J. Noe................................ 45,000 2.3%
John E. Rathkamp............................. 26,132(7) 1.3%
All Directors and Executive Officers of the
Company as a group (15 persons).................. 288,134 14.6%
</TABLE>
-------------------------------
* Represents less than 1% of the outstanding stock.
(1) Based upon filings made pursuant to the Securities Exchange Act and
information provided by each of the individuals. Shares of Peoples Bancorp
common stock are deemed to be beneficially owned by a person if he or she
directly or indirectly has or shares (i) voting power, which includes the
power to vote or to direct the voting of the shares, or (ii) investment
power, which includes the power to dispose or to direct the disposition of
the shares. Unless otherwise indicated, the named beneficial owner has
sole voting and dispositive power with respect to the shares.
(2) The 30,000 shares are held in the Hasselbring Trust.
(3) Includes 21,300 shares held in Mr. Williams' Individual Retirement Account
and 4,500 shares held by Mr. Williams for the benefit of his daughter.
(4) Includes 5,400 shares held in Mr. Buchanan's Individual Retirement
Account, 4,100 shares held by Mr. Buchanan's spouse and 2,000 shares held
by Buchanans Power Equipment Center, Inc. a company of which Mr. Buchanan
is the president.
(5) Includes 200 shares held by Mr. Nelson's son and 500 shares held by Mr.
Nelson for the benefit of his daughter.
(6) Includes 50 shares held by Mr. Van DeGrift for the benefit of his grandson
and 50 shares held by Mr. Van DeGrift for the benefit of his
granddaughter.
(7) Includes 1,638 shares held in Mr. Rathkamp's Individual Retirement
Account, 1,800 shares held by Mr. Rathkamp's spouse in her Individual
Retirement Account and 12,669 shares held in the Harvest Home Savings Bank
ESOP.
86
<PAGE>
ELECTION OF DIRECTORS
The Certificate of Incorporation of Peoples Bancorp provides that
the board of directors is divided into three classes as nearly equal in number
as possible. The directors are elected by the stockholders of Peoples Bancorp
for staggered terms, or until their successors are elected and qualified.
At the annual meeting, stockholders of Peoples Bancorp will be asked
to elect one class of directors, consisting of three directors, for a three-year
term expiring in 2004 and until their successors are elected and qualified. No
nominee for director is related to any other director or executive officer of
Peoples Bancorp by blood, marriage or adoption. Each nominee currently serves as
a director of Peoples Bancorp and Peoples Community Bank.
Unless otherwise directed, each proxy executed and returned by a
stockholder will be voted FOR the election of the nominees for director listed
below. If any person named as a nominee should be unable or unwilling to stand
for election at the time of the annual meeting, the proxies will nominate and
vote for any replacement nominee or nominees recommended by the board of
directors. At this time, the board of directors knows of no reason why any of
the nominees listed below may not be able to serve as a director if elected.
The following tables present information concerning the nominees for
director of Peoples Bancorp and directors whose terms are continuing, including
tenure as a director.
NOMINEES FOR DIRECTOR FOR THREE-YEAR TERMS EXPIRING IN 2004
<TABLE>
<CAPTION>
Peoples
Bancorp
Director
Name Age (1) Principal Occupation During the Past Five Years Since
------------------------- ------- ----------------------------------------------------------------- --------
<S> <C> <C> <C>
Paul E. Hasselbring 76 Director and Chairman of the Board; Chairman of the Board of 2000
Peoples Community Bank since 1990; and Director of Peoples
Community Bank since 1967. Currently, part-time at King,
Hasselbring & Assoc. since November 1996. Previously, senior
partner with Hasselbring & Assoc., an engineering firm located
in Lebanon, Ohio from 1951 to 1996.
Richard S. Johnston 72 Director; Director of Peoples Community Bank since 1998; 2000
Retired as President from The People's Building & Loan
Company, located in Blanchester, Ohio in 1998.
Zane M. Brant 81 Director; Director of Peoples Community Bank since 1974. 2000
President of Brant's Inc., a hardware retailer located in
Lebanon, Ohio which he has operated since 1946.
</TABLE>
--------------------
(1) As of September 30, 2000.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE NOMINEES
FOR DIRECTOR.
87
<PAGE>
DIRECTORS WHOSE TERMS ARE CONTINUING
DIRECTORS WITH A TERM EXPIRING IN 2002
<TABLE>
<CAPTION>
Peoples
Bancorp
Director
Name Age (1) Principal Occupation During the Past Five Years Since
------------------------- ------- ----------------------------------------------------------------- --------
<S> <C> <C> <C>
John E. Rathkamp 57 Director, Chief Lending Officer and Secretary of Peoples 2000
Bancorp and Peoples Community Bank since 2000. Prior
thereto, at Harvest Home Savings Bank located in Cheviot,
Ohio: President since 1991; Secretary and Managing Officer
since 1976; Director since 1971; and President of Harvest Home
Financial Corporation.
Donald L. Hawke 68 Director; Director of Peoples Community Bank since 1987. 2000
Retired.
James R. Van DeGrift 61 Director; Director of Peoples Community Bank since 1994. 2000
Trustee of Turtlecreek Township in Lebanon, Ohio since
1992. Previously, athletic director and a teacher at Lebanon
High School.
</TABLE>
DIRECTORS WITH A TERM EXPIRING IN 2003
<TABLE>
<CAPTION>
Peoples
Bancorp
Director
Name Age (1) Principal Occupation During the Past Five Years Since
------------------------- ------- ----------------------------------------------------------------- --------
<S> <C> <C> <C>
Jerry D. Williams 51 Director, President and Chief Executive Officer of Peoples 2000
Bancorp; President and Chief Executive Officer of Peoples
Community Bank since June 1998; Director of Peoples
Community Bank since 1980. Previously served as Managing
Officer and Chief Executive Officer from 1979 to 1998.
Thomas J. Noe 40 Director, Chief Financial Officer and Treasurer of Peoples 2000
Bancorp and Peoples Community Bank since 2000. Prior
thereto, Managing Officer of The Oakley Improved Building
and Loan Company in Cincinnati, Ohio, since August 1999.
Between January 1994 and May 1999, Mr. Noe served as the
Chief Financial Officer for Enterprise Federal Bancorp, Inc., a
unitary savings and loan holding company for Enterprise
Federal Savings Bank, West Chester, Ohio.
John L. Buchanan 51 Director; Director of Peoples Community Bank since 1996. 2000
President of Buchanan's Power Equipment Center, Inc., a
John Deere dealership located in Lebanon, Ohio which he has
operated since 1971.
Nicholas N. Nelson 54 Director; Director of Peoples Community Bank since 1990. 2000
County Auditor for Warren County, Ohio, serving in such
position since March 1987.
</TABLE>
-----------------------
(1) As of September 30, 2000.
88
<PAGE>
DIRECTOR NOMINATIONS; MEETINGS OF THE BOARD OF PEOPLES BANCORP
Nominations for director of Peoples Bancorp are made by the board of
directors of Peoples Bancorp. During the fiscal year ended September 30, 2000,
the board of directors of Peoples Bancorp met ten times. No director of Peoples
Bancorp attended fewer than 75% of the aggregate of the total number of board
meetings held during the period for which he/she has been a director and the
total number of meetings held by all committees of the board on which he/she
served during the periods that he/she served.
STOCKHOLDER NOMINATIONS
Article II, Section 14 of Peoples Bancorp's Bylaws governs
nominations for election to the board of directors and requires all such
nominations, other than those made by the board of directors or committee
appointed by the board, to be made at a meeting of stockholders called for the
election of directors, and only by a stockholder who has complied with the
notice provisions in that section. Stockholder nominations must be made pursuant
to timely notice in writing to the secretary of Peoples Bancorp. Generally, to
be timely, a stockholder's notice must be made in writing and delivered to the
secretary of Peoples Bancorp not later than 120 days prior to the anniversary
date of the mailing of proxy materials in connection with the preceding annual
meeting of stockholders of Peoples Bancorp. Upon delivery, such nominations
shall be posted in a conspicuous place in each office of Peoples Bancorp. In
connection with this first annual meeting, any such nomination by a stockholder
must have been delivered or received no later than the close of business on
September 29, 2000. Peoples Bancorp did not receive any nominations.
DIRECTORS' COMPENSATION
During the fiscal year ended September 30, 2000, each member of the
board of directors was paid $1,500 per month. Board members were not paid
separate compensation for meetings of Peoples Community Bank or committee
meetings.
During 1994 Peoples Community Bank established an unfunded,
non-qualified, deferred compensation arrangement to provide retirement benefits
to its board of directors. The benefits are based on years of services and
director compensation during the year preceding retirement. The plan also
provides for death benefit payments to a surviving spouse, beneficiaries or the
estate of the director. Peoples Community Bank has elected not to establish a
trust for the holding or investing of assets. Pension accruals for the plan are
not deductible for federal income tax purposes until benefits are paid. Accruals
are intended to provide not only for the benefits attributed to service to date
but also for those expected to be earned in the future.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Set forth below is information with respect to the principal
occupations during the last five years for the two executive officers of Peoples
Bancorp and Peoples Community Bank who do not serve as directors of Peoples
Bancorp.
<TABLE>
<CAPTION>
Name Age (1) Principal Occupation During the Past Five Years
------------------------- ------- ------------------------------------------------------------------------
<S> <C> <C>
Jerry Boate 57 Has served as Senior Vice President of Peoples Bancorp and Peoples
Community Bank since May 2000. Previously, Mr. Boate was Executive
Vice President of SunTrust Bank, Miami, Florida.
Dennis J. Slattery 48 Currently serves as Senior Vice President of Peoples Bancorp and Peoples
Community Bank. Previously, Mr. Slattery was the Executive Vice
President and Treasurer of Harvest Home Financial Corporation, Cheviot,
Ohio.
</TABLE>
----------------
(1) As of September 30, 2000.
89
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE 1934 ACT
Section 16(a) of the Securities Exchange Act requires the officers
and directors, and persons who own more than 10% of Peoples Bancorp's common
stock, to file reports of ownership and changes in ownership with the Securities
Exchange Commission and the Nasdaq National Market. Officers, directors and
greater than 10% stockholders are required by regulation to furnish Peoples
Bancorp with copies of all Section 16(a) forms they file. Peoples Bancorp knows
of no person who owns 10% or more of Peoples Bancorp's common stock.
Based solely on review of the copies of such forms furnished to
Peoples Bancorp, or written representations from its officers and directors,
Peoples Bancorp believes that during, and with respect to, the fiscal year ended
September 30, 2000, Peoples Bancorp's officers and directors complied in all
respects with the reporting requirements promulgated under Section 16(a) of the
Securities Exchange Act.
COMMITTEES
The board of directors of Peoples Bancorp has established the
following committees, among others:
AUDIT COMMITTEE. The primary purpose of the audit committee, as set
forth in the committee's charter, is to assist the board of directors in
fulfilling its fiduciary responsibilities relating to corporate accounting and
reporting practices. The audit committee reviews with management and the
independent auditors the systems of internal control, reviews the annual
financial statements, including the Form 10-KSB and monitors Peoples Bancorp's
adherence in accounting and financial reporting to generally accepted accounting
principles. The audit committee is comprised of three or more outside directors;
and the current members of the audit committee are Messrs. Hasselbring, Brant,
Hawke, Nelson, Van DeGrift, Buchanan and Johnston.
The members of the audit committee are independent as defined in
Rule 4200(a)(15) of the National Association of Securities Dealers, Inc.'s
listing standards. The audit committee meets on an as needed basis and met once
in fiscal 2000. On May 12, 2000, the board of directors adopted an audit
committee charter.
REPORT OF THE AUDIT COMMITTEE
The audit committee has reviewed and discussed the audited financial
statements with management. The audit committee has discussed with the
independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61 "Communication with Audit Committees," as may be
modified or supplemented. The audit committee has received the written
disclosures and the letter from the independent accountants required by
Independence Standards Board Standard No. 1, as may be modified or supplemented,
and has discussed with the independent accountant, the independent accountant's
independence. Based on the review and discussions referred to above in this
report, the audit committee recommended to the board of directors that the
audited financial statements be included in Peoples Bancorp's Annual Report on
Form 10-KSB for the last fiscal year for filing with the Securities and Exchange
Commission.
Paul E. Hasselbring Nicholas N. Nelson
Zane M. Brant James R. Van DeGrift
Donald L. Hawke John L. Buchanan
Richard S. Johnston
COMPENSATION AND BENEFITS COMMITTEE. It is the responsibility of the
Compensation and Benefits Committee of the board of directors to institute a
program which effectively provides incentive for executive management to lead
Peoples Bancorp to its full potential. In fiscal 2000, directors appointed to
this committee were Messrs. Hasselbring, Brant, Hawke, Johnston, Nelson, Van
DeGrift and Buchanan. No member of the compensation committee is a current
officer or employee of Peoples Bancorp, Peoples Community Bank or any of its
subsidiaries. The compensation committee met once in fiscal 2000.
90
<PAGE>
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of certain information
concerning the compensation paid by Peoples Bancorp (including amounts deferred
to future periods by the officers) for services rendered in all capacities
during the fiscal years ended September 30, 2000, 1999 and 1998 to the President
and Chief Executive Officer of Peoples Bancorp. No other officers of Peoples
Bancorp received compensation in excess of $100,000 during fiscal 2000.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Annual Compensation
-----------------------------------------------
Other All Other
Name and Fiscal Annual Compensation
Principal Position Year Salary (1) Bonus Compensation (3)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jerry D. Williams 2000 $138,217 $ 13,650 $-- $--
President and Chief 1999 100,547 13,350 -- --
Executive Officer 1998 99,375 10,625 -- --
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
</TABLE>
---------------
(1) Includes directors' fees of $11,925, $11,700 and $11,375 in fiscal 2000,
1999 and 1998, respectively.
(2) Includes a payment of approximately $22,000 for prior accumulated and
unused sick days.
(3) Does not include amounts attributable to miscellaneous benefits received
by the named executive officer, including the payment of club membership
dues. The costs to Peoples Bancorp of providing such benefits to the named
executive officer during the year ended September 30, 2000 did not exceed
the lesser of $50,000 or 10% of the total of annual salary and bonus
reported for such individual.
EMPLOYMENT AGREEMENTS
In connection with the reorganization in March 2000, Peoples Bancorp
and Peoples Community Bank, as employers, entered into employment agreements
with each of Messrs. Jerry D. Williams, Thomas J. Noe, John E. Rathkamp and
Dennis J. Slattery. The employers agreed to employ Mr. Williams as President and
Chief Executive Officer of Peoples Bancorp and Peoples Community Bank, Mr. Noe
as Chief Financial Officer of Peoples Bancorp and Peoples Community Bank, Mr.
Rathkamp as Chief Lending Officer of Peoples Bancorp and Peoples Community Bank
and Mr. Slattery as Chief Operating Officer of Peoples Bancorp and Peoples
Community Bank, in each case for a term of three years. The agreements provided
that Messrs. Williams, Noe, Rathkamp and Slattery would be paid salary levels of
$100,000, $75,000, $75,000 and $75,000, respectively. The executives'
compensation and expenses will be paid by Peoples Bancorp and Peoples Community
Bank in the same proportion as the time and services actually expended by the
executives on behalf of each employer. The employment agreements will be
reviewed annually. The term of the executives' employment agreements will be
extended each year for a successive additional one-year period upon the approval
of the employers' boards of directors, unless either party elects, not less than
30 days prior to the annual anniversary date, not to extend the employment term.
Each of the employment agreements is terminable with or without
cause by the employers. The executives have no right to compensation or other
benefits pursuant to the employment agreements for any period after voluntary
termination or termination by the employers for cause, disability or retirement.
The agreements provide for certain benefits in the event of the executive's
death. In the event that:
(1) either executive terminates his or her employment
because the employers either fail to comply with any material
provision of the employment agreement or change the executive's
title or duties, or
91
<PAGE>
(2) the employment agreement is terminated by the
employers other than for cause, disability, retirement or death or
by the executive as a result of certain adverse actions which are
taken with respect to the executive's employment following a change
in control of Peoples Bancorp, as defined,
then the executive will be entitled to a cash severance amount equal to three
times his average annual compensation for the last five calendar years (or such
shorter period that he has worked with Peoples Community Bank), plus the
continuation of certain miscellaneous fringe benefits, subject to reduction
pursuant to Section 280G of the Internal Revenue Code as set forth below in the
event of a change in control.
A change in control is generally defined in the employment
agreements to include any change in control of Peoples Bancorp required to be
reported under the federal securities laws, as well as (1) the acquisition by
any person of 20% or more of Peoples Bancorp's outstanding voting securities and
(2) a change in a majority of the directors of Peoples Bancorp during any
three-year period without the approval of at least two-thirds of the persons who
were directors of Peoples Bancorp at the beginning of such period.
Each employment agreement provides that, in the event any of the
payments to be made thereunder or otherwise upon termination of employment are
deemed to constitute "parachute payments" within the meaning of Section 280G of
the Internal Revenue Code, then such payments and benefits shall be reduced by
the minimum necessary to result in the payments not exceeding three times the
recipient's average annual compensation from the employers which was includable
in the recipient's gross income during the most recent five taxable years (the
"Section 280G Limit"). As a result, none of the severance payments will be
subject to a 20% excise tax, and the employers will be able to deduct such
payments as compensation expense for federal income tax purposes.
Although the above-described employment agreements could increase
the cost of any acquisition of control, Peoples Bancorp and Peoples Community
Bank do not believe that the terms of the employment agreements would have a
significant anti-takeover effect.
DEFINED CONTRIBUTORY PENSION PLAN
Peoples Community Bank maintained a Simplified Employee Pension Plan
for its employees until March 31, 2000. The Plan was terminated as of March 31,
2000. During fiscal 2000 and 1999, Peoples Community Bank made contributions to
the plan in amounts equaling 10% of participants' compensation. Peoples
Community Bank contributions to the plan amounted to $17,000 and $60,000 for
fiscal 2000 and 1999, respectively. Participants were immediately vested in
employer contributions as well as their elective deferrals and may withdraw
either at any time. Amounts withdrawn, however, are includable in a
participant's income and may be subject to a 10% penalty tax.
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<PAGE>
TRANSACTIONS WITH CERTAIN RELATED PERSONS
Peoples Community Bank offers mortgage loans to its directors,
officers and employees as well as members of their immediate families for the
financing of their primary residences and certain other loans. These loans are
generally made on substantially the same terms as those prevailing at the time
for comparable transactions with non-affiliated persons. It is the belief of
management that these loans neither involve more than the normal risk of
collectibility nor present other unfavorable features.
Section 22(h) of the Federal Reserve Act generally provides that any
credit extended by a savings institution, such as Peoples Community Bank, to its
executive officers, directors and, to the extent otherwise permitted, principal
stockholder(s), or any related interest of the foregoing, must be on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions by the savings institution
with non-affiliated parties; unless the loans are made pursuant to a benefit or
compensation program that (i) is widely available to employees of the
institution and (ii) does not give preference to any director, executive officer
or principal stockholder, or certain affiliated interests of either, over other
employees of the savings institution, and must not involve more than the normal
risk of repayment or present other unfavorable features.
PROPOSAL TO ADOPT THE PEOPLES BANCORP 2001 STOCK OPTION PLAN
GENERAL
The board of directors has adopted the 2001 Stock Option Plan, which
is designed to attract and retain qualified personnel in key positions, provide
directors, officers and key employees with a proprietary interest in Peoples
Bancorp and as an incentive to contribute to the success of Peoples Bancorp and
reward key employees for outstanding performance. The Option Plan provides for
the grant of incentive stock options intended to comply with the requirements of
Section 422 of the Internal Revenue Code, non-qualified or compensatory stock
options and stock appreciation rights, collectively called Awards. Awards will
be available for grant to directors and key employees of Peoples Bancorp and any
of its subsidiaries, except that non-employee directors will be eligible to
receive only awards of non-qualified stock options. If stockholder approval is
obtained, options to acquire shares of Peoples Bancorp common stock will be
awarded to officers, key employees and directors of Peoples Bancorp and Peoples
Community Bank with an exercise price equal to the fair market value of the
Peoples Bancorp common stock on the date of grant.
DESCRIPTION OF THE OPTION PLAN
The following description of the Option Plan is a summary of its
terms and is qualified in its entirety by reference to the Option Plan, a copy
of which is attached hereto as Appendix D.
ADMINISTRATION. The Option Plan will be administered and interpreted
by a committee of the board of directors that is comprised solely of two or more
non-employee directors. The members of the committee will initially consist of
Messrs. Hasselbring, Nelson and Hawke.
STOCK OPTIONS. Under the Option Plan, the board of directors or the
committee will determine:
o which officers, key employees and non-employee directors will
be granted options;
o whether such options will be incentive or compensatory
options;
o the number of shares subject to each option;
o the exercise price of each option; and
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o whether such options may be exercised by delivering other
shares of Peoples Bancorp common stock.
The per share exercise price of both an incentive stock and a
compensatory option shall at least equal the fair market value of a share of
Peoples Bancorp common stock on the date the option is granted (110% of fair
market value in the case of incentive stock options granted to employees who are
5% stockholders).
All options granted to participants under the Option Plan will
become vested and exercisable at the rate of 20% per year on each annual
anniversary of the date the options were granted. No vesting shall occur on or
after a participant's employment or service with Peoples Bancorp is terminated
for any reason other than his death or disability. Generally, all options
granted to participants will become vested and exercisable in full on the date
an optionee terminates his employment or service with Peoples Bancorp or a
subsidiary company because of his death or disability. In addition, all stock
options will become vested and exercisable in full on the date an optionee
terminates his employment or service with Peoples Bancorp or a subsidiary
company due to retirement or as the result of a change in control of Peoples
Bancorp if, as of such date of retirement or change in control of Peoples
Bancorp: (i) such treatment is either authorized or is not prohibited by
applicable laws and regulations, or (ii) an amendment to the Option Plan
providing for such treatment has been approved by the stockholders of Peoples
Bancorp at a meeting of stockholders held more than one year after the
consummation of the conversion.
Each stock option or portion thereof will be exercisable at any time
on or after it vests. In addition, each stock option is exercisable until the
earlier of ten years after its date of grant or six months after the date on
which the optionee's employment terminates (one year after termination of
service in the case of non-employee directors), unless extended by the committee
or the board of directors to a period not to exceed five years from such
termination. Unless stated otherwise at the time an option is granted, (i) if an
optionee terminates his employment or service with Peoples Bancorp as a result
of disability or retirement without having fully exercised his options, the
optionee shall have three years following his termination due to disability or
retirement to exercise such options, and (ii) if an optionee terminates his
employment or service with Peoples Bancorp following a change in control of
Peoples Bancorp without having fully exercised his options, the optionee shall
have the right to exercise such options during the remainder of the original ten
year term of the option. However, failure to exercise incentive stock options
within three months after the date on which the optionee's employment terminates
may result in adverse tax consequences to the optionee. If an optionee dies
while serving as an employee or a non-employee director or terminates employment
or service as a result of disability or retirement and dies without having fully
exercised his options, the optionee's executors, administrators, legatees or
distributees of his estate shall have the right to exercise such options during
the one-year period following his death. In no event shall any option be
exercisable more than ten years from the date it was granted.
Stock options are non-transferable except by will or the laws of
descent and distribution, and during an optionee's lifetime, will be exercisable
only by such optionee or his guardian or legal representative. Notwithstanding
the foregoing, an optionee who holds non-qualified options may transfer such
options to his or her spouse, lineal ascendants, lineal descendants, or to a
duly established trust for the benefit of one or more of these individuals.
Options so transferred may thereafter be transferred only to the optionee who
originally received the grant or to an individual or trust to whom the optionee
could have initially transferred the option. Options which are so transferred
will be exercisable by the transferee according to the same terms and conditions
as applied to the optionee.
Payment for shares purchased upon the exercise of options may be
made (i) in cash or by check, (ii) by delivery of a properly executed exercise
notice, together with irrevocable instructions to a broker to sell the shares
and then to properly deliver to Peoples Bancorp the amount of sale proceeds to
pay the exercise price, all in accordance with applicable laws and regulations
or (iii) if permitted by the committee or the board, by delivering shares of
Peoples Bancorp common stock (including shares acquired pursuant to the exercise
of an option) with a fair market value equal to the total option price of the
shares being acquired pursuant to the option, by withholding some of the shares
of common stock which are being purchased upon exercise of an option, or any
combination of the foregoing. With respect to subclause (iii) in the preceding
sentence, the shares of common stock delivered to
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pay the purchase price must have either been (a) purchased in open market
transactions or (b) issued by Peoples Bancorp pursuant to a plan thereof, in
each case more than six months prior to the exercise date of the option.
If the fair market value of a share of common stock at the time of
exercise is greater than the exercise price per share, this feature would enable
the optionee to acquire a number of shares of common stock upon exercise of the
option, which is greater than the number of shares delivered as payment for the
exercise price. In addition, an optionee can exercise his or her option in whole
or in part and then deliver the shares acquired upon such exercise (if permitted
by the committee or the board) as payment for the exercise price of all or part
of his options. Again, if the fair market value of a share of common stock at
the time of exercise is greater than the exercise price per share, this feature
would enable the optionee to either (i) reduce the amount of cash required to
receive a fixed number of shares upon exercise of the option or (ii) receive a
greater number of shares upon exercise of the option for the same amount of cash
that would have otherwise been used. Because options may be exercised in part
from time to time, the ability to deliver common stock as payment of the
exercise price could enable the optionee to turn a relatively small number of
shares into a large number of shares. In addition, an optionee can elect, with
the committee's concurrence, to defer the delivery of the proceeds of the
exercise of any compensatory option not transferred under the terms of the
Option Plan. Such deferral must comply with the provisions of the Option Plan
and other rules and regulations as may be established by the committee.
STOCK APPRECIATION RIGHTS. Under the Option Plan, the board of
directors or the committee is authorized to grant rights to optionees ("Stock
Appreciation Rights") under which an optionee may surrender any exercisable
incentive stock option or compensatory stock option or part thereof in return
for payment by Peoples Bancorp to the optionee of cash or common stock, or a
combination thereof, in an amount equal to the excess of the fair market value
of the shares of common stock subject to option at the time over the option
price of such shares. Stock Appreciation Rights may be granted concurrently with
the stock options to which they relate or, with respect to compensatory options,
at any time thereafter which is prior to the exercise or expiration of such
options. The proceeds of the exercise of a stock appreciation right may also be
deferred as provided by the provisions of the Option Plan.
NUMBER OF SHARES COVERED BY THE OPTION PLAN. A total of 197,773
shares of common stock, which is equal to 10% of the common stock outstanding,
has been reserved for future issuance pursuant to the Option Plan. In the event
of a stock split, subdivision, stock dividend or any other capital adjustment,
the number of shares of common stock under the Option Plan, the number of shares
to which any Award relates and the exercise price per share under any option or
stock appreciation right shall be adjusted to reflect such increase or decrease
in the total number of shares of common stock outstanding or such capital
adjustment. The Option Plan provides that grants to each employee and
non-employee director shall not exceed 25% and 5% of the shares of common stock
available under the Option Plan, respectively. Awards made to non-employee
directors in the aggregate may not exceed 30% of the number of shares available
under the Option Plan.
AMENDMENT AND TERMINATION OF THE OPTION PLAN. Unless sooner
terminated, the Option Plan shall continue in effect for a period of ten years
from January 12, 2001, the date the Option Plan was adopted by the board of
directors. Termination of the Option Plan shall not affect any previously
granted Awards.
FEDERAL INCOME TAX CONSEQUENCES. Under current provisions of the
Internal Revenue Code, the federal income tax treatment of incentive stock
options and compensatory stock options is different. As regards incentive stock
options, an optionee who meets certain holding period requirements will not
recognize income at the time the option is granted or at the time the option is
exercised, and a federal income tax deduction generally will not be available to
Peoples Bancorp at any time as a result of such grant or exercise. With respect
to compensatory stock options, the difference between the fair market value on
the date of exercise and the option exercise price generally will be treated as
compensation income upon exercise, and Peoples Bancorp will be entitled to a
deduction in the amount of income so recognized by the optionee. Upon the
exercise of a stock appreciation right, the holder will realize income for
federal income tax purposes equal to the amount received by him, whether in
cash, shares of stock or both, and Peoples Bancorp will be entitled to a
deduction for federal income tax purposes in the same amount.
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Section 162(m) of the Internal Revenue Code generally limits the
deduction for certain compensation in excess of $1.0 million per year paid by a
publicly-traded corporation to its chief executive officer and the four other
most highly compensated executive officers ("covered executives"). Certain types
of compensation, including compensation based on performance goals, are excluded
from the $1.0 million deduction limitation. In order for compensation to qualify
for this exception: (i) it must be paid solely on account of the attainment of
one or more preestablished, objective performance goals; (ii) the performance
goal must be established by a compensation committee consisting solely of two or
more outside directors, as defined; (iii) the material terms under which the
compensation is to be paid, including performance goals, must be disclosed to,
and approved by, stockholders in a separate vote prior to payment; and (iv)
prior to payment, the compensation committee must certify that the performance
goals and any other material terms were in fact satisfied.
Treasury regulations provide that compensation attributable to a
stock option or stock appreciation right is deemed to satisfy the requirement
that compensation be paid solely on account of the attainment of one or more
performance goals if: (i) the grant is made by a compensation committee
consisting solely of two or more outside directors, as defined; (ii) the plan
under which the option or stock appreciation right is granted states the maximum
number of shares with respect to which options or stock appreciation rights may
be granted during a specified period to any employee; and (iii) under the terms
of the option or stock appreciation right, the amount of compensation the
employee could receive is based solely on an increase in the value of the stock
after the date of grant or award. Certification by the compensation committee is
not necessary if these other requirements are satisfied.
The Option Plan has been designed to meet the requirements of
Section 162(m) of the Internal Revenue Code and, as a result, Peoples Bancorp
believes that compensation attributable to stock options and stock appreciation
rights granted under the Option Plan in accordance with the foregoing
requirements will be fully deductible under Section 162(m) of the Internal
Revenue Code. If the non-excluded compensation of a covered executive exceeded
$1.0 million, however, compensation attributable to other awards, such as
restricted stock, may not be fully deductible unless the grant or vesting of the
award is contingent on the attainment of a performance goal determined by a
compensation committee meeting specified requirements and disclosed to and
approved by the stockholders of Peoples Bancorp. The board of directors believes
that the likelihood of any impact on Peoples Bancorp from the deduction
limitation contained in Section 162(m) of the Internal Revenue Code is remote at
this time.
The above description of tax consequences under federal law is
necessarily general in nature and does not purport to be complete. Moreover,
statutory provisions are subject to change, as are their interpretations, and
their application may vary in individual circumstances. Finally, the
consequences under applicable state and local income tax laws may not be the
same as under the federal income tax laws.
ACCOUNTING TREATMENT. Stock appreciation rights will, in most cases,
require a charge against the earnings of Peoples Bancorp each year representing
appreciation in the value of such rights over periods in which they become
exercisable. Such charge is based on the difference between the exercise price
specified in the related option and the current market price of the common
stock. In the event of a decline in the market price of the common stock
subsequent to a charge against earnings related to the estimated costs of stock
appreciation rights, a reversal of prior charges is made in the amount of such
decline (but not to exceed aggregate prior charges).
Neither the grant nor the exercise of an incentive stock option or a
non-qualified stock option under the Option Plan currently requires any charge
against earnings under generally accepted accounting principles. In October
1995, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which is effective for transactions entered into after December
15, 1995. This Statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. This Statement defines a
fair value method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, it also allows an
entity to continue to measure compensation cost for those plans using the
intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for
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Stock Issued to Employees." Under the fair value method, compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. Under the
intrinsic value method, compensation cost is the excess, if any, of the quoted
market price of the stock at grant date or other measurement date over the
amount an employee must pay to acquire the stock. Peoples Bancorp anticipates
that it will use the intrinsic value method, in which event pro forma disclosure
will be included in the footnotes to Peoples Bancorp's financial statements to
show what net income and earnings per share would have been if the fair value
method had been utilized. If Peoples Bancorp elects to utilize the fair value
method, its net income and earnings per share may be adversely affected.
STOCKHOLDER APPROVAL. No Awards will be granted under the Option
Plan unless the Option Plan is approved by stockholders. Stockholder
ratification of the Option Plan will also satisfy Nasdaq Stock Market listing,
federal tax, and requirements of the Office of Thrift Supervision.
AWARDS TO BE GRANTED. The board of directors of Peoples Bancorp
adopted the Option Plan and the committee established thereunder intends to
grant options to executive officers, employees and non-employee directors of
Peoples Bancorp and Peoples Community Bank. However, the timing of any such
grants, the individual recipients and the specific amounts of such grants have
not been determined.
REGULATORY REQUIREMENTS. The Option Plan and the Recognition Plan,
collectively called the Plans, comply with applicable Office of Thrift
Superivsion regulations and are required to be submitted to the Office of Thrift
Supervision after approval by stockholders. No assurance can be given as to
whether the Office of Thrift Supervision will raise any objections to the Plans
as presented to stockholders or whether the Office of Thrift Supervision may
require modifications to be made to the Plans. A vote for approval of the Plans
shall be deemed to be a vote for approval of the Plans as the same may be
required to be modified by the Office of Thrift Supervision, provided that the
change is not material as determined by Peoples Bancorp. Peoples Bancorp will
not make any modification to the Plans which would increase the level of
benefits from that presented. Non-objection to the Plans by the Office of Thrift
Supervision shall not constitute approval or endorsement of the Plans by the
Office of Thrift Supervision.
Under Office of Thrift Supervision regulations, certain stock
benefit plans established or implemented within one year following the
completion of a mutual to stock conversion are required to contain certain
restrictions and limitations, which are contained in the Plans. Specifically,
the Office of Thrift Supervision regulations provide, among other provisions,
that awards begin vesting no earlier than one year from the date the plans are
approved by stockholders, shall not vest at a rate in excess of 20% per year and
shall not provide for accelerated vesting except in the case of disability or
death. Recently, the Office of Thrift Supervision has authorized the elimination
of these provisions more than one year after a conversion, provided that
stockholder approval of such amendments to the plans is obtained. The Plans
provide that in the event of termination of service following a change in
control of Peoples Bancorp or retirement, vesting of awards would accelerate if,
as of such date: (i) such treatment is either authorized or is not prohibited by
applicable law and regulations, or (ii) amendments to the Plans providing for
such treatment has been approved by the stockholders of Peoples Bancorp at a
meeting of stockholders held more than one year after the consummation of the
Conversion.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
ADOPTION OF THE 2001 STOCK OPTION PLAN.
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PROPOSAL TO ADOPT THE PEOPLES BANCORP 2001 RECOGNITION AND
RETENTION PLAN AND TRUST AGREEMENT
GENERAL
The board of directors of Peoples Bancorp has adopted the
Recognition Plan, the objective of which is to enable Peoples Bancorp to provide
officers, key employees and directors with a proprietary interest in Peoples
Bancorp and as an incentive to contribute to its success. Officers, key
employees and directors of Peoples Bancorp and Peoples Community Bank who are
selected by the board of directors of Peoples Bancorp or members of a committee
appointed by the board will be eligible to receive benefits under the
Recognition Plan. If stockholder approval is obtained, shares will be granted to
officers, key employees and directors as determined by the committee or the
board of directors.
DESCRIPTION OF THE RECOGNITION PLAN
The following description of the Recognition Plan is a summary of
its terms and is qualified in its entirety by reference to the Recognition Plan,
a copy of which is attached hereto as Appendix E.
ADMINISTRATION. A committee of the board of directors of Peoples
Bancorp will administer the Recognition Plan, which shall consist of two or more
members of the board, each of whom shall be a non-employee director of Peoples
Bancorp. The members of the committee will initially consist of Messrs.
Hasselbring, Nelson and Hawke, who will also serve as trustees of the trust
established pursuant to the Recognition Plan ("Trust"). The trustees will have
the responsibility to invest all funds contributed by Peoples Bancorp to the
Trust.
Upon stockholder approval of the Recognition Plan, Peoples Bancorp
will contribute sufficient funds to the Trust so that the Trust can purchase a
number of shares of Common Stock equal to 4% of the common stock outstanding, or
79,109 shares. It is currently anticipated that these shares will be acquired
through open market purchases to the extent available, although Peoples Bancorp
reserves the right to issue previously unissued shares or treasury shares to the
Recognition Plan. The issuance of new shares by Peoples Bancorp would be
dilutive to the voting rights of existing stockholders and to People's book
value per share and earnings per share.
GRANTS. Shares of common stock granted pursuant to the Recognition
Plan will be in the form of restricted stock payable over a five-year period at
a rate of 20% per year, beginning one year from the anniversary date of the
grant. A recipient will be entitled to all voting and other stockholder rights
with respect to shares which have been earned and allocated under the
Recognition Plan. In addition, recipients of shares of restricted stock that
have been granted pursuant to the Recognition Plan that have not yet been earned
and distributed (other than shares granted pursuant to Performance Share Awards
(as defined below)) are entitled to direct the trustees of the Trust as to the
voting of such shares on the recipient's behalf. However, until such shares have
been earned and allocated, they may not be sold, assigned, pledged or otherwise
disposed of and are required to be held in the Trust. In addition, any cash
dividends or stock dividends declared in respect of unvested share awards will
be held by the Trust for the benefit of the recipients and such dividends,
including any interest thereon, will be paid out proportionately by the Trust to
the recipients thereof as soon as practicable after the share awards become
earned.
If a recipient terminates employment or service with Peoples Bancorp
for reasons other than death, disability or retirement, the recipient will
forfeit all rights to the allocated shares under restriction. All shares subject
to an award held by a recipient whose employment or service with Peoples Bancorp
or any subsidiary terminates due to death or disability shall be deemed earned
as of the recipient's last day of employment or service with Peoples Bancorp or
any subsidiary and shall be distributed as soon as practicable thereafter. In
addition, in the event that a recipient's employment or service with Peoples
Bancorp or any subsidiary terminates due to retirement or following a change in
control of Peoples Bancorp all shares subject to an award held by a recipient
shall be deemed earned as of the recipient's last day of employment with or
service to Peoples Bancorp or any subsidiary and shall be distributed as soon as
practicable thereafter, provided that as of the date of such retirement or
change in control: (i) such treatment is either authorized or is not prohibited
by applicable laws and regulations, or (ii) an amendment to the Recognition Plan
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providing for such treatment has been approved by the stockholders of Peoples
Bancorp at a meeting of stockholders held more than one year after the
consummation of the conversion.
PERFORMANCE SHARE AWARDS. The Recognition Plan provides the
committee with the ability to condition or restrict the vesting or
exercisability of any Recognition Plan award upon the achievement of performance
targets or goals as set forth under the Recognition Plan. Any Recognition Plan
award subject to such conditions or restrictions is considered to be a
"Performance Share Award." Subject to the express provisions of the Recognition
Plan and as discussed in this paragraph, the committee has discretion to
determine the terms of any Performance Share Award, including the amount of the
award, or a formula for determining such, the performance criteria and level of
achievement related to these criteria which determine the amount of the award
granted, issued, retainable and/or vested, the period as to which performance
shall be measured for determining achievement of performance (a "performance
period"), the timing of delivery of any awards earned, forfeiture provisions,
the effect of termination of timing of delivery of any awards earned, forfeiture
provisions, the effect of termination of employment for various reasons, and
such further terms and conditions, in each case not inconsistent with the
Recognition Plan, as may be determined from time to time by the committee. Each
Performance Share Award shall be granted and administered to comply with the
requirements of Section 162(m) of the Internal Revenue Code. Accordingly, the
performance criteria upon which Performance Share Awards are granted, issued,
retained and/or vested shall be a measure based on one or more Performance Goals
(as defined below). Notwithstanding satisfaction of any Performance Goals, the
number of shares granted, issued, retainable and/or vested under a Performance
Share Award may be reduced or eliminated, but not increased, by the committee on
the basis of such further considerations as the committee in its sole discretion
shall determine.
Subject to stockholder approval of the Plan, the Performance Goals
for any Performance Share Award shall be based upon any one or more of the
following performance criteria, either individually, alternatively or any
combination, applied to either Peoples Bancorp as a whole or to a business unit
or subsidiary, either individually, alternatively or in any combination, and
measured either on an absolute basis or relative to a pre-established target, to
previous years' results or to a designated comparison group, in each case as
preestablished by the committee under the terms of the Performance Share Award:
net income, as adjusted for non-recurring items; cash earnings; earnings per
share; cash earnings per share; return on average equity; return on average
assets; assets; stock price; total stockholder return; capital; net interest
income; market share; cost control or efficiency ratio; and asset growth. The
committee is considering engaging outside compensation consultants to assist it
in establishing such performance-based targets.
FEDERAL INCOME TAX CONSEQUENCES. Pursuant to Section 83 of the
Internal Revenue Code, recipients of Recognition Plan awards will recognize
ordinary income in an amount equal to the fair market value of the shares of
common stock granted to them at the time that the shares vest and become
transferable. A recipient of a Recognition Plan award may also elect, however,
to accelerate the recognition of income with respect to his or her grant to the
time when shares of common stock are first transferred to him or her,
notwithstanding the vesting schedule of such awards. Peoples Bancorp will be
entitled to deduct as a compensation expense for tax purposes the same amounts
recognized as income by recipients of Recognition Plan awards in the year in
which such amounts are included in income.
Section 162(m) of the Internal Revenue Code generally limits the
deduction for certain compensation in excess of $1.0 million per year paid by a
publicly-traded corporation to its covered executives. Certain types of
compensation, including compensation based on performance goals, are excluded
from the $1.0 million deduction limitation. In order for compensation to qualify
for this exception: (i) it must be paid solely on account of the attainment of
one or more preestablished, objective performance goals; (ii) the performance
goal must be established by a compensation committee consisting solely of two or
more outside directors, as defined; (iii) the material terms under which the
compensation is to be paid, including performance goals, must be disclosed to
and approved by stockholders in a separate vote prior to payment; and (iv) prior
to payment, the compensation committee must certify that the performance goals
and any other material terms were in fact satisfied.
The Recognition Plan has been designed to meet the requirements of
Section 162(m) of the Internal Revenue Code and, as a result, Peoples Bancorp
believes that compensation attributable to Performance Share Awards granted
under the Recognition Plan in accordance with the foregoing requirements will be
fully deductible under Section 162(m)
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of the Internal Revenue Code. The board of directors believes that the
likelihood of any impact on Peoples Bancorp from the deduction limitation
contained in Section 162(m) of the Internal Revenue Code is remote at this time.
The above description of tax consequences under federal law is
necessarily general in nature and does not purport to be complete. Moreover,
statutory provisions are subject to change, as are their interpretations, and
their application may vary in individual circumstances. Finally, the
consequences under applicable state and local income tax laws may not be the
same as under the federal income tax laws.
ACCOUNTING TREATMENT. For a discussion of Statement of Financial
Accounting Standards No. 123, see "Proposal to Adopt the 2001 Stock Option Plan
- Description of Option Plan - Accounting Treatment." Under the intrinsic value
method, Peoples Bancorp will also recognize a compensation expense as shares of
common stock granted pursuant to the Recognition Plan vest. The amount of
compensation expense recognized for accounting purposes is based upon the fair
market value of the common stock at the date of grant to recipients, rather than
the fair market value at the time of vesting for tax purposes. The vesting of
plan share awards will have the effect of increasing People's compensation
expense.
STOCKHOLDER APPROVAL. No shares will be granted under the
Recognition Plan unless the Recognition Plan is approved by stockholders.
SHARES TO BE GRANTED. The board of directors of Peoples Bancorp
adopted the Recognition Plan and the committee established thereunder intends to
grant shares to executive officers, key employees and non-employee directors of
Peoples Bancorp and Peoples Community Bank. The Recognition Plan provides that
grants to each employee and each non-employee director shall not exceed 25% and
5% of the shares of common stock available under the Recognition Plan,
respectively. Awards made to non-employee directors in the aggregate may not
exceed 30% of the number of shares available under the Recognition Plan.
However, the timing of any such grants, the individual recipients and the
specific amounts of such grants have not been determined.
REGULATORY REQUIREMENTS. For a discussion of Office of Thrift
Supervision requirements related to the Recognition Plan see "Proposal to Adopt
the 2001 Stock Option Plan - Description of the Option Plan - Regulatory
Requirements."
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
ADOPTION OF THE 2001 RECOGNITION AND RETENTION PLAN AND TRUST AGREEMENT.
RATIFICATION OF APPOINTMENT OF PEOPLES BANCORP'S AUDITORS
The board of directors of Peoples Bancorp has appointed Grant
Thornton LLP, independent certified public accountants, to perform the audit of
Peoples Bancorp's financial statements for the year ending September 30, 2001,
and further directed that the selection of auditors be submitted for
ratification by the stockholders at the annual meeting.
Peoples Bancorp has been advised by Grant Thornton LLP that neither
that firm nor any of its associates has any relationship with Peoples Bancorp or
its subsidiaries other than the usual relationship that exists between
independent certified public accountants and clients. Grant Thornton LLP will
have one or more representatives at the annual meeting who will have an
opportunity to make a statement, if they so desire, and will be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION
OF THE APPOINTMENT OF GRANT THORNTON LLP AS INDEPENDENT AUDITORS FOR THE FISCAL
YEAR ENDING SEPTEMBER 30, 2001.
STOCKHOLDER PROPOSALS FOR THE 2002 ANNUAL MEETING OF PEOPLES BANCORP
Proposals of stockholders intended to be presented at Peoples
Bancorp's annual meeting expected to be held in January 2002, must be received
by Peoples Bancorp no later than September 29, 2001 to be considered for
inclusion
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in the proxy materials and form of proxy relating to such meeting. Any such
proposals shall be subject to the requirements of the proxy rules adopted under
the Exchange Act.
Article 2.14 of the Bylaws of Peoples Bancorp provides that in order
for a stockholder to make proposals for business to be brought before the annual
meeting, a stockholder must deliver notice of such proposals to the secretary of
Peoples Bancorp not less than 120 days prior to the anniversary date of the
mailing of proxy materials in connection with the preceding annual meeting. The
notice with respect to business proposals to be brought before the annual
meeting must state the stockholder's name, address and number of shares of
Peoples Bancorp common stock held, and briefly discuss the business to be
brought before the annual meeting, the reasons for conducting such business at
the annual meeting and any interest of the stockholder in the proposal.
ELECTION OF DIRECTORS OF MARKET FINANCIAL
ELECTION OF DIRECTORS
The Code of Regulations provides for a board of directors consisting
of seven persons divided into two classes. In accordance with Section 2.02 of
the Code of Regulations, nominees for election as directors may be proposed only
by the directors or by a shareholder entitled to vote for directors if such
shareholder has submitted a written nomination to the Secretary of Market
Financial by the later of the October 31st immediately preceding the annual
meeting of shareholders or the sixtieth day before the first anniversary of the
most recent annual meeting of shareholders held for the election of directors.
Each such written nomination must state the name, age, business or residence
address of the nominee, the principal occupation or employment of the nominee,
the number of common shares of Market Financial owned either beneficially or of
record by each such nominee and the length of time such shares have been so
owned.
The board of directors proposes the re-election of the following
persons to serve until the Annual Meeting of Shareholders in 2003 and until
their successors are duly elected and qualified or until their earlier
resignation, removal from office or death:
<TABLE>
<CAPTION>
DIRECTOR OF DIRECTOR OF
NAME AGE (1) POSITION(S) HELD MARKET FINANCIAL SINCE (2) MARKET BANK SINCE
---- ------- ---------------- -------------------------- -----------------
<S> <C> <C> <C> <C>
Rae Skirvin Larimer.......... 64 Director and 1996 -
Secretary
L. Craig Martin.............. 54 Director 2000(3) 1996
Wilbur H. Tisch.............. 84 Director 1996 -
Kathleen A. White............ 43 Director 1996 -
</TABLE>
-----------------------------
(1) As of December 15, 2000.
(2) Except for Mr. Martin, each person became a director of Market Financial
in connection with the conversion of Market Bank from mutual to stock form
and the formation of Market Financial as the holding company for Market
Bank.
(3) Mr. Martin was appointed in January 2000, to fill the vacancy created by
the death of R.C. Meyerenke.
If any nominee is unable to stand for election, any proxies granting
authority to vote for such nominee will be voted for such substitute as the
board of directors recommends.
The following directors will continue to serve as directors of
Market Financial after the Annual Meeting for the terms indicated and until
their successors are duly elected and qualified or until their earlier
resignation, removal from office or death:
101
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR DIRECTOR
OF MARKET OF MARKET
FINANCIAL BANK
NAME AGE (1) POSITION(S) HELD SINCE (2) TERM EXPIRES SINCE
---- ------- ---------------- --------- ------------ -----
<S> <C> <C> <C> <C> <C>
Robert Gandenberger 72 Director and Treasurer 1996 2002 -
John T. Larimer 67 Director and President 1996 2002 1975
Edgar H. May 76 Director and Vice President 1996 2002 1992
</TABLE>
-----------------------------
(1) As of December 15, 2000.
(2) Each person became a director of Market Financial in connection with the
conversion of Market Bank from mutual to stock form and the formation of
Market Financial as the holding company for Market Bank.
ROBERT GANDENBERGER. Mr. Gandenberger retired as Supervisor of the
Hamilton County Recorder's Office in 1994. From 1991 to 1994, Mr. Gandenberger
served as a director of The Cleves-North Bend Building and Loan Company, which
merged into Market Bank in 1994.
JOHN T. LARIMER. Mr. Larimer, an attorney, has been a director of
Market Bank since 1975, President of Market Bank since 1993, Managing Officer of
Market Bank since November 1995, and President of Market Financial since April
1996. Mr. Larimer is Rae Skirvin Larimer's spouse and is a brother-in-law of Una
Schaeperklaus.
RAE SKIRVIN LARIMER. Ms. Larimer has been legal counsel for Market
Bank since 1975. From 1979 to 1994, Ms. Larimer served as a director of The
Cleves-North Bend Building and Loan Company. Ms. Larimer is John T. Larimer's
spouse and the sister of Una Schaeperklaus, a director of Market Bank.
L. CRAIG MARTIN. In January 2000, Mr. Martin was appointed to fill
the vacancy created by the death of R.C. Meyerenke. For over 20 years, Mr.
Martin has served as President of Environmetrics, Inc., an architectural firm
and commercial and residential construction company he founded.
EDGAR H. MAY. Mr. May has served as a director of Market Bank since
1992 and as Vice President of Market Bank and Market Financial since January 14,
1997. From 1960 until his retirement in 1994, Mr. May was a broker and partner
in Ed May Realty Co., located in Deer Park, Ohio.
WILBUR H. TISCH. Mr. Tisch retired as owner and President of General
Metal Works in 1983. Mr. Tisch served as a director of The Cleves-North Bend
Building and Loan Company from 1975 to 1994 and as President from 1986 to 1994.
KATHLEEN A. WHITE. Ms. White has been employed as a real estate
title examiner since 1980.
102
<PAGE>
VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
the only persons known to Market Financial to own beneficially more than five
percent of the outstanding common shares of Market Financial as of December 22,
2000:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP SHARES OUTSTANDING
---------------- -------------------- ------------------
<S> <C> <C>
First Bankers Trust Company, N.A....... 104,924(1) 8.3%
Market Financial Corporation
Employee Stock Ownership Plan
1201 Broadway
Quincy, Illinois 62301
John T. Larimer........................ 78,458(2) 6.7
4315 Redstar Court
Cincinnati, Ohio 45238
L. Craig Martin........................ 68,336(3) 5.4
8340 Indian Hill Road
Cincinnati, Ohio 45243
</TABLE>
----------------------------
(1) Includes 72,814 unallocated shares with respect to which First Bankers
Trust Company, N.A. as the trustee for the Market ESOP has sole voting
power. The trustee has limited shared investment power over all Market
ESOP shares.
(2) This number includes 34,729 shares that may be acquired upon the exercise
of options awarded pursuant to the Market Financial Corporation 1998 Stock
Option and Incentive Plan, 9,974 shares in Mr. Larimer's ESOP account,
with respect to which Mr. Larimer has voting control only, and 4,800
shares owned jointly with Mr. Larimer's spouse. It does not include 29,008
shares owned by Mr. Larimer's spouse individually.
(3) This number includes 6,345 shares that may be acquired upon the exercise
of options awarded pursuant to the Market Financial Stock Option Plan.
The following table sets forth certain information with respect to
the number of common shares of Market Financial beneficially owned by each
director of Market Financial and Market Bank and by all directors and executive
officers of Market Financial and Market Bank as a group as of December 22, 2000:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
---------------------------------------
SOLE VOTING AND SHARED VOTING AND PERCENT OF
NAME AND ADDRESS (1) INVESTMENT POWER INVESTMENT POWER SHARES OUTSTANDING
-------------------- ---------------- ---------------- ------------------
<S> <C> <C> <C>
Robert Gandenberger......................... 6,345(2) 35,265(3) 3.3%
John T. Larimer............................. 73,658(4) 4,800 6.1
Rae Skirvin Larimer......................... 29,008(2)(5) 4,800 2.7
Edgar H. May................................ 12,308(2) - 1
L. Craig Martin............................. 45,536(2) 22,800 5.4
Wilbur H. Tisch............................. 12,308(2) - 1
Una E. Schaeperklaus (6).................... 15,808(2) - 1.2
Kathleen A. White........................... 7,308(2) 33,802(3) 3.2
All directors of and executive officers of
Market Financial and Market Bank as
a group (9 people)....................... 221,177(7) 70,664(8) 21.6%
</TABLE>
------------------
(1) Each of the persons listed in this table may be contacted at the address
of Market Financial.
(FOOTNOTES CONTINUED ON NEXT PAGE)
103
<PAGE>
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
(2) This number includes 6,345 shares that may be acquired upon the exercise
of options awarded pursuant to the Stock Option Plan.
(3) This number includes 31,802 shares held by the Market Financial
Corporation Recognition and Retention Plan Trust with regard to which Mr.
Gandenberger and Ms. White have voting power as trustees.
(4) This number includes 34,729 shares that may be acquired upon the exercise
of options awarded pursuant to the Stock Option Plan and 9,974 shares held
in Mr. Larimer's ESOP account, with respect to which Mr. Larimer has
voting control only, but does not include 29,008 shares owned by Mr.
Larimer's spouse, Rae Skirvin Larimer.
(5) This number does not include 73,658 shares owned by Ms. Larimer's spouse,
John T. Larimer.
(6) Ms. Schaeperklaus is a director of Market Bank but not a director of
Market Financial.
(7) This number includes 92,501 shares that may be acquired upon the exercise
of options awarded pursuant to the Market Financial Stock Option Plan and
15,515 shares held in the ESOP accounts of officers, with respect to which
such officers have voting control only.
(8) The 4,800 shares held jointly by Mr. and Mrs. Larimer and the 31,802
shares held by the Recognition and Rentntion Plan Trust are only included
once in this total.
MEETINGS OF DIRECTORS
The board of directors of Market Financial met 14 times for
regularly scheduled and special meetings and took action by unanimous written
consent four times during the fiscal year ended September 30, 2000.
The board of directors of Market Bank met 14 times for regularly
scheduled meetings and took action by unanimous written consent once during the
fiscal year ended September 30, 2000.
COMMITTEES OF DIRECTORS
The board of directors of Market Financial does not have a
nominating committee or a compensation committee. The board of directors of
Market Financial has a Stock Option Committee, an Audit Committee and an RRP
Committee. Nominees for election to the board of directors are selected by the
entire board of directors.
The Stock Option Committee is responsible for administering the
Market Financial Stock Option Plan, including interpreting the Market Financial
Stock Option Plan and awarding options pursuant to its terms. The members of the
Stock Option Committee are Messrs. Gandenberger and May and Ms. White. The Stock
Option Committee did not meet during the fiscal year ended September 30, 2000.
The Audit Committee of Market Financial is responsible for reviewing
and reporting to the full board of directors on the independent audit of Market
Financial. The Audit Committee recommends audit firms to the full board of
directors and reviews and approves the annual independent audit report. For more
information regarding the responsibilities of the Audit Committee, see "Audit
Committee Report." The members of the Audit Committee are Mr. Martin and Ms.
White. The Audit Committee met once during the fiscal year ended September 30,
2000.
The RRP Committee administers the RRP. Such committee consists of
Messrs. Gandenberger, Martin and Tisch. The RRP Committee did not meet during
the 2000 fiscal year.
The board of directors of Market Bank has a Compensation Committee
and an Executive Committee.
104
<PAGE>
Market Bank's Compensation Committee is comprised of Messrs. Martin,
May and Gandenberger. The function of the Compensation Committee is to make
recommendations to the board of directors regarding the compensation of Market
Bank's executive officers and employees. The Compensation Committee met twice
during the fiscal year ended September 30, 2000.
The members of the Executive Committee of Market Bank are Ms.
Schaeperklaus and Messrs. Larimer and May. The Executive Committee is authorized
to act on behalf of the board of directors between regular meetings of the board
of directors. The Executive Committee did not meet during the fiscal year ended
September 30, 2000.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to
the current executive officers of Market Financial:
<TABLE>
<CAPTION>
NAME AGE(1) POSITION(S) HELD
---- ------ ----------------
<S> <C> <C>
Robert Gandenberger................... 72 Treasurer and Director
John T. Larimer....................... 67 President and Director
Rae Skirvin Larimer................... 64 Secretary and Director
Edgar H. May.......................... 76 Vice President and
Director
Julie M. Bertsch...................... 39 Chief Financial Officer
</TABLE>
-----------------------------
(1) As of December 15, 2000.
JULIE M. BERTSCH, a Certified Public Accountant, was hired as Chief
Financial Officer of Market Financial and Market Bank in June 1996. Prior to
joining Market Financial, Ms. Bertsch was employed from August 1987 until June
1996 with Grant Thornton LLP, independent certified public accountants.
For biographical information regarding Robert Gandenberger, John T.
Larimer, Rae Skirvin Larimer and Edgar H. May, see "ELECTION OF DIRECTORS."
105
<PAGE>
The following table presents certain information regarding the cash
compensation received by the President and Chief Executive Officer of Market
Financial and Market Bank. No other executive officer of Market Financial or
Market Bank received compensation in excess of $100,000 during the fiscal years
ended September 30, 2000, 1999 and 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
===================================================================================================================
Annual Compensation Long-term compensation
-------------------------------------------------------------------------------------------------------------------
Awards
-----------------------------------------------------
Securities
Name and Restricted stock underlying All Other
principal position Year Salary (1) Bonus awards options/SARs (#) Compensation
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John T. Larimer, 2000 $104,775 $ 13,238 -- -- $ 42,221(2)
President and 1999 99,800 13,238 $ 7,619(3) 34,729(4) 34,624(5)
Chief Executive 1998 97,007 11,135 180,320(3) 33,393(6) 34,688(8)
Officer
===================================================================================================================
</TABLE>
------------------
(1) Does not include amounts attributable to other miscellaneous benefits
received by executive officers. The cost to Market Financial or Market
Bank of providing such benefits to Mr. Larimer was less than 10% of his
cash compensation.
(2) Consists of the September 30, 2000, $42,221 fair market value of Market
Financial's contribution to Mr. Larimer's ESOP account.
(3) On June 30, 1998 and June 30, 1999, Mr. Larimer was awarded 13,357 and 802
common shares, respectively, pursuant to the RRP. Mr. Larimer paid no
consideration for such shares. Such shares are earned and non-forfeitable
at the rate of one-fifth per year on the anniversary of the date of award,
assuming continued employment with, or service on the board of directors
of, Market Financial. The market price of Market Financial's shares on
June 30, 1998 and June 30, 1999, determined by reference to the mean
between the closing high bid and low asked quotation for Market
Financial's shares on the Nasdaq SmallCap Market ("Nasdaq") on each date,
was $13.50 and $9.50 per share, respectively. As of September 29, 2000,
the 14,159 shares had an aggregate market value of approximately $171,678,
based on the $12.125 per share fair market value for the Market Financial
shares on such date, as quoted by Nasdaq. All of such shares immediately
became earned and non-forfeitable, pursuant to the terms of the RRP, upon
execution of the reorganization agreement. In addition, dividends and
other distributions paid on such shares and earnings on such dividends and
distributions will be distributed to Mr. Larimer when the shares are
distributed.
(4) Represents the number of common shares of Market Financial underlying
options granted to Mr. Larimer pursuant to the Market Financial Stock
Option Plan during the fiscal year ended September 30, 1999.
(5) Consists of the September 30, 1999, $34,624 fair market value of Market
Financial's contribution to Mr. Larimer's ESOP account.
(6) Represents the number of common shares of Market Financial underlying
options granted to Mr. Larimer pursuant to the Market Financial Stock
Option Plan during the fiscal year ended September 30, 1998. These options
were cancelled on May 3, 1999.
(7) Consists of the September 30, 1998, $34,688 fair market value of Market
Financial's contribution to Mr. Larimer's ESOP account.
106
<PAGE>
MARKET FINANCIAL STOCK OPTION PLAN
The Market Financial Stock Option Plan is administered by the Stock
Option Committee which is composed of three directors of Market Financial who
are not employees of Market Financial. The Stock Option Committee may grant
options under the Market Financial Stock Option Plan at such times as they deem
most beneficial to Market Bank and Market Financial on the basis of the
individual participant's position and duties and the value of the individual's
services and responsibilities to Market Bank and Market Financial. Options to
purchase 113,526 common shares were granted pursuant to the Market Financial
Stock Option Plan during the fiscal year ended September 30, 1998. These options
were cancelled on May 3, 1999, and options to purchase 125,558 common shares
were granted on May 4, 1999. No options were granted during the fiscal year
ended September 30, 2000.
The following table sets forth information regarding the number and
value of unexercised options held by Mr. Larimer at September 30, 2000:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND 9/30/2000 OPTION/SAR VALUES
--------------------------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS AT IN THE MONEY OPTIONS/
SHARES ACQUIRED VALUE 9/30/2000(#) SARS AT 9/30/2000($)(1)
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
John T. Larimer -0- N/A 34,729/-0- $84,652/-0-
</TABLE>
----------------------------
(1)For purposes of this table, the value of the option was determined by
multiplying the number of shares subject to the unexercised option by the
difference between the $9.6875 exercise price and the fair market value of
Market Financial's common shares, which was $12.125 on September 29, 2000, based
on the last sale of Market Financial shares reported by Nasdaq.
RECOGNITION AND RETENTION PLAN AND TRUST
The shareholders of Market Financial adopted the RRP on June 30,
1998. The RRP purchased 53,429 common shares of Market Financial, all of which
were awarded to directors, executive officers and employees of Market Financial
and Market Bank in June 1998 and June 1999. All RRP awards will vest prior to
closing of the merger.
DIRECTOR COMPENSATION
Each director of Market Financial who is not a director of Market
Bank receives an annual fee of $10,000, payable quarterly. Each director of
Market Bank currently receives a fee of $19,500 per year, payable quarterly. Mr.
Larimer does not receive director's fees from Market Financial or Market Bank.
EMPLOYMENT AGREEMENTS
On April 1, 2000, Market Bank entered into an employment agreement
with Mr. Larimer. The employment agreement provides for a term of three years, a
salary of not less than $109,750 and a performance review by the board of
directors not less often than annually. The employment agreement also provides
for the inclusion of Mr. Larimer in any formally established employee benefit,
bonus, pension and profit-sharing plans for which senior management personnel
are eligible.
107
<PAGE>
The employment agreement is terminable by Market Bank at any time.
In the event of termination by Market Bank for "just cause," as defined in the
employment agreement, Mr. Larimer will have no right to receive any compensation
or other benefits for any period after such termination. In the event of
termination by Market Bank before the end of the term of the employment
agreement other than for just cause, or in connection with a "change of
control," as defined in the employment agreement, Mr. Larimer will be entitled
to a continuation of salary payments for a period of time equal to the term of
the employment agreement and a continuation of benefits substantially equal to
those being provided at the date of termination of employment until the earliest
to occur of the end of the term of the employment agreement or the date on which
Mr. Larimer becomes employed full-time by another employer.
The employment agreement also contains provisions with respect to
the occurrence of the following within one year of a "change of control": (1)
the termination of employment of Mr. Larimer for any reason other than just
cause, retirement or termination at the end of the term of the employment
agreement; (2) a material change in the capacity or circumstances in which Mr.
Larimer is employed; or (3) a material reduction in his responsibilities,
authority, compensation or other benefits provided under the employment
agreement. In the event of any such occurrence, Mr. Larimer will be entitled to
receive an amount equal to three times his average annual compensation for the
three taxable years immediately preceding the termination of employment. In
addition, Mr. Larimer will be entitled to continued coverage under all benefit
plans until the earliest of the end of the term of the employment agreement or
the date on which he is included in another employer's benefit plans as a
full-time employee. The maximum that Mr. Larimer may receive under such
provisions, however, is limited to an amount that will not result in the
imposition of a penalty tax pursuant to Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code"), and an amount that will not
violate applicable restrictions of the Office of Thrift Supervision. A "change
of control," as defined in the employment agreement, generally refers to the
acquisition by any person or entity of the ownership or power to vote 25% or
more of the voting stock of Market Bank or Market Financial, the control of the
election of a majority of the directors of Market Bank or Market Financial or
the exercise of a controlling influence over the management or policies of
Market Bank or Market Financial.
AUDIT COMMITTEE REPORT
The Audit Committee of the board of directors of Market Financial is
comprised of two directors, each of whom is considered "independent" under Rule
4200(a)(14) of the National Association of Securities Dealers' listing
standards. The Audit Committee is responsible for overseeing Market Financial's
accounting functions and controls, as well as recommending to the board of
directors an independent accounting firm to audit Market Financial's financial
statements. The Audit Committee has adopted a charter to set forth its
responsibilities (the "Charter").
As required by the Charter, the Audit Committee received and
reviewed the report of Grant Thornton regarding the results of their audit, as
well as the written disclosures and the letter from Grant Thornton required by
Independence Standards Board Standard No. 1. The Audit Committee reviewed the
audited financial statements with the management of Market Financial. A
representative of Grant Thornton also discussed with the Audit Committee the
independence of Grant Thornton from Market Financial, as well as the matters
required to be discussed by Statement of Auditing Standards 61. Discussions
between the Audit Committee and the representative of Grant Thornton included
the following:
o Grant Thornton's responsibilities in accordance with generally
accepted auditing standards
o The initial selection of, and whether there were any changes
in, significant accounting policies or their application
o Management's judgments and accounting estimates
o Whether there were any significant audit adjustments
o Whether there were any disagreements with management
o Whether there was any consultation with other accountants
108
<PAGE>
o Whether there were any major issues discussed with management
prior to Grant Thornton's retention
o Whether Grant Thornton encountered any difficulties in
performing the audit
o Grant Thornton's judgments about the quality of Market
Financial's accounting principles
o Grant Thornton's responsibilities for information prepared by
management that is included in documents containing audited
financial statements
Based on its review of the financial statements and its discussions
with management and the representative of Grant Thornton, the Audit Committee
did not become aware of any material misstatements or omissions in the financial
statements. Accordingly, the Audit Committee recommended to the board of
directors that the audited financial statements be included in the Annual Report
on Form 10-KSB for the year ended September 30, 2000, to be filed with the
Commission.
Submitted by the Audit Committee of Market Financial's board of directors
L. Craig Martin
Kathleen A. White
AMENDMENT OF MARKET FINANCIAL'S ARTICLES
Article SEVENTH of the Articles of Incorporation of Market Financial provides as
follows:
SEVENTH: Until the expiration of five years from the date of the
acquisition of the corporation of the capital stock of The Market
Building and Saving Company ("Market") to be issued in connection
with the conversion of Market from mutual to stock form, no Person
(hereinafter defined) shall directly or indirectly Offer
(hereinafter defined) to Acquire (hereinafter defined) or Acquire
the Beneficial Ownership (hereinafter defined) of more than ten
percent (10%) of any class of any equity security of the
corporation; provided, however, that such prohibition shall not
apply to the purchase of shares by underwriters in connection with a
public offering, or to the purchase of up to twenty five percent
(25%) of any class of equity security of the corporation by a
tax-qualified employee stock benefit plan. In the event that any
shares of the corporation are Acquired in violation of this Article
Seventh, all shares Beneficially Owned by any Person in excess of
ten percent (10%) of any class of equity security of the corporation
shall not be counted as shares entitled to vote, shall not be voted
by any Person and shall not be counted as voting shares in
connection with any matter submitted to the shareholders for a vote.
For purposes of this Article Seventh, the following terms shall have
the meaning set forth below:
(A) "Person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a
joint stock company, a trust, an unincorporated
organization or similar company, a syndicate or any
other group formed for the purpose of acquiring or
disposing of the equity securities of the corporation,
but does not include any employee stock benefit plan of
the corporation or subsidiary of the corporation.
(B) "Offer" includes every offer to buy or otherwise
acquire, solicitation of an offer to sell, tender offer
for, or request or invitation for tenders of, a security
or interest in a security for value.
(C) "Acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or
otherwise.
109
<PAGE>
(D) "Acting in concert" means (i) participation in a joint
activity or conscious parallel action towards a common
goal, whether or not pursuant to an express agreement,
or (ii) a combination or pooling of voting or other
interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether
written or otherwise.
(E) "Beneficial Ownership" shall include, without
limitation, (i) all shares directly or indirectly owned
by a Person, by an Affiliate (hereinafter defined) of
such Person or by an Associate (hereinafter defined) of
such Person or such Affiliate, (ii) all shares which
such Person, Affiliate or Associate has the right to
acquire through the exercise of any option, warrant or
right (whether or not currently exercisable), through
the conversion of a security, pursuant to the power to
revoke a trust, discretionary account or similar
arrangement, or pursuant to the automatic termination of
a trust, discretionary account or similar arrangement,
and (iii) all shares as to which such Person, Affiliate
or Associate directly or indirectly through any
contract, arrangement, understanding, relationship or
otherwise (including, without limitation, any written or
unwritten agreement to act in concert) has or shares
voting power (which includes the power to vote or to
direct the voting of such shares) or investment power
(which includes the power to dispose or to direct the
disposition of such shares) or both.
(F) "Affiliate" shall mean a Person that directly or
indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control
with another Person.
(G) "Associate" of a Person shall mean (i) any corporation
or organization (other than the corporation or a
subsidiary of the corporation) of which the Person is an
officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of
equity securities, (ii) any trust or other estate,
except any employee stock benefit plan, in which the
Person has a substantial beneficial interest or as to
which the Person serves as trustee or in a similar
fiduciary capacity, and (iii) any relative or spouse of
the Person, or any relative of such spouse, who has the
same home as the Person or is a director or officer of
the corporation or any of its parents or subsidiaries.
Provisions similar to Article SEVENTH of the Market Financial
Articles of Incorporation are contained in the articles of incorporation of
savings associations that convert from mutual form to stock form and are
designed to discourage changes in control that are deemed by the board of
directors of the association not to be in the best interests of the association
of its stockholders. Because the board of directors of Market Financial has
determined that the adoption of the reorganization agreement would be in the
best interests of the stockholders of Market Financial, the board of directors
of Market Financial unanimously recommends that the Market Financial
stockholders vote to adopt an amendment to the Market Financial Articles of
Incorporation to delete Article SEVENTH in its entirety and to remove thereby
the prohibition against the offer to acquire or the acquisition of 10% or more
of the outstanding Market Financial common shares.
ACCORDINGLY, THE BOARD OF DIRECTORS OF MARKET FINANCIAL UNANIMOUSLY
RECOMMENDS THAT THE MARKET FINANCIAL STOCKHOLDERS VOTE TO APPROVE THE FOLLOWING
RESOLUTION AT THE ANNUAL MEETING:
RESOLVED, that the Articles of Incorporation of Market Financial
Corporation, as amended, be amended by deleting Article SEVENTH in
its entirety and substituting therefor the following:
SEVENTH: Deleted
110
<PAGE>
RATIFICATION OF APPOINTMENT OF MARKET FINANCIAL'S AUDITORS
The board of directors has selected Grant Thornton LLP as the
auditors of Market Financial and Market Bank for the current fiscal year and
recommends that the shareholders ratify such selection. Management expects that
a representative of Grant Thornton LLP will be present at the Annual Meeting,
will have the opportunity to make a statement if he or she so desires and will
be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR THE 2002 ANNUAL MEETING OF MARKET FINANCIAL
Proposals of stockholders intended to be presented at Market
Financial's annual meeting to be held in January 2002, which will be held only
if the merger is not consummated before the time of such meeting, must be
received by Market Financial no later than _________ ____, 2000 to be considered
for inclusion in the proxy materials and form of proxy relating to such meeting.
In addition, if a stockholder intends to present a proposal at the 2002 annual
meeting without including the proposal in the proxy materials related to that
meeting, and if the proposal is not received by _______________, 2001, then the
proxies designated by the board of directors of Market Financial for the 2002
annual meeting of stockholders of Market Financial may vote in their discretion
on any such proposal any shares for which they have been appointed proxies
without mention of such matter in the proxy statement or on the proxy card for
such meeting. Any such proposals shall be subject to the requirements of the
proxy rules adopted under the Exchange Act.
LEGAL MATTERS
The validity of the shares of Peoples Bancorp common stock which
will be issued in the merger will be passed upon for Peoples Bancorp by Elias,
Matz, Tiernan & Herrick L.L.P., Washington, D.C. In addition, Elias, Matz,
Tiernan & Herrick L.L.P., Washington, D.C., will opine upon the tax consequences
of the merger for Peoples Bancorp and for Market Financial.
EXPERTS
The consolidated financial statements of Market Financial as of
September 30, 2000 and 1999, and for each of the years in the three-year period
ended September 30, 2000, contained in the 2000 Market Financial Annual Report
to Shareholders, have been incorporated by reference herein and in the
registration statement in reliance upon the report of Grant Thornton LLP,
independent certified public accountants, contained in the Market Financial 2000
Annual Report to Shareholders, and upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Peoples Bancorp as of
September 30, 2000 and 1999, and for each of the years in the three-year period
ended September 30, 2000, have been included in this joint proxy
statement/prospectus in reliance upon the report of Grant Thornton LLP,
independent certified public accountants, appearing elsewhere herein and upon
the authority of such firm as experts in accounting and auditing.
CHANGE IN AUDITORS OF PEOPLES BANCORP
Prior to the fiscal year ended September 30, 1999, Peoples Bancorp's
financial statements were audited by Kennedy, Kraft, Dreyer & Noe. The
engagement of Kennedy, Kraft, Dreyer & Noe was terminated and Grant Thornton
LLP, was engaged in August 1999, and remains as the independent auditors of
Peoples Bancorp. The decision to change auditors was approved by the board of
directors of Peoples Bancorp. Peoples Bancorp's financial statements as of
September 30, 2000 and 1999, and for each of the years in the three-year period
ended September 30, 2000, and included in this joint proxy statement/prospectus,
were audited by Grant Thornton LLP.
111
<PAGE>
During fiscal 1999 and 1998, there were no disagreements between
Peoples Bancorp and Kennedy, Kraft, Dreyer & Noe on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to the satisfaction of Kennedy, Kraft, Dreyer &
Noe, would have caused it to make a reference to the subject matter of the
disagreement in connection with its reports. During fiscal 2000 and 1999,
Kennedy, Kraft, Dreyer & Noe did not issue any adverse opinion with respect to
Peoples Bancorp financial statements or any disclaimer of opinion or any opinion
which was qualified or modified as to uncertainty, audit scope or accounting
principles.
During 2000 and 1999, Peoples Bancorp did not consult Grant Thornton
LLP prior to such firm's engagement with respect to: the application of
accounting principles to a specified transaction, either completed or proposed;
the type of audit opinion that might be rendered on Peoples Bancorp' financial
statements; or, any matter that was the subject of either a disagreement or a
reportable event, in each case, as defined in Item 304(a) of Regulation S-K
under the Securities Exchange Act of 1934, as amended.
WHERE YOU CAN FIND MORE INFORMATION
Peoples Bancorp and Market Financial file annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy any reports, statements or other
information that the companies file at the SEC's public reference rooms in
Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms.
Peoples Bancorp's and Market Financial's public filings are also
available to the public from commercial document retrieval services and at the
Internet World Wide Website maintained by the SEC at "http://www.sec.gov."
Peoples Bancorp has filed the registration statement to register
with the SEC the shares of Peoples Bancorp common stock to be issued to Market
Financial stockholders in the merger. This joint proxy statement/prospectus is a
part of the registration statement and constitutes a prospectus of Peoples
Bancorp, a proxy statement of Peoples Bancorp for its annual meeting of
stockholders and a proxy statement of Market Financial for its annual meeting of
stockholders.
Peoples Bancorp common stock is traded on the Nasdaq National Market
Financial under the symbol "PCBI," and Market Financial Finanical common stock
is traded on the Nasdaq SmallCap Market under the symbol "MRKF." Documents filed
by Peoples Bancorp and Market Financial also can be inspected at the offices of
the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
As allowed by SEC rules, this document does not contain all the
information that stockholders can find in the registration statement or the
exhibits to the registration statement.
The SEC allows Market Financial to "incorporate by reference"
information into this document, which means that Market Financial can disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this document, except for any information superseded by information
contained directly in the document. This document incorporates by reference
other documents, listed below, that Market Financial has filed with the SEC. The
document contains important information about Market Financial's financial
condition.
MARKET FINANCIAL SEC FILINGS (FILE NO. 000-22255):
o Market Financial's Annual Report for the fiscal year ended September 30,
2000;
112
<PAGE>
Market Financial also incorporates by reference additional documents
that it might file with the SEC between the date of this joint proxy
statement-prospectus and the date of the annual meeting. These include periodic
reports, such as Annual Reports on Form 10-KSB, Quarterly Reports on Form 10-QSB
and Current Reports on Form 8-K.
Peoples Bancorp has supplied all information contained in this
document relating to Peoples Bancorp.
Market Financial has supplied all information contained or
incorporated by reference in this document relating to Market Financial.
ACCOMPANYING THIS JOINT PROXY STATEMENT/PROSPECTUS IS MARKET
FINANCIAL'S 2000 ANNUAL REPORT TO SHAREHOLDERS.
COPIES OF ANY OF THE MARKET FINANCIAL DOCUMENTS INCORPORATED BY
REFERENCE (EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN) NOT
OTHERWISE ACCOMPANYING THIS JOINT PROXY STATEMENT/PROSPECTUS ARE AVAILABLE
WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST FROM MR. JOHN T. LARIMER, MARKET
FINANCIAL CORPORATION, 7522 HAMILTON AVENUE, MT. HEALTHY, OHIO 45231 (TELEPHONE
NUMBER: (513) 521-9772). TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY __________, 2001.
You should rely only on the information contained or incorporated by
reference in this document and the accompanying documents to vote your shares at
the annual meeting. Peoples Bancorp and Market Financial have not authorized
anyone to provide you with information that is different from what is contained
in this document. This joint proxy statement/prospectus is dated January ____,
2001. You should not assume that the information contained in the joint proxy
statement/prospectus is accurate as of any date other than that date, and
neither the mailing of this document to stockholders nor the issuance of Peoples
Bancorp's securities in the merger shall create any implication to the contrary.
113
<PAGE>
INDEX TO PEOPLES BANCORP FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report................................................................................. F-2
Financial Statements
Consolidated Statements of Financial Condition (As of September 30, 2000 and 1999)............... F-3
Consolidated Statements of Earnings (For the years ended September 30, 2000,
1999 and 1998)....................................................................... F-4
Consolidated Statements of Comprehensive Income (For the years ended
September 30, 2000, 1999 and 1998)................................................... F-5
Consolidated Statements of Cash Flows (For the years ended September 30, 2000, 1999
and 1998)........................................................................... F-6
Notes to Consolidated Financial Statements................................................................... F-7
</TABLE>
F-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law sets forth
circumstances under which directors, officers, employees and agents may be
insured or indemnified against liability which they may incur in their capacity
as such. The Certificate of Incorporation and the Bylaws of Peoples Bancorp
provide that the directors, officers, employees and agents of Peoples Bancorp
shall be indemnified to the full extent permitted by law. Such indemnity shall
extend to expenses, including attorneys' fees, judgments, fines and amounts paid
in the settlement, prosecution or defense of the foregoing actions.
Article 10 of the Registrant's Certificate of Incorporation provides
as follows:
ARTICLE 10. INDEMNIFICATION. The Corporation shall indemnify its
directors, officers, employees, agents and former directors, officers, employees
and agents, and any other persons serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, association,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees, judgments, fines and amounts paid in settlement)
incurred in connection with any pending or threatened action, suit or
proceeding, whether civil, criminal, administrative or investigative, with
respect to which such director, officer, employee, agent or other person is a
party, or is threatened to be made a party, to the full extent permitted by the
General Corporation Law of the State of Delaware, provided, however, that the
Corporation shall not be liable for any amounts which may be due to any person
in connection with a settlement of any action, suit or proceeding effected
without its prior written consent or any action, suit or proceeding initiated by
any person seeking indemnification hereunder without its prior written consent.
The indemnification provided herein (i) shall not be deemed exclusive of any
other right to which any person seeking indemnification may be entitled under
any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
any other capacity, and (ii) shall inure to the benefit of the heirs, executors
and administrators of any such person. The Corporation shall have the power, but
shall not be obligated, to purchase and maintain insurance on behalf of any
person or persons enumerated above against any liability asserted against or
incurred by them or any of them arising out of their status as corporate
directors, officers, employees, or agents whether or not the Corporation would
have the power to indemnify them against such liability under the provisions of
this Article 10.
Article VI of the Registrant's Bylaws provides as follows:
6.1 INDEMNIFICATION. The Corporation shall provide indemnification
to its directors, officers, employees, agents and former directors, officers,
employees and agents and to others in accordance with the Corporation's
Certificate of Incorporation.
6.2 ADVANCEMENT OF EXPENSES. Reasonable expenses (including
attorneys' fees) incurred by a director, officer or employee of the Corporation
in defending any civil, criminal, administrative or investigative action, suit
or proceeding described in Section 6.1 may be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding as authorized by the
board of directors only upon receipt of an undertaking by or on behalf of such
person to repay such amount if it shall ultimately be determined that the person
is not entitled to be indemnified by the Corporation.
6.3 OTHER RIGHTS AND REMEDIES. The indemnification and advancement
of expenses provided by, or granted pursuant to, this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Corporation's Certificate of
Incorporation, any agreement, vote of stockholders or disinterested directors or
otherwise, both as to actions in their official
II-1
<PAGE>
capacity and as to actions in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer or
employee and shall inure to the benefit of the heirs, executors and
administrators of such person.
6.4 INSURANCE. Upon resolution passed by the board of directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer of employee of the Corporation, or is or was serving
at the request of the corporation as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him or incurred by him in any such capacity or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of its
Certificate of Incorporation or this Article VI.
6.5 MODIFICATION. The duties of the Corporation to indemnify and to
advance expenses to a director, officer or employee provided in this Article VI
shall be in the nature of a contract between the Corporation and each such
person, and no amendment or repeal of any provision of this Article VI shall
alter, to the detriment of such person, the right of such person to the advance
of expenses or indemnification related to a claim based on an act or failure to
act which took place prior to such amendment or repeal.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits and financial statement schedules filed as a part of
this Registration Statement are as follows:
(a) LIST OF EXHIBITS (filed herewith unless otherwise noted)
<TABLE>
<S> <C>
2.1 Agreement and Plan of Reorganization, dated as of September 19, 2000, between Market Financial
Corporation and Peoples Community Bancorp, Inc. is included as Appendix A to the Joint Proxy
Statement/Prospectus which is part of this Registration Statement
2.2 Form of Stockholder Agreement, dated September 19, 2000, by and among Peoples Community Bancorp,
Inc. and certain directors and executive officers of Market Financial Corporation
3.1 Certificate of Incorporation of Peoples Community Bancorp, Inc.(1)
3.2 Bylaws of Peoples Community Bancorp, Inc.(1)
4.1 Specimen Stock Certificate of Peoples Community Bancorp, Inc.(1)
5.1 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. re: legality
8.1 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. re: federal tax matters
10.1 Stock Option Plan, included as Appendix D to the Joint Proxy Statement/Prospectus which is part of this
Registration Statement
10.2 Recognition and Retention Plan and Trust Agreement, included as
Appendix E to the Joint Proxy Statement/Prospectus which is part of
this Registration Statement
10.3 Form of Employment Agreement between Peoples Community Bancorp, Inc., Peoples Community Bank
and each of Jerry D. Williams, Thomas J. Noe, John E. Rathkamp and Dennis J. Slattery(1)
13.0 Peoples Community Bancorp's 2000 Annual Report to Stockholders
21 Subsidiaries of the Registrant - Reference is made to "Business of Peoples Bancorp - Subsidiaries" in this
Form S-4 for the required information.
23.1 Consent of Elias, Matz, Tiernan & Herrick L.L.P. (included in Exhibits 5.1 and 8.1, respectively)
23.2 Consent of Grant Thornton LLP (independent auditors for Market Financial Corporation)
23.3 Consent of Grant Thornton LLP (independent auditors for Peoples Community Bancorp, Inc.)
23.4 Consent of McDonald Investments, Inc.
24.1 Power of Attorney (included in Signature Pages)
99.1 Form of proxy for the Peoples Bancorp annual meeting
99.2 Form of proxy for the Market Financial annual meeting
99.3 Market Financial Corporation 2000 Annual Report to Shareholders
</TABLE>
-----------
II-2
<PAGE>
(1) Incorporated by reference from the Registration Statement on Form S-1
(Registration No. 333-93047) filed by Peoples Community Bancorp, Inc.
with the SEC on December 17, 1999.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted as not applicable or not required
under the rules of Regulation S-X.
(c) REPORTS, OPINIONS, OR APPRAISALS OF OUTSIDE PARTIES
The opinion of McDonald Investments, Inc. is included as Appendix B
to the Joint Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(A) (1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of the securities offered
would not exceed that which was registered) and any
deviation from the low or high and the estimated maximum
offering range may be reflected in the form of
Prospectus filed with the Commission pursuant to Rule
424 (b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose 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) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the Offering.
(B) For purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 (and each
filing of an employee benefit plan's annual report pursuant to Section 15 (d)
of the Securities Exchange Act of 1934) that is incorporated by reference in
the Registration Statement shall be deemed a new
II-3
<PAGE>
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.
(C) To respond to requests for information that is
incorporated by reference into the joint proxy statement/prospectus
pursuant to Item 4, 10 (b), 11 or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
(D) 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.
(E) 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.
(F) That every prospectus: (i) that is filed pursuant to
paragraph (E) 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.
(G) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Form S-4 Registration Statement to be signed on
its behalf by the undersigned, hereunto duly authorized, in the State of Ohio on
January 12, 2001.
PEOPLES COMMUNITY BANCORP, INC.
By: /s/ JERRY D. WILLIAMS
-----------------------------------------
Jerry D. Williams
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby makes, constitutes and appoints Jerry D. Williams his true and lawful
attorney, with full power to sign for each person and in such person's name and
capacity indicated below, and with full power of substitution, any and all
amendments to this Registration Statement, hereby ratifying and confirming such
person's signature as it may be signed by said attorney to any and all
amendments.
<TABLE>
<CAPTION>
Name Title Date
---------------------------- -------------------- --------------
<S> <C> <C>
/s/ JERRY D. WILLIAMS President, Chief Executive Officer and January 12, 2001
--------------------------------- Director (principal executive officer)
Jerry D. Williams
/s/ THOMAS J. NOE Chief Financial Officer and Director January 12, 2001
--------------------------------- (principal financial and accounting
Thomas J. Noe officer)
/s/ PAUL E. HASSELBRING Chairman of the Board and Director January 12, 2001
---------------------------------
Paul E. Hasselbring
/s/ JOHN E. RATHKAMP Chief Lending Officer, Secretary and January 12, 2001
--------------------------------- Director
John E. Rathkamp
/s/ RICHARD S. JOHNSTON Director January 12, 2001
---------------------------------
Richard S. Johnston
/s/ ZANE M. BRANT Director January 12, 2001
---------------------------------
Zane M. Brant
/s/ JOHN L. BUCHANAN Director January 12, 2001
---------------------------------
John L. Buchanan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
---------------------------- -------------------- --------------
<S> <C> <C>
/s/ DONALD L. HAWKE Director January 12, 2001
---------------------------------
Donald L. Hawke
/s/ JAMES R. VAN DEGRIFT Director January 12, 2001
---------------------------------
James R. Van DeGrift
/s/ NICHOLAS N. NELSON Director January 12, 2001
---------------------------------
Nicholas N. Nelson
</TABLE>
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of September 19, 2000
("Agreement"), among Peoples Community Bancorp, Inc. ("Peoples"), a Delaware
corporation headquartered in Lebanon, Ohio, Peoples Community Bank ("Peoples
Bank"), a federal savings bank chartered under the laws of the United States,
and Market Financial Corp. ("Market"), an Ohio corporation headquartered in
Mount Healthy, Ohio, and Market Bank ("Market Bank"), a state savings and loan
association incorporated under the laws of the State of Ohio.
WITNESSETH:
WHEREAS, the Boards of Directors of Peoples, Peoples Bank, Market and
Market Bank have determined that it is in the best interests of their respective
companies and their shareholders to consummate the business combination
transactions provided for herein, including the merger of Market with and into
Peoples and the subsequent merger of Market Bank with and into Peoples Bank,
subject to the terms and conditions set forth herein; and
WHEREAS, the parties desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby; and
WHEREAS, as a condition and inducement to Peoples' willingness to enter
into this Agreement certain stockholders of Market are concurrently entering
into a Stockholder Agreement with Peoples (the "Stockholder Agreement"), in
substantially the form attached hereto as Exhibit A, pursuant to which, among
other things, such stockholders agree to vote their shares of Market Common
Stock in favor of this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, representations, warranties and agreements herein contained, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.01. THE MERGERS. Subject to the terms and conditions of this
Agreement and the Agreement of Merger, dated as of the date hereof, between
Peoples and Market, a copy of which is attached hereto as Exhibit B, at the
Effective Time (as defined hereinafter), Market shall be merged with and into
Peoples in accordance with Section 252 of the Delaware General Corporation Law
("DGCL") and Title 17, Chapter 1701 of the Ohio General Corporation Law ("OGCL")
(the "Merger"), with Peoples as the surviving corporation (hereinafter sometimes
called the "Surviving Corporation"). Each share of common stock, no par value
per share, of Market ("Market Common Stock") outstanding immediately prior to
the Effective Time shall be cancelled and extinguished. Each of such shares
(other than shares as to which dissenters' rights have been asserted in
accordance with Ohio law (the "Market Dissenting Shares") and shares held by
Market (including treasury shares) or Peoples or any of their respective
wholly-owned subsidiaries) shall, by virtue of the Merger and without any
further action by the holder thereof, be converted into and represent the right
to receive shares of common stock, par value $.01 per share, of Peoples
("Peoples Common Stock") and, if applicable, cash in lieu of fractional shares,
or $13.00 in cash ("Merger Consideration"), as provided in Section 1.03 hereof
and subject to the terms, conditions, limitations and procedures set forth in
this Agreement and the Agreement of Merger. Following consummation of the
Merger, Peoples shall cause Market Bank to merge with and into Peoples Bank,
with Peoples Bank as the resulting institution.
1.02. EFFECTIVE TIME. The Merger shall become effective at 5:00 p.m. on
the date that a Certificate of Merger
<PAGE>
is filed with the Secretary of State of the State of Delaware pursuant to the
DGCL and a Certificate of Merger is filed with the Secretary of State of the
State of Ohio pursuant to the OGCL, unless a later date and time is specified
as the effective time in such Certificate of Merger ("Effective Time"). A
closing (the "Closing") shall take place immediately prior to the Effective
Time at 10:00 a.m., on the fifth business day following the receipt of all
necessary regulatory or governmental approvals and consents and the
expiration of all statutory waiting periods in respect thereof and the
satisfaction or waiver, to the extent permitted hereunder, of the conditions
to the consummation of the Merger specified in Article V of this Agreement
(other than the delivery of certificates and other instruments and documents
to be delivered at the Closing), at the offices of Peoples, 11 S. Broadway,
Lebanon, Ohio 45036-1780, or at such other place, at such other time, or on
such other date as the parties may mutually agree upon. At the Closing, there
shall be delivered to Peoples and Market the certificates and other documents
required to be delivered under Article V hereof.
1.03 CONVERSION OF SHARES. At the Effective Time, by virtue of the
Merger and without any action on the part of a holder of shares of Market Common
Stock:
(a) Each share of Peoples Common Stock that is issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding and
shall be unchanged by the Merger.
(b) All shares of Market Common Stock owned by Market (including
treasury shares) or Peoples or any of their respective wholly-owned
subsidiaries, in each case other than in a fiduciary capacity, shall be canceled
and retired and shall not represent capital stock of the Surviving Corporation
and shall not be exchanged for shares of Peoples Common Stock, cash or other
consideration.
(c) (1) Subject to Sections 1.04, 1.05, 1.08 and 1.09, each share of
Market Common Stock issued and outstanding at the Effective Time (other than (i)
shares to be canceled in accordance with Section 1.03(b) and (ii) Market
Dissenting Shares and (iii) shares held by the trust for the Market ESOP (as
defined hereinafter)) shall be canceled and extinguished in exchange for the
right to receive, at the election of the holder thereof:
(i) the number of shares of Peoples Common Stock which is
equal to the quotient, rounded to four decimal places ("Exchange
Ratio"), determined by dividing $13.00 by the Average Share Price (as
defined hereinafter) (the "Per Share Stock Consideration"), or
(ii) a cash amount equal to $13.00 per share of Market Common
Stock (the "Per Share Cash Consideration").
(2) For purposes of this Agreement, the "Aggregate Cash
Consideration" shall mean one half of the number of shares of Market
Common Stock (other than Market Common Stock owned by Market (including
treasury shares) or Peoples) outstanding at the Effective Time
multiplied by $13.00.
(3) For purposes of this Agreement, the "Average Share Price"
shall mean the daily average of the closing price per share of Peoples
Common Stock, as reported on the Nasdaq Stock Market's National Market
(as reported by an authoritative source), as of the close of trading
for each of the 20 trading days ending at the close of business on the
business day immediately preceding the Effective Time.
1.04 ELECTION AND EXCHANGE PROCEDURES
(a) Peoples shall designate an exchange agent, subject to approval of
Market, which approval shall not be unreasonably withheld, to act as agent (the
"Exchange Agent") for purposes of conducting the election procedure and the
exchange procedure as described in this section and Section 1.05. No later than
five business days following the Effective Time, Peoples shall cause the
Exchange Agent to mail or make available to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented issued and outstanding shares of Market Common Stock (i) a notice
and letter of transmittal (which shall specify that delivery shall be effected
and risk of loss and title to the certificates theretofore representing shares
of Market Common Stock shall pass only upon proper
A-2
<PAGE>
delivery of such certificates to the Exchange Agent) advising such holder of the
effectiveness of the Merger and the procedure for surrendering to the Exchange
Agent such certificate or certificates in exchange for the consideration set
forth in Section 1.03(c) hereof deliverable pursuant to this Agreement and (ii)
an election form in such form as Peoples and Market shall mutually agree
("Election Form"). Each Election Form shall permit the holder (or in the case of
nominee record holders, the beneficial owner through proper instructions and
documentation) (i) to elect to receive Peoples Common Stock with respect to all
such holder's Market Common Stock as hereinabove provided (the "Stock Election
Shares"), (ii) to elect to receive cash with respect to all such holder's Market
Common Stock as hereinabove provided (the "Cash Election Shares"), or (iii) to
indicate that such holder makes no such election with respect to such holder's
shares of Market Common Stock (the "No-Election Shares"). Any shares of Market
Common Stock with respect to which the holder thereof shall not, as of the
Election Deadline (as defined hereinafter), have made such an election by
submission to the Exchange Agent of an effective, properly completed Election
Form shall be deemed to be No-Election Shares. Any Market Dissenting Shares
shall be deemed to be Cash Election Shares, and with respect to such shares the
holders thereof shall in no event be classified as Reallocated Stock Shares (as
hereinafter defined).
(b) The term "Election Deadline" shall mean 5:00 p.m., Eastern Time, on
the 20th day following but not including the date of mailing of the Election
Form or such other date as Peoples and Market shall mutually agree upon.
(c) Any election to receive Peoples Common Stock or cash shall have
been properly made only if the Exchange Agent shall have actually received a
properly completed Election Form by the Election Deadline. Any Election Form may
be revoked or changed by the person submitting such Election Form to the
Exchange Agent by written notice to the Exchange Agent only if such notice is
actually received by the Exchange Agent at or prior to the Election Deadline.
The Exchange Agent shall have reasonable discretion to determine when any
election, modification or revocation is received and whether any such election,
modification or revocation has been properly made.
(d) The Exchange Agent shall effect the allocation among holders of
Market Common Stock of rights to receive Peoples Common Stock or cash in the
Merger in accordance with the Election Forms as follows:
(i) If the number of Cash Election Shares multiplied by the
Per Share Cash Consideration is less than the Aggregate Cash
Consideration, then:
(1) each of the Cash Election Shares (subject to
Section 1.08 with respect to Market Dissenting Shares) will be
converted into the right to receive the Per Share Cash
Consideration,
(2) the Exchange Agent will select first from among
the holders of No-Election Shares and then (if necessary) will
allocate among the holders of Stock Election Shares (by the
method of allocation described below), a sufficient number of
Stock Election Shares ("Reallocated Cash Shares") such that
the product of (i) the sum of the number of Cash Election
Shares, plus the number of No-Election Shares and Reallocated
Cash Shares, multiplied by (ii) the Per Share Cash
Consideration equals the Aggregate Cash Consideration, and
each of the Reallocated Cash Shares will be converted into the
right to receive the Per Share Cash Consideration, and
(3) the No-Election Shares and Stock Election Shares
which are not Reallocated Cash Shares will be converted into
the right to receive the Per Share Stock Consideration.
(ii) If the number of Cash Election Shares multiplied by the
Per Share Cash Consideration is greater than the Aggregate Cash
Consideration, then:
(1) each of the Stock Election Shares and all
No-Election Shares will be converted into the right to receive
the Per Share Stock Consideration;
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(2) the Exchange Agent will allocate among the
holders of Cash Election Shares (by the method of allocation
described below), a sufficient number of Cash Election Shares
(excluding any Market Dissenting Shares) ("Reallocated Stock
Shares") such that the product of the number of remaining Cash
Election Shares (including Market Dissenting Shares)
multiplied by the Per Share Cash Consideration equals the
Aggregate Cash Consideration, and each of the Reallocated
Stock Shares shall be converted into the right to receive the
Per Share Stock Consideration; and
(3) each of the Cash Election Shares (subject to
Section 1.08 with respect to Market Dissenting Shares) which
are not Reallocated Stock Shares will be converted into the
right to receive the Per Share Cash Consideration.
(iii) If the number of Cash Election Shares (including Market
Dissenting Shares) multiplied by the Per Share Cash Consideration is
equal to the Aggregate Cash Consideration, then subparagraphs (d)(i)
and (ii) above shall not apply and all No-Election Shares and all Stock
Election Shares will be converted into the right to receive Peoples
Common Stock.
(e) In the event that the Exchange Agent is required pursuant to
Section 1.04(d)(i)(2) to designate from among all Stock Election Shares the
Reallocated Cash Shares to receive cash, each holder of Stock Election Shares
shall be allocated a pro rata portion (based on each holder's Stock Election
Shares relative to all Stock Election Shares) of the remainder of the total
Reallocated Cash Shares less the number of No Election Shares which are
Reallocated Cash Shares. In the event the Exchange Agent is required pursuant to
Section 1.04(d)(ii)(2) to designate from among all holders of Cash Election
Shares the Reallocated Stock Shares to receive the Per Share Stock
Consideration, each holder of Cash Election Shares shall be allocated a pro rata
portion (based on each holder's Cash Election Shares relative to all Cash
Election Shares) of the total Reallocated Stock Shares.
(f) At the Effective Time, Peoples shall issue to the Exchange Agent
the number of shares of Peoples Common Stock issuable and the amount of cash
payable in the Merger (which shall be held by the Exchange Agent in trust for
the holders of Market Common Stock and invested only in deposit accounts of a
Federal Deposit Insurance Corporation ("FDIC") insured institution, direct
obligations of the U.S. Government or obligations issued or guaranteed by an
agency thereof which carry the full faith and credit of the United States). No
later than ten (10) days after receipt of a properly completed letter of
transmittal, the Exchange Agent shall distribute Peoples Common Stock and cash
as provided herein. The Exchange Agent shall not be entitled to vote or exercise
any rights of ownership with respect to the shares of Peoples Common Stock held
by it from time to time hereunder, except that it shall receive and hold all
dividends or other distributions paid or distributed with respect to such shares
for the account of the persons entitled thereto.
(g) After the completion of the foregoing allocation, each holder of an
outstanding certificate or certificates which prior thereto represented shares
of Market Common Stock who surrenders such certificate or certificates to the
Exchange Agent will, upon acceptance thereof by the Exchange Agent, be entitled
to a certificate or certificates representing the number of full shares of
Peoples Common Stock or the amount of cash into which the aggregate number of
shares of Market Common Stock previously represented by such certificate or
certificates surrendered shall have been converted pursuant to this Agreement
and, if such holder's shares of Market Common Stock have been converted into
Peoples Common Stock, any other distribution theretofore paid with respect to
Peoples Common Stock issuable in the Merger, in each case without interest. The
Exchange Agent shall accept such certificates upon compliance with such
reasonable terms and conditions as the Exchange Agent may impose to effect an
orderly exchange thereof in accordance with normal exchange practices. Each
outstanding certificate which prior to the Effective Time represented Market
Common Stock and which is not surrendered to the Exchange Agent in accordance
with the procedures provided for herein shall, except as otherwise herein
provided, until duly surrendered to the Exchange Agent be deemed to evidence
ownership of the number of shares of Peoples Common Stock or the right to
receive the amount of cash into which such Market Common Stock shall have been
converted. After the Effective Time, there shall be no further transfer on the
records of Market of certificates representing shares of Market Common
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Stock and if such certificates are presented to Market for transfer, they shall
be canceled against delivery of certificates for Peoples Common Stock or cash as
hereinabove provided. No dividends which have been declared will be remitted to
any person entitled to receive shares of Peoples Common Stock under this Section
1.04 until such person surrenders the certificate or certificates representing
Market Common Stock, at which time such dividends shall be remitted to such
person, without interest.
(h) Peoples shall not be obligated to deliver cash and/or a certificate
or certificates representing shares of Peoples Common Stock to which a holder of
Market Common Stock would otherwise be entitled as a result of the Merger until
such holder surrenders the certificate or certificates representing the shares
of Market Common Stock for exchange as provided in this Section 1.04, or, in
default thereof, an appropriate affidavit of loss and indemnity agreement and/or
a bond as may be required in each case by Peoples. If any certificates
evidencing shares of Peoples Common Stock are to be issued in a name other than
that in which the certificate evidencing Market Common Stock surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the certificate so surrendered shall be properly endorsed or accompanied by
an executed form of assignment separate from the certificate and otherwise in
proper form for transfer and that the person requesting such exchange pay to the
Exchange Agent any transfer or other tax required by reason of the issuance of a
certificate for shares of Peoples Common Stock in any name other than that of
the registered holder of the certificate surrendered or otherwise establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(i) Any portion of the shares of Peoples Common Stock and cash
delivered to the Exchange Agent by Peoples pursuant to Section 1.04(f) that
remains unclaimed by the shareholders of Market for six months after the
Effective Time (as well as any proceeds from any investment thereof) shall be
delivered by the Exchange Agent to Peoples. Any shareholders of Market who have
not theretofore complied with Section 1.04(g) shall thereafter look only to
Peoples for the consideration deliverable in respect of each share of Market
Common Stock such shareholder holds as determined pursuant to this Agreement
without any interest thereon. If outstanding certificates for shares of Market
Common Stock are not surrendered or the payment for them is not claimed prior to
the date on which such shares of Peoples Common Stock or cash would otherwise
escheat to or become the property of any governmental unit or agency, the
unclaimed items shall, to the extent permitted by abandoned property and any
other applicable law, become the property of Peoples (and to the extent not in
its possession shall be delivered to it), free and clear of all claims or
interest of any person previously entitled to such property. Neither the
Exchange Agent nor any party to this Agreement shall be liable to any holder of
stock represented by any certificate for any consideration paid to a public
official pursuant to applicable abandoned property, escheat or similar laws.
Peoples and the Exchange Agent shall be entitled to rely upon the stock transfer
books of Market to establish the identity of those persons entitled to receive
consideration specified in this Agreement, which books shall be conclusive with
respect thereto. In the event of a dispute with respect to ownership of stock
represented by any certificate, Peoples and the Exchange Agent shall be entitled
to deposit any consideration represented thereby in escrow with an independent
third party and thereafter be relieved with respect to any claims thereto.
1.05 NO FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, neither certificates nor scrip for fractional shares of Peoples
Common Stock shall be issued in the Merger. Each holder who otherwise would have
been entitled to a fraction of a share of Peoples Common Stock shall receive in
lieu thereof cash (without interest) in an amount determined by multiplying the
fractional share interest to which such holder would otherwise be entitled by
the Average Share Price. No such holder shall be entitled to dividends, voting
rights or any other rights in respect of any fractional share.
1.06 STOCK OPTIONS. Immediately before the Effective Time, each option
with respect to Market Common Stock (a "Market Stock Option") that has been
issued pursuant to Market's 1998 Stock Option and Incentive Plan and is
outstanding and exercisable at the Effective Time shall be canceled and
converted into the right to receive from Peoples, subject to required
withholding taxes, if any, cash in an amount equal to the difference between the
exercise price of such Market Stock Option and the Per Share Cash Consideration
for each share of Market Common Stock subject to such Market Stock Option.
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1.07 WITHHOLDING RIGHTS. Peoples (through the Exchange Agent, if
applicable) shall be entitled to deduct and withhold from any amounts otherwise
payable pursuant to this Agreement to any holder of shares of Market Common
Stock such amounts as Peoples is required under the Internal Revenue Code of
1986, as amended ("Code") or any provision of state, local or foreign tax law to
deduct and withhold with respect to the making of such payment. Any amounts so
withheld shall be treated for all purposes of this Agreement as having been paid
to the holder of Market Common Stock in respect of which such deduction and
withholding was made by Peoples.
1.08 DISSENTING SHARES. Notwithstanding anything in this Agreement to
the contrary, the shares of Market Common Stock that are outstanding immediately
before the Effective Time and which are held by shareholders who shall not have
voted such shares in favor of this Agreement, who shall have delivered to Market
or Peoples a written demand for appraisal of such shares in the manner provided
in Section 1701.85 of the OGCL and who shall have otherwise complied fully with
all of the requirements of Section 1701.85 of the OGCL shall not be converted
into or be exchangeable for the right to receive the consideration provided in
this Agreement; provided, however, that (a) each of such shares (hereinafter
referred to as the "Dissenting Shares") shall nevertheless be cancelled and
extinguished in accordance with this Agreement; (b) the holder of Dissenting
Shares, upon full compliance with the requirements of Section 1701.85 of the
OGCL shall be entitled to payment of the appraised value of such shares in
accordance with the provisions of Section 1701.85 of the OGCL; and (c) in the
event (i) any holder of Dissenting Shares shall subsequently withdraw such
holder's demand for appraisal of such shares after the Effective Time or shall
fail to establish such holder's entitlement to appraisal rights in accordance
with Section 1701.85 of the OGCL, or (ii) any holder of Dissenting Shares has
not filed a petition demanding a determination of the value of such shares
within the period provided in Section 1701.85 of the OGCL, such holder shall
forfeit the right to appraisal of such shares and such shares shall thereupon be
deemed to have been converted into and to have become exchangeable for the right
to receive the Per Share Cash Consideration.
1.09 ANTI-DILUTION PROVISIONS. The Exchange Ratio and the Per Share
Stock Consideration shall be subject to appropriate adjustments in the event
that, subsequent to the date of this Agreement but prior to the Effective Time,
the outstanding shares of Peoples Common Stock shall have been increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other like changes in Peoples'
capitalization. Nothing contained herein shall be deemed to permit any action
which may be proscribed by this Agreement.
1.10 ADDITIONAL ACTIONS. If at any time after the Effective Time the
Surviving Corporation shall consider that any further assignments or assurances
in law or any other acts are necessary or desirable to (i) vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation its rights, title
or interest in, to or under any of the rights, properties or assets of Market
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger, or (ii) otherwise carry out the purposes of this
Agreement, Market and its proper officers and directors shall be deemed to have
granted to the Surviving Corporation an irrevocable power of attorney to execute
and deliver all such proper deeds, assignments and assurances in law and to do
all acts necessary or proper to vest, perfect or confirm title to and possession
of such rights, properties or assets in the Surviving Corporation and otherwise
to carry out the purposes of this Agreement; and the proper officers and
directors of the Surviving Corporation are fully authorized in the name of
Market or otherwise to take any and all such action.
1.11 MODIFICATION OF STRUCTURE. Notwithstanding any provision of this
Agreement to the contrary, Peoples, with the prior written consent of Market,
which consent shall not be unreasonably withheld, may elect, subject to the
filing of all necessary applications and the receipt of all required regulatory
approvals, to modify the structure of the transactions contemplated hereby so
long as (i) there are no material adverse federal income tax consequences to the
stockholders of Peoples as a result of such modification, (ii) the consideration
to be paid to holders of Market Common Stock under this Agreement is not thereby
changed in kind or reduced in amount solely because of such modification and
(iii) such modification will not be likely to materially delay or jeopardize
receipt of any required regulatory approvals or impair or prevent the
satisfaction of any conditions to the Closing.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MARKET
References to "Market Disclosure Schedule" shall mean each of the
disclosure schedules required by this Article II, dated as of the date hereof
and referenced to the specific sections and subsections of Article II of this
Agreement, which have been delivered by Market to Peoples. Market and Market
Bank hereby jointly and severally represent and warrant to Peoples and Peoples
Bank as follows as of the date hereof:
2.01. CORPORATE ORGANIZATION.
(a) Market is a corporation duly organized, validly existing and in
good standing under the laws of the State of Ohio. Market has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted and is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed, qualified
or in good standing would not have a material adverse effect on the business,
operations, assets or financial condition of Market and Market Bank taken as a
whole. Market is registered as a thrift holding company under the Home Owners'
Loan Act, as amended ("HOLA"). Market Disclosure Schedule 2.01(a) sets forth
true and complete copies of the Articles of Incorporation and Code of
Regulations of Market and Articles of Incorporation and Constitution of Market
Bank as in effect on the date hereof.
(b) The only direct or indirect subsidiary of Market is Market Bank.
Market Bank (i) is duly organized and is validly existing under the laws of its
jurisdiction of incorporation, (ii) has the corporate power and authority to own
or lease all of its properties and assets and to conduct its business as it is
now being conducted, and (iii) is duly licensed or qualified to do business and
is in good standing in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets owned
or leased by it makes such licensing or qualification necessary, except where
the failure to be so licensed, qualified or in good standing would not have a
material adverse effect on the business, operations, assets or financial
condition of Market and Market Bank taken as a whole. Other than Market Bank,
Market does not own or control, directly or indirectly, greater than a 5% equity
interest in any corporation, company, association, partnership, joint venture or
other entity.
2.02. CAPITALIZATION. The authorized capital stock of Market consists
of 4,000,000 shares of Market Common Stock, of which 1,259,439 are issued and
outstanding and 76,286 shares are held in treasury as of the date hereof, and
1,000,000 shares of preferred stock, of which no shares are issued and
outstanding as of the date hereof. All issued and outstanding shares of capital
stock of Market, and all issued and outstanding shares of capital stock of
Market Bank, have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, except that until payments are
received by Market from the Market ESOP in accordance with the terms of the loan
from Market to the Market ESOP, shares for which payment and money have not been
received are not fully paid and nonassessable. All of the outstanding shares of
capital stock of Market Bank are owned by Market free and clear of any liens,
encumbrances, charges, restrictions or rights of third parties of any kind
whatsoever, and, except for options to purchase 125,558 shares of Market Common
Stock which have been granted pursuant to Market's 1998 Stock Option and
Incentive Plan, and which are outstanding, none of Market or Market Bank has or
is bound by any outstanding subscriptions, options, warrants, calls, commitments
or agreements of any character calling for the transfer, purchase or issuance of
any shares of capital stock of Market or Market Bank or any securities
representing the right to purchase or otherwise receive any shares of such
capital stock or any securities convertible into or representing the right to
purchase or subscribe for any such stock.
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2.03. AUTHORITY; NO VIOLATION.
(a) Subject to the approval of this Agreement and the transactions
contemplated hereby, including the Merger and the merger of Market Bank with
and into Peoples Bank, by the Office of Thrift Supervision ("OTS") and the
Superintendent of Financial Institutions ("Superintendent"), by Market as the
sole shareholder of Market Bank, and by the requisite vote of the Market
shareholders, and subject to the amendment of the Articles of Incorporation
of Market and Market Bank with respect to acquisitions of more than 10% of
the outstanding common shares of Market and Market Bank, (i) each of Market
and Market Bank has all of the requisite corporate power and authority to
enter into this Agreement and to perform all of its obligations hereunder;
(ii) the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action by each of Market and Market Bank; and (iii) this Agreement
is the valid and binding agreement of each of Market and Market Bank,
enforceable against each of Market and Market Bank in accordance with its
terms, (I) subject to applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws of general applicability affecting the
enforcement of creditors' rights generally and the effect of rules of law
governing specific performance, injunctive relief and other equitable
remedies on the enforceability of such documents and (II) except to the
extent such enforceability may be limited by laws relating to safety and
soundness of insured depository institutions as set forth in 12 U.S.C.
Section 1818(b) or by the appointment of a conservator by the FDIC. This
Agreement has been duly executed and delivered by each of Market and Market
Bank.
(b) Subject to the approval of this Agreement and the transactions
contemplated hereby, including the Merger and the merger of Market Bank with
and into Peoples Bank, by the OTS and the Superintendent, by Market as the
sole shareholder of Market Bank, and by the requisite vote of the Market
shareholders, and subject to the amendment of the Articles of Incorporation
of Market and Market Bank with respect to acquisitions of shares of more than
10% of the outstanding common shares of Market and Market Bank, (i) Market
has all of the requisite corporate power and authority to enter into the
Agreement of Merger and to perform all of its obligations thereunder; (ii)
the execution and delivery of the Agreement of Merger and the consummation of
the transactions contemplated thereby have been duly authorized by all
necessary corporate action by Market; and (iii) the Agreement of Merger is
the valid and binding agreement of Market, enforceable against Market in
accordance with its terms, (I) subject to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws of general applicability
affecting the enforcement of creditors' rights generally and the effect of
rules of law governing specific performance, injunctive relief and other
equitable remedies on the enforceability of such documents and (II) except to
the extent such enforceability may be limited by laws relating to safety and
soundness of insured depository institutions as set forth in 12 U.S.C.
Section 1818(b) or by the appointment of a conservator by the FDIC. The
Agreement of Merger has been duly executed and delivered by Market.
(c) Except as disclosed in Market Disclosure Schedule 2.03(c) and
except to the extent of any violation of or conflict with Article Seventh of
the Articles of Incorporation of Market and Article Eighth of the Articles of
Incorporation of Market Bank, none of the execution and delivery of this
Agreement by Market and Market Bank, the execution and delivery of the
Agreement of Merger by Market, the consummation by Market and Market Bank of
the transactions contemplated hereby in accordance with the terms hereof, the
consummation by Market of the transactions contemplated by the Agreement of
Merger in accordance with the terms thereof, compliance by Market with any of
the terms or provisions hereof or compliance by Market with any terms or
provisions of the Agreement of Merger, will (i) violate any provision of the
Articles of Incorporation or other governing instrument, Code of Regulations
or Bylaws of Market or Market Bank, (ii) assuming that the consents and
approvals set forth below are duly obtained, violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to Market or Market Bank or any of their respective properties or
assets, or (iii) violate, conflict with, result in a breach of any provisions
of, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in the creation of any
lien, security interest, charge or other encumbrance upon any of the
respective properties or assets of Market or Market Bank under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to
which Market or Market Bank is a party, or by which any of their respective
properties
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or assets may be bound or affected, except, with respect to (ii) and (iii)
above, such as individually or in the aggregate will not have a material
adverse effect on the business, operations, assets or financial condition of
Market and Market Bank taken as a whole and which will not prevent or delay
the consummation of the transactions contemplated hereby. Except as set forth
in Market Disclosure Schedule 2.03(c) and for consents and approvals of or
filings or registrations with or notices to the Securities and Exchange
Commission ("Commission"), the Secretary of State of the State of Ohio, the
OTS, the Superintendent and the stockholders of Market, no consents or
approvals of or filings or registrations with or notices to any federal,
state, municipal or other governmental or regulatory commission, board,
agency, or non-governmental third party are required on behalf of Market or
Market Bank in connection with (a) the execution and delivery of this
Agreement and the Agreement of Merger by Market and (b) the consummation by
Market and Market Bank of the transactions contemplated hereby or the
consummation by Market of the transactions contemplated by the Agreement of
Merger.
2.04. FINANCIAL STATEMENTS.
(a) Market has previously delivered to Peoples copies of the
consolidated statements of financial condition of Market as of September 30,
1999, 1998 and 1997 and the related consolidated statements of income, changes
in stockholders' equity and cash flows for the years ended September 30, 1999,
1998 and 1997 in each case accompanied by the audit reports of Grant Thornton
LLP, independent public accountants, as well as the unaudited consolidated
statement of financial condition of Market as of June 30, 2000 and the related
unaudited consolidated statement of income, changes in stockholders' equity and
cash flows for the three and nine months ended June 30, 2000 and 1999. The
consolidated statements of financial condition of Market referred to herein
(including the related notes, where applicable), as well as the consolidated
financial statements contained in the reports of Market to be delivered by
Market pursuant to Section 4.05 hereof, fairly present or will fairly present,
as the case may be, the consolidated financial condition of Market as of the
respective dates set forth therein, and the related consolidated statements of
income, changes in stockholders' equity and cash flows (including the related
notes, where applicable) fairly present or will fairly present, as the case may
be, the results of the consolidated operations, changes in stockholders' equity
and cash flows of Market for the respective periods or as of the respective
dates set forth therein (it being understood that Market's interim financial
statements are not audited but reflect all adjustments which are, in the opinion
of Market, necessary for a fair presentation of such financial statements).
(b) Each of the financial statements referred to in this Section 2.04
(including the related notes, where applicable) has been or will be, as the case
may be, prepared in accordance with generally accepted accounting principles
consistently applied during the periods involved. The books and records of
Market and Market Bank are being maintained in material compliance with
applicable legal and accounting requirements and reflect only actual
transactions.
(c) Except to the extent reflected, disclosed or reserved against in
the consolidated financial statements referred to in the first sentence of
Section 2.04(a) or the notes thereto or liabilities incurred since June 30, 2000
in the ordinary course of business and consistent with past practice and except
for obtaining FHLB advances since June 30, 2000, neither Market nor Market Bank
has any obligation or liability, whether absolute, accrued, contingent or
otherwise, material to the business, operations, assets or financial condition
of Market and Market Bank taken as a whole.
2.05. ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) There has not been any material adverse change in the business,
operations, assets or financial condition of Market and Market Bank taken as a
whole since June 30, 2000 other than: (i) any such effect attributable to or
resulting from any change in banking or similar laws, rules or regulations of
general applicability to banks, thrift institutions or their holding companies
or interpretations thereof by courts or governmental authorities; (ii) changes
in generally accepted accounting principles that are generally applicable to the
banking or savings industries; (iii) expenses incurred in connection with the
transactions contemplated hereby; (iv) actions or omissions of a party (or any
of its
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subsidiaries) taken with the prior informed written consent of the other party
or parties in contemplation of the transactions contemplated hereby; or (v)
changes attributable to or resulting from changes in general economic
conditions, including changes in the prevailing level of interest rates. To the
best knowledge of Market, no fact or condition exists which Market believes will
cause such a material adverse change in the future.
(b) Except as set forth in Market Disclosure Schedule 2.05(b), neither
Market nor Market Bank has taken or permitted any of the actions set forth in
Section 4.02 hereof between June 30, 2000 and the date hereof.
2.06. LEGAL PROCEEDINGS. Except as disclosed in Market Disclosure
Schedule 2.06, neither Market nor Market Bank is a party to any, and there are
no pending or, to the best knowledge of Market, threatened legal,
administrative, arbitration or other proceedings, claims, actions or
governmental investigations of any nature against Market or Market Bank, except
such proceedings, claims, actions or governmental investigations which in the
good faith judgment of Market will not have a material adverse effect on the
business, operations, assets or financial condition of Market and Market Bank
taken as a whole. Neither Market nor Market Bank is a party to any order,
judgment or decree which materially adversely affects the business, operations,
assets or financial condition of Market and Market Bank taken as a whole.
2.07. TAXES AND TAX RETURNS.
(a) Except to the extent permitted extensions have been filed, each of
Market and Market Bank, or the affiliated, combined or unitary group (within the
meaning of applicable federal income tax law) of which any such corporation is
or was a member, as the case may be (individually, an "Affiliate" and
collectively, "Affiliates"), has duly filed (and until the Effective Time will
so file) all returns, declarations, reports, information returns and statements
("Returns") required to be filed or sent by or with respect to them in respect
of any Taxes (as hereinafter defined), and has duly paid (and until the
Effective Time will so pay) all Taxes due and payable other than Taxes or other
charges which (i) are being contested in good faith (and disclosed in writing to
Peoples) and (ii) have not finally been determined. Market and its Affiliates
have established (and until the Effective Time will establish) on their books
and records reserves that are adequate for the payment of all Taxes not yet due
and payable, whether or not disputed, accrued or applicable, which are
attributable to tax periods ending on or before the Effective Time. Except as
set forth in Market Disclosure Schedule 2.07(a), (i) the federal income tax
returns of Market and its Affiliates for all taxable years through and including
the year ended December 31, 1996, have been examined by the Internal Revenue
Service ("IRS") (or are closed to examination due to the expiration of the
applicable statute of limitations), and (ii) the Ohio income tax returns of
Market and its Affiliates for all taxable years through and including the year
ended December 31, 1996, have been examined by applicable authorities (or are
closed to examination due to the expiration of the statute of limitations), and
in the case of both (i) and (ii) no deficiencies were asserted as a result of
such examinations which have not been resolved and paid in full. There are no
audits or other administrative or court proceedings presently pending nor any
other disputes pending, or claims asserted for, Taxes or assessments upon Market
or any of its Affiliates, nor has Market or any of its Affiliates given any
currently outstanding waivers or comparable consents regarding the application
of the statute of limitations with respect to any Taxes or Returns.
(b) Except as set forth in Market Disclosure Schedule 2.07(b), none of
Market or any of its Affiliates (i) has requested any extension of time within
which to file any Return which Return has not since been filed, (ii) is a party
to any agreement providing for the allocation or sharing of Taxes, (iii) is
required to include in income any adjustment pursuant to Section 481(a) of the
Code, by reason of a voluntary change in accounting method initiated by Market
or any Affiliate (nor does Market have any knowledge that the IRS has proposed
any such adjustment or change of accounting method), or (iv) has filed a consent
pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of
the Code apply.
(c) For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment (including
withholding, payroll and employment taxes
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required to be withheld with respect to income paid to employees), excise,
estimated, severance, stamp, occupation, property or other taxes, customs
duties, fees, assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any taxing authority (domestic or foreign) upon Market or any of its Affiliates.
2.08. EMPLOYEE BENEFIT PLANS.
(a) Each employee benefit plan or arrangement of Market or Market Bank
which is an "employee benefit plan" within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), is listed
in Market Disclosure Schedule 2.08(a) ("Market Plans"). Market has previously
furnished to Peoples true and complete copies of each of the Market Plans
together with (i) the most recent actuarial and financial reports prepared with
respect to any qualified Market Plans, (ii) the most recent annual reports filed
with any government agency, and (iii) all rulings and determination letters and
any open requests for rulings or letters that pertain to any qualified Market
Plans.
(b) Each Market Plan has been operated in compliance in all material
respects with the applicable provisions of ERISA, the Code, all regulations,
rulings and announcements promulgated or issued thereunder, and all other
applicable governmental laws and regulations.
(c) Neither Market nor Market Bank participates in or has incurred any
liability under Section 4201 of ERISA for a complete or partial withdrawal from
a multi-employer plan (as such term is defined in ERISA).
(d) The present value of all accrued benefits under each of the Market
Plans subject to Title IV of ERISA did not, as of the latest valuation date of
each such Plan, exceed the then current value of the assets of such plans
allocable to such accrued benefits, based upon the actuarial and accounting
assumptions currently utilized for such Market Plans.
(e) Neither Market nor Market Bank, nor, to the best knowledge of
Market, any trustee, fiduciary or administrator of a Market Plan or any trust
created thereunder, has engaged in a "prohibited transaction," as such term is
defined in Section 4975 of the Code, which could subject Market or Market Bank,
or, to the best knowledge of Market, any trustee, fiduciary or administrator
thereof, to the tax or penalty on prohibited transactions imposed by said
Section 4975.
(f) Except as disclosed on Market Disclosure Schedule 2.08(f), no
Market Plan or any trust created thereunder has been terminated, nor have there
been any "reportable events" with respect to any Market Plan, as that term is
defined in Section 4043(b) of ERISA.
(g) No Market Plan or any trust created thereunder has incurred any
"accumulated funding deficiency," as such term is defined in Section 302 of
ERISA.
(h) Each of the Market Plans which is intended to be a qualified plan
within the meaning of Section 401(a) of the Code has been determined by the IRS
to be so qualified, and Market is not aware of any fact or circumstance which
would adversely affect the qualified status of any such Plan.
2.09. SECURITIES DOCUMENTS AND REGULATORY REPORTS.
(a) Market has previously delivered or made available to Peoples a
complete copy of each final registration statement, prospectus, annual,
quarterly or current report and definitive proxy statement or other
communication (other than general advertising materials) filed pursuant to the
Securities Act of 1933, as amended ("1933 Act"), or the Securities Exchange Act
of 1934, as amended ("1934 Act"), or mailed by Market to its stockholders as a
class since January 1, 1997, and each such final registration statement,
prospectus, annual, quarterly or current
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report and definitive proxy statement or other communication, as of its date,
complied in all material respects with all applicable statutes, rules and
regulations and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading; provided that information as of a later date
shall be deemed to modify information as of an earlier date.
(b) Market and Market Bank have duly filed with the Superintendent, the
OTS and the FDIC in correct form the monthly, quarterly and annual reports
required to be filed under applicable laws and regulations, and Market has
delivered or made available to Peoples accurate and complete copies of such
reports. Market Disclosure Schedule 2.09(b) lists all examinations of Market or
Market Bank conducted by the applicable thrift regulatory authorities since
January 1, 1997 and the dates of any responses thereto submitted by Market. In
connection with the most recent examinations of Market or Market Bank by the
applicable thrift regulatory authorities, neither Market nor Market Bank was
required to correct or change any action, procedure or proceeding which Market
or Market Bank believes has not been now corrected or changed as required.
2.10. MARKET INFORMATION. None of the information relating to Market
and Market Bank to be provided by Market or Market Bank for use in (i) the
Registration Statement on Form S-4 to be filed by Peoples in connection with the
issuance of shares of Peoples Common Stock pursuant to the Merger, as amended or
supplemented (or on any successor or other appropriate form) ("Form S-4"), will,
at the time the Form S-4 becomes effective, contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (ii) the proxy statement/prospectus contained in the Form S-4,
as amended or supplemented, and to be delivered to stockholders of Market in
connection with the solicitation of their approval of this Agreement, the
Agreement of Merger and the transactions contemplated hereby and thereby ("Proxy
Statement/Prospectus"), as of the date(s) such Proxy Statement/Prospectus is
mailed to stockholders of Market and up to and including the date(s) of the
meeting of stockholders to which such Proxy Statement/Prospectus relates, will
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, provided that information as of a later
date shall be deemed to modify information as of an earlier date.
2.11. COMPLIANCE WITH APPLICABLE LAW.
(a) Each of Market and Market Bank has all permits, licenses,
certificates of authority, orders and approvals of, and has made all filings,
applications and registrations with, federal, state, local and foreign
governmental or regulatory bodies that are required in order to permit it to
carry on its business as it is presently being conducted and the absence of
which could have a material adverse effect on the business, operations, assets
or financial condition of Market and Market Bank taken as a whole; all such
permits, licenses, certificates of authority, orders and approvals are in full
force and effect; and to the best knowledge of Market and Market Bank, no
suspension or cancellation of any of the same is threatened.
(b) Neither Market nor Market Bank is in violation of its respective
Articles of Incorporation or other governing instrument, Code of Regulations or
Bylaws, or of any applicable federal, state or local law or ordinance or any
order, rule or regulation of any federal, state, local or other governmental
agency or body (including, without limitation, all banking, securities,
municipal securities, safety, health, zoning, anti-discrimination, antitrust,
and wage and hour laws, ordinances, orders, rules and regulations), or in
default with respect to any order, writ, injunction or decree of any court, or
in default under any order, license, regulation or demand of any governmental
agency, any of which violations or defaults could have a material adverse effect
on the business, operations, assets or financial condition of Market and Market
Bank taken as a whole; and neither Market nor Market Bank has received any
notice or communication from any federal, state or local governmental authority
asserting that Market or Market Bank is in violation of any of the foregoing
which could have a material adverse effect on the business, operations, assets
or financial condition of Market and Market Bank taken as a whole. Neither
Market nor Market Bank is subject to any regulatory or supervisory cease and
desist order, agreement, written directive, memorandum of understanding or
written
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commitment (other than those of general applicability to all savings
associations issued by governmental authorities), and neither of them has
received any written communication requesting that they enter into any of the
foregoing.
2.12. DEPOSIT INSURANCE AND OTHER REGULATORY MATTERS.
(a) The deposit accounts of Market Bank are insured by the Savings
Association Insurance Fund administered by the FDIC to the maximum extent
permitted by the Federal Deposit Insurance Act, as amended ("FDIA"), and Market
Bank has paid all premiums and assessments required by the FDIA and the
regulations thereunder.
(b) Market Bank is a member in good standing of the Federal Home Loan
Bank ("FHLB") of Cincinnati and owns the requisite amount of stock in the FHLB
of Cincinnati.
(c) Market Bank is a "qualified thrift lender," as such term is defined
in the HOLA and the regulations thereunder.
(d) Market Bank has at all times qualified as a "domestic building and
loan association," as such term is defined in Section 7701(a)(19) of the Code,
for purposes of Section 593 of the Code.
2.13. CERTAIN CONTRACTS.
(a) Except as disclosed in Market Disclosure Schedule 2.13(a), neither
Market nor Market Bank is a party to, receives, or is obligated to pay benefits
under, (i) any agreement, arrangement, commitment, indenture or other instrument
relating to the borrowing of money by Market or Market Bank or the guarantee by
Market or Market Bank of any obligation, (ii) any agreement, arrangement or
commitment relating to the employment of a consultant or the employment,
election or retention in office of any present or former director or officer of
Market or Market Bank, (iii) any contract, agreement or understanding with a
labor union, (iv) any agreement, arrangement or understanding pursuant to which
any payment (whether of severance pay or otherwise) became or may become due to
any director, officer or employee of Market or Market Bank upon execution of
this Agreement or upon or following consummation of the transactions
contemplated by this Agreement (either alone or in connection with the
occurrence of any additional acts or events), (v) any agreement, arrangement or
understanding to which Market or Market Bank is a party which limits the freedom
of Market or Market Bank to compete in any line of business or with any person,
(vi) any assistance agreement, supervisory agreement, memorandum of
understanding, consent order, cease and desist order or condition of any
regulatory order or decree with or by the OTS, the Superintendent, the FDIC or
any other regulatory agency, (vii) any other agreement, arrangement or
understanding which would be required to be filed as an exhibit to Market's
Annual Report on Form 10-K (or Form 10-KSB) under the 1934 Act and which has not
been so filed, or (viii) any other agreement, arrangement or understanding to
which Market or Market Bank is a party and which is material to the business,
operations, assets or financial condition of Market and Market Bank taken as a
whole (excluding loan agreements or agreements relating to deposit accounts), in
each of the foregoing cases whether written or oral.
(b) Neither Market nor Market Bank is in default or in non-compliance,
which default or non-compliance would have a material adverse effect on the
business, operations, assets or financial condition of Market and Market Bank
taken as a whole or the transactions contemplated hereby, under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party, whether entered into in the ordinary course of business
or otherwise and whether written or oral, and there has not occurred any event
that with the lapse of time or the giving of notice, or both, would constitute
such a default or non-compliance.
2.14. PROPERTIES AND INSURANCE.
(a) All real and material personal property owned by Market or Market
Bank or presently used by either of them in their respective business is in an
adequate condition (ordinary wear and tear excepted) and is sufficient to
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carry on the business of Market and Market Bank in the ordinary course of
business consistent with their past practices. Market and Market Bank have good
and, as to owned real property, marketable title to all material assets and
properties, whether real or personal, tangible or intangible, reflected in
Market's consolidated statement of financial condition as of June 30, 2000, or
owned and acquired subsequent thereto (except to the extent that such assets and
properties have been disposed of for fair value in the ordinary course of
business since June 30, 2000), subject to no encumbrances, liens, mortgages,
security interests or pledges, except (i) those items that secure liabilities
that are reflected in said consolidated statement of financial condition or the
notes thereto or have been incurred in the ordinary course of business after the
date of such consolidated statement of financial condition, (ii) statutory liens
for amounts not yet delinquent or which are being contested in good faith, (iii)
such encumbrances, liens, mortgages, security interests, pledges and title
imperfections that are not in the aggregate material to the business,
operations, assets or financial condition of Market and Market Bank taken as a
whole, and (iv) with respect to owned real property, title imperfections noted
in title reports prior to the date hereof. Neither Market nor Market Bank is a
party to any lease of real property or a party to any lease of personal property
material to the business or financial condition of Market or Market Bank.
(b) The business operations and all insurable properties and assets of
Market and Market Bank are insured for their benefit against all risks which, in
the reasonable judgment of the management of Market, should be insured against,
in each case under valid, binding and enforceable policies or bonds issued by
insurers of recognized responsibility, in such amounts with such deductibles and
against such risks and losses as are in the opinion of the management of Market
adequate for the business engaged in by Market and Market Bank. As of the date
hereof, neither Market nor Market Bank has received any notice of cancellation
or notice of a material amendment of any such insurance policy or bond or is in
default under such policy or bond, no coverage thereunder is being disputed and
all material claims thereunder have been filed in a timely fashion.
2.15. ENVIRONMENTAL MATTERS. For purposes of this Agreement, the
following terms shall have the indicated meaning:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any
governmental entity relating to (1) the protection, preservation or
restoration of the environment (including, without limitation, air, water
vapor, surface water, groundwater, drinking water supply, surface soil,
subsurface soil, plant and animal life or any other natural resource), and/or
(2) the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances. The term Environmental Law includes without limitation (1) the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. Section 9601, ET SEQ; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. Section 6901, ET SEQ; the Clean Air Act,
as amended, 42 U.S.C. Section 7401, ET SEQ; the Federal Water Pollution
Control Act, as amended, 33 U.S.C. Section 1251, ET SEQ; the Toxic Substances
Control Act, as amended, 15 U.S.C. Section 9601, ET SEQ; the Emergency
Planning and Community Right to Know Act, 42 U.S.C. Section 11001, ET SEQ;
the Safe Drinking Water Act, 42 U.S.C. Section 300f, ET SEQ; and all
comparable state and local laws, and (2) any common law (including without
limitation common law that may impose strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Substance.
"Hazardous Substance" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law, whether by type or by
quantity, including any regulated material containing any such substance as a
component. Hazardous Substances include without limitation petroleum (including
crude oil or any fraction thereof), asbestos, radioactive material, and
polychlorinated biphenyls.
For purposes of this Section 2.15, "Loan Portfolio Properties and Other
Properties Owned" means those properties owned, leased or operated by Market or
Market Bank and those properties which serve as collateral for loans owned by
Market or Market Bank.
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(a) To the best knowledge of Market and Market Bank, neither Market nor
Market Bank has been or is in violation of or liable under any Environmental
Law, except any such violations or liabilities which would not singly or in the
aggregate have a material adverse effect on the business, operations, assets or
financial condition of Market and Market Bank taken as a whole.
(b) To the best knowledge of Market and Market Bank, none of the Loan
Portfolio Properties and Other Properties Owned by Market or Market Bank has
been, during the period of ownership by Market or Market Bank, respectively, or
is in violation of or liable under any Environmental Law, except any such
violations or liabilities which singly or in the aggregate would not have a
material adverse effect on the business, operations, assets or financial
condition of Market and Market Bank taken as a whole.
(c) To the best knowledge of Market and Market Bank, there are no
actions, suits, demands, notices, claims, investigations or proceedings pending
or threatened relating to the liability of the Loan Portfolio Properties and
Other Properties Owned by Market or Market Bank under any Environmental Law,
including without limitation any notices, demand letters or requests for
information from any federal or state environmental agency relating to any such
liabilities under or violations of Environmental Law, except such which would
not have or result in a material adverse effect on the business, operations,
assets or financial condition of Market and Market Bank taken as a whole.
2.16. ALLOWANCE FOR LOAN LOSSES AND REAL ESTATE OWNED. The allowance
for loan losses reflected on Market's consolidated statements of financial
condition included in the consolidated financial statements referred to in
Section 2.04 hereof is, or will be in the case of subsequently delivered
financial statements, as the case may be, in the opinion of Market's management
adequate in all material respects as of their respective dates.
2.17. MINUTE BOOKS. Since January 1, 1997, the minute books of Market
and Market Bank contain in all material respects complete and accurate records
of all meetings and other corporate action held or taken by their respective
Boards of Directors (including committees of their respective Boards of
Directors) and stockholders except records of meetings related to the
consideration of the transactions related to this Agreement.
2.18. AFFILIATE TRANSACTIONS.
(a) Except as disclosed in Market Disclosure Schedule 2.18(a) or in
Market's proxy statements, and except as specifically contemplated by this
Agreement, since January 1, 1997, neither Market nor Market Bank has engaged in
or agreed to engage in (whether in writing or orally) any transaction with any
"affiliated person" or "affiliate" of Market Bank, as such terms are defined in
12 C.F.R. Section 561.5 and 12 C.F.R. Section 563.41, respectively.
(b) Market Disclosure Schedule 2.18(b) sets forth the name and number
of shares of Market Common Stock owned as of the date hereof beneficially or of
record by any persons Market considers to be affiliates of Market ("Market
Affiliates") as that term is defined for purposes of Rule 145 under the 1933
Act.
2.19. BROKER FEES. Except as set forth in Market Disclosure Schedule
2.19 and except for dealings with and obligations to McDonald Investments, Inc.,
none of Market, Market Bank or any of the respective directors or officers of
such companies has employed any consultant, broker or finder or incurred any
liability for any consultant's, broker's or finder's fees or commissions in
connection with any of the transactions contemplated by this Agreement.
2.20. DISCLOSURES. No representation or warranty contained in Article
II of this Agreement, and no statement contained in the Market Disclosure
Schedules, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements herein or therein not
misleading.
2.21 STOCK OWNERSHIP. Except as set forth in Market Disclosure Schedule
2.21, neither Market nor an "affiliate" or "associate" of Market, as the terms
"affiliate" and "associate" are defined in Section 203(c) of the DGCL,
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is the "owner," as the term "owner" is defined in Section 203(c) of the DGCL, of
any of the outstanding shares of Peoples Common Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PEOPLES
References to "Peoples Disclosure Schedule" shall mean each of the
disclosure schedules required by this Article III, dated as of the date hereof
and referenced to the specific sections and subsections of Article III of this
Agreement, which have been delivered by Peoples to Market. Peoples hereby
represents and warrants to Market as follows as of the date hereof:
3.01. CORPORATE ORGANIZATION.
(a) Peoples is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Peoples has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted and is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed, qualified
or in good standing would not have a material adverse effect on the business,
operations, assets or financial condition of Peoples and Peoples Community Bank
("Peoples Bank") taken as a whole. Peoples is registered as a thrift holding
company under the HOLA. Peoples Disclosure Schedule 3.01(a) sets forth true and
complete copies of the Certificate of Incorporation or other governing
instrument and Bylaws of Peoples and Peoples Bank as in effect on the date
hereof.
(b) The only direct or indirect subsidiary of Peoples is Peoples Bank.
Peoples Bank (i) is duly organized and validly existing or in good standing
under the laws of its jurisdiction of incorporation, (ii) has the corporate
power and authority to own or lease all of its properties and assets and to
conduct its business as it is now being conducted, and (iii) is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed, qualified
or in good standing would not have a material adverse effect on the business,
operations, assets or financial condition of Peoples and Peoples Bank taken as a
whole. Other than Peoples Bank, Peoples does not own or control, directly or
indirectly, greater than a 5% equity interest in any corporation, company,
association, partnership, joint venture or other entity.
3.02. CAPITALIZATION. The authorized capital stock of Peoples consists
of 10,000,000 shares of Peoples Common Stock, of which 1,977,760 are issued and
outstanding and no shares are held in treasury as of the date hereof, and
1,000,000 shares of preferred stock, par value $.01 per share, of which no
shares are issued and outstanding as of the date hereof. All issued and
outstanding shares of capital stock of Peoples, and all issued and outstanding
shares of capital stock of Peoples Bank, have been duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights. All of
the outstanding shares of capital stock of Peoples Bank are owned by Peoples
free and clear of any liens, encumbrances, charges, restrictions or rights of
third parties of any kind whatsoever, and none of Peoples or Peoples Bank has or
is bound by any outstanding subscriptions, options, warrants, calls, commitments
or agreements of any character calling for the transfer, purchase or issuance of
any shares of capital stock of Peoples or Peoples Bank or any securities
representing the right to purchase or otherwise receive any shares of such
capital stock or any securities convertible into or representing the right to
purchase or subscribe for any such stock.
3.03. AUTHORITY; NO VIOLATION.
(a) Subject to the approval of this Agreement and the transactions
contemplated hereby, including the Merger and the merger of Market Bank with and
into Peoples Bank, by the OTS and the Superintendent, by Peoples
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as the sole shareholder of Peoples Bank, and by the requisite vote of the
Peoples' shareholders, (i) each of Peoples and Peoples Bank has all of the
requisite corporate power and authority to enter into this Agreement and to
perform all of its obligations hereunder; (ii) the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action by each of
Peoples and Peoples Bank; and (iii) this Agreement is the valid and binding
agreement of each of Peoples and Peoples Bank, enforceable against each of
Peoples and Peoples Bank in accordance with its terms, (I) subject to
applicable bankruptcy, insolvency, reorganization and moratorium laws and
other laws of general applicability affecting the enforcement of creditors'
rights generally and the effect of rules of law governing specific
performance, injunctive relief and other equitable remedies on the
enforceability of such documents and (II) except to the extent such
enforceability may be limited by laws relating to safety and soundness of
insured depository institutions as set forth in 12 U.S.C. Section 1818(b) or
by the appointment of a conservator by the FDIC. This Agreement has been duly
executed and delivered by each of Peoples and Peoples Bank.
(b) Subject to the approval of this Agreement and the transactions
contemplated hereby, including the Merger and the merger of Market Bank with
and into Peoples Bank, by the OTS and the Superintendent, by Peoples as the
sole shareholder of Peoples Bank, and by the requisite vote of the Peoples'
shareholders,(i) Peoples has all of the requisite corporate power and
authority to enter into the Agreement of Merger and to perform all of its
obligations thereunder; (ii) the execution and delivery of the Agreement of
Merger and the consummation of the transactions contemplated thereby have
been duly authorized by all necessary corporate action by Peoples; and (iii)
the Agreement of Merger is the valid and binding agreement of Peoples,
enforceable against Peoples in accordance with its terms, (I) subject to
applicable bankruptcy, insolvency, reorganization and moratorium laws and
other laws of general applicability affecting the enforcement of creditors'
rights generally and the effect of rules of law governing specific
performance, injunctive relief and other equitable remedies on the
enforceability of such documents and (II) except to the extent such
enforceability may be limited by laws relating to safety and soundness of
insured depository institutions as set forth in 12 U.S.C. Section 1818(b) or
by the appointment of a conservator by the FDIC. The Agreement of Merger has
been duly executed and delivered by Peoples.
(c) Except as disclosed in Peoples Disclosure Schedule 3.03(c), none of
the execution and delivery of this Agreement by Peoples and Peoples Bank, the
execution and delivery of the Agreement of Merger by Peoples, the consummation
by Peoples and Peoples Bank of the transactions contemplated hereby in
accordance with the terms hereof, the consummation by Peoples of the
transactions contemplated by the Agreement of Merger in accordance with the
terms thereof, compliance by Peoples with any of the terms or provisions hereof
or compliance by Peoples with any terms or provisions of the Agreement of
Merger, will (i) violate any provision of the Certificate of Incorporation or
other governing instrument, or Bylaws of Peoples or Peoples Bank, (ii) assuming
that the consents and approvals set forth below are duly obtained, violate any
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to Peoples or Peoples Bank or any of their respective
properties or assets, or (iii) violate, conflict with, result in a breach of any
provisions of, constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or other encumbrance upon any of the respective
properties or assets of Peoples or Peoples Bank under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which Peoples or
Peoples Bank is a party, or by which any of their respective properties or
assets may be bound or affected, except, with respect to (ii) and (iii) above,
such as individually or in the aggregate will not have a material adverse effect
on the business, operations, assets or financial condition of Market and Market
Bank taken as a whole and which will not prevent or delay the consummation of
the transactions contemplated hereby. Except as set forth in Peoples Disclosure
Schedule 3.03(c) and for consents and approvals of or filings or registrations
with or notices to the Commission, the Secretary of State of the State of Ohio,
the OTS, the Superintendent and the stockholders of Peoples, no consents or
approvals of or filings or registrations with or notices to any federal, state,
municipal or other governmental or regulatory commission, board, agency, or
non-governmental third party are required on behalf of Peoples or Peoples Bank
in connection with (a) the execution and delivery of this Agreement and the
Agreement of Merger by Peoples and (b) the consummation by
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Peoples and Peoples Bank of the transactions contemplated hereby or the
consummation by Peoples of the transactions contemplated by the Agreement of
Merger.
(d) Neither Peoples nor Peoples Bank is in default or in
non-compliance, which default or non-compliance would have a material adverse
effect on the business, operations, assets or financial condition of Peoples and
Peoples Bank taken as a whole or the transactions contemplated hereby, under any
contract, agreement, commitment, arrangement, lease, insurance policy or other
instrument to which it is a party, whether entered into in the ordinary course
of business or otherwise and whether written or oral, and there has not occurred
any event that with the lapse of time or the giving of notice, or both, would
constitute such a default or non-compliance.
3.04. FINANCIAL STATEMENTS.
(a) Peoples has previously delivered to Market copies of the unaudited
consolidated statement of financial condition of Peoples as of June 30, 2000 and
the related unaudited consolidated statements of income, changes in
stockholders' equity and cash flows for the three and six months ended June 30,
2000 and 1999. The consolidated statements of financial condition of Peoples
referred to herein (including the related notes, where applicable), as well as
the consolidated financial statements contained in the reports of Peoples to be
delivered by Peoples pursuant to Section 4.04 hereof, fairly present or will
fairly present, as the case may be, the consolidated financial condition of
Peoples as of the respective dates set forth therein, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows (including the related notes, where applicable) fairly present or will
fairly present, as the case may be, the results of the consolidated operations,
changes in stockholders' equity and cash flows of Peoples for the respective
periods or as of the respective dates set forth therein (it being understood
that Peoples' interim financial statements are not audited and are not prepared
with related notes but reflect all adjustments which are, in the opinion of
Peoples, necessary for a fair presentation of such financial statements).
(b) Each of the financial statements referred to in this Section 3.04
(including the related notes, where applicable) has been or will be, as the case
may be, prepared in accordance with generally accepted accounting principles
consistently applied during the periods involved. The books and records of
Peoples and Peoples Bank are being maintained in material compliance with
applicable legal and accounting requirements and reflect only actual
transactions.
(c) Except to the extent reflected, disclosed or reserved against in
the consolidated financial statements referred to in the first sentence of this
Section 3.04 or the notes thereto or liabilities incurred since June 30, 2000 in
the ordinary course of business and consistent with past practice, neither of
Peoples nor Peoples Bank has any obligation or liability, whether absolute,
accrued, contingent or otherwise, material to the business, operations, assets
or financial condition of Peoples and Peoples Bank taken as a whole.
3.05. ABSENCE OF CERTAIN CHANGES OR EVENTS. There has not been any
material adverse change in the business, operations, assets or financial
condition of Peoples and Peoples Bank taken as a whole since June 30, 2000,
other than: (i) any such effect attributable to or resulting from any change in
banking or similar laws, rules or regulations of general applicability to banks,
thrift institutions or their holding companies or interpretations thereof by
courts or governmental authorities; (ii) changes in generally accepted
accounting principles that are generally applicable to the banking or savings
industries; (iii) expenses incurred in connection with the transactions
contemplated hereby; (iv) actions or omissions of a party (or any of its
subsidiaries) taken with the prior informed written consent of the other party
or parties in contemplation of the transactions contemplated hereby; or (v)
changes attributable to or resulting from changes in general economic
conditions, including changes in the prevailing level of interest rates. To the
best knowledge of Peoples, no fact or condition exists which Peoples believes
will cause such a material adverse change in the future.
3.06. LEGAL PROCEEDINGS. Neither Peoples nor Peoples Bank is a party to
any, and there are no pending or, to the best knowledge of Peoples, threatened
legal, administrative, arbitration or other proceedings, claims, actions or
governmental investigations of any nature against Peoples or Peoples Bank,
except such proceedings, claims, actions
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or governmental investigations which in the good faith judgment of Peoples will
not have a material adverse effect on the business, operations, assets or
financial condition of Peoples and Peoples Bank taken as a whole. Neither
Peoples nor Peoples Bank is a party to any order, judgment or decree which
materially adversely affects the business, operations, assets or financial
condition of Peoples and Peoples Bank taken as a whole.
3.07. TAXES AND TAX RETURNS.
(a) Each of Peoples and Peoples Bank, or the affiliated, combined or
unitary group (within the meaning of applicable federal income tax law) of which
any such corporation is or was a member, as the case may be (individually, an
"Affiliate" and collectively, "Affiliates"), has duly filed (and until the
Effective Time will so file) all returns, declarations, reports, information
returns and statements ("Returns") required to be filed or sent by or with
respect to them in respect of any Taxes, and has duly paid (and until the
Effective Time will so pay) all Taxes due and payable other than Taxes or other
charges which (i) are being contested in good faith (and disclosed in writing to
Market and (ii) have not finally been determined. Peoples and its Affiliates
have established (and until the Effective Time will establish) on their books
and records reserves that are adequate for the payment of all Taxes not yet due
and payable, whether or not disputed, accrued or applicable. Except as set forth
in Peoples Disclosure Schedule 3.07(a), (i) the federal income tax returns of
Peoples and its Affiliates have been examined by the IRS (or are closed to
examination due to the expiration of the applicable statute of limitations), and
(ii) the Ohio income tax returns of Peoples and its Affiliates have been
examined by applicable authorities (or are closed to examination due to the
expiration of the statute of limitations), and in the case of both (i) and (ii)
no deficiencies were asserted as a result of such examinations which have not
been resolved and paid in full. There are no audits or other administrative or
court proceedings presently pending nor any other disputes pending, or claims
asserted for, Taxes or assessments upon Peoples or any of its Affiliates, nor
has Peoples or any of its Affiliates given any currently outstanding waivers or
comparable consents regarding the application of the statute of limitations with
respect to any Taxes or Returns.
(b) Except as set forth in Peoples Disclosure Schedule 3.07(b), none of
Peoples or any of its Affiliates (i) has requested any extension of time within
which to file any Return which Return has not since been filed, (ii) is a party
to any agreement providing for the allocation or sharing of Taxes, (iii) is
required to include in income any adjustment pursuant to Section 481(a) of the
Code, by reason of a voluntary change in accounting method initiated by Peoples
or any Affiliate (nor does Peoples have any knowledge that the IRS has proposed
any such adjustment or change of accounting method), or (iv) has filed a consent
pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of
the Code apply.
3.08. SECURITIES DOCUMENTS AND REGULATORY REPORTS.
(a) Peoples has previously delivered or made available to Market a
complete copy of each final registration statement, prospectus, annual,
quarterly or current report and definitive proxy statement or other
communication (other than general advertising materials) filed pursuant to the
1933 Act or the 1934 Act or mailed by Peoples to its stockholders as a class
since September 30, 1999, and each such final registration statement,
prospectus, annual, quarterly or current report and definitive proxy statement
or other communication, as of its date, complied in all material respects with
all applicable statutes, rules and regulations and did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading; provided
that information as of a later date shall be deemed to modify information as of
an earlier date.
(b) Peoples and Peoples Bank have duly filed with the OTS and the FDIC
in correct form the monthly, quarterly and annual reports required to be filed
under applicable laws and regulations, and Peoples has delivered or made
available to Market accurate and complete copies of such reports. Peoples
Disclosure Schedule 3.08(b) lists all examinations of Peoples or of Peoples Bank
conducted by the applicable thrift regulatory authorities since January 1, 2000
and the dates of any responses thereto submitted by Peoples. In connection with
the most recent examinations of Peoples or Peoples Bank by the applicable thrift
regulatory authorities, neither Peoples nor Peoples Bank was
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required to correct or change any action, procedure or proceeding which Peoples
or Peoples Bank believes has not been now corrected or changed as required.
3.09. PEOPLES INFORMATION. None of the information relating to Peoples
and Peoples Bank to be contained in (i) the Form S-4 will, at the time the Form
S-4 becomes effective, contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and (ii) the Proxy
Statement/Prospectus, as of the date(s) such Proxy Statement/Prospectus is
mailed to stockholders of Market and Peoples and up to and including the date(s)
of the meeting of stockholders to which such Proxy Statement/Prospectus relates,
will contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, provided that information as of a
later date shall be deemed to modify information as of an earlier date.
3.10. COMPLIANCE WITH APPLICABLE LAW.
(a) Peoples and Peoples Bank have all permits, licenses, certificates
of authority, orders and approvals of, and has made all filings, applications
and registrations with, federal, state, local and foreign governmental or
regulatory bodies that are required in order to permit it to carry on its
business as it is presently being conducted and the absence of which could have
a material adverse effect on the business, operations, assets or financial
condition of Peoples and Peoples Bank taken as a whole; all such permits,
licenses, certificates of authority, orders and approvals are in full force and
effect; and to the best knowledge of Peoples and Peoples Bank, no suspension or
cancellation of any of the same is threatened.
(b) Neither Peoples nor Peoples Bank is in violation of its respective
Certificate of Incorporation or other governing instrument or Bylaws, or of any
applicable federal, state or local law or ordinance or any order, rule or
regulation of any federal, state, local or other governmental agency or body
(including, without limitation, all banking, securities, municipal securities,
safety, health, zoning, anti-discrimination, antitrust, and wage and hour laws,
ordinances, orders, rules and regulations), or in default with respect to any
order, writ, injunction or decree of any court, or in default under any order,
license, regulation or demand of any governmental agency, any of which
violations or defaults could have a material adverse effect on the business,
operations, assets or financial condition of Peoples and Peoples Bank taken as a
whole; and neither Peoples nor Peoples Bank has received any notice or
communication from any federal, state or local governmental authority asserting
that Peoples or Peoples Bank is in violation of any of the foregoing which could
have a material adverse effect on the business, operations, assets or financial
condition of Peoples and Peoples Bank taken as a whole. Neither Peoples nor
Peoples Bank is subject to any regulatory or supervisory cease and desist order,
agreement, written directive, memorandum of understanding or written commitment
(other than those of general applicability to all savings associations issued by
governmental authorities), and none of them has received any written
communication requesting that they enter into any of the foregoing.
3.11. DEPOSIT INSURANCE AND OTHER REGULATORY MATTERS.
(a) The deposit accounts of Peoples Bank are insured by the Savings
Association Insurance Fund administered by the FDIC to the maximum extent
permitted by the FDIA, and Peoples Bank has paid all premiums and assessments
required by the FDIA and the regulations thereunder.
(b) Peoples Bank is a member in good standing of the FHLB of Cincinnati
and owns the requisite amount of stock in the FHLB of Cincinnati.
(c) Peoples Bank is a "qualified thrift lender," as such term is
defined in the HOLA and the regulations thereunder.
(d) Peoples Bank has at all times qualified as a "domestic building and
loan association," as such term is defined in Section 7701(a)(19) of the Code,
for purposes of Section 593 of the Code.
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3.12. PROPERTIES AND INSURANCE.
(a) All real and material personal property owned by Peoples or Peoples
Bank or presently used by either of them in their respective business is in an
adequate condition (ordinary wear and tear excepted) and is sufficient to carry
on the business of Peoples and Peoples Bank in the ordinary course of business
consistent with their past practices. Peoples and Peoples Bank have good and, as
to owned real property, marketable title to all material assets and properties,
whether real or personal, tangible or intangible, reflected in Peoples'
consolidated statement of financial condition as of June 30, 2000, or owned and
acquired subsequent thereto (except to the extent that such assets and
properties have been disposed of for fair value in the ordinary course of
business since June 30, 2000), subject to no encumbrances, liens, mortgages,
security interests or pledges, except (i) those items that secure liabilities
that are reflected in said consolidated statement of financial condition or the
notes thereto or have been incurred in the ordinary course of business after the
date of such consolidated statement of financial condition, (ii) statutory liens
for amounts not yet delinquent or which are being contested in good faith, (iii)
such encumbrances, liens, mortgages, security interests, pledges and title
imperfections that are not in the aggregate material to the business,
operations, assets or financial condition of Peoples and Peoples Bank taken as a
whole, and (iv) with respect to owned real property, title imperfections noted
in title reports prior to the date hereof. Peoples and Peoples Bank as lessees
have the right under valid and subsisting leases to occupy, use, possess and
control all property leased by them in all material respects as presently
occupied, used, possessed and controlled by Peoples and Peoples Bank and the
consummation of the transactions contemplated hereby and by the Agreement of
Merger will not affect any such right.
(b) The business operations and all insurable properties and assets of
Peoples and Peoples Bank are insured for their benefit against all risks which,
in the reasonable judgment of the management of Peoples, should be insured
against, in each case under valid, binding and enforceable policies or bonds
issued by insurers of recognized responsibility, in such amounts with such
deductibles and against such risks and losses as are in the opinion of the
management of Peoples adequate for the business engaged in by Peoples and
Peoples Bank. As of the date hereof, neither Peoples nor Peoples Bank has
received any notice of cancellation or notice of a material amendment of any
such insurance policy or bond or is in default under such policy or bond, no
coverage thereunder is being disputed and all material claims thereunder have
been filed in a timely fashion.
3.13. ENVIRONMENTAL MATTERS.
(a) To the best knowledge of Peoples and Peoples Bank, neither Peoples
nor Peoples Bank has been or is in violation of or liable under any
Environmental Law, except any such violations or liabilities which would not
singly or in the aggregate have a material adverse effect on the business,
operations, assets or financial condition of Peoples and Peoples Bank taken as a
whole.
(b) To the best knowledge of Peoples and Peoples Bank, none of the Loan
Portfolio Properties and Other Properties Owned (as defined hereinafter) by
Peoples or Peoples Bank has been, during the period of ownership by Peoples or
Peoples Bank, respectively, or is in violation of or liable under any
Environmental Law, except any such violations or liabilities which singly or in
the aggregate would not have a material adverse effect on the business,
operations, assets or financial condition of Peoples and Peoples Bank taken as a
whole.
(c) To the best knowledge of Peoples and Peoples Bank, there are no
actions, suits, demands, notices, claims, investigations or proceedings pending
or threatened relating to the liability of the Loan Portfolio Properties and
Other Properties Owned by Peoples or Peoples Bank under any Environmental Law,
including without limitation any notices, demand letters or requests for
information from any federal or state environmental agency relating to any such
liabilities under or violations of Environmental Law, except such which would
not have or result in a material adverse effect on the business, operations,
assets or financial condition of Peoples and Peoples Bank taken as a whole.
For purposes of this Section 3.13, "Loan Portfolio Properties and Other
Properties Owned" means those properties owned, leased or operated by Peoples or
Peoples Bank and those properties which serve as collateral for loans owned by
Peoples or Peoples Bank.
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3.14. ALLOWANCE FOR LOAN LOSSES AND REAL ESTATE OWNED. The allowance
for loan losses reflected on Peoples' consolidated statements of financial
condition included in the consolidated financial statements referred to in
Section 3.04 hereof is, or will be in the case of subsequently delivered
financial statements, as the case may be, in the opinion of Peoples' management
adequate in all material respects as of their respective dates.
3.15. MINUTE BOOKS. Since March 29, 2000, the minute books of Peoples
and Peoples Bank contain in all material respects complete and accurate records
of all meetings and other corporate action held or taken by their respective
Boards of Directors (including committees of their respective Boards of
Directors) and stockholders.
3.16. BROKER FEES. Except as set forth in Peoples Disclosure Schedule
3.16, none of Peoples, Peoples Bank nor any of their directors or officers has
employed any consultant, broker or finder or incurred any liability for any
consultant's, broker's or finder's fees or commissions in connection with any of
the transactions contemplated by this Agreement.
3.17. DISCLOSURES. No representation or warranty contained in Article
III of this Agreement, and no statement contained in the Peoples Disclosure
Schedules, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements herein or therein not
misleading.
3.18. STOCK OWNERSHIP. Except as set forth in Peoples Disclosure
Schedule 3.18, neither Peoples nor any of its "affiliates" or "associates," as
the terms "affiliates" and "associates" are defined in Section 1704.01(C)(1) of
the OGCL, are "beneficial owners," as the term "beneficial owners" is defined in
Section 1704.01(C)(4) of the OGCL, of any of the outstanding shares of Market
Common Stock.
ARTICLE IV
COVENANTS OF THE PARTIES
4.01. CONDUCT OF THE BUSINESS OF MARKET. During the period from the
date hereof to the Effective Time, Market shall, and shall cause Market Bank to,
conduct its businesses and engage in transactions permitted hereunder or only in
the ordinary course and consistent with past practice, except with the prior
written consent of Peoples, which consent shall not be unreasonably withheld.
Market shall use its best efforts to (i) preserve its business organization and
that of Market Bank intact, (ii) keep available to itself and Peoples the
present services of the employees of Market and Market Bank, and (iii) preserve
for itself and Peoples the goodwill of the customers of itself and Market Bank
and others with whom business relationships exist.
4.02. NEGATIVE COVENANTS OF MARKET. Market agrees that from the date
hereof to the Effective Time, except as otherwise approved by Peoples in writing
or as permitted or required by this Agreement, Market will not, nor will Market
permit Market Bank to:
(i) change any provision of the Articles of Incorporation or other
governing instrument, Code of Regulations or Bylaws of Market or Market Bank,
except to amend the Articles of Incorporation of Market to eliminate Article
Seventh and to amend the Articles of Incorporation of Market Bank to eliminate
Article Eighth.
(ii) except for the issuance of Market Common Stock pursuant to the
present terms of stock options which are outstanding as of the date hereof (and
identified on Market Disclosure Schedule 4.02 (ii)), change the number of shares
of its authorized or issued capital stock or issue or grant any option, warrant,
call, commitment, subscription, award, right to purchase or agreement of any
character relating to the authorized or issued capital stock of Market or Market
Bank, or any securities convertible into shares of such capital stock, or split,
combine or reclassify any shares of its capital stock, or redeem or otherwise
acquire any shares of such capital stock;
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(iii) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
the capital stock of Market, except for regular quarterly cash dividends not in
excess of $.08 per share of Market Common Stock; provided, however, Market shall
coordinate the declaration of any dividends in respect of the Market Common
Stock and the record dates and payment dates relating thereto with that of the
Peoples Common Stock, it being the intention of the parties that the holders of
Peoples Common Stock or Market Common Stock shall not receive more than one
dividend, or fail to receive one dividend, for any single calendar quarter with
respect to their shares of Peoples Common Stock and/or Market Common Stock and
any shares of Peoples Common Stock any holder of Market Common Stock receives in
exchange therefor in the Merger.
(iv) grant any severance or termination pay (other than pursuant to
binding contracts of Market in effect on the date hereof and disclosed to
Peoples on Market Disclosure Schedule 2.13(a)), to, or enter into or amend any
employment, consulting or compensation agreement with, any of its directors,
officers or employees except that, with respect to the employment agreements by
and between Market Bank and each of Julie M. Bertsch and Jane F. Gibson, the
Board of Directors of Market Bank may take affirmative action to renew such
agreements for a one year term expiring March 31, 2002 only after a review of
the performance of Ms. Bertsch or Ms.Gibson, as applicable, in March 2001 as
provided in Section 1 of each of such agreements; or award any increase in
compensation or benefits to its directors, officers or employees, except, in the
case of officers or employees, an increase in compensation not in excess of the
cost of living index for the year ended December 31, 1999 and except bonuses
through December 31, 2000 consistent with amounts accrued for the six months
ended June 30, 2000;
(v) enter into or modify (except as may be required by applicable law
or as may be required by Section 4.13(c) hereof, with the prior written consent
of Peoples, which consent shall not be unreasonably withheld) any pension,
retirement, stock option, stock purchase, stock grant, stock appreciation right,
savings, profit sharing, deferred compensation, consulting, bonus, group
insurance or other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement related thereto, in respect of any of its
directors, officers or employees; or make any contributions to the Market ESOP
or any other defined contribution plan or any defined benefit pension or
retirement plan other than in the ordinary course of business consistent with
past practice;
(vi) sell or dispose of any significant assets or incur any significant
liabilities other than in the ordinary course of business consistent with past
practices and policies and other than obtaining FHLB advances, or acquire in any
manner whatsoever (other than to realize upon collateral for a defaulted loan)
any business or entity;
(vii) make any capital expenditures in excess of $50,000 in the
aggregate, other than pursuant to binding commitments existing on the date
hereof, other than expenditures necessary to maintain existing assets in good
repair and other than as set forth in Market Disclosure Schedule 4.02(vii);
(viii) except as set forth on Market Disclosure Schedule 4.02(viii),
file any applications or make any contract with respect to branching or site
location or relocation;
(ix) make any material change in its accounting methods or practices,
other than changes required by generally accepted accounting principles, or
change any of its methods of reporting income and deductions for federal income
tax purposes, except as required by changes in laws or regulations;
(x) change its lending, investment, deposit or asset and liability
management or other banking policies in any material respect except as may be
required by applicable law;
(xi) engage in any transaction with an "affiliated person" or
"affiliate," in each case as defined in Section 2.18(a) hereof except for
payments to Rae Skirvin Larimer in the ordinary course of business, any retainer
payments for which will be pro rated to the date of Closing based on an annual
amount of $20,000;
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(xii) enter into any futures contract, option or other agreement or
take any other action for purposes of hedging the exposure of its
interest-earning assets and interest-bearing liabilities to changes in market
rates of interest;
(xiii) make or commit to make any loan(s) (including unfunded
commitments and lines of credit) to any one person or entity (together with
"affiliates"of such person or entity) in excess of $200,000 in the aggregate or
in excess of a 80% loan-to-value ratio;
(xiv) waive any rights of material value or cancel any material debts
or claims;
(xv) acquire any stock or other equity interest in any corporation,
partnership, trust, joint venture or other entity;
(xvi) purchase any brokered loans, provided, however, that Market may
submit written requests to Peoples to purchase loans of up to $200,000 from A&H
Mortgage Inc. which Peoples will approve or deny by written notice within 24
hours of the initial request from Market;
(xvii) take any action that would result in any of its representations
and warranties contained in Article II of this Agreement not being true and
correct in any material respect at the Effective Time; or
(xviii) agree to do any of the foregoing.
4.03. NEGATIVE COVENANT OF PEOPLES. Peoples agrees that from the date
hereof to the Effective Time, except as otherwise approved by Market in writing
or as permitted or required by this Agreement, neither Peoples nor Peoples Bank
will, or will agree to, sell or dispose of any significant assets or incur any
significant liabilities other than in the ordinary course of business consistent
with past practices and policies.
4.04. NO SOLICITATION. Neither Market nor Market Bank shall, nor shall
Market or Market Bank authorize or permit any of its directors, officers or
employees or any investment banker, financial advisor, attorney, accountant or
other representative of Market or Market Bank to, directly or indirectly,
encourage or solicit or hold discussions or negotiations with, or provide any
information to, any person, entity or group (other than Peoples) concerning any
merger, sale of substantial assets or liabilities not in the ordinary course of
business, sale of shares of capital stock or similar transactions involving
Market or Market Bank (an "Acquisition Transaction"); provided, however, that
Market may provide information to, or enter into discussions or negotiations
with, another person or entity in connection with an unsolicited possible
Acquisition Transaction if the Board of Directors of Market, after receiving the
written advice of counsel, determines in good faith that such action is required
to fulfill its fiduciary duties to the shareholders of Market under applicable
law. Market will provide immediate written notice to Peoples of any proposal
which it may receive in respect of any such Acquisition Transaction.
4.05. CURRENT INFORMATION. During the period from the date hereof to
the Effective Time, each party will cause one or more of its designated
representatives to confer on a monthly basis with representatives of the other
party regarding its business, operations, prospects, assets and financial
condition and matters relating to the completion of the transactions
contemplated hereby. As soon as reasonably available, but in no event more than
45 days after the end of each calendar quarter (other than the last quarter of
each fiscal year) ending after the date of this Agreement, each party will
deliver to the other party its quarterly report on Form 10-Q (or Form 10-QSB)
under the 1934 Act, and, as soon as reasonably available, but in no event more
than 90 days after the end of each fiscal year, each party will deliver to the
other party its Annual Report on Form 10-K (or Form 10-KSB). Within 30 days
after the end of each quarter, each party shall provide the other party with a
copy of the Thrift Financial Report filed with the OTS.
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4.06. ACCESS TO PROPERTIES AND RECORDS; CONFIDENTIALITY.
(a) Market shall permit Peoples and its representatives, and Peoples
shall permit Market and its representatives, reasonable access to their
respective properties and those of their subsidiaries, and shall disclose and
make available to Peoples all books, papers and records relating to the assets,
properties, operations, obligations and liabilities, including, but not limited
to, all books of account (including the general ledger), tax records, minute
books of directors' and stockholders' meetings, organizational documents,
bylaws, material contracts and agreements, filings with any regulatory
authority, accountants' work papers, litigation files (except as necessary to
preserve attorney-client privilege), plans affecting employees, and any other
business activities or prospects in which each party may have a reasonable
interest. Neither party shall be required to provide access to or to disclose
information where such access or disclosure would violate or prejudice the
rights of any customer or would contravene any law, rule, regulation, order or
judgment. Market will use its best efforts to obtain waivers of any such
restriction and in any event make appropriate substitute disclosure arrangements
under circumstances in which the restrictions of the preceding sentence apply.
Each party shall make their respective directors, officers, employees and agents
and authorized representatives (including counsel and independent public
accountants) available to confer with the other party and its representatives,
provided that such access shall be reasonably related to the transactions
contemplated hereby and not unduly interfere with normal operations.
(b) All information furnished previously in connection with the
transactions contemplated by this Agreement or pursuant hereto shall be treated
as the sole property of the party furnishing the information until consummation
of the Merger and, if such Merger shall not occur, the party receiving the
information shall, at the request of the party which furnished such information,
either return to the party which furnished such information or destroy all
documents or other materials containing, reflecting or referring to such
information; shall use its best effort to keep confidential all such
information; shall use such information only for the purpose of consummating the
transactions contemplated by this Agreement; and shall not directly or
indirectly use such information for any competitive or commercial purposes. The
obligation to keep such information confidential shall not apply to (i) any
information which (A) the party receiving the information can establish by
convincing evidence was already in its possession prior to the disclosure
thereof to it by the party furnishing the information; (B) was then generally
known to the public; (C) became known to the public through no fault of the
party receiving the information; or (D) was disclosed to the party receiving the
information by a third party not bound by an obligation of confidentiality; or
(ii) disclosures pursuant to a legal requirement or in accordance with an order
of a court of competent jurisdiction.
(c) From the date hereof until the earlier of the Effective Time or the
termination of this Agreement in accordance with the terms hereof, Market shall
provide to Peoples copies of all written materials provided to the directors of
Market and Market Bank for all meetings of the Board of Directors of Market and
Market Bank and copies of all minutes thereof as they are prepared except
written materials and minutes related to this Agreement or to any Acquisition
Transaction.
4.07. REGULATORY MATTERS.
(a) The parties hereto will cooperate with each other and use their
best efforts to prepare all necessary documentation (including without
limitation the Form S-4 and the Proxy Statement/Prospectus), to effect all
necessary filings and to obtain all necessary permits, consents, approvals and
authorizations of all third parties and governmental bodies necessary to
consummate the transactions contemplated by this Agreement as soon as
practicable. The parties shall each have the right to review and approve in
advance all information relating to the other, as the case may be, and any of
their respective subsidiaries, which appears in any filing made with, or written
material submitted to, any third party or governmental body in connection with
the transactions contemplated by this Agreement.
(b) Each of the parties will furnish each other with all information
concerning themselves, their subsidiaries, directors, officers and stockholders
and such other matters as may be necessary or advisable in connection with any
statement or application made by or on behalf of them, or any of their
respective subsidiaries to any
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governmental body in connection with the Merger and the other transactions,
applications or filings contemplated by this Agreement.
(c) Each of the parties will promptly furnish each other with copies of
written communications received by them or any of their respective subsidiaries
from, or delivered by any of the foregoing to, any governmental body in
connection with the Merger and the other transactions, applications or filings
contemplated by this Agreement.
4.08. APPROVAL OF STOCKHOLDERS. Market and Peoples will (a) take all
steps (including, without limitation, the preparation of the Form S-4 and Proxy
Statement/Prospectus in accordance with all applicable requirements) necessary
to duly call, give notice of, convene and hold a meeting of its stockholders as
soon as reasonably practicable, for the purposes of securing the approval of
such stockholders of this Agreement and the Agreement of Merger, (b) recommend
to its stockholders the approval of this Agreement and the Agreement of Merger
and the transactions contemplated hereby and thereby, and use its best efforts
to obtain, as promptly as practicable, such approval, provided however, that the
Board of Directors of Market or Peoples, as the case may be may fail to make
such recommendation, or withdraw, modify or change any such recommendation, if
such Board of Directors, after having consulted with and considered the advice
of outside counsel experienced in such matters, has determined that the making
of such recommendation or the failure to withdraw, modify or change such
recommendation, would constitute a breach of the fiduciary duties of such
directors under applicable law, and (c) cooperate and consult with each other
with respect to the foregoing matters.
4.09. FURTHER ASSURANCES. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all reasonable action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
satisfy the conditions to closing contained herein and to consummate and make
effective the transactions contemplated by this Agreement and the Agreement of
Merger. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party to this Agreement shall take all such
necessary action. Nothing in this section shall be construed to require any
party to participate in any threatened or actual legal, administrative or other
proceedings (other than proceedings, actions or investigations to which it is a
party or subject or threatened to be made a party or subject) in connection with
consummation of the transactions contemplated by this Agreement unless such
party shall consent in advance and in writing to such participation and the
other party agrees to reimburse and indemnify such party for and against any and
all costs and damages related thereto.
4.10. DISCLOSURE SUPPLEMENTS. From time to time prior to the Effective
Time, each party will promptly supplement or amend its respective Disclosure
Schedules delivered pursuant hereto with respect to any matter hereafter arising
which, if existing, occurring or known as of the date hereof, would have been
required to be set forth or described in such Disclosure Schedules or which is
necessary to correct any information in such Disclosure Schedules which has been
rendered inaccurate thereby. No supplement or amendment to such Disclosure
Schedules shall have any effect for the purpose of determining satisfaction of
the conditions set forth in Article V or the compliance by Market with the
covenants set forth in Section 4.01 hereof.
4.11. PUBLIC ANNOUNCEMENTS. The parties hereto shall approve in advance
the substance of and cooperate with each other in the development and
distribution of all news releases and other public disclosures with respect to
this Agreement or any of the transactions contemplated hereby, except as may be
otherwise required by law or regulation and as to which the parties releasing
such information have used their best efforts to discuss with the other parties
in advance.
4.12. FAILURE TO FULFILL CONDITIONS. In the event that either of the
parties hereto determines that a condition to its respective obligations to
consummate the transactions contemplated hereby cannot be fulfilled on or prior
to June 30, 2001 and that it will not waive that condition, it will promptly
notify the other party. Peoples and Market will promptly inform the other of any
facts applicable to them, or their respective directors or officers, that would
be likely to prevent or materially delay approval of the Merger by any
governmental authority or which would otherwise prevent or materially delay
completion of the Merger; and will promptly notify the other in writing of any
adverse business
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conditions threatening its normal business operations or of the occurrence of
any event or the failure of any event to occur that might result in a breach of
or a failure to comply with any representation, warranty, covenant, condition or
agreement contained in this Agreement or of the commencement of any action,
suit, proceeding, or investigation against it.
4.13. TREASURY SHARES.
On or before the Effective Time, Market shall cause its Board of
Directors to retire the treasury shares of Market and to restore such shares to
the status of authorized but unissued Market Common Stock.
4.14. CERTAIN POST-MERGER AGREEMENTS.
The parties hereto agree to the following arrangements at or following
the Effective Time:
(a) EMPLOYMENT, SEVERANCE AND CHANGE IN CONTROL AGREEMENTS. At the
Effective Time, John T. Larimer, Jane F. Gibson and Julie M. Bertsch shall
receive the payments and benefits due such individuals for termination in the
event of a change of control of Market provided by the employment agreements
between Market Bank and each of John T. Larimer, Jane F. Gibson and Julie M.
Bertsch. In the event that payments pursuant to this Section 4.14(a) would
result in the imposition of a penalty tax pursuant to Section 280G(b)(3) of the
Code and the regulations promulgated thereunder (hereinafter collectively
referred to as "SECTION 280G"), such payments shall be reduced to the maximum
amount which may be paid under SECTION 280G without exceeding such limits.
Market Disclosure Schedule 4.14(a) describes and quantifies in reasonable detail
the maximum amount of payments and benefits which could become due and payable
to each such person (assuming the Merger is consummated on April 1, 2001) under
the agreement as a result of a termination of employment and/or a change in
control of Market or Market Bank.
(b) EMPLOYEE BENEFIT PLANS. Subject to the provisions of this Section
4.13, all employees of Market or Market Bank immediately prior to the Effective
Time who are employed by Peoples or Peoples Bank (the "Employers") immediately
following the Effective Time ("Transferred Employees") will be covered by
Employers' employee benefit plans on substantially the same basis as any
employee of the Employers in a comparable position. Notwithstanding the
foregoing, Peoples may determine to continue any of the Market benefit plans for
Transferred Employees in lieu of offering participation in the Employers'
benefit plans providing similar benefits (e.g., medical and hospitalization
benefits), to terminate any of Market's benefit plans, or to merge any such
benefit plans with the Employers' benefit plans, provided the result is the
provision of benefits to Transferred Employees that are substantially similar to
the benefits provided to the Employers' employees generally. Except as
specifically provided in this Section 4.14 and as otherwise prohibited by law,
Transferred Employees' service with Market or Market Bank shall be recognized as
service with the Employers for purposes of eligibility to participate and
vesting, if applicable (but not for purposes of benefit accrual) under the
Employers' benefit plans, subject to applicable break-in-service rules. Peoples
agrees that any pre-existing condition, limitation or exclusion in its medical,
long-term disability and life insurance plans shall not apply to Transferred
Employees or their covered dependents who are covered under a medical or
hospitalization indemnity plan maintained by Market or Market Bank on the
Effective Time and who then change coverage to the Employers' medical or
hospitalization indemnity health plan at the time such Transferred Employees are
first given the option to enroll.
(c) EMPLOYEES OF MARKET AND MARKET BANK. Within ninety (90) days of the
date hereof, Peoples shall use its reasonable best efforts to inform the
employees of Market and Market Bank of the likelihood of such employees having
continued employment with Peoples and/or Peoples Bank following the Effective
Time and, where appropriate, shall use its reasonable best efforts to interview
the employees of Market and Market Bank to determine if there are mutually
beneficial employment opportunities available at Peoples and/or Peoples Bank.
Peoples Bank shall give any full-time employee who is terminated within six
months from the Effective Time, except for those individuals terminated for
cause, two weeks of severance pay for each year of service up to a maximum of 26
weeks severance pay.
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(d) MARKET ESOP TERMINATION. At or before the Effective Time, Market
shall terminate the Market ESOP and shall file an Application for Determination
with the IRS regarding tax qualification upon termination. All amounts accrued
on the financial statements of Market as Market ESOP expense through the end of
the month immediately before the month of the Closing shall be contributed by
Market to the Market ESOP Trustee and shall be paid by the Market ESOP Trustee
to Market to reduce the outstanding balance of the current exempt loan (the
"Loan") from Market to the Market ESOP. After reduction of the Loan balance, an
appropriate number of shares of Market Common Stock shall be allocated as
promptly as possible by the Market ESOP Trustee to the accounts of Market ESOP
participants (as defined in the Market ESOP) in accordance with the allocation
provisions of the Market ESOP and applicable law; provided, however, that any
such contribution shall be deductible by Market and Market Bank under Section
404 of the Code and the allocations of such contribution shall otherwise be in
compliance with Section 415 of the Code. All shares of Market Common Stock held
by the Trustee of the Market ESOP at the Effective Time shall be exchanged by
the Market ESOP Trustee for the Per Share Stock Consideration. The Trustee of
the Market ESOP shall dispose of shares held in the suspense account of the
Market ESOP for the purpose of retiring the Loan. Any shares and other assets
remaining in the suspense account following the repayment of the Loan in full
shall be allocated as promptly as possible by the Market ESOP Trustee to
participants (as defined in the Market ESOP) in accordance with the allocation
provisions of the Market ESOP in Section 17.02 and applicable law. It is the
intent of the parties that the Market ESOP be terminated concurrently with the
Effective Time and that the distributions be made as soon thereafter as
possible, provided that no distribution shall be made until a final
determination letter is received from the IRS.
In the event that the IRS determines that the allocation of assets
remaining in the suspense account following repayment of the Loan in full is
subject to the limits on annual additions pursuant to Section 415 of the Code,
then Peoples will make all reasonable efforts, to the extent permissible under
applicable provisions of the Code and related Treasury Regulations, to continue
the Market ESOP Trust through the last day of the Market ESOP plan year
following the Market ESOP plan year during which the Effective Time occurs,
solely for the benefit of those individuals who are participants in the Market
ESOP immediately before the Effective Time, and to allocate such remaining
assets to Market ESOP participants in accordance with the terms of the Market
ESOP to the full extent permissible under Section 415 of the Code between the
Effective Time and the last day of the Market ESOP plan year following the
Market ESOP plan year during which the Effective Time occurs. In the event that
all assets held by the Market ESOP Trust are allocated prior to the last day of
the Market ESOP plan year during which the Effective Time occurs, the Market
ESOP Trust shall be immediately terminated and participants' Market ESOP
accounts will be distributed as soon as practicable thereafter.
(e) INDEMNIFICATION. For a period of three years after the Effective
Time, Peoples shall indemnify and hold harmless each present and former
director, officer and employee of Market and Market Bank determined as of the
Effective Time (the "Indemnified Parties") against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities (collectively, "Costs") incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring at
or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time (collectively, "Claims"), to the fullest extent to
which such Indemnified Parties were entitled under Ohio law, the Articles of
Incorporation, Code of Regulations and Bylaws of Market or Market Bank as in
effect on the date hereof.
Any Indemnified Party wishing to claim indemnification under this
Section 4.14(e), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify Peoples, but the failure to so notify shall
not relieve Peoples of any liability it may have to such Indemnified Party if
such failure does not materially prejudice Peoples. In the event of any such
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (i) Peoples shall have the right to assume the
defense thereof and Peoples shall not be liable to such Indemnified Parties for
any legal expenses of other counsel or any other expenses subsequently incurred
by such Indemnified Parties in connection with the defense thereof, except that
if Peoples elects not to assume such defense or counsel for the Indemnified
Parties advises that there are issues which raise conflicts of interest between
Peoples and the Indemnified Parties, the Indemnified Parties may retain counsel
which is reasonably satisfactory to Peoples, and Peoples shall pay, promptly as
statements therefor are received, the reasonable fees and expenses of such
counsel for the Indemnified Parties (which may not exceed one firm in any
jurisdiction unless the use of one counsel for such Indemnified Parties would
present such counsel with a conflict of interest), (ii) the Indemnified Parties
will cooperate in the defense of any
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such matter, and (iii) Peoples shall not be liable for any settlement effected
without its prior written consent, which consent shall not be withheld
unreasonably.
(f) INSURANCE. Peoples and Peoples Bank shall maintain a directors' and
officers' liability insurance policy covering the Indemnified Parties Costs in
connection with any Claims for a period of three (3) years after the Effective
Time, provided, however, that in no event shall Peoples expend, in order to
obtain such insurance, any amount per annum in excess of 150% of the amount of
the actual annual premium paid as of the date hereof by Market for such
insurance (the "Maximum Amount"), and provided further that if the amount of the
annual premium necessary to maintain or procure such insurance coverage exceeds
the Maximum Amount, Peoples shall use its reasonable best efforts to maintain
the most advantageous policy of directors' and officers' insurance obtainable
for an annual premium equal to the Maximum Amount.
ARTICLE V
CLOSING CONDITIONS
5.01. CONDITIONS TO THE PARTIES' OBLIGATIONS UNDER THIS AGREEMENT. The
respective obligations of the parties under this Agreement shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) All necessary regulatory or governmental approvals and consents
shall have been obtained without any non-standard term or condition which would
materially impair the value of Market and Market Bank to Peoples; all conditions
required to be satisfied prior to the Effective Time by the terms of such
approvals and consents shall have been satisfied; and all waiting periods in
respect thereof shall have expired;
(b) All corporate action necessary to authorize the execution and
delivery of this Agreement and consummation of the transactions contemplated
hereby and by the Agreement of Merger shall have been duly and validly taken by
Peoples and Market, including approval by the requisite vote of the stockholders
of Market and Peoples of this Agreement and the Agreement of Merger;
(c) No order, judgment or decree shall be outstanding against a party
hereto or a third party that would have the effect of preventing completion of
the Merger; no suit, action or other proceeding shall be pending or threatened
by any governmental body in which it is sought to restrain or prohibit the
Merger; and no suit, action or other proceeding shall be pending before any
court or governmental agency in which it is sought to restrain or prohibit the
Merger or obtain other substantial monetary or other relief against one or more
of the parties hereto in connection with this Agreement and which Peoples or
Market determines in good faith, based upon the advice of their respective
counsel, makes it inadvisable to proceed with the Merger because any such suit,
action or proceeding has a significant potential to be resolved in such a way as
to deprive the party electing not to proceed of any of the material benefits to
it of the Merger;
(d) The Form S-4 shall have become effective under the 1933 Act, and
Peoples shall have received all state securities laws or "blue sky" permits and
other authorizations or there shall be exemptions from registration requirements
necessary to issue the Peoples Common Stock in connection with the Merger, and
neither the Form S-4 nor any such permit, authorization or exemption shall be
subject to a stop order or threatened stop order by the Commission or any state
securities authority;
(e) The parties shall have received, in form and substance reasonably
satisfactory to them an opinion of Elias, Matz, Tiernan & Herrick L.L.P. to the
effect that, for federal income tax purposes, the Merger will qualify as a
"reorganization" under Section 368(a) of the Code; and
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(f) Market shall have received the written opinions of McDonald
Investments, Inc., dated the date of this Agreement and the date of the Proxy
Statement to the effect that the Merger Consideration is fair to the holders of
Market Common Stock from a financial point of view as of such dates.
5.02. CONDITIONS TO THE OBLIGATIONS OF PEOPLES UNDER THIS AGREEMENT.
The obligations of Peoples under this Agreement shall be further subject to the
satisfaction, at or prior to the Effective Time, of the following conditions,
any one or more of which may be waived by Peoples:
(a) Each of the obligations of Market required to be performed by it at
or prior to the Closing pursuant to the terms of this Agreement shall have been
duly performed and complied with in all material respects and the
representations and warranties of Market contained in this Agreement shall have
been true and correct as of the date hereof and as of the Effective Time as
though made at and as of the Effective Time, except (i) as to any representation
or warranty which specifically relates to an earlier date; (ii) where the facts
which caused the failure of any representation or warranty to be so true and
correct would not, either individually or in the aggregate, constitute a
material adverse change in the business, operations, assets or financial
condition of Market and Market Bank taken as a whole; or (iii) any failure of a
representation or warranty to be true and correct due to or resulting from (V)
any change in banking or similar laws, rules or regulations of general
applicability to banks, thrift institutions or their holding companies or
interpretations thereof by courts or governmental authorities; (W) changes in
generally accepted accounting principles that are generally applicable to the
banking or savings industries; (X) expenses incurred in connection with the
transactions contemplated hereby; (Y) actions or omissions of a party (or any of
its subsidiaries) taken with the prior informed written consent of the other
party or parties in contemplation of the transactions contemplated hereby; or
(Z) changes attributable to or resulting from changes in general economic
conditions, including changes in the prevailing level of interest rates, and
Peoples shall have received a certificate to that effect signed by the President
and Chief Executive Officer of Market.
(b) All permits, consents, waivers, clearances, approvals and
authorizations of all regulatory or governmental authorities or third parties
which are necessary in connection with the consummation of the Merger shall have
been obtained, and none of such permits, consents, waivers, clearances,
approvals and authorizations shall contain any non-standard term or condition
which would materially impair the value of Market and Market Bank to Peoples.
(c) Holders of Market Common Stock who dissent from the Merger pursuant
to the OGCL by meeting the requirements set forth in the OGCL shall not hold
more than 10% of the Market Common Stock immediately prior to the Effective
Time.
(d) Each stockholder of Market who is a Market Affiliate shall have
executed and delivered a commitment and undertaking to the effect that (i) such
stockholder will dispose of the shares of Peoples Common Stock received by him
in connection with the Merger only in accordance with the provisions of
paragraph (d) of Rule 145 under the 1933 Act; (ii) such stockholder will not
dispose of any of such shares until Peoples has received an opinion of counsel
acceptable to it that such proposed disposition is in compliance with the
provisions of paragraph (d) of Rule 145 under the 1933 Act, which opinion shall
be rendered promptly following counsel's receipt of such stockholder's written
notice of its intention to sell shares of Peoples Common Stock; and (iii) the
certificates representing said shares may bear a legend referring to the
foregoing restrictions.
(e) Market shall have furnished Peoples with such certificates of its
officers or others and such other documents to evidence fulfillment of the
conditions set forth in this Section 5.02 as Peoples may reasonably request.
(f) There shall not have been a material adverse change in the
financial condition, assets, liabilities or business of Market and Market Bank,
taken as a whole, after the date of this Agreement.
5.03. CONDITIONS TO THE OBLIGATIONS OF MARKET UNDER THIS AGREEMENT. The
obligations of Market under this Agreement shall be further subject to the
satisfaction, at or prior to the Effective Time, of the following conditions,
any one or more of which may be waived by Market:
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(a) Each of the obligations of Peoples and Peoples Bank required to be
performed by them at or prior to the Closing pursuant to the terms of this
Agreement shall have been duly performed and complied with in all material
respects and the representations and warranties of Peoples and Peoples Bank
contained in this Agreement shall have been true and correct as of the date
hereof and as of the Effective Time as though made at and as of the Effective
Time, except (i) as to any representation or warranty which specifically relates
to an earlier date or (ii) where the facts which caused the failure of any
representation or warranty to be so true and correct would not, either
individually or in the aggregate, constitute a material adverse change in the
business, operations, assets or financial condition of Peoples and Peoples Bank
taken as a whole, and Market shall have received a certificate to that effect
signed by the President and Chief Executive Officer of Peoples.
(b) Peoples shall have furnished Market with such certificates of its
officers or others and such other documents to evidence fulfillment of the
conditions set forth in this Section 5.03 as Market may reasonably request.
(c) There shall not have been a material adverse change in the
financial condition, assets, liabilities or business of Peoples and Peoples
Bank, taken as a whole, after the date of this Agreement.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER, ETC.
6.01. TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of this Agreement and
the Agreement of Merger by the stockholders of Market and Peoples:
(a) by mutual written consent of the parties hereto;
(b) by Peoples or Market (i) if the Effective Time shall not have
occurred on or prior to June 30, 2001 or (ii) if a vote of the stockholders of
Market or Peoples is taken and such stockholders of either Market or Peoples
fail to approve this Agreement and the Agreement of Merger at the meeting of
stockholders (or any adjournment thereof) of Market or Peoples; unless the
failure of such occurrence shall be due to the failure of the party seeking to
terminate this Agreement to perform or observe its agreements set forth herein
to be performed or observed by such party at or before the Effective Time;
(c) by Peoples or Market upon written notice to the other 30 or more
days after the date upon which any application for a regulatory or governmental
approval necessary to consummate the Merger and the other transactions
contemplated hereby shall have been denied or withdrawn at the request or
recommendation of the applicable regulatory agency or governmental authority,
unless the denial or withdrawal shall be due to the failure of the party seeking
to terminate this Agreement to perform its agreements set forth herein to be
performed by such party at or before the Effective Time.
(d) by Peoples in writing if Market has, or by Market in writing if
Peoples has, breached (i) any covenant or undertaking contained herein or in the
Agreement of Merger, or (ii) any representation or warranty contained herein,
which breach would have a material adverse effect on the business, operations,
assets or financial condition of Market and Market Bank or Peoples and Peoples
Bank, as applicable, taken as a whole, or upon the consummation of the
transactions contemplated hereby, in any case if such breach has not been cured
by the earlier of 30 days after the date on which written notice of such breach
is given to the party committing such breach or the Effective Time; provided
that it is understood and agreed that either party may terminate this Agreement
on the basis of any such material breach of any representation or warranty
contained herein, notwithstanding any qualification therein relating to the
knowledge of the other party;
(e) by Peoples or Market in writing, if any of the applications for
prior approval referred to in Section 4.07 hereof are approved contingent upon
the satisfaction of any non-standard condition or requirement which, in the
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reasonable opinion of the Board of Directors of Peoples, would materially impair
the value of Market and Market Bank to Peoples, and the time period for appeals
and requests for reconsideration has run.
6.02. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Peoples or Market as provided above, this Agreement shall
forthwith become void (other than Sections 4.05(b) and 7.01 hereof, which shall
remain in full force and effect) and there shall be no further liability on the
part of the parties or their respective officers or directors except for the
liability of the parties under Sections 4.06(b) and 7.01 hereof and except for
liability for any breach of this Agreement.
6.03. AMENDMENT, EXTENSION AND WAIVER. Subject to applicable law, at
any time prior to the consummation of the Merger, whether before or after
approval thereof by the stockholders of Market or Peoples, the parties may (a)
amend this Agreement and the Agreement of Merger, (b) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(c) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto, or (d) waive compliance
with any of the agreements or conditions contained herein; provided, however,
that after any approval of the Merger by the stockholders of Market or Peoples,
there may not be, without further approval of such stockholders, any amendment
of this Agreement or the Agreement of Merger which modifies either the amount or
the form of the Merger Consideration to be delivered to stockholders of Market.
This Agreement and the Agreement of Merger may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. Any
agreement on the part of a party hereto to any extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party, but such waiver or failure to insist on strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE VII
MISCELLANEOUS
7.01. EXPENSES.
(a) All costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby (including without limitation legal,
accounting, investment banking and printing expenses) shall be borne by the
party incurring such costs and expenses, provided that Peoples shall bear all
costs of printing, mailing and filing the Form S-4 and Proxy
Statement/Prospectus and all other registration and filing fees relating to the
Merger.
(b) Notwithstanding any provision in this Agreement to the contrary, in
the event that either of the parties shall willfully default in its obligations
hereunder, the non-defaulting party may pursue any remedy available at law or in
equity to enforce its rights and shall be paid by the willfully defaulting party
for all damages, costs and expenses, including without limitation legal,
accounting, investment banking and printing expenses, incurred or suffered by
the non-defaulting party in connection herewith or in the enforcement of its
rights hereunder if such non-defaulting party prevails, provided however that
such damages, costs and expenses shall in no event be less than $250,000.
(c) Market shall pay Peoples, and Peoples shall be entitled to payment
of, a fee equal to $500,000 (the "Fee") upon the occurrence of a Purchase Event
(as defined hereinafter) so long as the Purchase Event occurs prior to a Fee
Termination Event (as defined hereinafter). Such payment shall be made to
Peoples in immediately available funds within five business days after the
occurrence of a Purchase Event. A Fee Termination Event shall be the first to
occur of the following: (i) the Effective Time or (ii) termination of this
Agreement in accordance with the terms hereof prior to the occurrence of a
Purchase Event (other than a termination of this Agreement by Peoples pursuant
to Section 6.01(d) hereof as a result of a willful breach of any representation,
warranty, covenant or agreement of Market and Market Bank).
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(d) The term "Purchase Event" shall mean any of the following events or
transactions occurring after the date hereof and before September 30, 2001.
(i) Market or Market Bank shall have entered into an agreement
to engage in an Acquisition Transaction with any person (the term
"person" for purposes of this Agreement having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the 1934 Act and the rules
and regulations thereunder) other than Peoples or any affiliate of
Peoples (the term "affiliate" having the meaning assigned thereto in
Rule 405 under the 1933 Act) or the Board of Directors of Market shall
have recommended that the shareholders of Market approve or accept any
Acquisition Transaction with any person other than Peoples or any
affiliate of Peoples;
(ii) After a bona fide written proposal is made by any person
other than Peoples or any affiliate of Peoples to Market or Market's
shareholders to engage in an Acquisition Transaction, (A) Market or
Market Bank shall have breached any covenant or obligation contained in
this Agreement and such breach would entitle Peoples to terminate this
Agreement or (B) the holders of the Market Common Stock shall not have
approved this Agreement and the Agreement of Merger at the meeting of
such shareholders held for the purpose of voting on this Agreement and
the Agreement of Merger, such meeting shall not have been held or shall
have been cancelled prior to termination of this Agreement or (C) the
Board of Directors of Market shall have withdrawn or modified in a
manner adverse to Peoples the recommendation of the Board of Directors
of Market with respect to this Agreement and the Agreement of Merger.
If more than one occurrence constituting a Purchase Event under this
Section arises, then all such occurrences shall give rise to only one Purchase
Event.
(e) Market shall give written notice to Peoples within 72 hours of the
occurrence of a Purchase Event known to Market; however, the giving of such
notice by Market shall not be a condition to the right of Peoples to obtain the
Fee.
(f) Payment of the Fee shall be in lieu of, and not in addition to, the
payment of damages pursuant to Section 7.01(b) of this Agreement.
7.02. SURVIVAL. The respective representations, warranties and
covenants of the parties to this Agreement shall not survive the Effective Time
but shall terminate as of the Effective Time, except for covenants that by their
terms are to survive or be performed after the Effective Time.
7.03. NOTICES. All notices or other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by overnight
express or mailed by prepaid registered or certified mail (return receipt
requested) or by cable, telegram or telex addressed as follows:
(a) If to Peoples, to:
Peoples Community Bancorp, Inc.
11 S. Broadway
Lebanon, Ohio 45036-1780
Attn: Jerry D. Williams
Copy to:
Elias, Matz, Tiernan and Herrick L.L.P.
734 15th Street, N.W.
Washington, D.C. 20005
Attn: Kevin M. Houlihan, Esq.
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<PAGE>
(b) If to Market, to:
Market Financial Corp.
7522 Hamilton Avenue
Mount Healthy, Ohio 45231
Attn: John T. Larimer
Copy to:
Vorys, Sater, Seymour and Pease LLP
Suite 2100, Atrium Two
221 East Fourth Street
Cincinnati, Ohio 45202
Attn: Cynthia A. Shafer, Esq.
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
7.04. PARTIES IN INTEREST. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any party hereto
without the prior written consent of the other party and, except as otherwise
expressly provided herein, that nothing in this Agreement is intended to confer,
expressly or by implication, upon any other person any rights or remedies under
or by reason of this Agreement.
7.05. COMPLETE AGREEMENT. This Agreement and the Agreement of Merger,
including the documents and other writings referred to herein or therein or
delivered pursuant hereto or thereto, contain the entire agreement and
understanding of the parties with respect to their subject matter and shall
supersede all prior agreements and understandings between the parties, both
written and oral, with respect to such subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings between the parties other than those expressly set forth herein or
therein.
7.06. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
7.07. GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Delaware, without giving effect to the principles of conflicts of
laws thereof.
7.08. HEADINGS. The Article and Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, Peoples and Market have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
PEOPLES COMMUNITY BANCORP, INC.
Attest:
/S/ JOHN E. RATHKAMP By: /S/ JERRY D. WILLIAMS
------------------------------ -----------------------------------------
John E. Rathkamp Jerry D. Williams
Secretary President and Chief Executive Officer
PEOPLES COMMUNITY BANK
Attest:
/S/ JOHN E. RATHKAMP By: /S/ JERRY D. WILLIAMS
------------------------------ ----------------------------------------
John E. Rathkamp Jerry D. Williams
Secretary President and Chief Executive Officer
MARKET FINANCIAL CORP.
Attest:
/S/ RAE SKIRVIN LARIMER By: /S/ JOHN T. LARIMER
------------------------------ ----------------------------------------
Rae Skirvin Larimer John T. Larimer
Secretary President and Chief Executive Officer
MARKET BANK
Attest:
/S/ UNA SHAEPERKLAUS By: /S/ JOHN T. LARIMER
------------------------------- ----------------------------------------
Una Shaeperklaus John T. Larimer
Secretary President and Chief Executive Officer
A-35
<PAGE>
AGREEMENT OF MERGER
This Agreement of Merger is dated as of September 19, 2000, by and
between Peoples Community Bancorp, Inc. ("Peoples"), a Delaware corporation, and
Market Financial Corp. ("Market"), an Ohio corporation.
W I T N E S S E T H:
WHEREAS, Peoples and Market have entered into an Agreement and Plan of
Reorganization, dated as of the date hereof (the "Reorganization Agreement");
and
WHEREAS, pursuant to the Reorganization Agreement and this Agreement of
Merger, and subject to the terms and conditions set forth therein and herein,
Market shall be merged with and into Peoples, with Peoples the surviving
corporation of such merger;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Reorganization Agreement,
the parties hereto do mutually agree as follows:
ARTICLE I
DEFINITIONS
Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
1.1 "EFFECTIVE TIME" shall mean the date and time at which the Merger
contemplated by this Agreement of Merger becomes effective as provided in
Section 2.2 of this Agreement of Merger.
1.2 "MARKET COMMON STOCK" shall mean the common stock, no par value, of
Market.
1.3 "MERGER" shall refer to the merger of Market with and into Peoples
as provided in Section 2.1 of this Agreement of Merger.
1.4 "MERGING CORPORATIONS" shall collectively refer to Peoples and
Market.
1.5 "PEOPLES COMMON STOCK" shall mean the common stock, par value $.01
per share, of Peoples.
1.6 "STOCKHOLDER MEETINGS" shall mean the meetings of the stockholders
of Peoples and Market held pursuant to Section 4.07 of the Reorganization
Agreement.
1.7 "SURVIVING CORPORATION" shall mean Peoples as the surviving
corporation of the Merger.
ARTICLE II
TERMS OF THE MERGER
2.1 THE MERGER. Subject to the terms and conditions set forth in the
Reorganization Agreement, at the Effective Time, Market shall be merged with and
into Peoples pursuant to Section 252 of the Delaware General Corporation Law
("DGCL") and Section 1701.79 of the Ohio General Corporation Law ("OGCL").
Peoples shall be the Surviving Corporation of the Merger and shall continue to
be governed by the laws of the State of Delaware. At the Effective Time, the
separate existence and corporate organization of Market shall cease, and Peoples
shall thereupon
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and thereafter possess all the rights, privileges, powers and franchises of a
public as well as of a private nature of each of Market and Peoples; and be
subject to all the restrictions, disabilities and duties of each of Market and
Peoples; and all the rights, privileges, powers and franchises of each of Market
and Peoples, and all property, real, personal and mixed, and all debts due to
either Market or Peoples on whatever account, as well as all other things in
action or belonging to each of Market and Peoples shall be vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter the property of
the Surviving Corporation as they were of, respectively, Market and Peoples, and
the title to any real estate vested by deed or otherwise, under the laws of the
State of Ohio or elsewhere in either Market or Peoples shall not revert or be in
any way impaired by reason of the Merger, but all rights of creditors and all
liens upon any property of either of Market or Peoples shall be preserved
unimpaired, and all debts, liabilities and duties of Market and Peoples shall
thenceforth attach to the Surviving Corporation and may be enforced against it
to the same extent as if said debts, liabilities and duties had been incurred or
contracted by it.
2.2 EFFECTIVE TIME. The Merger shall become effective at 5:00 p.m. on
the date and at the time that a Certificate of Merger is filed with the
Secretary of State of the State of Delaware pursuant to the DGCL and a
Certificate of Merger is filed with the Secretary of State of the State of Ohio
pursuant to the OGCL, unless a later date and time is specified as the Effective
Time in such Certificates of Merger.
2.3 NAME OF THE SURVIVING CORPORATION. The name of the Surviving
Corporation shall be "Peoples Community Bancorp, Inc.," and the registered
office of the Surviving Corporation shall be located at 1209 Orange Street,
Wilmington, Delaware 19801.
2.4 CERTIFICATE OF INCORPORATION. On and after the Effective Time, the
Certificate of Incorporation of Peoples shall be the Certificate of
Incorporation of the Surviving Corporation until amended in accordance with
applicable law.
2.5 BYLAWS. On and after the Effective Time, the Bylaws of Peoples
shall be the Bylaws of the Surviving Corporation until amended in accordance
with applicable law.
2.6 CONSENT. On and after the Effective Time, the Surviving Corporation
consents to be sued and served with process in the State of Ohio and irrevocably
appoints the Secretary of State of the State of Ohio as its agent to accept
service of process in any proceeding in the State of Ohio to enforce against the
Surviving Corporation any obligation of Market or to enforce the rights of
holders of any Market Dissenting Shares (as hereinafter defined).
ARTICLE III
CONVERSION OF SHARES
3.1 CONVERSION OF MARKET COMMON STOCK AND OPTIONS TO PURCHASE MARKET
COMMON STOCK.
(a) Subject to Section 3.2 hereof, each share of Market Common Stock
outstanding immediately prior to the Effective Time shall be cancelled and
extinguished. Each of such shares, other than (i) shares held by Market
(including treasury shares) or Peoples or any of their respective wholly owned
subsidiaries and (ii) Market Dissenting Shares (as hereinafter defined), shall
be converted into the right to receive the number of shares of Peoples Common
Stock equal to the Exchange Ratio (as defined in the Reorganization Agreement)
or $13.00 in cash in accordance with the terms of Section 1.03 of the
Reorganization Agreement.
(b) Notwithstanding any other provision hereof, no fractional shares of
Peoples Common Stock shall be issued to holders of Market Common Stock. In lieu
thereof, each holder of shares of Market Common Stock entitled to a fraction of
a share of Peoples Common Stock shall, at the time of surrender of the
certificate or certificates representing such holder's shares, receive an amount
of cash in accordance with the terms of Section 1.05 of the
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<PAGE>
Reorganization Agreement. No such holder shall be entitled to dividends, voting
rights or any other rights in respect of any fractional share.
(c) At or immediately prior to the Effective Time, each option to
purchase Market Common Stock issued pursuant to Market's 1998 Stock Option Plan
and is outstanding and exercisable shall be cancelled and converted into the
right to receive from Peoples a cash amount determined in accordance with
Section 1.06 of the Reorganization Agreement. The payment of the consideration
referred to in this Section 3.1(c) to holders of options to purchase Market
Common Stock shall be subject to the execution by any such holder of such
instruments of cancellation as Peoples may reasonable deem appropriate.
3.2 EXCHANGE OF CERTIFICATES FOR STOCK AND/OR CASH.
After the Effective Time, each certificate for theretofore outstanding
shares of Market Common Stock, shall be surrendered and exchanged for cash or
stock consideration in the manner provided in Section 1.04 of the Reorganization
Agreement.
3.3 DISSENTING SHARES. Notwithstanding anything in this Agreement of
Merger to the contrary, shares of Market Common Stock that are outstanding
immediately before the Effective Time and which are held by shareholders who
shall not have voted such shares in favor of the Reorganization Agreement and
this Agreement of Merger, who shall have delivered to Market or Peoples a
written demand for appraisal of such shares in the manner provided in Section
1701.85 of the OGCL and who shall have otherwise complied fully with all of the
requirements of Section 1701.85 of the OGCL shall not be converted into or be
exchangeable for the right to receive the consideration provided in the
Reorganization Agreement; provided, however, that (a) each of such shares
("Market Dissenting Shares") shall nevertheless be cancelled and extinguished in
accordance with the Reorganization Agreement; (b) the holder of Market
Dissenting Shares, upon full compliance with the requirements of Section 1701.85
of the OGCL shall be entitled to payment of the appraised value of such shares
in accordance with the provisions of Section 1701.85 of the OGCL; and (c) in the
event (i) any holder of Market Dissenting Shares shall subsequently withdraw
such holder's demand for appraisal of such shares after the Effective Time or
shall fail to establish such holder's entitlement to appraisal rights in
accordance with Section 1701.85 of the OGCL, or (ii) any holder of Market
Dissenting Shares has not filed a petition demanding a determination of the
value of such shares within the period provided in Section 1701.85 of the OGCL,
such holder shall forfeit the right to appraisal of such shares and such shares
shall thereupon be deemed to have been converted into and to have become
exchangeable for the right to receive cash as provided in the Reorganization
Agreement.
3.4 PEOPLES COMMON STOCK. Each share of Peoples Common Stock issued and
outstanding immediately prior to the Effective Time shall, on and after the
Effective Time, continue to be issued and outstanding as an identical share of
Peoples Common Stock.
ARTICLE IV
MISCELLANEOUS
4.1 CONDITIONS PRECEDENT. The respective obligations of each party
under this Agreement of Merger shall be subject to the satisfaction, or waiver
by the party permitted to do so, of the conditions set forth in Article V of the
Reorganization Agreement.
4.2 TERMINATION. This Agreement of Merger shall be terminated
automatically without further act or deed of either of the parties hereto in the
event of the termination of the Reorganization Agreement in accordance with
Section 6.01 thereof.
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<PAGE>
4.3 AMENDMENTS. Subject to applicable law, this Agreement of Merger may
be amended by a subsequent writing signed by each of the parties hereto upon the
approval of the Board of Directors of each of the parties hereto; provided,
however, that the provisions of Article III of this Agreement of Merger relating
to the consideration to be paid for the shares of Market Common Stock shall not
be amended after the meetings of stockholders of Market and Peoples so as to
modify either the amount or the form of such consideration without the approval
of the stockholders of Market and Peoples.
4.4 SUCCESSORS. This Agreement of Merger shall be binding on the
successors of Peoples and Market.
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<PAGE>
IN WITNESS WHEREOF, Peoples and Market have caused this Agreement of
Merger to be executed by their duly authorized officers as of the day and year
first above written.
PEOPLES COMMUNITY BANCORP, INC.
Attest:
/S/ JOHN E. RATHKAMP By: /S/ JERRY D. WILLIAMS
------------------------------- ----------------------------------
John E. Rathkamp Jerry D. Williams
Secretary President and Chief Executive Officer
MARKET FINANCIAL CORP.
Attest:
/S/ RAE SKIRVIN LARIMER By: /S/ JOHN T. LARIMER
------------------------------- ----------------------------------
Rae Skirvin Larimer John T. Larimer
Secretary President and Chief Executive Officer
A-40
<PAGE>
Appendix B
September 19, 2000
Board of Directors
Market Financial Corporation
7522 Hamilton Avenue
PO Box 31292
Cincinnati, OH 45231-0292
Attention: John T. Larimer
President & CEO
Members of the Board:
You have requested our opinion with respect to the fairness, from a
financial point of view, as of the date hereof, to the holders of the common
stock, no par value ("Market Common Stock"), of Market Financial Corporation
("Market"), of the financial consideration, as set forth in Section 1.03 (c) of
the Agreement and Plan of Reorganization dated as of September 19, 2000 (the
"Agreement"), by and among Market, Market Bank, Peoples Community Bancorp, Inc.
("Peoples"), and Peoples Community Bank.
The Agreement provides for the merger (the "Merger") of Market with and
into Peoples, pursuant to which, among other things, at the Effective Time (as
defined in the Agreement), each outstanding share of Market Common Stock will be
exchanged for the right to receive either a certain number of shares of the
common stock, par value $.01 per share, of Peoples ("Peoples Common Stock")
equal to $13.00 or $13.00 in cash, provided that the aggregate cash
consideration issued in the Merger shall be equal to one half the number of
shares of Market Common Stock other than Market Common Stock owned by Market or
Peoples multiplied by $13.00, as set forth in Section 1.03 (c) of the Agreement.
The terms and conditions of the Merger are more fully set forth in the
Agreement.
McDonald Investments Inc., as part of its investment banking business,
is customarily engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and
<PAGE>
Board of Directors
September 19, 2000
Page 2
unlisted securities, private placements and valuations for estate, corporate and
other purposes.
We have acted as Market's financial advisor in connection with, and
have participated in certain negotiations leading to, the Agreement. In
connection with rendering our opinion set forth herein, we have among other
things:
(i) Reviewed Market's Annual Reports to Shareholders and Annual Reports
on Form 10-KSB for each of the years ended September 30, 2000,
September 30, 1999 and September 30, 1998, including the audited
financial statements contained therein;
(ii) Reviewed Peoples' Annual Report to Shareholders and Annual Report on
Form 10-KSB for the year ended September 30, 2000, including the
audited financial statements contained therein;
(iii) Reviewed certain other public and non-public information, primarily
financial in nature, relating to the respective businesses, earnings,
assets and prospects of Market and Peoples provided to us or publicly
available;
(iv) Participated in meetings and telephone conferences with members of
senior management of Market and Peoples concerning the financial
condition, business, assets, financial forecasts and prospects of the
respective companies, as well as other matters we believed to be
relevant to our inquiry;
(v) Reviewed certain stock market information for Market Common Stock and
Peoples Common Stock, and compared it with similar information for
certain companies, the securities of which are publicly traded;
(vi) Compared the results of operations and financial condition of Market
and Peoples with that of certain companies, which we deemed to be
relevant for purposes of this opinion;
(vii) Reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions, which we deemed to be relevant for
purposes of this opinion;
(viii) Reviewed the Agreement dated September 19, 2000 and certain related
documents; and
(ix) Performed such other reviews and analyses as we have deemed
appropriate.
<PAGE>
Board of Directors
September 19, 2000
Page 3
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have relied upon the accuracy and
completeness of the representations, warranties and covenants of Market and
Peoples contained in the Agreement. We have not been engaged to undertake, and
have not assumed any responsibility for, nor have we conducted, an independent
investigation or verification of such matters. We have not been engaged to and
we have not conducted a physical inspection of any of the assets, properties or
facilities of either Market or Peoples, nor have we made or obtained or been
furnished with any independent valuation or appraisal of any of such assets,
properties or facilities or any of the liabilities of either Market or Peoples.
With respect to financial forecasts used in our analysis, we have assumed that
such forecasts have been reasonably prepared by management of Market and
Peoples, as the case may be, on a basis reflecting the best currently available
estimates and judgments of the management of Market and Peoples, as to the
future performance of Market, Peoples, and Market and Peoples combined, as the
case may be. We have not been engaged to and we have not assumed any
responsibility for, nor have we conducted any independent investigation or
verification of such matters, and we express no view as to such financial
forecasts or the assumptions on which they are based. We have also assumed that
all of the conditions to the consummation of the Merger, as set forth in the
Agreement, including the tax-free treatment of the Merger to the holders of
Market Common Stock receiving Peoples Common Stock, would be satisfied and that
the Merger would be consummated on a timely basis in the manner contemplated by
the Agreement.
We will receive a fee for our services as financial advisor to Market,
a substantial portion of which is contingent upon closing of the Merger. We will
also receive a fee for our services in rendering this opinion.
In the ordinary course of business, we may actively trade securities of
Market and Peoples for our own account and for the accounts of customers and
accordingly, we may at any time hold a long or short position in such
securities.
This opinion is based on economic and market conditions and other
circumstances existing on, and information made available as of, the date
hereof. In addition, our opinion is, in any event, limited to the fairness, as
of the date hereof, from a financial point of view, of the financial
consideration, to the holders of Market Common Stock, and does not address the
underlying business decision by Market's Board of Directors to effect the
Merger, does not compare or discuss the relative merits of any competing
proposal or any other terms of the Merger, and does not constitute a
recommendation to any Market shareholder as to how such shareholder should vote
with respect to the Merger. This opinion does not represent an opinion as to
what the value of Market Common Stock or Peoples Common Stock may be at the
Effective Time of the Merger or as to the prospects of Market's business or
Peoples' business.
<PAGE>
Board of Directors
September 19, 2000
Page 4
This opinion is directed to the Board of Directors of Market and may
not be reproduced, summarized, described or referred to or given to any other
person without our prior written consent. Notwithstanding the foregoing, this
opinion may be included in the proxy statement to be mailed to the holders of
Market Common Stock in connection with the Merger, provided that this opinion
will be reproduced in such proxy statement in full, and any description of or
reference to us or our actions, or any summary of the opinion in such proxy
statement, will be in a form reasonably acceptable to us and our counsel.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the financial consideration is fair to the holders of Market
Common Stock from a financial point of view.
Very truly yours,
/s/ McDonald Investments Inc.
McDONALD INVESTMENTS INC.
<PAGE>
APPENDIX C
Section 1701.84 DISSENTING SHAREHOLDERS ENTITLED TO RELIEF.
The following are entitled to relief as dissenting shareholders under section
1701.85 of the Revised Code:
(A) Shareholders of a domestic corporation that is being merged or
consolidated into a surviving or new entity, domestic or foreign, pursuant to
section 1701.78, 1701.781, 1701.79, 1701.791, or 1701.801 of the Revised Code;
(B) In the case of a merger into a domestic corporation, shareholders
of the surviving corporation who under section 1701.78 or 1701.781 of the
Revised Code are entitled to vote on the adoption of an agreement of merger, but
only as to the shares so entitling them to vote;
(C) Shareholders, other than the parent corporation, of a domestic
subsidiary corporation that is being merged into the domestic or foreign parent
corporation pursuant to section 1701.80 of the Revised Code;
(D) In the case of a combination or a majority share acquisition,
shareholders of the acquiring corporation who under section 1701.83 of the
Revised Code are entitled to vote on such transaction, but only as to the shares
so entitling them to vote;
(E) Shareholders of a domestic subsidiary corporation into which one or
more domestic or foreign corporations are being merged pursuant to section
1701.801 of the Revised Code.
Effective date: 10-4-1996
Section 1701.85 QUALIFICATIONS OF AND PROCEDURES FOR DISSENTING SHAREHOLDERS.
(A)(1) A shareholder of a domestic corporation is entitled to relief as
a dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 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 of the Revised Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same information as that
provided for in division (A)(2) of this section.
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(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the
address specified in his demand, a request for the certificates representing the
shares as to which he seeks relief, the dissenting shareholder, within fifteen
days from the date of the sending of such request, shall deliver to the
corporation the certificates requested so that the corporation may forthwith
endorse on them a legend to the effect that demand for the fair cash value of
such shares has been made. The corporation promptly shall return such endorsed
certificates to the dissenting shareholder. A dissenting shareholder's failure
to deliver such certificates terminates his rights as a dissenting shareholder,
at the option of the corporation, exercised by written notice sent to the
dissenting shareholder within twenty days after the lapse of the fifteen-day
period, unless a court for good cause shown otherwise directs. If shares
represented by a certificate on which such a legend has been endorsed are
transferred, each new certificate issued for them shall bear a similar legend,
together with the name of the original dissenting holder of such shares. Upon
receiving a demand for payment from a dissenting shareholder who is the record
holder of uncertificated securities, the corporation shall make an appropriate
notation of the demand for payment in its shareholder records. If uncertificated
shares for which payment has been demanded are to be transferred, any new
certificate issued for the shares shall bear the legend required for
certificated securities as provided in this paragraph. A transferee of the
shares so endorsed, or of uncertificated securities where such notation has been
made, acquires only such rights in the corporation as the original dissenting
holder of such shares had immediately after the service of a demand for payment
of the fair cash value of the shares. A request under this paragraph by the
corporation is not an admission by the corporation that the shareholder is
entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to
an agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with interest at
such rate and from such date as the court considers equitable. The costs of the
proceeding, including reasonable compensation to the appraisers to be fixed by
the court, shall be assessed or apportioned as the court considers equitable.
The proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict
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<PAGE>
with those rules, Chapter 2505. of the Revised Code. If, during the pendency of
any proceeding instituted under this section, a suit or proceeding is or has
been instituted to enjoin or otherwise to prevent the carrying out of the action
as to which the shareholder has dissented, the proceeding instituted under this
section shall be stayed until the final determination of the other suit or
proceeding. Unless any provision in division (D) of this section is applicable,
the fair cash value of the shares that is agreed upon by the parties or 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 the payment is made.
(C) If the proposal was required to be submitted to the shareholders of
the corporation, fair cash value as to those shareholders shall be determined as
of the day prior to the day on which the vote by the shareholders was taken and,
in the case of a merger pursuant to section 1701.80 or 1701.801 of the Revised
Code, fair cash value as to shareholders of a constituent subsidiary corporation
shall be determined as of the day before the adoption of the agreement of merger
by the directors of the particular subsidiary corporation. The fair cash value
of a share for the purposes of this section is the amount that a willing seller
who is under no compulsion to sell would be willing to accept and that a willing
buyer who is under no compulsion to purchase would be willing to pay, but in no
event shall the fair cash value of a share exceed the amount specified in the
demand of the particular shareholder. In computing such fair cash value, any
appreciation or depreciation in market value resulting from the proposal
submitted to the directors or to the shareholders shall be excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind their
adoption of the action involved;
(c) The dissenting shareholder withdraws his demand, with the
consent of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to
an agreement as to the fair cash value per share, and neither the shareholder
nor the corporation has filed or joined in a complaint under division (B) of
this section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger
or consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend,
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distribution, or interest is paid in money upon any securities issued in
extinguishment of or in substitution for such shares, an amount equal to the
dividend, distribution, or interest which, except for the suspension, would have
been payable upon such shares or securities, shall be paid to the holder of
record as a credit upon the fair cash value of the shares. If the right to
receive fair cash value is terminated other than by the purchase of the shares
by the corporation, all rights of the holder shall be restored and all
distributions which, except for the suspension, would have been made shall be
made to the holder of record of the shares at the time of termination.
Effective date: 7-1-1994
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APPENDIX D
PEOPLES COMMUNITY BANCORP, INC.
2001 STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Peoples Community Bancorp, Inc. (the "Corporation") hereby establishes
this 2001 Stock Option Plan (the "Plan") upon the terms and conditions
hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of
the Corporation and its Subsidiary Companies by providing Employees and
Non-Employee Directors with a proprietary interest in the Corporation as an
incentive to contribute to the success of the Corporation and the Subsidiary
Companies, and rewarding Employees and Non-Employee Directors for outstanding
performance. All Incentive Stock Options issued under this Plan are intended to
comply with the requirements of Section 422 of the Code, and the regulations
thereunder, and all provisions hereunder shall be read, interpreted and applied
with that purpose in mind. Each recipient of an Award hereunder is advised to
consult with his or her personal tax advisor with respect to the tax
consequences under federal, state, local and other tax laws of the receipt
and/or exercise of an Award hereunder.
ARTICLE III
DEFINITIONS
3.01 "Award" means an Option or Stock Appreciation Right granted
pursuant to the terms of this Plan.
3.02 "Bank" means Peoples Community Bank, the wholly owned subsidiary
of the Corporation.
3.03 "Board" means the Board of Directors of the Corporation.
3.04 "Change in Control of the Corporation" shall mean the
occurrence of any of the following: (i) the acquisition of control of the
Corporation as defined in 12 C.F.R. Section 574.4, unless a presumption of
control is successfully rebutted or unless the transaction is exempted by 12
C.F.R. Section 574.3(c)(vii), or any successor to such sections; (ii) an
event that would be required to be reported in response to Item 1(a)of Form
8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the Exchange
Act, or any successor thereto, whether or not any class of securities of the
Corporation is registered under the Exchange Act; (iii) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing 20% or
more of the combined voting power of the Corporation's then outstanding
securities except for any securities purchased by the Corporation or the
Bank; or (iv) during any period of thirty-six consecutive months during the
term of an Option, individuals who at the beginning of such period constitute
the Board of Directors of the Corporation cease for any reason to constitute
at least a majority thereof unless the election, or the nomination for
election by stockholders, of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were directors at
the beginning of the period.
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3.05 "Code" means the Internal Revenue Code of 1986, as amended.
3.06 "Committee" means a committee of two or more directors appointed
by the Board pursuant to Article IV hereof each of whom shall be a Non-Employee
Director as defined in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor
thereto and within the meaning of Section 162(m) of the Code and the regulations
promulgated thereunder.
3.07 "Common Stock" means shares of the common stock, par value $.01
per share, of the Corporation.
3.08 "Disability" means any physical or mental impairment which
qualifies an individual for disability benefits under the applicable long-term
disability plan maintained by the Corporation or a Subsidiary Company, or, if no
such plan applies, which would qualify such individual for disability benefits
under the long-term disability plan maintained by the Corporation, if such
individual were covered by that plan.
3.09 "Effective Date" means the day upon which the Board approves this
Plan.
3.10 "Employee" means any person who is employed by the Corporation,
the Bank or any Subsidiary Company, or is an Officer of the Corporation, the
Bank or any Subsidiary Company, but not including directors who are not also
Officers of or otherwise employed by the Corporation, the Bank or any Subsidiary
Company.
3.11 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
3.12 "Fair Market Value" shall be equal to the fair market value per
share of the Corporation's Common Stock on the date an Award is granted. For
purposes hereof, the Fair Market Value of a share of Common Stock shall be the
closing sale price of a share of Common Stock on the date in question (or, if
such day is not a trading day in the U.S. markets, on the nearest preceding
trading day), as reported with respect to the principal market (or the composite
of the markets, if more than one) or national quotation system in which such
shares are then traded, or if no such closing prices are reported, the mean
between the high bid and low asked prices that day on the principal market or
national quotation system then in use, or if no such quotations are available,
the price furnished by a professional securities dealer making a market in such
shares selected by the Committee.
3.13 "Incentive Stock Option" means any Option granted under this Plan
which the Board intends (at the time it is granted) to be an incentive stock
option within the meaning of Section 422 of the Code or any successor thereto.
3.14 "Non-Employee Director" means a member of the Board of the
Corporation or Board of Directors of the Bank or any successor thereto,
including an Advisory Director or a Director Emeritus of the Boards of the
Corporation and/or the Bank, who is not an Officer or Employee of the
Corporation, the Bank or any Subsidiary Company.
3.15 "Non-Qualified Option" means any Option granted under this Plan
which is not an Incentive Stock Option.
3.16 "Offering" means the offering of Common Stock to the public in
connection with the conversion of the Bank to the stock form of organization and
the issuance of the capital stock of the Bank to the Corporation.
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3.17 "Officer" means an Employee whose position in the Corporation or a
Subsidiary Company is that of a corporate officer, as determined by the Board.
3.18 "Option" means a right granted under this Plan to purchase Common
Stock.
3.19 "Optionee" means an Employee or Non-Employee Director or former
Employee or Non-Employee Director to whom an Option is granted under the Plan.
3.20 "Retirement" means a termination of employment which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained the
Corporation or a Subsidiary Company, or, if no such plan is applicable, which
would constitute "retirement" under the Corporation's pension benefit plan, if
such individual were a participant in that plan.
3.21 "Stock Appreciation Right" means a right to surrender an Option in
consideration for a payment by the Corporation in cash and/or Common Stock, as
provided in the discretion of the Board or the Committee in accordance with
Section 8.10.
3.22 "Subsidiary Companies" means those subsidiaries of the
Corporation, including the Bank, which meet the definition of "subsidiary
corporations" set forth in Section 424(f) of the Code, at the time of granting
of the Option in question.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 DUTIES OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, as appointed from time to time by the Board
pursuant to Section 4.02. The Committee shall have the authority to adopt, amend
and rescind such rules, regulations and procedures as, in its opinion, may be
advisable in the administration of the Plan, including, without limitation,
rules, regulations and procedures which (i) deal with satisfaction of an
Optionee's tax withholding obligation pursuant to Section 12.02 hereof, (ii)
include arrangements to facilitate the Optionee's ability to borrow funds for
payment of the exercise or purchase price of an Award, if applicable, from
securities brokers and dealers, (iii) establish the method and arrangements by
which an optionee may defer a Non-Qualified Option or Stock Appreciation Right
pursuant to Article XIII hereof, and (iv) include arrangements which provide for
the payment of some or all of such exercise or purchase price by delivery of
previously-owned shares of Common Stock or other property and/or by withholding
some of the shares of Common Stock which are being acquired. The interpretation
and construction by the Committee of any provisions of the Plan, any rule,
regulation or procedure adopted by it pursuant thereto or of any Award shall be
final and binding in the absence of action by the Board.
4.02 APPOINTMENT AND OPERATION OF THE COMMITTEE. The members of the
Committee shall be appointed by, and will serve at the pleasure of, the Board.
The Board from time to time may remove members from, or add members to, the
Committee, provided the Committee shall continue to consist of two or more
members of the Board, each of whom shall be a Non-Employee Director, as defined
in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor thereto. In
addition, each member of the Committee shall be an "outside director" within the
meaning of Section 162(m) of the Code and regulations thereunder at such times
as is required under such regulations. The Committee shall act by vote or
written consent of a majority of its members. Subject to the express provisions
and limitations of the Plan, the Committee may adopt such rules, regulations and
procedures as it deems appropriate for the conduct of its affairs. It may
appoint one of its members to be chairman and any person, whether or not a
member, to be its secretary or agent. The
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Committee shall report its actions and decisions to the Board at appropriate
times but in no event less than one time per calendar year.
4.03 REVOCATION FOR MISCONDUCT. The Board or the Committee may by
resolution immediately revoke, rescind and terminate any Option, or portion
thereof, to the extent not yet vested, or any Stock Appreciation Right, to the
extent not yet exercised, previously granted or awarded under this Plan to an
Employee who is discharged from the employ of the Corporation or a Subsidiary
Company for cause, which, for purposes hereof, shall mean termination because of
the Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order. Options granted
to a Non-Employee Director who is removed for cause pursuant to the
Corporation's Certificate of Incorporation and Bylaws or the Bank's Charter and
Bylaws shall terminate as of the effective date of such removal.
4.04 LIMITATION ON LIABILITY. Neither the members of the Board nor any
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan, any rule, regulation or procedure adopted
by it pursuant thereto or any Awards granted under it. If a member of the Board
or the Committee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of anything done or not
done by him in such capacity under or with respect to the Plan, the Corporation
shall, subject to the requirements of applicable laws and regulations, indemnify
such member against all liabilities and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in the best interests of the
Corporation and its Subsidiary Companies and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
4.05 COMPLIANCE WITH LAW AND REGULATIONS. All Awards granted hereunder
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
The Corporation shall not be required to issue or deliver any certificates for
shares of Common Stock prior to the completion of any registration or
qualification of or obtaining of consents or approvals with respect to such
shares under any federal or state law or any rule or regulation of any
government body, which the Corporation shall, in its sole discretion, determine
to be necessary or advisable. Moreover, no Option or Stock Appreciation Right
may be exercised if such exercise would be contrary to applicable laws and
regulations.
4.06 RESTRICTIONS ON TRANSFER. The Corporation may place a legend upon
any certificate representing shares acquired pursuant to an Award granted
hereunder noting that the transfer of such shares may be restricted by
applicable laws and regulations.
ARTICLE V
ELIGIBILITY
Awards may be granted to such Employees and Non-Employee Directors of
the Corporation and the Subsidiary Companies as may be designated from time to
time by the Board or the Committee. Awards may not be granted to individuals who
are not Employees or Non-Employee Directors of either the Corporation or its
Subsidiary Companies. Non-Employee Directors shall be eligible to receive only
Awards of Non-Qualified Options pursuant to this Plan.
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ARTICLE VI
COMMON STOCK COVERED BY THE PLAN
6.01 OPTION SHARES. The aggregate number of shares of Common Stock
which may be issued pursuant to this Plan, subject to adjustment as provided
in Article IX, shall be 197,773, which is equal to 10% of the shares of
Common Stock outstanding as of the Effective Date. None of such shares shall
be the subject of more than one Award at any time, but if an Option as to any
shares is surrendered before exercise, or expires or terminates for any
reason without having been exercised in full, or for any other reason ceases
to be exercisable, the number of shares covered thereby shall again become
available for grant under the Plan as if no Awards had been previously
granted with respect to such shares. Notwithstanding the foregoing, if an
Option is surrendered in connection with the exercise of a Stock Appreciation
Right, the number of shares covered thereby shall not be available for grant
under the Plan. During the time this Plan remains in effect, grants to each
Employee and each Non-Employee Director shall not exceed 25% and 5% of the
shares of Common Stock available under the Plan, respectively. Awards made to
Non-Employee Directors in the aggregate may not exceed 30% of the number of
shares available under this Plan.
6.02 SOURCE OF SHARES. The shares of Common Stock issued under the Plan
may be authorized but unissued shares, treasury shares or shares purchased by
the Corporation on the open market or from private sources for use under the
Plan.
ARTICLE VII
DETERMINATION OF
AWARDS, NUMBER OF SHARES, ETC.
The Board or the Committee shall, in its discretion, determine from
time to time which Employees and Non-Employee Directors will be granted Awards
under the Plan, the number of shares of Common Stock subject to each Award,
whether each Option will be an Incentive Stock Option or a Non-Qualified Stock
Option (in the case of Employees) and the exercise price of an Option. In making
all such determinations there shall be taken into account the duties,
responsibilities and performance of each respective Employee and Non-Employee
Director, his present and potential contributions to the growth and success of
the Corporation, his salary and such other factors deemed relevant to
accomplishing the purposes of the Plan.
ARTICLE VIII
OPTIONS AND STOCK APPRECIATION RIGHTS
Each Option granted hereunder shall be on the following terms and
conditions:
8.01 STOCK OPTION AGREEMENT. The proper Officers on behalf of the
Corporation and each Optionee shall execute a Stock Option Agreement which shall
set forth the total number of shares of Common Stock to which it pertains, the
exercise price, whether it is a Non-Qualified Option or an Incentive Stock
Option, and such other terms, conditions, restrictions and privileges as the
Board or the Committee in each instance shall deem appropriate, provided they
are not inconsistent with the terms, conditions and provisions of this Plan.
Each Optionee shall receive a copy of his executed Stock Option Agreement.
8.02 OPTION EXERCISE PRICE.
(a) INCENTIVE STOCK OPTIONS. The per share price at which the subject
Common Stock may be purchased upon exercise of an Incentive Stock Option shall
be no less than one hundred percent (100%) of the Fair Market Value of a share
of Common Stock at the time such Incentive Stock Option is granted, except as
provided in Section 8.09(b).
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(b) NON-QUALIFIED OPTIONS. The per share price at which the subject
Common Stock may be purchased upon exercise of a Non-Qualified Option shall be
established by the Committee at the time of grant, but in no event shall be less
than the one hundred percent (100%) of the Fair Market Value of a share of
Common Stock at the time such Non-Qualified Option is granted.
8.03 VESTING AND EXERCISE OF OPTIONS.
(a) GENERAL RULES. Incentive Stock Options and Non-Qualified
Options to Optionees shall become vested and exercisable at the rate of 20% per
year over five years, commencing one year from the date of grant and an
additional 20% shall vest on each successive anniversary of the date the Option
was granted, and the right to exercise shall be cumulative. Notwithstanding the
foregoing, except as provided in Section 8.03(b) hereof, no vesting shall occur
on or after an Optionee's employment or service as a Non-Employee Director is
terminated for any reason other than his death or Disability. In determining the
number of shares of Common Stock with respect to which Options are vested and/or
exercisable, fractional shares will be rounded up to the nearest whole number if
the fraction is 0.5 or higher, and down if it is less.
(b) ACCELERATED VESTING. Unless the Board or the Committee shall
specifically state otherwise at the time an Option is granted, all Options
granted under this Plan shall become vested and exercisable in full on the date
an Optionee terminates his employment with the Corporation or a Subsidiary
Company or service as a Non-Employee Director because of his death or
Disability. All Options hereunder shall become immediately vested and
exercisable in full on the date an Optionee terminates his employment with the
Corporation or a Subsidiary Corporation due to Retirement if as of the date of
such Retirement (i) such treatment is either authorized or is not prohibited by
applicable laws and regulations, or (ii) an amendment to the Plan providing for
such treatment has been approved by the stockholders of the Corporation at a
meeting of stockholders held more than one year after the consummation of the
Offering. In addition, all Options hereunder shall become immediately vested and
exercisable in full as of the effective date of a Change in Control of the
Corporation if as of the date of such Change in Control of the Corporation (i)
such treatment is either authorized or is not prohibited by applicable laws and
regulations or (ii) an amendment to the Plan providing for such treatment has
been approved by the stockholders of the Corporation at a meeting of
stockholders held more than one year after consummation of the Offering.
8.04 DURATION OF OPTIONS.
(a) GENERAL RULE. Except as provided in Sections 8.04(b) and 8.09,
each Option or portion thereof granted to an Employee shall be exercisable at
any time on or after it vests and becomes exercisable until the earlier of (i)
ten (10) years after its date of grant or (ii) six (6) months after the date on
which the Employee ceases to be employed by the Corporation and all Subsidiary
Companies, unless the Board or the Committee in its discretion decides at the
time of grant or thereafter to extend such period of exercise upon termination
of employment to a period not exceeding five (5) years.
Except as provided in Section 8.04(b), each Option or portion thereof
granted to a Non-Employee Director shall be exercisable at any time on or after
it vests and becomes exercisable until the earlier of (i) ten (10) years after
its date of grant or (ii) one (1) year after the date on which the Non-Employee
Director ceases to serve as a director of the Corporation and all Subsidiary
Companies, unless the Board or the Committee in its discretion decides at the
time of grant or thereafter to extend such period of exercise upon termination
of service to a period not exceeding five (5) years.
(b) EXCEPTIONS. Unless the Board or the Committee shall
specifically state otherwise at the time an Option is granted: (i) if an
Employee terminates his employment with the Corporation or a
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Subsidiary Company as a result of Disability or Retirement without having fully
exercised his Options, the Employee shall have the right, during the three (3)
year period following his termination due to Disability or Retirement, to
exercise such Options, and (ii) if a Non-Employee Director terminates his
service as a director with the Corporation or a Subsidiary Company as a result
of Disability or Retirement without having fully exercised his Options, the
Non-Employee Director shall have the right, during the three (3) year period
following his termination due to Disability or Retirement, to exercise such
Options.
Unless the Board or the Committee shall specifically state otherwise at
the time an Option is granted, if an Employee or Non-Employee Director
terminates his employment or service with the Corporation or a Subsidiary
Company following a Change in Control of the Corporation without having fully
exercised his Options, the Optionee shall have the right to exercise such
Options during the remainder of the original ten (10) year term of the Option
from the date of grant.
If an Optionee dies while in the employ or service of the Corporation
or a Subsidiary Company or terminates employment or service with the Corporation
or a Subsidiary Company as a result of Disability or Retirement and dies without
having fully exercised his Options, the executors, administrators, legatees or
distributees of his estate shall have the right, during the one (1) year period
following his death, to exercise such Options.
In no event, however, shall any Option be exercisable more than ten
(10) years from the date it was granted.
8.05 NONASSIGNABILITY. Options shall not be transferable by an Optionee
except by will or the laws of descent or distribution, and during an Optionee's
lifetime shall be exercisable only by such Optionee or the Optionee's guardian
or legal representative. Notwithstanding the foregoing, or any other provision
of this Plan, an Optionee who holds Non-Qualified Options may transfer such
Options to his or her spouse, lineal ascendants, lineal descendants, or to a
duly established trust for the benefit of one or more of these individuals.
Options so transferred may thereafter be transferred only to the Optionee who
originally received the grant or to an individual or trust to whom the Optionee
could have initially transferred the Option pursuant to this Section 8.05.
Options which are transferred pursuant to this Section 8.05 shall be exercisable
by the transferee according to the same terms and conditions as applied to the
Optionee.
8.06 MANNER OF EXERCISE. Options may be exercised in part or in whole
and at one time or from time to time. The procedures for exercise shall be set
forth in the written Stock Option Agreement provided for in Section 8.01 above.
8.07 PAYMENT FOR SHARES. Payment in full of the purchase price for
shares of Common Stock purchased pursuant to the exercise of any Option shall be
made to the Corporation upon exercise of the Option. All shares sold under the
Plan shall be fully paid and nonassessable. Payment for shares may be made by
the Optionee (i) in cash or by check, (ii) by delivery of a properly executed
exercise notice, together with irrevocable instructions to a broker to sell the
shares and then to properly deliver to the Corporation the amount of sale
proceeds to pay the exercise price, all in accordance with applicable laws and
regulations, or (iii) at the discretion of the Committee, by delivering shares
of Common Stock (including shares acquired pursuant to the exercise of an
Option) equal in Fair Market Value to the purchase price of the shares to be
acquired pursuant to the Option, by withholding some of the shares of Common
Stock which are being purchased upon exercise of an Option, or any combination
of the foregoing. With respect to subclause (iii) hereof, the shares of Common
Stock delivered to pay the purchase price must have either been (a) purchased in
open market transactions or (b) issued by the Corporation pursuant to a plan
thereof, in each case more than six months prior to the exercise date of the
Option.
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8.08 VOTING AND DIVIDEND RIGHTS. No Optionee shall have any voting or
dividend rights or other rights of a stockholder in respect of any shares of
Common Stock covered by an Option prior to the time that his name is recorded on
the Corporation's stockholder ledger as the holder of record of such shares
acquired pursuant to an exercise of an Option.
8.09 ADDITIONAL TERMS APPLICABLE TO INCENTIVE STOCK OPTIONS. All
Options issued under the Plan as Incentive Stock Options will be subject, in
addition to the terms detailed in Sections 8.01 to 8.08 above, to those
contained in this Section 8.09.
(a) Notwithstanding any contrary provisions contained elsewhere in
this Plan and as long as required by Section 422 of the Code, the aggregate Fair
Market Value, determined as of the time an Incentive Stock Option is granted, of
the Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Optionee during any calendar year under this Plan, and
stock options that satisfy the requirements of Section 422 of the Code under any
other stock option plan or plans maintained by the Corporation (or any parent or
Subsidiary Company), shall not exceed $100,000.
(b) LIMITATION ON TEN PERCENT STOCKHOLDERS. The price at which
shares of Common Stock may be purchased upon exercise of an Incentive Stock
Option granted to an individual who, at the time such Incentive Stock Option is
granted, owns, directly or indirectly, more than ten percent (10%) of the total
combined voting power of all classes of stock issued to stockholders of the
Corporation or any Subsidiary Company, shall be no less than one hundred and ten
percent (110%) of the Fair Market Value of a share of the Common Stock of the
Corporation at the time of grant, and such Incentive Stock Option shall by its
terms not be exercisable after the earlier of the date determined under Section
8.03 or the expiration of five (5) years from the date such Incentive Stock
Option is granted.
(c) NOTICE OF DISPOSITION; WITHHOLDING; ESCROW. An Optionee shall
immediately notify the Corporation in writing of any sale, transfer, assignment
or other disposition (or action constituting a disqualifying disposition within
the meaning of Section 421 of the Code) of any shares of Common Stock acquired
through exercise of an Incentive Stock Option, within two (2) years after the
grant of such Incentive Stock Option or within one (1) year after the
acquisition of such shares, setting forth the date and manner of disposition,
the number of shares disposed of and the price at which such shares were
disposed of. The Corporation shall be entitled to withhold from any compensation
or other payments then or thereafter due to the Optionee such amounts as may be
necessary to satisfy any withholding requirements of federal or state law or
regulation and, further, to collect from the Optionee any additional amounts
which may be required for such purpose. The Committee or the Board may, in its
discretion, require shares of Common Stock acquired by an Optionee upon exercise
of an Incentive Stock Option to be held in an escrow arrangement for the purpose
of enabling compliance with the provisions of this Section 8.09(c).
8.10 STOCK APPRECIATION RIGHTS.
(a) GENERAL TERMS AND CONDITIONS. The Board or the Committee may,
but shall not be obligated to, authorize the Corporation, on such terms and
conditions as it deems appropriate in each case, to grant rights to Optionees to
surrender an exercisable Option, or any portion thereof, in consideration for
the payment by the Corporation of an amount equal to the excess of the Fair
Market Value of the shares of Common Stock subject to the Option, or portion
thereof, surrendered over the exercise price of the Option with respect to such
shares (any such authorized surrender and payment being hereinafter referred to
as a "Stock Appreciation Right"). Such payment, at the discretion of the Board
or the Committee, may be made in shares of Common Stock valued at the then Fair
Market Value thereof, or in cash, or partly in cash and partly in shares of
Common Stock.
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The terms and conditions with respect to a Stock Appreciation Right may
include (without limitation), subject to other provisions of this Section 8.10
and the Plan: the period during which, date by which or event upon which the
Stock Appreciation Right may be exercised; the method for valuing shares of
Common Stock for purposes of this Section 8.10; a ceiling on the amount of
consideration which the Corporation may pay in connection with exercise and
cancellation of the Stock Appreciation Right; and arrangements for income tax
withholding. The Board or the Committee shall have complete discretion to
determine whether, when and to whom Stock Appreciation Rights may be granted.
(b) TIME LIMITATIONS. If a holder of a Stock Appreciation Right
terminates service with the Corporation as an Officer or Employee, the Stock
Appreciation Right may be exercised only within the period, if any, within which
the Option to which it relates may be exercised.
(c) EFFECTS OF EXERCISE OF STOCK APPRECIATION RIGHTS OR OPTIONS. Upon
the exercise of a Stock Appreciation Right, the number of shares of Common Stock
available under the Option to which it relates shall decrease by a number equal
to the number of shares for which the Stock Appreciation Right was exercised.
Upon the exercise of an Option, any related Stock Appreciation Right shall
terminate as to any number of shares of Common Stock subject to the Stock
Appreciation Right that exceeds the total number of shares for which the Option
remains unexercised.
(d) TIME OF GRANT. A Stock Appreciation Right granted in connection
with an Incentive Stock Option must be granted concurrently with the Option to
which it relates, while a Stock Appreciation Right granted in connection with a
Non-Qualified Option may be granted concurrently with the Option to which it
relates or at any time thereafter prior to the exercise or expiration of such
Option.
(e) NON-TRANSFERABLE. The holder of a Stock Appreciation Right may not
transfer or assign the Stock Appreciation Right otherwise than by will or in
accordance with the laws of descent and distribution, and during a holder's
lifetime a Stock Appreciation Right may be exercisable only by the holder.
ARTICLE IX
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for issuance
under this Plan, the number of shares to which any outstanding Award relates,
the maximum number of shares that can be covered by Award to each Employee and
each Non-Employee Director and the exercise price per share of Common Stock
under any outstanding Option shall be proportionately adjusted for any increase
or decrease in the total number of outstanding shares of Common Stock issued
subsequent to the effective date of this Plan resulting from a split,
subdivision or consolidation of shares or any other capital adjustment, the
payment of a stock dividend, or other increase or decrease in such shares
effected without receipt or payment of consideration by the Corporation. If,
upon a merger, consolidation, reorganization, liquidation, recapitalization or
the like of the Corporation, the shares of the Corporation's Common Stock shall
be exchanged for other securities of the Corporation or of another corporation,
each recipient of an Award shall be entitled, subject to the conditions herein
stated, to purchase or acquire such number of shares of Common Stock or amount
of other securities of the Corporation or such other corporation as were
exchangeable for the number of shares of Common Stock of the Corporation which
such optionees would have been entitled to purchase or acquire except for such
action, and appropriate adjustments shall be made to the per share exercise
price of outstanding Options. Notwithstanding any provision to the contrary
herein and to the extent permitted by applicable laws and regulations and
interpretations thereof, the exercise price of shares subject to outstanding
Awards may be proportionately adjusted upon the payment of a special large and
nonrecurring dividend that has the effect of a return of capital to the
stockholders, providing that the adjustment to the per share exercise price
shall satisfy the criteria set forth in Emerging Issues Task Force 90-9 (or any
successor thereto) so that the adjustments do
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not result in compensation expense, and provided further that if such adjustment
with respect to incentive stock options would be treated as a modification of
the outstanding incentive stock options with the effect that, for purposes of
Sections 422 and 425(h) of the Code, and the rules and regulations promulgated
thereunder, new Incentive Stock Options would be deemed to be granted hereunder,
then no adjustment to the per share exercise price of outstanding stock options
shall be made.
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate or amend the Plan
with respect to any shares of Common Stock as to which Awards have not been
granted, subject to any required stockholder approval or any stockholder
approval which the Board may deem to be advisable for any reason, such as for
the purpose of obtaining or retaining any statutory or regulatory benefits under
tax, securities or other laws or satisfying any applicable stock exchange
listing requirements. The Board may not, without the consent of the holder of an
Award, alter or impair any Award previously granted or awarded under this Plan
except as specifically authorized herein.
ARTICLE XI
EMPLOYMENT AND SERVICE RIGHTS
Neither the Plan nor the grant of any Awards hereunder nor any action
taken by the Committee or the Board in connection with the Plan shall create any
right on the part of any Employee or Non-Employee Director to continue in such
capacity.
ARTICLE XII
WITHHOLDING
12.01 TAX WITHHOLDING. The Corporation may withhold from any cash
payment made under this Plan sufficient amounts to cover any applicable
withholding and employment taxes, and if the amount of such cash payment is
insufficient, the Corporation may require the Optionee to pay to the Corporation
the amount required to be withheld as a condition to delivering the shares
acquired pursuant to an Award. The Corporation also may withhold or collect
amounts with respect to a disqualifying disposition of shares of Common Stock
acquired pursuant to exercise of an Incentive Stock Option, as provided in
Section 8.09(c).
12.02 METHODS OF TAX WITHHOLDING. The Board or the Committee is
authorized to adopt rules, regulations or procedures which provide for the
satisfaction of an Optionee's tax withholding obligation by the retention of
shares of Common Stock to which the Employee would otherwise be entitled
pursuant to an Award and/or by the Optionee's delivery of previously owned
shares of Common Stock or other property.
ARTICLE XIII
DEFERRED PAYMENTS
13.01 DEFERRAL OF OPTIONS AND STOCK APPRECIATION RIGHTS.
Notwithstanding any other provision of this Plan, any Optionee may elect, with
the approval of the Committee and consistent with any rules and regulations
established by the Board, to defer the delivery of the proceeds of the exercise
of any Non-Qualified Option not transferred under the provisions of Section 8.05
hereof and Stock Appreciation Rights.
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13.02 TIMING OF ELECTION. The election to defer the delivery of the
proceeds from the exercise of any eligible Non-Qualified Option or Stock
Appreciation Right must be made at least six (6) months prior to the date such
Option or Stock Appreciation Right is exercised or at such other time as the
Committee may specify. Deferrals of eligible Non-Qualified Options or Stock
Appreciation Rights shall only be allowed for exercises of Options and Stock
Appreciation Rights that occur while the Participant is in active service with
the Corporation or one of the Subsidiary Companies. Any election to defer the
proceeds from the exercise of an eligible Non-Qualified Option or Stock
Appreciation Right shall be irrevocable as long as the Optionee remains an
Employee or an Non-Employee Director.
ARTICLE XIV
EFFECTIVE DATE OF THE PLAN; TERM
14.01 EFFECTIVE DATE OF THE PLAN. This Plan shall become effective on
the Effective Date, and Awards may be granted hereunder no earlier than the date
that this Plan is approved by stockholders of the Corporation and prior to the
termination of the Plan, provided that this Plan is approved by stockholders of
the Corporation pursuant to Article XV hereof.
14.02 TERM OF THE PLAN. Unless sooner terminated, this Plan shall
remain in effect for a period of ten (10) years ending on the tenth anniversary
of the Effective Date. Termination of the Plan shall not affect any Awards
previously granted and such Awards shall remain valid and in effect until they
have been fully exercised or earned, are surrendered or by their terms expire or
are forfeited.
ARTICLE XV
STOCKHOLDER APPROVAL
The Corporation shall submit this Plan to stockholders for approval at
a meeting of stockholders of the Corporation held within twelve (12) months
following the Effective Date in order to meet the requirements of (i) Section
422 of the Code and regulations thereunder, (ii) Section 162(m) of the Code and
regulations thereunder, (iii) the Nasdaq Stock Market for continued quotation of
the Common Stock on the Nasdaq Stock Market and (iv) the regulations of the
Office of Thrift Supervision.
ARTICLE XVI
MISCELLANEOUS
16.01 GOVERNING LAW. To the extent not governed by federal law, this
Plan shall be construed under the laws of the State of Ohio.
16.02 PRONOUNS. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun, and the singular shall include the plural.
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APPENDIX E
PEOPLES COMMUNITY BANCORP, INC.
2001 RECOGNITION AND RETENTION PLAN AND TRUST AGREEMENT
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 Peoples Community Bancorp, Inc. (the "Corporation") hereby
establishes the 2001 Recognition and Retention Plan (the "Plan") and Trust (the
"Trust") upon the terms and conditions hereinafter stated in this 2001
Recognition and Retention Plan and Trust Agreement (the "Agreement").
1.02 The Trustees hereby accept this Trust and agrees to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of the Plan is to retain personnel of experience and
ability in key positions by providing Employees and Non-Employee Directors with
a proprietary interest in the Corporation and its Subsidiary Companies as
compensation for their contributions to the Corporation and the Subsidiary
Companies and as an incentive to make such contributions in the future. Each
Recipient of a Plan Share Award hereunder is advised to consult with his or her
personal tax advisor with respect to the tax consequences under federal, state,
local and other tax laws of the receipt of a Plan Share Award hereunder.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Agreement with an
initial capital letter, unless the context clearly indicates otherwise, shall
have the meanings set forth below. Wherever appropriate, the masculine pronouns
shall include the feminine pronouns and the singular shall include the plural.
3.01 "Bank" means Peoples Community Bank, the wholly owned subsidiary
of the Corporation.
3.02 "Beneficiary" means the person or persons designated by a
Recipient to receive any benefits payable under the Plan in the event of such
Recipient's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.
3.03 "Board" means the Board of Directors of the Corporation.
3.04 "Change in Control of the Corporation" shall mean the
occurrence of any of the following: (i) the acquisition of control of the
Corporation as defined in 12 C.F.R. Section 574.4, unless a presumption of
control is successfully rebutted or unless the transaction is exempted by 12
C.F.R. Section 574.3(c)(vii), or any successor to such sections; (ii) an
event that would be required to be reported in response to Item 1(a) of Form
8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the Exchange
Act or any successor
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thereto, whether or not any class of securities of the Corporation is registered
under the Exchange Act; (iii) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing 20% or more of the combined voting
power of the Corporation's then outstanding securities except for any securities
purchased by the Corporation or the Bank; or (iv) during any period of
thirty-six consecutive months during the term of a Plan Share Award, individuals
who at the beginning of such period constitute the Board of Directors of the
Corporation cease for any reason to constitute at least a majority thereof
unless the election, or the nomination for election by stockholders, of each new
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
3.05 "Code" means the Internal Revenue Code of 1986, as amended.
3.06 "Committee" means the committee appointed by the Board pursuant to
Article IV hereof.
3.07 "Common Stock" means shares of the common stock, $.01 par value
per share, of the Corporation.
3.08 "Disability" means any physical or mental impairment which
qualifies an individual for disability benefits under the applicable long-term
disability plan maintained by the Corporation or a Subsidiary Company or, if no
such plan applies, which would qualify such individual for disability benefits
under the long-term disability plan maintained by the Corporation, if such
individual were covered by that plan.
3.09 "Effective Date" means the day upon which the Board approves this
Plan.
3.10 "Employee" means any person who is employed by the Corporation,
the Bank, or any Subsidiary Company, or is an Officer of the Corporation, the
Bank, or any Subsidiary Company, but not including directors who are not also
Officers of or otherwise employed by the Corporation, the Bank or a Subsidiary
Company.
3.11 "Employer Group" means the Corporation and any Subsidiary Company
which, with the consent of the Board, agrees to participate in the Plan.
3.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
3.13 "Non-Employee Director" means a member of the Board of the
Corporation or the Board of Directors of the Bank or any successor thereto,
including an Advisory Director or a Director Emeritus of the Boards of the
Corporation and/or the Bank, who is not an Officer or Employee of the
Corporation or the Bank or any Subsidiary Company.
3.14 "Offering" means the offering of Common Stock to the public in
connection with the conversion of the Bank to the stock form of organization and
the issuance of the capital stock of the Bank to the Corporation.
3.15 "Officer" means an Employee whose position in the Corporation or a
Subsidiary Company is that of a corporate officer, as determined by the Board.
3.16 "Performance Share Award" means a Plan Share Award granted to a
Recipient pursuant to Section 7.05 of the Plan.
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3.17 "Performance Goal" means an objective for the Corporation or any
Subsidiary Company or any unit thereof or any Employee of the foregoing that may
be established by the Committee for a Performance Share Award to become vested,
earned or exercisable. The establishment of Performance Goals are intended to
make the applicable Performance Share Awards "performance-based" compensation
within the meaning of Section 162(m) of the Code, and the Performance Goals
shall be based on one or more of the following criteria:
(i) net income, as adjusted for non-recurring items;
(ii) cash earnings;
(iii) earnings per share;
(iv) cash earnings per share;
(v) return on average equity;
(vi) return on average assets;
(vii) assets;
(viii) stock price;
(ix) total stockholder return;
(x) capital;
(xi) net interest income;
(xii) market share;
(xiii) cost control or efficiency ratio; and
(xiv) asset growth.
3.19 "Plan Shares" or "Shares" means shares of Common Stock which may
be distributed to a Recipient pursuant to the Plan.
3.20 "Plan Share Award" or "Award" means a right granted under this
Plan to receive a distribution of Plan Shares upon completion of the service
requirements described in Article VII, and includes Performance Share Awards.
3.21 "Recipient" means an Employee or Non-Employee Director who
receives a Plan Share Award or Performance Share Award under the Plan.
3.22 "Retirement" means a termination of employment which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained by
the Corporation or a Subsidiary Company, or, if no such plan is applicable,
which would constitute "retirement" under the Corporation's pension benefit
plan, if such individual were a participant in that plan.
3.23 "Subsidiary Companies" means those subsidiaries of the
Corporation, including the Bank, which meet the definition of "subsidiary
corporation" set forth in Section 424(f) of the Code, at the time of the
granting of the Plan Share Award in question.
3.24 "Trustee" means such firm, entity or persons approved by the Board
to hold legal title to the Plan and the Plan assets for the purposes set forth
herein.
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ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 DUTIES OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, which shall consist of two or more members of the
Board, each of whom shall be a Non-Employee Director, as defined in Rule
16b-3(b)(3)(i) of the Exchange Act. In addition, each member of the Committee
shall be an "outside director" within the meaning of Section 162(m) of the Code
and the regulations thereunder at such times as is required under such
regulations. The Committee shall have all of the powers allocated to it in this
and other Sections of the Plan. The interpretation and construction by the
Committee of any provisions of the Plan or of any Plan Share Award granted
hereunder shall be final and binding in the absence of action by the Board. The
Committee shall act by vote or written consent of a majority of its members.
Subject to the express provisions and limitations of the Plan, the Committee may
adopt such rules, regulations and procedures as it deems appropriate for the
conduct of its affairs. The Committee shall report its actions and decisions
with respect to the Plan to the Board at appropriate times, but in no event less
than once per calendar year.
4.02 ROLE OF THE BOARD. The members of the Committee and the Trustee
shall be appointed or approved by, and will serve at the pleasure of, the Board.
The Board may in its discretion from time to time remove members from, or add
members to, the Committee, and may remove or replace the Trustee, provided that
any directors who are selected as members of the Committee shall be Non-Employee
Directors.
4.03 LIMITATION ON LIABILITY. No member of the Board or the Committee
shall be liable for any determination made in good faith with respect to the
Plan or any Plan Shares or Plan Share Awards granted under it. If a member of
the Board or the Committee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of anything done or not
done by him in such capacity under or with respect to the Plan, the Corporation
shall, subject to the requirements of applicable laws and regulations, indemnify
such member against all liabilities and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in the best interests of the
Corporation and any Subsidiary Companies and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
4.04 COMPLIANCE WITH LAWS AND REGULATIONS. All Awards granted hereunder
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency or stockholders as
may be required.
4.05 RESTRICTIONS ON TRANSFER. The Corporation may place a legend upon
any certificate representing shares issued pursuant to a Plan Share Award noting
that such shares may be restricted by applicable laws and regulations.
ARTICLE V
CONTRIBUTIONS
5.01 AMOUNT AND TIMING OF CONTRIBUTIONS. The Board shall determine the
amount (or the method of computing the amount) and timing of any contributions
by the Corporation and any Subsidiary Companies to the Trust established under
this Plan. Such amounts may be paid in cash or in shares of
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Common Stock and shall be paid to the Trust at the designated time of
contribution. No contributions by Employees or Non-Employee Directors shall be
permitted.
5.02 INVESTMENT OF TRUST ASSETS; NUMBER OF PLAN SHARES. Subject to
Section 8.02 hereof, the Trustee shall invest all of the Trust's assets
primarily in Common Stock. The aggregate number of Plan Shares available for
distribution pursuant to this Plan shall be 79,109 shares of Common Stock,
subject to adjustment as provided in Section 10.01 hereof, which shares shall
be purchased (from the Corporation and/or, if permitted by applicable
regulations, from stockholders thereof) by the Trust with funds contributed
by the Corporation. During the time this Plan remains in effect, Awards to
each Employee and each Non-Employee Director shall not exceed 25% and 5% of
the shares of Common Stock available under the Plan, respectively. Plan Share
Awards to Non-Employee Directors in the aggregate shall not exceed 30% of the
number of shares available under this Plan.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 AWARDS. Plan Share Awards and Performance Share Awards may be made
to such Employees and Non-Employee Directors as may be selected by the Board or
the Committee. In selecting those Employees to whom Plan Share Awards and/or
Performance Share Awards may be granted and the number of Shares covered by such
Awards, the Board or the Committee shall consider the duties, responsibilities
and performance of each respective Employee and Non-Employee Director, his
present and potential contributions to the growth and success of the
Corporation, his salary and such other factors as deemed relevant to
accomplishing the purposes of the Plan. The Board or the Committee may but shall
not be required to request the written recommendation of the Chief Executive
Officer of the Corporation other than with respect to Plan Share Awards and/or
Performance Share Awards to be granted to him.
6.02 FORM OF ALLOCATION. As promptly as practicable after an allocation
pursuant to Sections 6.01 that a Plan Share Award or a Performance Share Award
is to be issued, the Board or the Committee shall notify the Recipient in
writing of the grant of the Award, the number of Plan Shares covered by the
Award, and the terms upon which the Plan Shares subject to the Award shall be
distributed to the Recipient. The date on which the Board or the Committee so
notifies the Recipient shall be considered the date of grant of the Plan Share
Award or the Performance Share Award. The Board or the Committee shall maintain
records as to all grants of Plan Share Awards or Performance Share Awards under
the Plan.
6.03 ALLOCATIONS NOT REQUIRED TO ANY SPECIFIC EMPLOYEE OR NON-EMPLOYEE
DIRECTOR. No Employee or Non-Employee Director shall have any right or
entitlement to receive a Plan Share Award hereunder, such Awards being at the
total discretion of the Board or the Committee.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 EARNING PLAN SHARES; FORFEITURES.
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(a) GENERAL RULES. Subject to the terms hereof, Plan Share Awards
granted shall be earned by a Recipient at the rate of twenty percent (20%) of
the aggregate number of Shares covered by the Award as of each annual
anniversary of the date of grant of the Award. If the employment of an Employee
or service as a Non-Employee Director is terminated prior to the fifth (5th)
annual anniversary of the date of grant of a Plan Share Award for any reason
(except as specifically provided in subsections (b), (c) and (d) below), the
Recipient shall forfeit the right to any Shares subject to the Award which have
not theretofore
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been earned. In the event of a forfeiture of the right to any Shares subject to
an Award, such forfeited Shares shall become available for allocation pursuant
to Section 6.01 hereof as if no Award had been previously granted with respect
to such Shares. No fractional shares shall be distributed pursuant to this Plan.
(b) EXCEPTION FOR TERMINATIONS DUE TO DEATH, DISABILITY OR
RETIREMENT. Notwithstanding the general rule contained in Section 7.01(a), all
Plan Shares subject to a Plan Share Award held by a Recipient whose employment
with the Corporation or any Subsidiary Company or service as a Non-Employee
Director terminates due to death or Disability shall be deemed earned as of the
Recipient's last day of employment with or service to the Corporation or any
Subsidiary Company (provided, however, no such accelerated vesting shall occur
if a Recipient remains employed by at least one member of the Employer Group)
and shall be distributed as soon as practicable thereafter. All Plan Shares
subject to a Plan Share Award held by a Recipient whose employment with the
Corporation or any Subsidiary Company or service as a Non-Employee Director
terminates due to Retirement shall be deemed earned as of the Recipient's last
day of employment with or service to the Corporation or any Subsidiary Company
(provided, however, no such accelerated vesting shall occur if a Recipient
remains employed by at least one member of the Employer Group) and shall be
distributed as soon as practicable thereafter if as of the date of such
Retirement (i) such treatment is either authorized or is not prohibited by
applicable laws and regulations, or (ii) such provision has been approved by
stockholders of the Corporation at a meeting of stockholders held more than one
(1) year after the consummation of the Offering.
(c) EXCEPTION FOR A CHANGE IN CONTROL OF THE CORPORATION.
Notwithstanding the general rule contained in Section 7.01(a), all Plan Shares
subject to a Plan Share Award held by a Recipient shall be deemed to be earned
as of the effective date of a Change in Control of the Corporation if, as of the
date of such Change in Control of the Corporation (i) such treatment is either
authorized or is not prohibited by applicable laws and regulations, or (ii) an
amendment to the Plan providing for such treatment has been approved by
stockholders of the Corporation at a meeting of the stockholders held more than
one (1) year after the consummation of the Offering.
(d) REVOCATION FOR MISCONDUCT. Notwithstanding anything
hereinafter to the contrary, the Board may by resolution immediately revoke,
rescind and terminate any Plan Share Award or Performance Share Award or portion
thereof, previously awarded under this Plan, to the extent Plan Shares have not
been distributed hereunder to the Recipient, whether or not yet earned, in the
case of an Employee who is discharged from the employ of the Corporation or any
Subsidiary Company for cause (as hereinafter defined). Termination for cause
shall mean termination because of the Employee's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order. Plan Share Awards granted to a Non-Employee
Director who is removed for cause pursuant to the Corporation's Certificate of
Incorporation and Bylaws or the Bank's Charter and Bylaws shall terminate as of
the effective date of such removal.
7.02 DISTRIBUTION OF DIVIDENDS. Any cash dividends (including special
large and nonrecurring dividends including any that has the effect of a return
of capital to the Corporation's stockholders) or stock dividends declared in
respect of each unvested Plan Share Award (including a Performance Share Award)
will be held by the Trust for the benefit of the Recipient on whose behalf such
Plan Share Award (including a Performance Share Award) is then held by the Trust
and such dividends, including any interest thereon, will be paid out
proportionately by the Trust to the Recipient thereof as soon as practicable
after the Plan Share Awards become earned. Any cash dividends or stock dividends
declared in respect of each vested Plan Share held by the Trust will be paid by
the Trust, as soon as practicable after the Trust's receipt thereof, to the
Recipient on whose behalf such Plan Share is then held by the Trust.
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7.03 DISTRIBUTION OF PLAN SHARES.
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(a) TIMING OF DISTRIBUTIONS: GENERAL RULE. Subject to the
provisions of Section 7.05 hereof, Plan Shares shall be distributed to the
Recipient or his Beneficiary, as the case may be, as soon as practicable after
they have been earned.
(b) FORM OF DISTRIBUTIONS. All Plan Shares, together with any
Shares representing stock dividends, shall be distributed in the form of Common
Stock. One share of Common Stock shall be given for each Plan Share earned and
distributable. Payments representing cash dividends shall be made in cash.
(c) WITHHOLDING. The Trustee may withhold from any cash payment or
Common Stock distribution made under this Plan sufficient amounts to cover any
applicable withholding and employment taxes, and if the amount of a cash payment
is insufficient, the Trustee may require the Recipient or Beneficiary to pay to
the Trustee the amount required to be withheld as a condition of delivering the
Plan Shares. The Trustee shall pay over to the Corporation or any Subsidiary
Company which employs or employed such Recipient any such amount withheld from
or paid by the Recipient or Beneficiary.
(d) RESTRICTIONS ON SELLING OF PLAN SHARES. Plan Share Awards may
not be sold, assigned, pledged or otherwise disposed of prior to the time that
they are earned and distributed pursuant to the terms of this Plan. Upon
distribution, the Board or the Committee may require the Recipient or his
Beneficiary, as the case may be, to agree not to sell or otherwise dispose of
his distributed Plan Shares except in accordance with all then applicable
federal and state securities laws, and the Board or the Committee may cause a
legend to be placed on the stock certificate(s) representing the distributed
Plan Shares in order to restrict the transfer of the distributed Plan Shares for
such period of time or under such circumstances as the Board or the Committee,
upon the advice of counsel, may deem appropriate.
7.04 VOTING OF PLAN SHARES. After a Plan Share Award (other than a
Performance Share Award) has been made, the Recipient shall be entitled to
direct the Trustee as to the voting of the Plan Shares which are covered by the
Plan Share Award and which have not yet been earned and distributed to him
pursuant to Section 7.03, subject to rules and procedures adopted by the
Committee for this purpose. All shares of Common Stock held by the Trust which
have not been awarded under a Plan Share Award, shares subject to Performance
Share Awards which have not yet vested and shares which have been awarded as to
which Recipients have not directed the voting shall be voted by the Trustee in
its discretion.
7.05 PERFORMANCE AWARDS
(a) DESIGNATION OF PERFORMANCE SHARE AWARDS. The Committee may
determine to make any Plan Share Award a Performance Share Award by making such
Plan Share Award contingent upon the achievement of a Performance Goal or any
combination of Performance Goals. Each Performance Share Award shall be
evidenced by a written agreement ("Award Agreement"), which shall set forth the
Performance Goals applicable to the Performance Share Award, the maximum amounts
payable and such other terms and conditions as are applicable to the Performance
Share Award. Each Performance Share Award shall be granted and administered to
comply with the requirements of Section 162(m) of the Code.
(b) TIMING OF GRANTS. Any Performance Share Award shall be made
not later than 90 days after the start of the period for which the Performance
Share Award relates and shall be made prior to the completion of 25% of such
period. All determinations regarding the achievement of any Performance Goals
will be made by the Committee. The Committee may not increase during a year the
amount of a Performance Share Award that would otherwise be payable upon
achievement of the Performance Goals but
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may reduce or eliminate the payments as provided for in the Award Agreement.
(c) RESTRICTIONS ON GRANTS. Nothing contained in the Plan will be
deemed in any way to limit or restrict the Committee from making any Award or
payment to any person under any other plan, arrangement or understanding,
whether now existing or hereafter in effect.
(d) RIGHTS OF RECIPIENTS. Notwithstanding anything to the contrary
herein, a Participant who receives a Performance Share Award payable in Common
Stock shall have no rights as a stockholder until the Common Stock is issued
pursuant to the terms of the Award Agreement.
(e) TRANSFERABILITY. A Participant's interest in a Performance
Share Award may not be sold, assigned, transferred, pledged, or otherwise
encumbered.
(f) DISTRIBUTION. No Performance Share Award or portion thereof
that is subject to the attainment or satisfaction of a condition of a
Performance Goal shall be distributed or considered to be earned or vested until
the Committee certifies in writing that the conditions or Performance Goal to
which the distribution, earning or vesting of such Award is subject have been
achieved.
ARTICLE VIII
TRUST
8.01 TRUST. The Trustee shall receive, hold, administer, invest and
make distributions and disbursements from the Trust in accordance with the
provisions of the Plan and Trust and the applicable directions, rules,
regulations, procedures and policies established by the Committee pursuant to
the Plan.
8.02 MANAGEMENT OF TRUST. It is the intent of this Plan and Trust that
the Trustee shall have complete authority and discretion with respect to the
arrangement, control and investment of the Trust, and that the Trustee shall
invest all assets of the Trust in Common Stock to the fullest extent
practicable, except to the extent that the Trustee determines that the holding
of monies in cash or cash equivalents is necessary to meet the obligations of
the Trust. In performing their duties, the Trustee shall have the power to do
all things and execute such instruments as may be deemed necessary or proper,
including the following powers:
(a) To invest up to one hundred percent (100%) of all Trust assets
in Common Stock without regard to any law now or hereafter in force limiting
investments for trustees or other fiduciaries. The investment authorized herein
may constitute the only investment of the Trust, and in making such investment,
the Trustee are authorized to purchase Common Stock from the Corporation or from
any other source, and such Common Stock so purchased may be outstanding, newly
issued, or treasury shares.
(b) To invest any Trust assets not otherwise invested in
accordance with (a) above, in such deposit accounts, and certificates of
deposit, obligations of the United States Government or its agencies or such
other investments as shall be considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at any
time held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in
the name of a nominee, without the addition of words indicating that such
security is an asset of the Trust (but accurate records shall be maintained
showing that such security is an asset of the Trust).
(e) To hold cash without interest in such amounts as may in the
opinion of the Trustee
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be reasonable for the proper operation of the Plan and Trust.
(f) To employ brokers, agents, custodians, consultants and
accountants.
(g) To hire counsel to render advice with respect to their rights,
duties and obligations hereunder, and such other legal services or
representation as they may deem desirable.
(h) To hold funds and securities representing the amounts to be
distributed to a Recipient or his Beneficiary as a consequence of a dispute as
to the disposition thereof, whether in a segregated account or held in common
with other assets of the Trust.
Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.
8.03 RECORDS AND ACCOUNTS. The Trustee shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Board or the Committee.
8.04 EXPENSES. All costs and expenses incurred in the operation and
administration of this Plan shall be borne by the Corporation or, in the
discretion of the Corporation, the Trust.
8.05 INDEMNIFICATION. Subject to the requirements of applicable laws
and regulations, the Corporation shall indemnify, defend and hold the Trustee
harmless against all claims, expenses and liabilities arising out of or related
to the exercise of the Trustee's powers and the discharge of their duties
hereunder, unless the same shall be due to their gross negligence or willful
misconduct.
ARTICLE IX
DEFERRED PAYMENTS
9.01 DEFERRAL OF PLAN SHARES. Notwithstanding any other provision of
this Plan, any Recipient may elect, with the approval of the Committee and
consistent with any rules and regulations established by the Board, to defer the
receipt of Plan Shares granted hereunder.
9.02 TIMING OF ELECTION. The election to defer the delivery of any Plan
Shares must be made no later than the last day of the calendar year preceding
the calendar year in which the Recipient would otherwise have an unrestricted
right to receive such Shares. Deferrals of eligible Plan Shares shall only be
allowed for Plan Share Awards for which all applicable restrictions lapse while
the Recipient is in active service with the Corporation or one of the Subsidiary
Companies. Any election to defer the proceeds from an eligible Plan Share Award
shall be irrevocable as long as the Recipient remains an Employee or a
Non-Employee Director.
ARTICLE X
MISCELLANEOUS
10.01 ADJUSTMENTS FOR CAPITAL CHANGES. The aggregate number of Plan
Shares available for distribution pursuant to the Plan Share Awards and the
number of Shares to which any unvested Plan Share Award relates shall be
proportionately adjusted for any increase or decrease in the total number of
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outstanding shares of Common Stock issued subsequent to the effective date of
the Plan resulting from any split, subdivision or consolidation of shares or
other capital adjustment, the payment of a stock dividend or other increase or
decrease in such shares effected without receipt or payment of consideration by
the Corporation. If, upon a merger, consolidation, reorganization, liquidation,
recapitalization or the like of the Corporation or of another corporation, each
recipient of a Plan Share Award shall be entitled, subject to the conditions
herein stated, to receive such number of shares of Common Stock or amount of
other securities of the Corporation or such other corporation as were
exchangeable for the number of shares of Common Stock of the Corporation which
such Recipients would have been entitled to receive except for such action.
10.02 AMENDMENT AND TERMINATION OF PLAN. The Board may, by resolution,
at any time amend or terminate the Plan, subject to any required stockholder
approval or any stockholder approval which the Board may deem to be advisable
for any reason, such as for the purpose of obtaining or retaining any statutory
or regulatory benefits under tax, securities or other laws or satisfying any
applicable stock exchange listing requirements. The Board may not, without the
consent of the Recipient, alter or impair his Plan Share Award except as
specifically authorized herein. Upon termination of the Plan, the Recipient's
Plan Share Awards shall be distributed to the Recipient regardless of whether or
not such Plan Share Award had otherwise been earned under the service
requirements set forth in Article VII. Notwithstanding any other provision of
the Plan, this Plan may not be terminated until such time as all Plan shares
held by the Trust have been awarded to Plan Recipients and shall be deemed to be
earned prior to the time of termination.
10.03 NONTRANSFERABLE. Plan Share Awards and Performance Share Awards
and rights to Plan Shares shall not be transferable by a Recipient, and during
the lifetime of the Recipient, Plan Shares may only be earned by and paid to a
Recipient who was notified in writing of an Award by the Committee pursuant to
Section 6.02. No Recipient or Beneficiary shall have any right in or claim to
any assets of the Plan or Trust, nor shall the Corporation or any Subsidiary
Company be subject to any claim for benefits hereunder.
10.04 EMPLOYMENT OR SERVICE RIGHTS. Neither the Plan nor any grant of a
Plan Share Award, Performance Share Award or Plan Shares hereunder nor any
action taken by the Trustee, the Committee or the Board in connection with the
Plan shall create any right on the part of any Employee or Non-Employee Director
to continue in such capacity.
10.05 VOTING AND DIVIDEND RIGHTS. No Recipient shall have any voting or
dividend rights or other rights of a stockholder in respect of any Plan Shares
covered by a Plan Share Award or Performance Share Award, except as expressly
provided in Sections 7.02, 7.04 and 7.05 above, prior to the time said Plan
Shares are actually earned and distributed to him.
10.06 GOVERNING LAW. To the extent not governed by federal law, the
Plan and Trust shall be governed by the laws of the State of Ohio.
10.07 EFFECTIVE DATE. This Plan shall be effective as of the Effective
Date, and Awards may be granted hereunder no earlier than the date this Plan is
approved by the stockholders of the Corporation and prior to the termination of
the Plan. Notwithstanding the foregoing or anything to the contrary in this
Plan, the implementation of this Plan is subject to the approval of the
Corporation's stockholders.
10.08 TERM OF PLAN. This Plan shall remain in effect until the earlier
of (i) ten (10) years from the Effective Date, (ii) termination by the Board, or
(iii) the distribution to Recipients and Beneficiaries of all the assets of the
Trust.
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10.09 TAX STATUS OF TRUST. It is intended that the trust established
hereby be treated as a Grantor Trust of the Corporation under the provisions of
Section 671 ET SEQ. of the Code, as the same may be amended from time to time.
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IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers and the corporate seal to be affixed
and duly attested, and the initial Trustees of the Trust established pursuant
hereto have duly and validly executed this Agreement, all on this 12th day of
January, 2001.
PEOPLES COMMUNITY BANCORP, INC.
By: /S/ JERRY D. WILLIAMS
-----------------------------------
Jerry D. Williams
President and Chief Executive Officer
ATTEST: TRUSTEES:
/S/ JOHN E. RATHKAMP /S/ PAUL E. HASSELBRING
---------------------------------- ----------------------------------
John E. Rathkamp, Secretary Paul E. Hasselbring
/S/ DONALD L. HAWKE
----------------------------------
Donald L. Hawke
/S/ NICHOLAS N. NELSON
----------------------------------
Nicholas N. Nelson
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