<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1996
REGISTRATION NO. 33-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CITIZENS BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
OHIO 6022 34-1372535
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code No.)
organization)
10 EAST MAIN STREET, SALINEVILLE, OHIO 43945
(330) 679-2328
(Address, including zip code and telephone number, including area code,
of Registrant's principal executive offices)
------------------------------------------------
MARTY E. ADAMS
10 EAST MAIN STREET
SALINEVILLE, OHIO 43945
(330) 679-2328
(Name, address, including zip code
& telephone number, including
area code of agent for service)
-------------------------------------------------
Copies to:
M. PATRICIA OLIVER, ESQ. JOHN R. THOMAS, ESQ.
SQUIRE, SANDERS & DEMPSEY EMENS, KEGLER, BROWN, HILL & RITTER
4900 KEY TOWER CAPITOL SQUARE, SUITE 1800
127 PUBLIC SQUARE 65 EAST STATE STREET
CLEVELAND, OHIO 44114-1304 COLUMBUS, OHIO 43215-4294
-------------------------------------------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
Title of Each Proposed Proposed
Class of Maximum Maximum Amount of
Securities To Amount To Be Offering Aggregate Registration
Be Registered Registered (1) Price Per Unit (2) Offering Price (2) Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 588,000 $25.19 $14,811,720 $5,107.49
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the maximum number of shares to be issued in connection with the
acquisition of The Navarre Deposit Bank Company.
(2) Amount arrived at pursuant to Rule 457(f)(2) based on the book value of the
acquired company of $25.19 on June 30, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Items of Part I, Form S-4 Heading in Proxy Statement/Prospectus
------------------------- -------------------------------------
<S> <C>
1. Forepart of Registration Forepart of Registration Statement and Outside Front
Statement and Outside Front Cover Page of Prospectus
Cover Page of Prospectus
2. Inside Front and Outside Inside Front Cover and Outside Back Cover Pages of Pro-
Back Cover Pages of spectus; "AVAILABLE INFORMATION"
Prospectus
3. Risk Factors, Ratio of "SUMMARY"; "INFORMATION WITH RESPECT TO
Earnings to Fixed Charges BANCSHARES--"Business", "Security Ownership of
and Other Information Management" "Supplementary Financial Information",
and "Information Incorporated by Reference";
"INFORMATION WITH RESPECT TO NAVARRE-- "Business"
and "Security Ownership of Management and Certain
Beneficial Owners"; "PROPOSED MERGER"; "PRO FORMA
SELECTED FINANCIAL INFORMATION"; "PRO FORMA
FINANCIAL INFORMATION"; "COMPARATIVE PER SHARE
DATA"; "COMPARATIVE MARKET VALUE DATA"; "INDEX TO
FINANCIAL INFORMATION"
4. Terms of the Transaction "PROPOSED MERGER"; "DESCRIPTION OF BANCSHARES
CAPITAL SHARES"; "COMPARATIVE RIGHTS OF NAVARRE
SHAREHOLDERS"
5. Pro Forma Financial "PRO FORMA SELECTED FINANCIAL INFORMATION";
Information "PRO FORMA FINANCIAL INFORMATION"
6. Material Contacts with the Not Applicable
Company Being Acquired
7. Additional Information Not Applicable
Required for Reoffering by
Persons and Parties Deemed
to be Underwriters
8. Interests of Named Experts "EXPERTS"; "LEGAL OPINIONS"
and Counsel
9. Disclosure of Commission "INDEMNIFICATION"
Position on Indemnification
for Securities Act Liabilities
10. Information with Respect Not Applicable
to S-3 Registrants
11. Incorporation of Certain Not Applicable
Information by Reference
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
12. Information with Respect "INFORMATION WITH RESPECT TO BANCSHARES"
to S-2 or S-3 Registrants
13. Incorporation of Certain "INFORMATION WITH RESPECT TO BANCSHARES"
Information by Reference
14. Information with Respect Not Applicable
to Registrants other than
S-2 or S-3 Registrants
15. Information with Respect Not Applicable
to S-3 Companies
16. Information with Respect Not Applicable
to S-2 or S-3 Companies
17. Information with Respect "INFORMATION WITH RESPECT TO NAVARRE"; "INDEX
to Companies other than TO FINANCIAL INFORMATION"
S-2 or S-3 Companies
18. Information if Proxies, "INFORMATION CONCERNING THE SPECIAL MEETING";
Consents or Authorizations "PROPOSED MERGER -- Rights of Dissenting Share-
Are to be Solicited holders"; "INFORMATION WITH RESPECT TO
BANCSHARES--Security Ownership of Management";
"INFORMATION WITH RESPECT TO NAVARRE-- Security
Ownership of Management and Certain Beneficial
Owners"
19. Information if Proxies, Not Applicable
Consents or Authorizations
Are Not to be Solicited
or in an Exchange Offer
</TABLE>
<PAGE> 4
THE NAVARRE DEPOSIT BANK COMPANY
15 NORTH MAIN STREET
NAVARRE, OHIO 44662-0026
August ___, 1996
To Our Shareholders:
A special meeting (the "Special Meeting") of shareholders of The
Navarre Deposit Bank Company ("Navarre") has been scheduled for September ___,
1996 at _____ p.m. at Alice's Restaurant, One North Main Street, Navarre, Ohio
44662. The accompanying Notice of the Special Meeting, Proxy
Statement/Prospectus and Proxy Card set forth the formal business to be
transacted at the Special Meeting. I encourage you to review these materials and
to attend the Special Meeting.
At the Special Meeting, holders of Navarre common shares, par value
$5.00 per share, are being asked to consider and vote upon a proposal (the
"Proposal") to adopt the Plan and Agreement of Merger (the "Merger Agreement"),
dated as of April 4, 1996 by and among Navarre, Citizens Bancshares, Inc.
("Bancshares") and The Citizens Banking Company ("Citizens"), as amended,
providing for the merger (the "Merger") of Navarre with and into Citizens, and
to approve the transactions contemplated thereby. In the Merger, each
outstanding common share of Navarre will be converted into the right to receive
common shares, without par value, of Bancshares in accordance with the exchange
ratio set forth in the Merger Agreement and described in the accompanying Proxy
Statement/Prospectus (with cash paid in lieu of fractional shares).
Consummation of the Merger is subject to certain conditions, including,
but not limited to, obtaining the requisite vote of the shareholders of Navarre
and the approval of the Merger by various regulatory agencies.
THE NAVARRE BOARD OF DIRECTORS HAS UNANIMOUSLY CONCLUDED THAT THE
MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE NAVARRE SHAREHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL. Navarre's financial
advisor, McDonald & Company Securities, Inc., has rendered an opinion dated
April 3, 1996 and updated to the date hereof to the Navarre Board of Directors
to the effect that, as of the date hereof and based upon and subject to certain
matters stated in such opinion, the exchange ratio set forth in the Merger
Agreement is fair to the shareholders of Navarre from a financial point of view.
If the accompanying Proxy Card is executed properly and returned to
Navarre in time to be voted at the Special Meeting, the shares represented
thereby will be voted in accordance with the instructions marked thereon.
Executed but unmarked proxies will be voted for approval of the Proposal. The
presence of a shareholder at the Special Meeting will not automatically revoke
such shareholder's proxy. A Navarre shareholder may, however, revoke a proxy at
any time prior to its exercise by filing a written notice of revocation with or
delivering a duly executed proxy bearing a later date to Gloria Page, Secretary,
The Navarre Deposit Bank Company, P.O. Box 26, 15 N. Main St., Navarre, Ohio
44662-0026 or by attending the Special Meeting and advising the Secretary of
shareholder's intent to vote the shares.
Approval of the Proposal requires the affirmative vote of the holders
of two-thirds of the outstanding common shares of Navarre. Accordingly, it is
very important that your shares be represented at the Special Meeting. I urge
you to vote FOR the Proposal and to sign, date and return the accompanying Proxy
Card as soon as possible, even if you plan to attend the Special Meeting. This
<PAGE> 5
procedure will not prevent you from voting in person, but will ensure that your
vote is counted if you are unable to attend.
Very truly yours,
Kenneth N. Koher
President
YOUR VOTE IS IMPORTANT
WE ENCOURAGE YOU TO SIGN, DATE AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED
ENVELOPE REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING.
<PAGE> 6
THE NAVARRE DEPOSIT BANK COMPANY
15 NORTH MAIN STREET
NAVARRE, OHIO 44662-0026
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
September ___, 1996
To the Shareholders of The Navarre Deposit Bank Company:
A special meeting (including any adjournments or reschedulings thereof,
the "Special Meeting") of shareholders of The Navarre Deposit Bank Company, an
Ohio corporation ("Navarre"), will be held on September ___, 1996, at ___ a.m.,
at Alice's Restaurant, One North Main Street, Navarre, Ohio. A Proxy Card and
Proxy Statement/Prospectus for the Special Meeting are enclosed.
The Special Meeting is for the purpose of considering and voting upon a
proposal (the "Proposal") to:
Adopt the Plan and Agreement of Merger (the "Merger
Agreement"), dated as of April 4, 1996, by and among Navarre, Citizens
Bancshares, Inc. ("Bancshares") and the Citizens Banking Company
("Citizens"), as amended, providing for the merger (the "Merger") of
Navarre with and into Citizens, and approve the transactions
contemplated thereby, including the Merger. A copy of the Merger
Agreement is attached as Appendix A to the accompanying Proxy
Statement/Prospectus.
No other business will be transacted at the Special Meeting other than
possible adjournments or reschedulings thereof.
THE NAVARRE BOARD OF DIRECTORS HAS UNANIMOUSLY CONCLUDED THAT THE
MERGER IS IN THE BEST INTERESTS OF THE NAVARRE SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL.
The Board of Directors of Navarre has fixed the close of business on
August ___, 1996 as the record date for determination of the shareholders of
Navarre entitled to notice of and to vote at the Special Meeting.
It is very important that your shares be represented at the Special
Meeting. You are urged to complete and sign the accompanying Proxy Card, which
is solicited by the Board of Directors of Navarre and to mail it promptly in the
enclosed envelope. All proxies are important, so please complete each Proxy Card
sent to you and return it in the envelope provided.
Kenneth N. Koher, President
AUGUST ___, 1996
<PAGE> 7
PROSPECTUS PROXY STATEMENT
OF OF
CITIZENS BANCSHARES, INC. THE NAVARRE DEPOSIT BANK COMPANY
THE NAVARRE DEPOSIT BANK COMPANY
SPECIAL MEETING OF SHAREHOLDERS
___________, 1996
This Proxy Statement/Prospectus is being furnished to shareholders of
record on ___________, 1996 of The Navarre Deposit Bank Company ("Navarre"), in
connection with the solicitation of proxies by Navarre for use at the Special
Meeting of shareholders of Navarre to be held at Alice's Restaurant, One North
Main Street, Navarre, Ohio 44662 on September ___, 1996, at ____ p.m., local
time, and at any adjournment or adjournments thereof (the "Special Meeting").
At the Special Meeting, Navarre's shareholders will be asked to approve
a Plan and Agreement of Merger, dated as of April 4, 1996 (the "Merger
Agreement"), by and among Navarre, Citizens Bancshares, Inc. ("Bancshares"), and
The Citizens Banking Company ("Citizens"), a wholly owned subsidiary of
Bancshares, and the transactions contemplated thereby, including the merger of
Navarre with and into Citizens (the "Merger"). A copy of the Merger Agreement is
attached to this Proxy Statement/Prospectus as Appendix A and is incorporated
herein by reference.
The shares represented by proxy will be voted as specified by the
respective shareholders. Executed but unmarked proxies will be voted for
approval of the Merger. Upon consummation of the Merger, each outstanding common
share of Navarre (consisting of 280,000 common shares), other than shares held
by shareholders who exercise their right to be dissenting shareholders
(collectively, the "Navarre Common Shares"), will be converted into the right to
receive common shares of Bancshares, without par value ("Bancshares Common
Shares"), upon the terms and subject to the conditions set forth in the Merger
Agreement. Based upon the last sale price of Bancshares Common Shares on the
Nasdaq National Market at ________________, 1996 of $___________________,
Navarre shareholders would receive ____ Bancshares Common Shares for each
Navarre Common Share held. Dissenters' rights are described in the section
entitled "PROPOSED MERGER--Rights of Dissenting Shareholders." For a more
complete description of the Merger Agreement and the terms of the Merger, see
"PROPOSED MERGER."
This Proxy Statement/Prospectus constitutes the Proxy Statement of
Navarre and the Prospectus of Bancshares covering the Bancshares Common Shares
to be issued pursuant to the Merger.
This Proxy Statement/Prospectus and the accompanying Proxy Card are
first being mailed to Navarre shareholders on or about August __, 1996.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR
OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE
SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY.
-1-
<PAGE> 8
THE SECURITIES TO BE OFFERED IN CONNECTION WITH THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE REGULATORY AUTHORITY NOR HAS THE COMMISSION OR ANY
STATE REGULATORY AUTHORITY PASSED UPON THE ACCURACY
OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is ___________, 1996.
-2-
<PAGE> 9
AVAILABLE INFORMATION
Bancshares is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by Bancshares can be inspected and copied at the public reference
facilities maintained by the Commission in Washington, D.C., and at its Regional
Office located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can also be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a Web site that contains reports, proxy
statements and other information filed by Bancshares. The Commission's Internet
address is http://www.sec.gov. Bancshares Common Shares are quoted on the Nasdaq
National Market and reports, proxy statements and other information concerning
Bancshares are available for inspection and copying at prescribed rates at the
office of the National Association of Securities Dealers, Inc., 1735 K Street,
Washington, D.C. 20006.
Bancshares has filed with the Commission a Registration Statement on
Form S-4 under the Securities Act of 1933, as amended (the "1933 Act"), covering
the Bancshares Common Shares to be issued in connection with the Merger. This
Proxy Statement/Prospectus was filed with the Registration Statement as the
Prospectus of Bancshares; however, it does not contain all of the information
set forth in the Registration Statement. The Registration Statement and the
exhibits thereto can be inspected at the Commission's public reference room,
Room 1024, 450 5th Street, N.W., Judiciary Plaza, Washington, D.C. 20549, as
well as the Commission's Regional Office listed above.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST, FROM
TRACEY L. REEDER, ASSISTANT CORPORATE SECRETARY, CITIZENS BANCSHARES, INC., 10
EAST MAIN STREET, SALINEVILLE, OHIO 43945, (330) 679-2328. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
____________________, 1996.
No person has been authorized to give any information or make any
representations not contained herein, and, if given or made, such information or
representation must not be relied upon as having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell any securities other
than the securities to which it relates or an offer to sell any securities
covered by this Proxy Statement/Prospectus in any jurisdiction where, or to any
person to whom, it is unlawful to make such an offer. Neither the delivery
hereof nor any distribution of securities by Bancshares made hereunder shall,
under any circumstances, create an implication that there has been no change in
the facts herein set forth since the date hereof.
All information concerning Bancshares and Citizens contained in this
Proxy Statement/Prospectus has been furnished by Bancshares and Citizens,
respectively and all information concerning Navarre has been furnished by
Navarre.
INCORPORATION BY REFERENCE
Bancshares' Annual Report on Form 10-K for the year ended December 31,
1995, and Bancshares' Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996, which were filed with the Commission prior to
the mailing date of this Proxy Statement/Prospectus pursuant to Section 13(a) of
the 1934 Act, and all other reports filed pursuant to Section 13(a) or 15(d) of
the 1934 Act since the end of the fiscal year covered by the Form 10-K
- i -
<PAGE> 10
referred to above are incorporated herein by reference. Except as set forth in
this Proxy Statement/Prospectus, there have been no material changes in the
information set forth in such reports.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes hereof to the extent that a statement contained herein or in
any other subsequently filed document which is also deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING
STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
BUSINESS OF BANCSHARES FOLLOWING THE CONSUMMATION OF THE MERGER. THESE FORWARD
LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. FACTORS THAT MAY
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES:
(1) EXPECTED COST SAVINGS FROM THE MERGER CANNOT BE FULLY REALIZED; (2) DEPOSIT
ATTRITION, CUSTOMER LOSS OR REVENUE LOSS FOLLOWING THE MERGER IS GREATER THAN
EXPECTED (3) COMPETITIVE PRESSURE IN THE BANKING INDUSTRY INCREASES
SIGNIFICANTLY; (4) COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF THE
BUSINESSES OF BANCSHARES AND NAVARRE ARE GREATER THAN EXPECTED; (5) CHANGES IN
THE INTEREST RATE ENVIRONMENT REDUCE MARGINS; AND (6) GENERAL ECONOMIC
CONDITIONS, EITHER NATIONALLY OR IN THE AREA IN WHICH THE COMBINED COMPANY WILL
BE DOING BUSINESS, ARE LESS FAVORABLE THAN EXPECTED. FURTHER INFORMATION ON
OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF BANCSHARES AFTER THE
MERGER IS INCLUDED IN THE COMMISSION FILINGS INCORPORATED BY REFERENCE HEREIN.
- ii -
<PAGE> 11
THE NAVARRE DEPOSIT BANK COMPANY
CITIZENS BANCSHARES, INC.
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................................................... i
INCORPORATION BY REFERENCE ............................................................................... i
SUMMARY................................................................................................... 1
PRO FORMA SELECTED FINANCIAL INFORMATION ................................................................. 7
COMPARATIVE PER SHARE DATA ............................................................................... 8
COMPARATIVE MARKET VALUE DATA ............................................................................ 9
INFORMATION CONCERNING THE SPECIAL MEETING................................................................ 9
General ........................................................................................ 9
Solicitation, Voting and Revocability of Proxies................................................. 10
PROPOSED MERGER........................................................................................... 11
Navarre Background and Reasons for the Merger.................................................... 11
Recommendation of the Navarre Board of Directors................................................. 14
Bancshares Background and Reasons for the Merger................................................. 14
Description of the Merger........................................................................ 14
Consideration for Navarre Common Shares.......................................................... 14
Fairness Opinion of McDonald & Company........................................................... 15
Effective Time of the Merger..................................................................... 19
Payment of Cash in Lieu of Fractional Shares..................................................... 19
Surrender of Certificates ....................................................................... 19
Interest of Management in the Merger............................................................. 20
Rights of Dissenting Shareholders................................................................ 20
Federal Income Tax Consequences of the Merger.................................................... 21
Regulatory Approvals............................................................................. 22
Business Pending the Merger...................................................................... 22
Other Provisions of the Merger Agreement......................................................... 23
Representations and Warranties.......................................................... 23
Conditions to the Merger................................................................ 23
Amendments; Termination................................................................. 24
Expenses of the Merger........................................................................... 25
Operations of Navarre After the Merger........................................................... 25
Accounting Treatment............................................................................. 25
Resale of Bancshares Common Shares............................................................... 26
DESCRIPTION OF BANCSHARES CAPITAL SHARES.................................................................. 26
General ........................................................................................ 26
Description of Control Share Acquisition Provisions.............................................. 27
Procedures.............................................................................. 27
</TABLE>
- iii -
<PAGE> 12
<TABLE>
<S> <C>
Requirements for Approval............................................................... 28
Violation of Restriction................................................................ 28
COMPARATIVE RIGHTS OF NAVARRE SHAREHOLDERS................................................................ 29
Voting ......................................................................................... 29
Pre-emptive Rights............................................................................... 29
Directors........................................................................................ 29
Authorized Shares................................................................................ 29
Shareholder Meetings............................................................................. 30
PRO FORMA FINANCIAL INFORMATION........................................................................... 30
INFORMATION WITH RESPECT TO BANCSHARES.................................................................... 37
Business......................................................................................... 37
Supplementary Financial Information.............................................................. 37
Selected Financial Information................................................................... 39
Management's Discussion and Analysis of Financial Condition
and Results of Operations for the Quarter Ended
June 30, 1996 ................................................................................. 41
Certain Statistical Information With Respect
to Bancshares.................................................................................. 41
Management....................................................................................... 41
Directors............................................................................... 41
Directors of Citizens................................................................... 42
Executive Officers...................................................................... 42
Security Ownership of Management................................................................. 43
Market Price of Bancshares Common Shares......................................................... 44
Information Incorporated by Reference............................................................ 44
INFORMATION WITH RESPECT TO NAVARRE....................................................................... 45
Business......................................................................................... 45
Market Price and Dividends on Navarre Common Shares.............................................. 45
Selected Financial Information................................................................... 47
Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................................... 49
Introduction............................................................................ 49
Overview................................................................................ 49
Comparison of Operating Results for Six Months
Ended June 30, 1996 and 1995......................................................... 53
Comparison of Operating Results for Years
Ended December 31, 1995 and 1994..................................................... 54
Comparison of Operating Results for the Years
Ended December 31, 1994 and 1993..................................................... 55
Asset Quality........................................................................... 56
Summary of Loan Loss Experience......................................................... 58
Comparison of June 30, 1996 and December 31, 1995
Financial Condition.................................................................. 61
Comparison of December 31, 1995 and 1994 Financial Condition............................ 61
Liquidity and Capital Resources......................................................... 63
Asset/Liability Management.............................................................. 65
Impact of Inflation on Changing Prices.................................................. 66
Certain Statistical Information.................................................................. 66
</TABLE>
- iv -
<PAGE> 13
<TABLE>
<S> <C>
Distribution of Assets, Liabilities and Shareholders' Equity,
Interest Rates and Interest Differential............................................. 66
Investment Portfolio.................................................................... 67
Loan Portfolio.......................................................................... 69
Summary of Loan Loss Experience......................................................... 70
Deposits................................................................................ 70
Return on Equity and Assets............................................................. 70
Short-Term Borrowings................................................................... 70
Management....................................................................................... 71
Directors............................................................................... 71
Executive Officers ..................................................................... 71
Security Ownership of Management and Certain Beneficial Owners................................... 72
EXPERTS ........................................................................................ 73
LEGAL OPINIONS............................................................................................ 73
INDEMNIFICATION........................................................................................... 73
INDEX TO FINANCIAL INFORMATION............................................................................ 74
</TABLE>
APPENDICES:
A. Merger Agreement
B. Dissenters' Rights Under Sections 1121.09 and 1701.85 of the
Ohio Revised Code
C. Fairness Opinion dated as of April 3, 1996
- v -
<PAGE> 14
SUMMARY
This summary is necessarily general and abbreviated and has been
prepared to assist Navarre shareholders in their review of the Proxy
Statement/Prospectus. The summary is not intended to be a complete explanation
of the matters covered in the Proxy Statement/Prospectus and is qualified in all
respects by reference to the more detailed information contained in the Proxy
Statement/Prospectus and the Appendices hereto, which Navarre shareholders are
urged to read carefully.
THE PARTIES
Citizens Bancshares, Inc. Bancshares is a bank
holding company organized under the
laws of the State of Ohio and
registered with the Board of
Governors of the Federal Reserve
System (the "Federal Reserve Board")
pursuant to the Bank Holding Company
Act of 1956, as amended. Bancshares
is a holding company for Citizens, a
wholly-owned commercial bank
subsidiary organized and existing
under the banking laws of the State
of Ohio; First National Bank of
Chester, a wholly owned commercial
bank subsidiary organized under the
laws of the United States, ("FNB");
Freedom Express, Inc., a wholly
owned courier company; and Freedom
Financial Life Insurance Company, a
wholly owned reinsurance company. As
of June 30, 1996 and December 31,
1995, Bancshares had total
consolidated assets of approximately
$840.9 million and $814.1 million
and total shareholders' equity of
approximately $75.7 million and
$73.0 million, respectively.
A part of Bancshares' long
term strategy is to be an active
acquiror of financial institutions
so as to leverage its operations and
position itself to enhance
shareholder value. Since 1984,
Bancshares has made ten acquisitions
totaling $500 million in assets.
Bancshares' stock price has
increased 1,375% from 1984 to March
31, 1996. Since June of 1993,
Bancshares' stock has been traded on
the Nasdaq National Market. Prior to
June, 1993, Bancshares' Stock was
traded over the counter. For the
six months ended June 30, 1996,
Bancshares' annualized return on
assets and return on equity was
1.80% and 19.18%, respectively.
Bancshares' principal executive
offices are located at 10 East
Main Street, Salineville, Ohio
43945. The telephone number of
Bancshares' executive offices is
(330) 679-2328.
The Navarre Deposit
Bank Company Navarre is a commercial
bank chartered under the laws of the
State of Ohio with two offices
located in Navarre, Ohio and branch
offices in Brewster, Ohio (opened in
1991) and in Richville, Ohio (opened
in 1994). Navarre conducts a general
commercial banking business. As of
June 30, 1996 and December 31, 1995,
Navarre had total assets of
approximately $78.4 million and
$76.9 million and total
shareholders' equity of
approximately $7.05 million and
$7.09 million, respectively.
Navarre's principal executive
offices are located at 15 North Main
Street, Navarre, Ohio 44622-0026.
-1-
<PAGE> 15
The telephone number of Navarre's
executive offices are (330)
879-5671.
CONTRIBUTION BY THE The following table
PARTIES summarizes the percentage of net
interest income, net income, total
assets and shareholders' equity to
be contributed by Bancshares and
Navarre, respectively, using
information as of and for the six
months ended June 30, 1996, and the
voting percentage each group of
shareholders will have after the
Merger, assuming the exchange of
1.90 Bancshares Common Shares for
each Navarre Common Share.
<TABLE>
<CAPTION>
Bancshares Navarre Total
---------- ------- -----
<S> <C> <C> <C>
Net interest income 92.5% 7.5% 100.0%
Net income 94.3 5.7 100.0
Total assets 91.5 8.5 100.0
Shareholders' equity 91.5 8.5 100.0
Voting percentage
after Merger 91.0 9.0 100.0
</TABLE>
INFORMATION CONCERNING THE
SPECIAL MEETING
General The Special Meeting of
Navarre shareholders will be held at
Alice's Restaurant, One North Main
Street, Navarre, Ohio 44662 on
September ___, 1996 at ____ p.m.,
local time. The purpose of the
Special Meeting is to consider and
vote upon the Merger Agreement by
and among Bancshares, Citizens and
Navarre and the transactions
contemplated thereby, as hereinafter
described, including the exchange of
Bancshares Common Shares for Navarre
Common Shares and the merger of
Navarre with and into Citizens on
the terms described in this Proxy
Statement/Prospectus. A copy of the
Merger Agreement is attached to this
Proxy Statement/Prospectus as
Appendix A and is incorporated in
this Proxy Statement/Prospectus by
reference.
Solicitation and Voting
of Proxies All shareholders of record
of Navarre on ________ __, 1996 (the
"Record Date") will be entitled to
vote at the Special Meeting. The
affirmative vote, in person or by
proxy, of the holders of not less
than two-thirds of the issued and
outstanding Navarre Common Shares
are required for approval of the
Merger Agreement.
The directors and executive
officers of Navarre and their
affiliates own, as of the Record
Date, ____________ Navarre Common
Shares (____% of
-2-
<PAGE> 16
the total number of outstanding
shares of Navarre Common Shares at
such date).
PROPOSED MERGER
Consideration for Navarre
Common Shares Upon consummation of the
Merger, each Navarre shareholder who
does not exercise his or her right
to become a dissenting shareholder
will have the right to receive from
1.70 to 2.10 Bancshares Common
Shares, pursuant to an exchange
ratio based on Bancshares' Average
Closing Price (as hereinafter
defined), plus cash in lieu of
fractional shares.
For a complete description
of the consideration to be received
by Navarre shareholders, see
"PROPOSED MERGER-- Consideration for
Navarre Common Shares."
Navarre Background
and Reasons for the Merger Navarre's Board of
Directors concluded that in order to
improve shareholder liquidity and
value in a rapidly changing
financial services industry it
needed to consider alternatives to
continued independent operations.
The proposed Merger will benefit the
Navarre shareholders by allowing
them to become shareholders of
Bancshares, a competitive,
financially successful company with
a substantially more liquid market
for its shares. In addition, the
proposed Merger will provide
improved services to Navarre's
market area while retaining the
Navarre offices and employees.
Navarre's Board believes that
Bancshares' strong financial
condition and experience in
successfully integrating prior
acquisitions will allow the Merger
to occur with a minimum of
regulatory and administrative delay.
See "PROPOSED MERGER--Navarre
Background and Reasons for the
Merger."
Bancshares Background
and Reasons for the Merger Bancshares' Board of
Directors has concluded that the
Merger would be in the best interest
of Bancshares' shareholders and the
depositors, other customers and
employees of its subsidiary banks.
The Merger is consistent with
Bancshares' overall strategic
acquisition program and, in
particular, its interest in
expanding Citizens' facilities and
services in Stark County, Ohio. The
Merger will also serve to enhance
Citizens' current loan production
facility in Canton, Ohio.
Bancshares' and Citizens'
philosophies of emphasizing customer
service and satisfaction, promoting
local and branch level
decision-making power by employees
and making strong, ongoing
commitments to each community they
serve are consistent with Navarre's
management philosophies and its
long-standing reputation of service
to Stark County. In addition, the
current products and services
offered by Navarre are similar to,
and in many respects, complement the
products and services provided by
Citizens. Bancshares anticipates
that the additional products and
services of Citizens that will
-3-
<PAGE> 17
become available to Navarre
customers as a result of the Merger
will provide opportunities for
expanded and new customer
relationships. Bancshares also
believes that the Merger can be
accomplished with little or no
resulting dilution in the value of
Bancshares Common Shares. See
"PROPOSED MERGER -- Bancshares
Background and Reasons for the
Merger."
Fairness Opinion McDonald & Company
Securities, Inc. ("McDonald &
Company") has rendered an opinion to
Navarre's Board of Directors that as
of April 3, 1996, the Exchange Ratio
was fair from a financial point of
view to the Navarre shareholders.
For additional information, see
"PROPOSED MERGER-- Fairness Opinion
of McDonald & Company." The opinion
of McDonald & Company is attached as
Appendix C to this Proxy
Statement/Prospectus. Navarre
shareholders are urged to read such
opinion in its entirety for a
description of the procedures
followed and matters considered in
connection therewith.
Interest of Management
in the Merger Bancshares will offer the
existing full time employees of
Navarre the opportunity to become
employees of Citizens or one of
Bancshares' other affiliates. In
addition, Bancshares shall assume
the employment security agreements
dated November 14, 1995 between
Navarre and Kenneth N. Koher and
Navarre and Jeffrey J. Define,
respectively. Bancshares or Citizens
will indemnify the officers and
directors of Navarre who do not
become officers and directors of
Bancshares or Citizens to the extent
permitted by the articles of
incorporation and codes of
regulations of Bancshares or
Citizens. See "PROPOSED
MERGER--Operations of Navarre After
the Merger" and "Interest of
Management in the Merger."
Recommendation of the
Board of Directors The Navarre Board of
Directors has unanimously approved
the Merger Agreement and believes
that the Merger Agreement is fair to
and in the best interests of Navarre
shareholders. The Navarre Board of
Directors unanimously recommends
that Navarre shareholders adopt the
Merger Agreement. See "PROPOSED
MERGER--Recommendation of the
Navarre Board of Directors."
Dissenters' Rights Holders of Navarre Common
Shares may exercise their right to
become dissenting shareholders to
the extent, and in strict compliance
with the procedure, specified in
Sections 1121.09 and 1701.85 of the
Ohio Revised Code. HOLDERS OF
NAVARRE COMMON SHARES WHO WANT TO
EXERCISE THEIR DISSENTERS' RIGHTS
MUST NOT VOTE IN FAVOR OF THE MERGER
AGREEMENT AT THE SPECIAL MEETING AND
MUST SEND WRITTEN DEMANDS FOR
PAYMENT FOR THEIR NAVARRE COMMON
SHARES WITHIN TEN DAYS AFTER THE
SPECIAL MEETING. See "PROPOSED
MERGER --Rights of Dissenting
Shareholders" and the text of
Sections 1701.85 and
-4-
<PAGE> 18
1121.09 of the Ohio Revised Code
attached to this Proxy Statement/
Prospectus as Appendix B.
Federal Income Tax
Consequences of the
Merger It is intended that the
Merger will be treated as a
reorganization within the meaning of
Section 368(a) of the Internal
Revenue Code of 1986, as amended,
and that, accordingly, for federal
income tax purposes no gain or loss
will be recognized by Navarre,
Bancshares or Citizens as a result
of the Merger. The obligations of
Navarre, Bancshares and Citizens to
consummate the Merger are
conditioned upon the receipt by them
of the opinion of Emens, Kegler,
Brown, Hill & Ritter substantially
to the effect that (i) the Merger
will constitute a tax free
reorganization, (ii) the Navarre
shareholders will not recognize gain
or loss upon the receipt solely of
Bancshares Common Shares in exchange
for Navarre Common Shares, except
with respect to any cash received in
lieu of a fractional share interest
in Bancshares Common Shares and
(iii) no gain or loss will be
recognized by Bancshares, Citizens
or Navarre as a consequence of the
Merger. Shareholders who exercise
dissenters' rights and receive cash
for their Navarre Common Shares will
be treated as having received a
distribution in redemption of their
shares which will result in such
shareholders receiving income for
federal income tax purposes.
All Navarre shareholders
should read carefully the
description under "PROPOSED
MERGER--Federal Income Tax
Consequences of the Merger," and
should consult their own tax
advisors concerning these matters.
Conditions; Amendments;
Termination Completion of the Merger
is contingent upon approval of the
Merger Agreement by Navarre
shareholders and certain regulatory
authorities and upon certain other
conditions described in this Proxy
Statement/ Prospectus. The Merger
Agreement may not be amended except
by a written agreement executed by
the party to be charged with the
amendment. The Merger Agreement may
be terminated and the Merger
abandoned by mutual agreement of
Bancshares and Navarre, or by either
Bancshares or Navarre in the event
of failure to satisfy certain
conditions, or if a material breach
of the Merger Agreement has been
committed by the other party. The
Merger Agreement may also be
terminated by either Bancshares or
Navarre if the Merger has not been
consummated by December 31, 1996
unless the failure to consummate by
such date is related to the action
or inaction of certain regulatory
authorities, then on or before March
31, 1997.
See "PROPOSED
MERGER--Other Provisions of the
Merger Agreement."
-5-
<PAGE> 19
Management after the
Merger Upon completion of the
Merger, it is anticipated that the
directors and executive officers of
Bancshares and Citizens will remain
directors and executive officers
thereof. In addition, one member of
Navarre's Board of Directors shall
have the right to serve on the Board
of Directors of Bancshares and one
member of Navarre's Board of
Directors shall have the right to
serve on Citizens' Board of
Directors, each for a three year
term. In the alternative, one member
of Navarre's Board of Directors may
serve on both the Boards of
Directors of Bancshares and
Citizens. See "PROPOSED MERGER--
Operations of Navarre After the
Merger."
COMPARATIVE RIGHTS OF
NAVARRE
SHAREHOLDERS The rights of shareholders
of Bancshares and shareholders of
Navarre, while similar in many
respects, also differ in some
respects. For a description of the
relative rights of the holders of
Bancshares Common Shares and Navarre
Common Shares, see "COMPARATIVE
RIGHTS OF NAVARRE SHAREHOLDERS."
Bancshares' Articles of
Incorporation include a provision
governing the acquisition of certain
controlling interests in Bancshares.
For a description of this provision,
see "DESCRIPTION OF BANCSHARES
CAPITAL SHARES--Description of
Control Share Acquisition
Provisions."
-6-
<PAGE> 20
PRO FORMA SELECTED FINANCIAL INFORMATION
The table below sets forth selected pro forma financial information for
Bancshares and Navarre combined as of and for the six months ended June 30, 1996
and 1995, and as of and for the years ended December 31, 1995, 1994 and 1993.
This information is derived from and should be read in conjunction with the
historical financial statements of Bancshares and Navarre that are incorporated
by reference or appear elsewhere in this Proxy Statement/Prospectus, and with
the pro forma condensed consolidated financial statements of Bancshares, which
give effect to the Merger and which appear in this Proxy Statement/Prospectus
under the caption "PRO FORMA FINANCIAL INFORMATION." The pro forma condensed
consolidated financial information has been prepared based on the use of
"pooling-of-interests" method of accounting assuming that 490,000 Bancshares
Common Shares will be issued and that no Navarre shareholders will dissent. The
number of Bancshares Common Shares issued assumes an exchange ratio such that
one Navarre Common Share will be exchanged for 1.90 Bancshares Common Shares.
Should the exchange ratio be as low as 1.70 Bancshares Common Shares for one
Navarre Common Share or as high as 2.10 Bancshares Common Shares for one Navarre
Common Share, the pro forma combined earnings per share, book value per share
and dividends per share would each change by less than one percent. This
information will vary if any Navarre shareholders dissent. The historical
financial information of Bancshares and Navarre has been combined for each
period presented. For a discussion of the pooling-of-interests method of
accounting and the condition to Bancshares' and Navarre's obligations under the
Merger Agreement that the Merger qualify for the pooling-of-interests method of
accounting, see "PROPOSED MERGER-- Accounting Treatment" and "Other Provisions
of the Merger Agreement."
Pro Forma Selected Financial Information
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
As of and for the
Six Months ended As of and for the
June 30, Year Ended December 31,
-------------------------- --------------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Net interest income $ 21,319 $ 19,568 $ 39,640 $ 38,228 $ 35,207
Provision for loan losses 856 1,111 2,024 2,365 3,573
Net income 7,577 6,207 12,563 10,502 8,961
Cash dividends declared 2,268 678 2,972 1,708 1,014
PER SHARE DATA:
Net income $ 1.28 $ 1.05 $ 2.12 $ 1.77 $ 1.51
Cash Dividends 0.38 0.11 0.50 0.29 0.17
Book value at period end 13.97 12.71 13.53 11.15 10.49
Weighted average shares
outstanding 5,922,195 5,922,622 5,922,622 5,922,622 5,923,924
BALANCE SHEET DATA (AT PERIOD END):
Total assets $ 919,372 $ 866,216 $ 890,969 $ 861,947 $ 844,527
Net loans 565,952 535,604 563,879 520,687 493,410
Total deposits 704,942 675,230 697,664 671,999 689,385
Total shareholders' equity at
period end 82,763 75,260 80,111 66,013 62,129
</TABLE>
-7-
<PAGE> 21
COMPARATIVE PER SHARE DATA
The following table sets forth Bancshares' and Navarre's historical per
share data and pro forma combined per share data. The information is based on
the historical financial statements of Bancshares and Navarre. The pro forma
data do not purport to be indicative of the results of future operations or the
actual results that would have occurred had the Merger been consummated at the
beginning of the periods presented. The pro forma data give effect to the Merger
and are based on numerous assumptions and estimates. The pro forma data are
included as required by the rules of the Commission and are provided for
comparative purposes only. The pro forma combined per share data and Navarre
equivalent per share data are prepared assuming 490,000 Bancshares Common Shares
will be issued based on an exchange ratio such that one Navarre Common Share
will be exchanged for 1.90 Bancshares Common Shares. Should the exchange ratio
be as low as 1.70 Bancshares Common Shares for one Navarre Common Shares or as
high as 2.10 Bancshares Common Shares for one Navarre Common Share (see
"PROPOSED MERGER--Consideration for Navarre Common Shares"), the pro forma
combined earnings per share, book value per share and dividends per share will
each change by less than one percent.
<TABLE>
<CAPTION>
CITIZENS BANCSHARES, INC. AND THE NAVARRE DEPOSIT BANK COMPANY
COMPARATIVE PER SHARE DATA
====================================================================================================================================
As of and for
the Six As of and for As of and for the As of and for
Months ended the Year ended Year ended the Year ended
6/30/96 12/31/95 12/31/94 12/31/93
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON
SHARE:
Historical:
<S> <C> <C> <C> <C>
Bancshares $1.32 $2.20 $1.82 $1.53
Navarre 1.55 2.55 2.56 2.53
Pro Forma Combined 1.28 2.12 1.77 1.51
- ------------------
Equivalent Amount of
Navarre 2.43 4.03 3.36 2.87
-------
- ------------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE:
Historical:
Bancshares $.40 $0.51 $0.28 $0.15
Navarre .40 0.75 0.70 0.70
Pro Forma Combined .38 0.50 0.29 0.17
- ------------------
Equivalent Amount of
Navarre .72 0.95 0.55 0.32
-------
- ------------------------------------------------------------------------------------------------------------------------------------
BOOK VALUE PER COMMON
SHARE:
Historical:
Bancshares $14.04 $13.55 $11.24 $10.42
Navarre 25.19 25.30 19.30 21.28
Pro Forma Combined 13.97 13.53 11.15 10.49
- ------------------
Equivalent Amount of
Navarre 26.54 25.71 21.19 19.93
-------
====================================================================================================================================
</TABLE>
-8-
<PAGE> 22
COMPARATIVE MARKET VALUE DATA
Bancshares Common Shares began trading on the Nasdaq National Market
under the symbol "CICS" as of June 1, 1993. Navarre Common Shares are not traded
in any established market. The information presented in the following table
reflects the last reported sale price for Bancshares on April 3, 1996, the last
trading day preceding execution of the Merger Agreement; a bid price with
respect to Navarre Common Shares as provided by McDonald & Company and published
in the April 3, 1996 edition of The Repository; and the equivalent per share
basis of Navarre. The equivalent per share basis has been calculated by
multiplying the last reported sale price on such date by the exchange ratio,
assuming a 1.90 exchange ratio (which exchange ratio would be applicable if
Bancshares Common Shares had an average closing price of $29.4098). No assurance
can be given as to what the market price of Bancshares Common Shares will be if
and when the Merger is consummated. See also "INFORMATION WITH RESPECT TO
BANCSHARES-- Market Price of Bancshares Common Shares" and "INFORMATION WITH
RESPECT TO NAVARRE--Market Price and Dividends on Navarre Common Shares."
CITIZENS BANCSHARES, INC. AND THE NAVARRE DEPOSIT BANK COMPANY
COMPARATIVE MARKET VALUE
APRIL 3, 1996
<TABLE>
<CAPTION>
NAVARRE
EQUIVALENT
PER SHARE
BANCSHARES NAVARRE BASIS
---------- ------- ----------
<S> <C> <C> <C>
Common Shares $29.50(1) $39.00 $56.05
</TABLE>
(1) Based on the last trade of Bancshares Common Shares on April 3, 1996,
as reported on the Nasdaq National Market.
INFORMATION CONCERNING THE SPECIAL MEETING
General
This Proxy Statement/Prospectus is being furnished to holders of Navarre
Common Shares as part of the solicitation of proxies by the Navarre Board of
Directors for use at the Special Meeting to be held on September ___, 1996 at __
a.m., at Alice's Restaurant, One North Main Street, Navarre, Ohio, including any
adjournments or reschedulings thereof. This Proxy Statement/Prospectus and the
accompanying Proxy Card are first being mailed to shareholders of Navarre on or
about August ___, 1996.
The purpose of the Special Meeting is to consider and vote upon the
Proposal to adopt the Merger Agreement and to approve the transactions
contemplated thereby, including the Merger. No other business will be transacted
at the Special Meeting other than possible adjournments or reschedulings
thereof.
The Merger is subject to a number of conditions, including the receipt of
required regulatory and shareholder approvals. (See "PROPOSED
MERGER--"Regulatory Approvals" and "Other Provisions of the Merger Agreement.")
-9-
<PAGE> 23
Solicitation, Voting and Revocability of Proxies
The Navarre Board has fixed the close of business on August ___, 1996
(the "Record Date") as the record date for the determination of the shareholders
of Navarre entitled to notice of and to vote at the Special Meeting. Only
holders of record of Navarre Common Shares at the close of business on the
Record Date will be entitled to vote on each matter properly presented at the
Special Meeting. On the Record Date, 280,000 Navarre Common Shares were issued
and outstanding. Votes may be cast in person or by proxy, and each Navarre
Common Share entitles its holder to one vote. Pursuant to the Navarre Code of
Regulations and in accordance with the Ohio Revised Code ("ORC"), the presence
of the holders of a majority of the Navarre Common Shares issued and
outstanding, in person or by proxy, and entitled to vote at the Special Meeting
is required for and shall constitute a quorum for the transaction of business at
the Special Meeting. For such purpose, abstentions and broker non-votes will be
counted in establishing the quorum. A majority of the Navarre Common Shares
present at the Special Meeting, in person or by proxy, whether or not
constituting a quorum, may vote to, or the Navarre Board in its discretion may,
adjourn the Special Meeting from time to time without further notice, including
for the purpose of soliciting additional proxies. Under the ORC, the affirmative
vote of the holders of at least two-thirds of the total number of outstanding
Navarre Common Shares entitled to vote at the Special Meeting is required to
approve the Proposal. An abstention and a broker non-vote would thus have the
same effect as a vote against the Proposal.
Only shareholders of record on the Record Date are eligible to give
their proxies. Therefore, shareholders owning shares held in the name of a
brokerage firm, bank, or other institution should sign, date and return their
proxy cards to such brokerage firm, bank or other institution in the envelope
provided by that firm. In addition, under the rules of the New York Stock
Exchange, brokers who hold shares in street name for customers who are the
beneficial owners of such shares are prohibited from giving a proxy to vote
shares held for such customers on the approval of the Proposal without specific
instructions from such customers. Given that the ORC requires the affirmative
vote of the holders of two-thirds of the outstanding Navarre Common Shares
entitled to vote at the Special Meeting in order to approve the Proposal, the
failure of such customers to provide specific instructions with respect to their
Navarre Common Shares to their broker will have the effect of a vote against the
approval of the Proposal. Failure to return a properly executed proxy card or to
vote at the Special Meeting will have the same effect as a vote against the
Proposal.
Proxies in the accompanying form which are properly executed and
returned to Navarre will be voted at the Special Meeting in accordance with the
shareholders' instructions contained in such proxies and, at the discretion of
the Proxy Committee, on such other matters as may properly come before the
meeting. If a shareholder returns a proxy card that is signed, dated and not
marked, that shareholder will be deemed to have voted for the Proposal. An
executed proxy may be revoked at any time prior to its exercise by submitting
another proxy with a later date, by appearing in person at the Special Meeting
and advising the Secretary of the shareholder's intent to vote the shares or by
sending a written, signed and dated revocation which clearly identifies the
proxy being revoked to the principal executive offices of Navarre at 15 North
Main, Navarre, Ohio 44662-0026, Attention: Gloria Page, Secretary. A revocation
may be in any written form validly signed by the record holder as long as it
clearly states that the proxy previously given is no longer effective. In
addition, shareholders whose Navarre Common Shares are not registered in their
own name will need additional documentation from the record holder of such
shares to vote in person at the Special Meeting.
Proxies may be solicited by mail, telephone, telegraph, telex,
telecopier and advertisement and in person. Solicitation may be made in the same
manner by directors, officers and other representatives of Navarre who will not
be specially compensated for such activities, but who may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation.
-10-
<PAGE> 24
Banks, brokerage houses and other custodians, nominees and fiduciaries
will be requested to forward the solicitation materials to the beneficial owners
of Navarre Common Shares for which they hold of record, and Navarre will
reimburse them for their reasonable out-of-pocket expenses.
The expenses related to the proxy solicitation for the Special Meeting
will be borne by Navarre, except that the cost of preparing and mailing this
Proxy Statement/Prospectus will be borne by Navarre and Bancshares.
The directors and executive officers of Navarre and their affiliates
own, as of the Record Date, _______________ Navarre Common Shares (___% of the
total number of outstanding shares of Navarre Common Shares at such date).
SHAREHOLDERS OF NAVARRE WHO DO NOT INTEND TO ASSERT THEIR RIGHTS AS
DISSENTING SHAREHOLDERS SHOULD COMPLETE THE ENCLOSED LETTER OF TRANSMITTAL AND
RETURN IT ALONG WITH THEIR OLD CERTIFICATE DULY ENDORSED FOR TRANSFER OR
ACCOMPANIED BY A DULY ENDORSED ASSIGNMENT SEPARATE FROM THE CERTIFICATES TO THE
EXCHANGE AGENT. IF THE MERGER IS NOT CONSUMMATED, THE EXCHANGE AGENT WILL RETURN
SUCH OLD CERTIFICATE.
PROPOSED MERGER
The following description of certain aspects of the Merger does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement which is set forth in Appendix A, attached to and incorporated
by reference in this Proxy Statement/Prospectus. All shareholders are urged to
read the Merger Agreement in its entirety.
Navarre Background and Reasons for the Merger
Background of the Merger
Members of Navarre's Board of Directors ("Navarre Board") have been
aware of a desire on the part of some of Navarre's shareholders for an
enhancement to the liquidity and value of their investment represented by
Navarre stock. The Navarre Board has discussed these interests in connection
with the trends in the financial services industry and the likely nature of the
competition that would be faced by Navarre in the future, including not only
increased competition from local institutions and consolidation within the
industry, but also the development of electronic delivery of banking services
and the effects that those trends could have on Navarre's position in the
markets it has traditionally served and would likely serve in the future. During
this period, the Navarre Board had received unsolicited acquisition overtures
from several parties including UNB Corp. ("UNB") headquartered in Canton, Ohio.
In its October 10, 1995 regular meeting the Navarre Board determined
that it would be valuable to retain an investment banking firm in deciding how
to maximize shareholder value and liquidity while continuing to provide
competitive banking services. McDonald & Company was chosen by the Navarre Board
based on McDonald & Company's expertise in financial institution stocks, as well
as its experience in mergers and acquisitions and its reputation within the
banking industry.
In November 1995, the Navarre Board began to implement a structured
process that was designed to assist it in identifying and soliciting a group of
potential acquirors that would have the
-11-
<PAGE> 25
interest and financial ability to consummate an acquisition of Navarre. A large
list of potential acquirors was developed which was then reduced to a list of
the most capable institutions.
The Navarre Board directed McDonald & Company to contact a total of 27
thrift and bank holding companies on its behalf. Each of the entities was asked
to execute confidentiality and standstill agreements and a total of 11 entities
provided preliminary non-binding indications of interest, subject to due
diligence. The Navarre Board selected five entities, including UNB and
Bancshares, to be given the opportunity to perform a business review of Navarre,
and subsequently make firm offers. In December, 1995 and January, 1996, each of
the five entities conducted in-depth examinations of the books, records and
operations of Navarre. During the same period, the Navarre Board held meetings
with representatives of each of the five entities to discuss the potential
acquiror's operating strategies and acquisition history. During this period, the
management of Navarre also analyzed the operations of each potential acquiror.
Upon conclusion of the examination by each of the entities, the Navarre
Board received proposals from four of the five entities (the "Four Final
Bidders"), all of which offered an exchange of common shares as the form of
consideration. At a meeting on March 1, 1996 the Navarre Board, with the
assistance of McDonald & Company, analyzed each offer and, after determining
that Bancshares' bid offered the greatest value to Navarre's shareholders,
directed McDonald & Company to solicit a "final bid" from each of the Four Final
Bidders. After receipt and analysis of the "final bids," which included a
material increase in UNB's bid, the Navarre Board decided in a special meeting
on March 6, 1996 that, operating independently, Navarre would be unlikely to
provide the shareholder value and liquidity represented by either the Bancshares
or UNB proposal and decided that these proposals offered the greatest value to
Navarre shareholders and could reasonably be expected to result in the
continuation and enhancement of the quality banking services which Navarre
traditionally provided southwestern Stark County, Ohio. After consulting with
McDonald & Company and with Navarre's legal counsel, the Navarre Board
determined that it would simultaneously negotiate definitive agreements with
both Bancshares and UNB and advise them that it would make a final decision
based upon an analysis of the final offers including the terms of the definitive
agreements. At the beginning of these negotiations, UNB withdrew its proposal.
Bancshares and Navarre completed negotiations and on April 4, 1996, the Merger
Agreement was executed.
Reasons for the Merger
In reaching the determination that the Merger is fair to, and in the
best interests of, Navarre's shareholders, the Navarre Board consulted with
Navarre management, as well as its financial and legal advisors, and considered
a number of factors, including, without limitation, the following, which include
all of the material factors considered:
a) Navarre's business, operations, earnings, prospects, financial
condition and market for its common shares;
b) the business, operations, earnings, prospects and financial condition
of Bancshares as determined from the business review conducted by
Navarre management, the enhanced opportunities for operating
efficiencies (particularly in terms of integration of operations and
support functions) that could result from the Merger, and the enhanced
opportunities for growth that the Merger would make possible;
c) the commitment of Bancshares to maintain each of Navarre's four
branches and to provide the opportunity for continued employment to
Navarre employees;
d) Bancshares' record of ten acquisitions since 1985 and their apparently
successful assimilation;
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e) the greater percentage of pro forma ownership of Bancshares Common
Shares that Navarre shareholders would own compared to the percentage
of pro forma assets, deposits, shareholders' equity and earnings, that
Navarre will contribute;
f) Bancshares' small business lending capabilities and Bancshares' pending
formation of a trust department;
g) comparisons to median transaction multiples of other pending bank
acquisitions in terms of premium to book value and earnings of the
Bancshares bid;
h) the improved per share value implicit in the Exchange Ratio in relation
to the then current market value, book value and earnings of Navarre,
and the 99.4% increase in dividend rate that Navarre shareholders who
become Bancshares shareholders are expected to enjoy as a result of the
Merger, and the fact that Navarre would be unlikely to match or exceed
such value in the foreseeable future by remaining independent;
i) the opinion of McDonald & Company that as of April 3, 1996, the
Exchange Ratio (as hereinafter defined) was fair to Navarre
shareholders from a financial point of view;
j) the process conducted by Navarre with the assistance of McDonald &
Company and advice of Navarre's counsel in soliciting offers, and the
resulting bids;
k) alternatives to the Merger, including remaining independent and growing
internally or remaining independent for a period of time and then
selling Navarre and the competitive problems that Navarre was likely to
encounter as an independent company;
l) the market prices at which Bancshares Common Shares have been trading
in recent periods and the substantially more liquid market available
for Bancshares Common Shares compared to the market for Navarre Common
Shares;
m) the terms of the Merger Agreement;
n) the expectation that the Merger will be a tax-free transaction to
Navarre and will generally be a tax-free transaction to its
shareholders who receive solely Bancshares Common Shares (except cash
in lieu of fractional shares) (see "PROPOSED MERGER--Federal Income Tax
Consequences of the Merger").
o) the apparent absence of any significant problems in obtaining
regulatory approvals for the Merger and the fact that the pro forma
capital position of the combined companies would be well in excess of
all applicable regulatory capital requirements; and
p) Bancshares' record as an institution that is consistently ranked near
the top of its peer group of regional bank holding companies in terms
of asset quality, capital adequacy and profitability and Bancshares'
apparent ability to participate successfully in the existing
consolidation environment;
Part of the analysis of the final bids was the Navarre Board's overall
evaluation of the economic value of each of the bids, all of which were offered
in common stock. Because each of the Four Final Bidders' common stock had a
relatively thin trading market, the Navarre Board did not limit its
consideration of economic value to the reported trading prices of the Four Final
Bidders, but also considered a number of other factors, including a Minority
Interest Valuation and Implied Stock Price (as such terms are defined in
"Opinion of McDonald & Company -- Minority Interest Valuation and
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Implied Stock Price") analysis which was provided to the Navarre Board by
McDonald & Company as another means of comparison for the consideration offered
by each bidder. Based solely on reported trading prices, UNB's bid was
substantially higher than the Bancshares bid. However, based on the Minority
Interest Valuation and Implied Stock Price analysis performed by McDonald &
Company, the revised UNB bid and the Bancshares bid were substantially the same.
As indicated above, UNB withdrew its bid at the beginning of its negotiation of
the definitive agreement with Navarre. See "Fairness Opinion of the McDonald &
Company - Minority Interest Valuation and Implied Stock Price."
The Navarre Board considered many different factors in its evaluation
and did not believe it was practical to and did not quantify or otherwise assign
relative weights to the individual factors considered in reaching its
determination.
Recommendation of the Navarre Board of Directors
IN VIEW OF ALL THE CONSIDERATIONS DESCRIBED ABOVE, THE BOARD OF
DIRECTORS OF NAVARRE UNANIMOUSLY CONCLUDED THE MERGER IS IN THE BEST INTERESTS
OF AND IS FAIR TO THE NAVARRE SHAREHOLDERS AND RECOMMENDS THAT NAVARRE
SHAREHOLDERS VOTE FOR THE MERGER.
Bancshares Background and Reasons for the Merger
Bancshares' Board of Directors has concluded that the Merger would be
in the best interest of Bancshares' shareholders and the depositors, other
customers and employees of its subsidiary banks. The Merger is consistent with
Bancshares' overall strategic acquisition program and, in particular, its
interest in expanding Citizens' facilities and services in Stark County, Ohio.
The Merger will also serve to enhance Citizens' current loan production facility
in Canton, Ohio. Bancshares' and Citizens' philosophies of emphasizing customer
service and satisfaction, promoting local and branch level decision-making power
by employees and making strong, ongoing commitments to each community they serve
are consistent with Navarre's management philosophies and its long-standing
reputation of service to Stark County. In addition, the current products and
services offered by Navarre are similar to, and in many respects, complement the
products and services provided by Citizens. Bancshares anticipates that the
additional products and services of Citizens that will become available to
Navarre customers as a result of the Merger will provide opportunities for
expanded and new customer relationships. Bancshares also believes that the
Merger can be accomplished with little or no resulting dilution in the value of
Bancshares Common Shares.
Description of the Merger
Upon consummation of the transactions contemplated under the Merger
Agreement, Navarre will be merged with and into Citizens. Citizens will be the
surviving bank after the Merger ("Surviving Corporation") and the Articles of
Incorporation and Code of Regulations of Citizens will remain in effect as they
were immediately prior to the Merger. After the Merger, Citizens will remain a
wholly-owned subsidiary of Bancshares. See also "PROPOSED MERGER--Operations of
Navarre After the Merger."
Consideration for Navarre Common Shares
Upon consummation of the Merger, each shareholder of Navarre who does
not dissent will have the right to receive Bancshares Common Shares for his or
her Navarre Common Shares, pursuant to the exchange ratio set forth below, plus
cash in lieu of the issuance of fractional shares.
The exchange ratio ("Exchange Ratio") for the conversion of Navarre
Common Shares into Bancshares Common Shares will be determined by dividing
$55.8786 by the Average Closing Price (as
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defined below) of Bancshares Common Shares. The number of Bancshares Common
Shares issuable to holders of Navarre Common Shares will adjust based upon
changes in the Average Closing Price; provided, however, that in no event will
the Exchange Ratio be greater than 2.10 or less than 1.70. Assuming the Average
Closing Price is between $32.87 and $26.60, the number of Bancshares Common
Shares exchanged will have an aggregate value of $15,646,000, which would equal,
on a per share basis for each Navarre Common Share, a Merger price of $55.8786
in Bancshares Common Shares.
The term "Closing Price" shall mean the price per share of the last
sale of Bancshares Common Shares reported on the Nasdaq National Market at the
close of the trading day by the National Association of Securities Dealers, Inc.
The term "Average Closing Price" shall mean the arithmetic mean of the Closing
Prices for the twenty trading days immediately preceding the tenth trading day
prior to the Effective Time.
Fairness Opinion of McDonald & Company
Navarre has retained McDonald & Company to render its opinion with
respect to the fairness, from a financial point of view, of the Exchange Ratio
to the holders of Navarre Common Shares. McDonald & Company rendered its oral
opinion to the Navarre Board of Directors on April 3, 1996, which it
subsequently confirmed in writing, that, as of the date of such opinion and
based on the market price of Bancshares Common Shares as of that date, the
Exchange Ratio pursuant to the Merger was fair, from a financial point of view,
to the holders of Navarre Common Shares.
THE FULL TEXT OF THE OPINION OF MCDONALD & COMPANY UPDATED AS OF THE
DATE OF THIS PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH CERTAIN ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEWS UNDERTAKEN, IS ATTACHED
AS APPENDIX A TO THIS PROXY STATEMENT/PROSPECTUS, AND SHOULD BE READ IN ITS
ENTIRETY. THE SUMMARY OF THE OPINION OF MCDONALD & COMPANY SET FORTH IN THIS
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
OPINION. MCDONALD & COMPANY'S OPINION IS DIRECTED TO THE NAVARRE BOARD OF
DIRECTORS AND ADDRESSES ONLY THE EXCHANGE RATIO.
In arriving at its opinion, McDonald & Company reviewed, among other
things, the Merger Agreement together with exhibits and schedules thereto,
certain publicly available information relating to the business, financial
condition and operations of Navarre and Bancshares as well as certain other
non-public information, primarily financial in nature, furnished to it by
Navarre and Bancshares relating to the respective businesses, earnings, assets
and prospects of Navarre and Bancshares. McDonald & Company also held
discussions with members of senior management of Navarre and Bancshares
concerning their respective businesses, assets, financial forecasts and
prospects. McDonald & Company also reviewed certain publicly available
information concerning the trading of, and the trading market for, Navarre
Common Shares and Bancshares Common Shares and certain publicly available
information concerning comparable companies and transactions, all as set forth
in McDonald & Company's opinion.
McDonald & Company was not engaged to and did not conduct a physical
inspection of any of the assets, properties or facilities of either Navarre or
Bancshares and was not engaged to and has not made, obtained or been furnished
with any independent evaluation or appraisal of any of such assets, properties
or facilities or any of the liabilities of Navarre or Bancshares. McDonald &
Company has assumed and relied, without independent investigation, upon the
accuracy and completeness of the financial and other information provided to it
or publicly available, has relied upon the representations and warranties of
Navarre and Bancshares contained in the Merger Agreement, and has not
independently attempted to verify such information. McDonald & Company has also
assumed that all of the conditions to the Merger as set forth in the Merger
Agreement, including the tax-free treatment of the Merger to the holders of
Navarre Common Shares, would be satisfied and that the
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Merger would be consummated on a timely basis in the manner contemplated by the
Merger Agreement. No limitations were imposed by Navarre upon McDonald & Company
with respect to the scope of McDonald & Company's investigation nor were any
specific instructions given to McDonald & Company in connection with its
fairness opinion.
In connection with rendering its opinion dated April 3, 1996, McDonald
& Company considered a variety of financial analyses, which are summarized
below. McDonald & Company believes that its analyses must be considered as a
whole and that selecting portions of such analyses and of the factors considered
by McDonald & Company without considering all such analyses and factors may
create an incomplete view of the analytical process underlying McDonald &
Company's opinion. In its analyses, McDonald & Company made numerous assumptions
with respect to industry performance, business and economic conditions, and
other matters. Any estimates contained in McDonald & Company's analyses are not
necessarily indicative of future results or values, which may be significantly
more or less favorable than such estimates.
The following is a summary of selected analyses considered by McDonald
& Company and discussed with the Navarre Board of Directors, in connection with
McDonald & Company's opinion dated April 3, 1996:
COMPARISON WITH SELECTED COMPANIES. McDonald & Company compared the
financial performance and stock market valuation of Bancshares with
corresponding data for the following selected banks: Arrow Financial
Corporation, Harleysville National Corporation, Hubco, Inc., MainStreet
BankGroup, Inc., National Penn Bancshares, Inc., Pinnacle Financial Services,
Inc., Fifth Third Bancorp, Park National Corporation, and Star Banc Corporation.
At the time, none of the companies listed above had announced a merger
transaction or disclosed a possible interest in pursuing a merger transaction
which would have significantly affected the stock market valuation of such
companies.
MINORITY INTEREST VALUATION AND IMPLIED STOCK PRICE. This methodology
which provided a basis for the comparison of institutions whose securities were
not actively traded, involved, as a first step, identifying a peer group of
institutions with characteristics similar to those of each of the Four Final
Bidders. As a second step, the "valuation considerations" to be reviewed were
identified. These considerations included financial condition, profitability,
growth factors, predictability of earnings, diversity of revenue stream, market
area/market share, size of institution, dividends, and liquidity of stock. For
each of the Four Final Bidders, the various valuation considerations were
adjusted upward or downward (or left unchanged) in relation to each of the Four
Final Bidder's peer groups. Based on these adjustments, McDonald & Company
assessed the price-to-earnings and price-to-book value ranges of each of the
Four Final Bidders relative to each of the Four Final Bidders' peer group
medians. McDonald then calculated the Minority Interest Valuation of each of the
Four Final Bidders by multiplying each of the Four Final Bidder's earnings and
book value by the adjusted price-to-earnings and price-to-book value ranges of
their respective peer groups. The Implied Stock Price calculated in this manner
for Bancshares was $29.00, representing a variation of $.50 from its $29.50 bid
price on April 1, 1996.
CONTRIBUTION ANALYSIS. McDonald & Company analyzed the contribution of
each of Navarre and Bancshares to, among other things, the shareholders' equity
and after-tax income of the pro forma combined company. This analysis showed
that, among other factors, Navarre would have contributed 8.8% of the
shareholders' equity of the pro forma combined company as of December 31, 1995
and 5.7% of the pro forma net income for the combined company for the twelve
months ended December 31, 1995, compared with a proposed ownership of 9.0% of
the combined company to be held by holders of Navarre Common Stock.
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PRO FORMA MERGER ANALYSIS. McDonald & Company analyzed certain pro
forma effects resulting from the Merger on the pro forma combined company over a
five year period from 1996 through 2000. This analysis, based upon the financial
forecasts of management of Navarre and Bancshares and including estimates of
cost savings provided by the management of Navarre and Bancshares, showed
approximately 3.6% dilution for Bancshares in pro forma earnings per share in
1996 and approximately 2.6% dilution in pro forma earnings per share in 1997.
McDonald & Company also analyzed the changes in the per share amount of
earnings, book value and indicated dividend represented by one Navarre Common
Share after the Merger. The analysis was performed on the basis of financial
information for both companies as of and for the twelve month periods ended
December 31, 1992, 1993, 1994 and 1995. The analysis indicated, among other
things, that exchanging one Navarre Common Share at the Exchange Ratio (assumed
to be 1.8942) for Bancshares Common Shares on a pro forma basis would have
resulted in a 57.6% increase in earnings per share for each Navarre Common Share
for the twelve months ended December 31, 1995, a 1.3% increase in fully diluted
book value per share for each Navarre Common Share and a 99.4% increase in
dividends per share for each Navarre Common Share based on Bancshares's and
Navarre's indicated annual dividend rate.
ANALYSIS OF SELECTED MERGER TRANSACTIONS. McDonald & Company reviewed
five groups of selected pending bank acquisition transactions involving (i)
selling banks with total assets of less than $150.0 million, (ii) selling banks
having tangible equity to assets ratios of between 8.5% and 10.0%, (iii) selling
banks having a return on average assets of between 0.75% and 1.25%, (iv) selling
banks having a ratio of non-performing assets as a percent of total assets of
between 0.25% and 1.00%, and (v) selling banks headquartered in the Midwest
region of Iowa, Illinois, Indiana, Kansas, Kentucky, Michigan, Minnesota,
Missouri, North Dakota, Nebraska, Ohio, Pennsylvania, South Dakota, West
Virginia and Wisconsin. McDonald & Company reviewed the ratios of the offer
value to stated book value and tangible book value, the multiple of the last
twelve months earnings of the acquired company, and the ratio of offer value to
assets in each such transaction, and computed the mean and median ratios and
multiples for each group. The calculations yielded ranges of median ratios of
price to stated book value and tangible book value of 153% to 177%, and 156% to
182%, respectively. Median multiples of earnings among the five groups ranged
from 13.5x to 16.0x; and median ratios of offer value to assets ranged from 15%
to 16%. This analysis showed an imputed reference range of $38.25 to $42.25 per
Navarre Common Share.
NO COMPANY OR TRANSACTION USED IN THE ABOVE ANALYSES AS A COMPARISON IS
IDENTICAL TO BANCSHARES, NAVARRE OR THE MERGER. ACCORDINGLY, AN ANALYSIS OF THE
RESULTS OF THE FOREGOING NECESSARILY INVOLVES COMPLEX CONSIDERATIONS AND
JUDGMENTS CONCERNING THE DIFFERENCES IN FINANCIAL AND OPERATING CHARACTERISTICS
OF THE COMPANIES TO WHICH THEY ARE BEING COMPARED. MATHEMATICAL ANALYSIS (SUCH
AS DETERMINING THE MEAN OR MEDIAN) IS NOT, IN ITSELF, A MEANINGFUL METHOD OF
USING COMPARABLE COMPANY OR COMPARABLE TRANSACTION DATA.
DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow analysis,
McDonald & Company estimated the present value of the future streams of
after-tax cash flows that Navarre could produce over a five year period from
1996 through 2000, under various assumptions, based upon Navarre management's
forecasts. McDonald & Company then estimated the terminal value of Navarre after
the five year period by applying an estimated perpetual growth rate to the sixth
year's projected after-tax cash flow and then applied to this value multiples
ranging from 8x to 12x. The five year cash flow streams and terminal values were
then discounted to present values using different discount rates chosen to
reflect different assumptions regarding the estimated required rates of return
of prospective buyers of Navarre. On the basis of such varying assumptions, this
discounted cash flow analysis indicated a reference range of $37.48 to $56.86
per Navarre Common Share. This analysis was based upon management forecasts
including variations and assumptions made by McDonald & Company which included
adjustments to reflect the anticipated effects of potential merger related cost
savings estimated by Navarre and Bancshares. Management's forecasts are based
upon many factors and
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assumptions, many of which are beyond the control of Navarre or Bancshares. As
indicated above, this analysis 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 time or at any time in the future.
In performing its analyses, McDonald & Company made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters. The analyses performed by McDonald & Company are
not necessarily indicative of actual values, which may be significantly more or
less favorable than the values suggested by such analyses. Such analyses were
prepared solely as part of McDonald & Company's opinion.
The term "fair from a financial point of view" is a standard phrase
contained in investment banker fairness opinions and refers to the fact that
McDonald & Company's opinion as to the fairness of the Exchange Ratio is
addressed solely to the financial attributes of the Exchange Ratio. The analyses
do not purport to be appraisals or to reflect the prices at which a company
might actually be sold. In addition, as described above, McDonald & Company's
opinion and related presentation to the Navarre Board were one of many factors
taken into consideration by the Navarre Board in making its determination to
approve the Merger Agreement. Consequently, the McDonald & Company analyses
described above should not be viewed as determinative of the Navarre Board's
conclusions with respect to the value of Navarre or of the decision of the
Navarre Board to agree to the Exchange Ratio.
McDonald & Company's opinion is based on economic and market conditions
and other circumstances existing on, and information made available as of, the
date of the opinion. In addition, the opinion does not address Navarre's
underlying business decision to effect the Merger or any other terms of the
Merger. McDonald & Company's opinion does not represent its opinion as to what
the value of Navarre Common Shares or Bancshares Common Shares may be at the
Closing Date.
In connection with its opinion dated as of the date of this Proxy
Statement/Prospectus, McDonald & Company performed procedures to update certain
of its analyses and reviewed the assumptions on which such analyses were based
and the factors considered therewith.
McDonald & Company, 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 unlisted securities, private placements and
valuations for estate, corporate and other purposes. McDonald & Company has
extensive experience with the valuation of financial institutions. Navarre's
Board of Directors selected McDonald & Company as its financial advisor because
of McDonald & Company's industry expertise with respect to financial
institutions and because of its substantial experience in transactions similar
to the Merger. McDonald & Company is not affiliated with either Navarre or
Bancshares.
In the ordinary course of business, McDonald & Company makes a market
in Bancshares Common Shares and, accordingly, may actively trade securities of
Bancshares for its own account and for the accounts of its customers. At any
time and from time to time McDonald & Company may hold a short or long position
in such securities.
For its services as financial advisor, Navarre has paid McDonald &
Company a retainer of $15,000 and a fee of $35,000 upon rendering of the oral
opinion. Assuming the consummation of the Merger and based upon the value of the
Merger assuming a per share Merger Price of $55.8786 in Bancshares Common
Shares, additional fees equal to approximately $160,000 would be payable to
McDonald & Company, upon consummation of the Merger. Navarre has also agreed to
reimburse McDonald & Company for its reasonable out-of-pocket expenses and to
indemnify McDonald & Company against certain liabilities, including certain
liabilities under federal securities laws.
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Effective Time of the Merger
As used in this Proxy Statement/Prospectus, "Effective Time" means the
date and time when the Merger becomes effective, which will occur upon the
filing with the Ohio Secretary of State of a certified copy of the Merger
Agreement together with a certificate of approval from the Ohio Department of
Commerce, Division of Financial Institutions, Office of Banks and Savings &
Loans in accordance with Section 1121.06 of the ORC.
Payment of Cash in Lieu of Fractional Shares
No fractional Bancshares Common Shares will be issued in connection
with the Merger. Each Navarre shareholder who would otherwise have been entitled
to receive a fraction of a Bancshares Common Share will receive, in lieu
thereof, cash therefor, without interest, at a price based upon the Average
Closing Price.
Surrender of Certificates
A Letter of Transmittal, together with instructions, for use in
surrendering certificates representing Navarre Common Shares ("Old
Certificates") in exchange for Bancshares Common Shares and handling the payment
of cash in lieu of fractional shares of Bancshares Common Shares is enclosed
herewith. Shareholders should send their Old Certificates to Bancshares, as
exchange agent (the "Exchange Agent"), duly endorsed for transfer or accompanied
by a duly endorsed assignment separate from the certificate(s). If the Merger is
consummated, the Old Certificates surrendered will be exchanged for one or more
certificates representing the whole number of Bancshares Common Shares (and
payment of cash in lieu of fractional shares) based on the Exchange Ratio. Until
so surrendered, each outstanding Old Certificate shall be deemed from and after
the Effective Time for all purposes to represent only the right to receive, upon
surrender, one or more certificates for Bancshares Common Stock and cash in lieu
of fractional shares. If the Merger is not consummated, the Exchange Agent will
return any Old Certificates it has received to the persons surrendering such Old
Certificates in accordance with the Letter of Transmittal and instructions.
If any certificates for Bancshares Common Shares are to be issued in a
name(s) other than that in which an Old Certificate surrendered or exchanged is
issued, the Old Certificate so surrendered must be properly endorsed and
otherwise in proper form for transfer. The person requesting the exchange must
affix any requisite stock transfer tax stamps to the Old Certificate
surrendered, provide funds for their purchase, or establish to the satisfaction
of the Exchange Agent that such taxes have been paid or are not applicable.
In the event of a lost certificate, the shareholder shall provide, in
lieu of the lost certificate, an affidavit attesting to the loss of said
certificate and, if required by the Surviving Corporation or the Exchange Agent,
an indemnification or bond in such reasonable amount as the Surviving
Corporation or the Exchange Agent may direct. Unless and until the Old
Certificates, or affidavit and, if required by the Surviving Corporation or the
Exchange Agent, an indemnification or bond in lieu thereof, are presented to the
Exchange Agent, the holder thereof shall not be entitled to receive any
consideration to be paid in connection with the Merger or any dividends payable
on Bancshares Common Shares, or to exercise any rights as a holder of Bancshares
Common Shares. On or after the Effective Time, upon surrender of the Old
Certificates, or affidavit and an indemnification or bond in lieu thereof, to
the Exchange Agent, the holder thereof will be paid the consideration to which
the holder is entitled under the Merger Agreement and any dividends which
theretofore became payable on any Bancshares Common Shares to which the holder
is entitled. No dividends or other distributions, if any, payable to the holders
of record of Bancshares Common Shares as of any date subsequent to the Effective
Time shall be paid to any holder of any outstanding Old Certificate until the
holder thereof surrenders such
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Old Certificate as provided in the Merger Agreement. Subject to applicable law,
no holder of an Old Certificate shall be entitled to vote or exercise any other
rights of a holder of Bancshares Common Shares.
After the consummation of the Merger, there will be no transfers on the
stock transfer books of Navarre of any Navarre Common Shares. If, after the
consummation of the Merger, Old Certificates are properly presented to
Bancshares, they will be canceled and exchanged for the consideration specified
in the Merger Agreement, subject to applicable law and to the extent that
Bancshares has not paid such consideration to a public official pursuant to
applicable abandoned property laws.
Interest of Management in the Merger
Bancshares will offer the existing full time employees of Navarre the
opportunity to become employees of Citizens or one of Bancshares' other
affiliates. In addition, Bancshares will assume the employment security
agreements dated November 14, 1995 between Navarre and Kenneth N. Koher and
Jeffrey J. Define, respectively. Navarre employees who become employees of
Citizens or one of Bancshares' other affiliates will have their years of service
credited toward eligibility and vesting in Citizens' Profit Sharing Plan and
Defined Benefit Pension Plan and will be entitled to participate in and are
subject to the terms of Bancshares' Employee Stock Option Plan.
From and after the effective date of the Merger, Bancshares or Citizens
will indemnify the officers and directors of Navarre who do not become the
officers and directors of Citizens or Bancshares to the extent permitted by the
articles of incorporation and codes of regulation of Citizens and Bancshares for
persons who were officers or directors of Citizens or Bancshares. In addition,
for a period of at least three years following the effective date of the Merger,
Bancshares will maintain in effect the current insurance policies maintained by
Navarre (or obtain substitute policies with substantially the same coverage and
terms) covering Navarre's directors' and officers' liabilities for facts or
events arising prior to the Effective Time. Notwithstanding the foregoing,
Bancshares has the right to purchase tail coverage if such coverage is available
and Bancshares' obligation to pay for insurance is limited to $15,000 less any
rebates on Navarre's current directors' and officers' liability insurance.
Rights of Dissenting Shareholders
Shareholders of Navarre are entitled to certain dissenters' rights
pursuant to Section 1701.85 of the ORC. Sections 1701.85 and 1121.09 generally
provide that shareholders of Navarre will not be entitled to such rights absent
compliance with Section 1701.85 and failure to take any one of the required
steps may result in the termination or waiver of such rights. Specifically, any
Navarre shareholder who is a record holder of Navarre Common Shares on the
Record Date and whose shares are not voted in favor of the Merger may be
entitled to be paid the "fair cash value" of such Navarre Common Shares after
the Effective Time. To be entitled to such payment, a shareholder must deliver a
written demand for payment therefor to Navarre on or before the tenth day
following the Special Meeting and must otherwise comply with Section 1701.85.
Any written demand must specify the shareholder's name and address, the number
and class of shares held by him or her on the Record Date, and the amount
claimed as the "fair cash value" of said Navarre Common Shares. See the text of
Sections 1121.09 and 1701.85 of the ORC attached as Appendix B to this Proxy
Statement/Prospectus for specific information on the procedure to be followed in
exercising dissenters' rights.
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If the Surviving Corporation (as hereinafter defined) so requests,
dissenting shareholders must submit their share certificates to Navarre within
fifteen days of such request, for endorsement thereon by Navarre that demand for
appraisal has been made and failure to comply with such request could terminate
the dissenting shareholders rights. Such certificates will be promptly returned
to the dissenting shareholders by Navarre. If Navarre and any dissenting
shareholder cannot agree upon the "fair cash value" of the Navarre Common
Shares, either may, within three months after service of demand by the
shareholder, file a petition in the Court of Common Pleas of Stark County, Ohio
(the "Court") for a determination of the "fair cash value" of said Navarre
Common Shares. The Court may appoint one or more appraisers to determine the
"fair cash value" and if the Court approves the appraisers' report, judgment
will be entered therefor, and the costs of the proceedings, including reasonable
compensation of the appraisers, will be assessed or apportioned as the Court
considers equitable.
Federal Income Tax Consequences of the Merger
The following summary of the material federal income tax consequences
of the Merger to holders who hold Navarre Common Shares as capital assets and
deals only with holders who are (i) citizens or residents of the United States,
(ii) domestic corporations or (iii) otherwise subject to United States federal
income tax on a net income basis in respect of Shares ("U.S. Holders"). This
summary may not apply to certain classes of taxpayers, including, without
limitation, insurance companies, tax-exempt organizations, financial
institutions, dealers in securities, persons who acquired Navarre Common Shares
pursuant to the exercise of employee stock options or rights or otherwise as
compensation and persons who hold shares of Navarre Common Shares in a hedging
transaction or as part of a straddle or conversion transaction. Also, the
summary does not address state, local or foreign tax consequences of the Merger.
Consequently, each holder should consult such holder's own tax advisor as to the
specific tax consequences of the Merger to such holder.
This summary is based on current law and the opinion of counsel to
Navarre. Future legislative, judicial or administrative changes or
interpretations, which may be retroactive, could alter or modify the statements
set forth herein. The opinion of Emens, Kegler, Brown, Hill & Ritter set forth
in this summary is based, among other things, on assumptions relating to certain
facts and circumstances of, and the intentions of the parties to, the Merger,
which assumptions have been made with the consent of Navarre, Bancshares and
Citizens. None of Navarre, Bancshares and Citizens has requested or will request
any ruling from the Internal Revenue Service as to the United States federal
income tax consequences of the Merger.
It is intended that the Merger will be treated as a reorganization
within the meaning of Section 386(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and that, accordingly, for federal income tax purposes no
gain or loss will be recognized by Navarre, Bancshares or Citizens as a result
of the Merger.
In the opinion of Emens, Kegler, Brown, Hill & Ritter, the material
federal income tax consequences to U.S. Holders who exchange shares of Navarre
Common Shares for shares of Bancshares Common Shares, pursuant to the Merger
will be as follows:
(i) no gain or loss will be recognized by a U.S. Holder, except as
described below with respect to a U.S. Holder who receives cash in lieu of a
fractional share interest in Common Shares;
(ii) the aggregate adjusted tax basis of shares of Bancshares Common
Shares (including a fractional share interest in Bancshares Common Shares deemed
received and redeemed as described below) received by a U.S. Holder will be the
same as the aggregate adjusted tax basis of the shares of Navarre Common Shares
exchanged therefor;
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(iii) the holding period of Bancshares Common Shares (including the
holding period of a fractional share interest in Bancshares Common Shares)
received by a U.S. Holder will include the holding period of the Navarre Common
Shares exchanged therefor; and
(iv) a U.S. Holder of Navarre Common Shares who receives cash in lieu
of a fractional share interest in Bancshares Common Shares will be treated as
having received such fractional share interest and then as having received the
cash in redemption of such fractional share interest. Under Section 302 of the
Code, if such deemed distribution is "substantially disproportionate" with
respect to the U.S. Holder or is "not essentially equivalent to a dividend"
after giving effect to the constructive ownership rules of the Code, the U.S.
Holder will generally recognize capital gain or loss equal to the difference
between the amount of cash received and the U.S. Holder's adjusted tax basis in
the fractional share interest. Under these rules, a minority stockholder of
Navarre should recognize capital gain or loss on the receipt of cash in lieu of
a fractional share interest in Bancshares Common Shares. The capital gain or
loss will be long-term capital gain or loss if the U.S. Holder's holding period
in the fractional share interest is more than one year.
(v) U.S. Holders who exercise dissenters' rights and receive cash for
their Navarre Common Shares will be treated as having received a distribution in
redemption of their shares which will result in such shareholders receiving
income for federal income tax purposes.
The obligation of Navarre, Bancshares and Citizens to consummate the
Merger is conditioned on the receipt by Navarre of an opinion of its counsel,
Emens, Kegler, Brown, Hill & Ritter, dated as of the Closing, substantially to
the effect that (i) the Merger will be treated for federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code, (ii) no
gain or loss will be recognized by Navarre, Bancshares or Citizens as a result
of the Merger, (iii) no gain or loss will be recognized by the shareholders of
Navarre that are U.S. Holders upon conversion of their Navarre Common Shares to
Bancshares Common Shares (except with respect to cash received in lieu of a
fractional share interest in Bancshares Common Shares); and (iv) the tax basis
of Bancshares Common Shares received by shareholders that are U.S. Holders who
exchange all of their Navarre Common Shares solely for Bancshares Common Shares,
in the Merger will be the same as the tax basis of Navarre Common Shares
surrendered in exchange therefor (reduced by any amount of tax basis allocable
to a fractional share interest for which cash is received). The opinion of
Emens, Kegler, Brown, Hill & Ritter referred to in this paragraph will be based
upon certain facts, assumptions and representations and/or covenants, including
those contained in certificates of officers of Navarre, Bancshares, Citizens
and, possibly, others. Subject to the receipt of such representations and/or
covenants, Emens, Kegler, Brown, Hill & Ritter anticipates that it will render
such opinion.
Regulatory Approvals
Bancshares has filed the applications necessary to obtain the approval
for the Merger from the Federal Reserve Board, the Ohio Division of Banks and
the Federal Deposit Insurance Corporation (the "FDIC"). The Merger may not be
consummated for 15 days after approval by the Federal Reserve Board, during
which time an action may be brought by the United States Department of Justice
challenging the Merger on antitrust grounds. Bancshares has no reason to believe
the Merger will be challenged on antitrust grounds.
Business Pending the Merger
The Merger Agreement provides that, pending consummation of the Merger,
Navarre will continue to operate in the ordinary course. In addition, any
lending activities other than in the ordinary course, any 1-4 family unit
residential real estate loans in excess of $100,000, any equity credit lines in
excess of $50,000, any consumer installment or construction loans in excess of
$30,000 and any
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commercial loans in excess of $50,000 (taking into account existing borrowings
but excluding renewals) must be consented to in writing by Bancshares.
Furthermore, the Merger Agreement provides that Navarre may not declare, set
aside, pay or make any dividend or other distribution or payment (whether in
cash, stock or property) with respect to, or purchase or redeem, any shares of
the capital stock other than regular quarterly cash dividends in an amount not
to exceed $.20 per Navarre Common Share for the March 31, 1996 quarter, not to
exceed $.20 per Navarre Common Share for the June 30, 1996 quarter, not to
exceed $.20 per Navarre Common Share for the September 30, 1996 quarter and any
other quarter preceding the consummation of the Merger; provided, however, that
during any fiscal quarter there shall not be a payment of both a Bancshares and
a Navarre dividend nor omission of payment of dividends to Navarre Shareholders.
In the Merger Agreement, Navarre has agreed that it will not, directly
or indirectly, through any of its officers, directors, employees, agents or
advisors or other representatives or consultants, solicit or initiate or
knowingly encourage, including by means of furnishing information, any proposals
or offers from any person (other than Bancshares) relating to any acquisition or
purchase of all or a material amount of the assets of, or any securities of, or
any merger, tender offer, consolidation or business combination with, Navarre;
provided, however, that Navarre may furnish information and may consider,
evaluate and engage in discussions or negotiations with any person if outside
counsel advises Navarre's directors that failure to furnish such information or
engage in such discussions or negotiations could involve Navarre's directors in
a breach of their fiduciary duties. If the Board of Directors of Navarre
receives a request for confidential information from a potential bidder for
Navarre and the Board of Directors determines, after consultation with outside
counsel, that the Board of Directors has a fiduciary obligation to provide such
information to a potential bidder, then Navarre may, subject to a
confidentiality agreement substantially similar to that previously executed with
Bancshares, provide such potential bidder with access to information regarding
Navarre. Navarre has agreed to promptly notify Bancshares, orally and in
writing, if any such proposal or offer is made and shall, in any such notice,
indicate the identity and terms and conditions of any proposal or offer, or any
such inquiry or contact.
Other Provisions of the Merger Agreement
Representations and Warranties
The Merger Agreement contains representations and warranties by the
parties regarding, among other things, their respective organization, authority
to enter into the Merger Agreement, capitalization, pending and threatened
litigation, contractual obligations, compliance with applicable laws and
regulations, financial statements and filings with regulatory agencies. These
representations and warranties will not survive consummation of the Merger. The
Merger Agreement includes certain exceptions to Navarre's representations and
warranties, none of which are deemed material to this transaction. Such
exceptions are contained in the Disclosure Letter to the Merger Agreement which
may be reviewed upon request to The Navarre Deposit Bank Company, 15 North Main
Street, Navarre, Ohio 44162-0026; Attention, Gloria Page, Secretary.
Conditions to the Merger
The obligations of Navarre and Bancshares to consummate the Merger are
subject to, but not limited to the following conditions: (1) the accuracy of
Navarre's and Bancshares' representations and warranties on and as of the
closing date of the Merger; (2) Navarre and Bancshares shall each have performed
or complied with the covenants and conditions that each is required to perform
or comply with under the terms of the Merger Agreement; (3) the granting of all
necessary regulatory approvals, including but not limited to the Board of
Governors of the Federal Reserve System, the FDIC, the Ohio Department of
Commerce (Division of Financial Institutions, Office of Banks and Savings &
Loans) and
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the Securities and Exchange Commission; (4) the issuance by Bancshares' and
Navarre's counsel of opinions covering certain matters with respect to
Bancshares and Navarre, including an opinion by Navarre's counsel to the effect
that the Merger will constitute a tax-free reorganization under applicable
federal tax laws and no gain or loss will be recognized by Bancshares, Citizens
or Navarre as a result of the Merger and no gain or loss will be recognized by
the shareholders of Navarre upon the conversion of their Navarre Common Shares
into Bancshares Common Shares (except for cash received in lieu of fractional
shares); (5) there shall not have been commenced, since the date of the Merger
Agreement, any proceeding (excluding proxy contests) involving any challenge to,
or seeking damages or other relief in connection with any of the transactions
contemplated under the Merger Agreement or any proceeding which Bancshares' or
Navarre's respective Boards of Directors determines may have the effect of
preventing or making illegal any of the transactions contemplated under the
Merger Agreement; (6) the consummation nor performance of the transactions under
the Merger Agreement will not conflict with, or result in a material violation
of, or cause Bancshares or Navarre or their respective affiliates to suffer any
material adverse consequences under any law or order applicable to, or proposed
to be applicable to them; (7) the registration statement with the Securities and
Exchange Commission registering the exchange of the Bancshares Common Shares for
Navarre Common Shares and all state securities and "blue sky" permits have
become effective and no stop orders or similar restraining orders shall have
been issued; and (8) the receipt by Bancshares of an opinion letter from Crowe,
Chizek and Company LLP stating that the transaction qualifies for treatment as a
"pooling of interests" for financial statement reporting purposes.
Bancshares' obligations under the Merger Agreement are also conditioned
on, among other conditions, the Average Closing Price being less than $34.00;
Navarre's shareholders having approved the Merger; and receipt of a list of (i)
all certificates of deposit or checking, savings or other deposits owned by
directors and officers of Navarre and their respective affiliates as of the last
day of the calendar month immediately prior to closing and (ii) all certificates
of deposit or checking, savings or other deposits in excess of $25,000 and all
customers with aggregate deposits in excess of $50,000.
Navarre's obligations under the Merger Agreement are also subject to,
among other conditions, the adoption of the Agreement and the Merger by the
requisite vote of Navarre shareholders in accordance with Ohio and other
applicable law and Navarre's organizational documents; the Bancshares Common
Shares to be issued pursuant to the Merger shall have been approved for listing
on the Nasdaq National Market; the Average Closing Price being more than $24.50;
and the receipt of a fairness opinion from McDonald & Company dated as of the
date of this Proxy Statement/Prospectus stating that the Exchange Ratio under
the Merger Agreement is fair from a financial point of view to Navarre
shareholders.
The foregoing disclosure regarding conditions to the Merger represents
and includes all material conditions to the consummation thereof.
Amendments; Termination
The Merger Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment. The Merger Agreement may
be terminated as follows: (i) by either Bancshares or Navarre as a result of a
material breach of the Merger Agreement, which breach has not been waived by the
nonbreaching party; or (ii) by Bancshares or Navarre if the conditions precedent
to their respective obligations to consummate the Merger has not been satisfied;
(iii) by mutual consent of Bancshares and Navarre; or (iv) by Bancshares or
Navarre if the Merger has not occurred (other than through the failure of the
party seeking to terminate to comply fully with its obligations under the Merger
Agreement) by December 31, 1996, unless the failure to comply is related to an
action or inaction of a regulatory entity, then on or before March 31, 1997.
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If the Merger Agreement is terminated as a result of a party's breach
of the Merger Agreement or because of a party's failure to comply with its
obligations under the Merger Agreement, the terminating party shall have the
right to pursue all legal remedies available to it.
If the Navarre Board of Directors, in the exercise of its fiduciary
duty after consultation with Navarre's outside counsel, determines not to submit
this Merger to the Navarre shareholders for approval or to submit another
acquisition proposal, Navarre will be obligated to pay Bancshares $500,000. If
Navarre terminates the Merger Agreement because of the existence of proceedings
challenging the Merger, Navarre shall pay to Bancshares its expenses incurred in
connection with the Merger up to $250,000.
Expenses of the Merger
Bancshares, Citizens and Navarre shall each bear its respective
expenses incurred in connection with the Merger and the transactions
contemplated thereby. Bancshares shall be responsible for all expenses incident
to obtaining requisite regulatory approvals and Navarre shall be responsible for
all amounts payable to McDonald & Company in connection with the Merger
Agreement and the transactions contemplated thereby.
Operations of Navarre After the Merger
Pursuant to the terms of the Merger Agreement, Navarre shall be merged
with and into Citizens and Citizens shall be the surviving corporation (the
"Surviving Corporation") as of the Effective Time. The Articles of Incorporation
and Code of Regulations of Citizens shall become the Articles of Incorporation
and Code of Regulations of the Surviving Corporation until thereafter duly
altered, amended or repealed in accordance with applicable law. The offices of
Navarre shall become branches of Citizens.
Each director of Citizens immediately prior to the Effective Time shall
remain a director of the Surviving Corporation and shall serve for the balance
of his term and until his successor is duly elected and qualified or until his
earlier death, resignation or removal in the manner provided in the Code of
Regulations or as otherwise provided by law. Furthermore, each person who is an
officer of Citizens prior to the Effective Time shall remain an officer of the
Surviving Corporation. It is anticipated that one member of Navarre's Board of
Director shall serve on the Board of Directors of Citizens. The members of the
Board of Directors of Navarre will also be given the opportunity to serve on the
Stark County Advisory Board for Citizens for a period of five years. For further
information regarding the directors and officers of Bancshares and the Surviving
Corporation, see "INFORMATION WITH RESPECT TO BANCSHARES--Management."
In addition, each common share of Citizens, par value $10.00 per share,
issued and outstanding immediately prior to the Effective Time shall thereafter
continue to be one common share of the Surviving Corporation.
Upon completion of the Merger, it is also anticipated that the offices
of Navarre will be operated as branches of Citizens and that the Navarre name
will continue to be featured at the Navarre office only. The Navarre name may
also be used in other applications to be determined by Citizens.
Accounting Treatment
The Merger is expected to qualify as a "pooling-of-interests" for
accounting and financial reporting purposes. The pro forma results of this
accounting treatment are shown in the unaudited pro
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forma financial information appearing elsewhere in this Proxy
Statement/Prospectus. See "PRO FORMA FINANCIAL INFORMATION."
As noted above, it is a condition to the obligation of Bancshares and
Navarre to consummate the Merger that Bancshares shall have received a letter
from its auditors, Crowe, Chizek and Company LLP, to the effect that the Merger
will qualify as a pooling-of-interests transaction under generally accepted
accounting principles. Among the conditions which must be met in order for the
Merger to qualify for "pooling-of-interests" accounting treatment, generally
accepted accounting principles require that, in the aggregate, no more than ten
percent of the Navarre Common Shares (or 28,000 shares based on 280,000 shares
presently outstanding) be held by Navarre shareholders who have exercised
dissenters' rights in connection with the Merger and demanded payment in cash
for the value of their Navarre common shares under the ORC or receive cash in
lieu of fractional shares. In the event such condition is not met, the Merger
would not be consummated unless the condition was waived by Bancshares and
Navarre. Furthermore, in order to qualify for "pooling-of-interests" accounting
treatment, no affiliate of either Bancshares or Navarre may reduce his or her
risk relative to the Bancshares Common Shares received in the Merger until such
time as financial results covering at least 30 days of post-merger combined
operations have been published.
Resale of Bancshares Common Shares
No restrictions on the sale or other transfer of the Bancshares Common
Shares issued pursuant to the Merger will be imposed solely as a result of the
Merger, except for restrictions on the transfer of shares issued to any Navarre
shareholder who may be deemed to be an "affiliate" of Navarre for purposes of
Rule 145 under the 1933 Act. Generally, "affiliates" of Navarre would include
officers, directors and significant shareholders of Navarre. The Merger
Agreement requires Navarre to cause persons who could be considered to be
"affiliates" to enter into an agreement with Bancshares to the effect that the
Bancshares Common Shares to be acquired by such "affiliates" will not be sold,
pledged, transferred or otherwise disposed of except in compliance with the 1933
Act and the rules and regulations thereunder. Sales of Bancshares Common Shares
by affiliates of Bancshares are subject to similar transfer restrictions.
Bancshares Common Shares issued to Navarre shareholders who may be
deemed to be affiliates may be resold only (i) in transactions permitted by Rule
145 promulgated under the 1933 Act, (ii) pursuant to an effective registration
statement, or (iii) in transactions exempt from registration. Rule 145, as
currently in effect, imposes restrictions on the manner in which such affiliates
may make resales and also on the quantity of resales that such affiliates, and
others with whom they might act in concert, may make within any three month
period.
DESCRIPTION OF BANCSHARES CAPITAL SHARES
General
Bancshares has authorized 12,000,000 Common Shares, without par value,
of which 5,390,622 are issued and outstanding and 2,250 are held in treasury
shares. Each outstanding Bancshares Common Share is duly authorized, validly
issued, fully paid and nonassessable. The holders of Bancshares Common Shares
have one vote per share on each matter on which shareholders are entitled to
vote and, in accordance with Ohio law, cumulative voting rights may be requested
in connection with the election of directors. Directors are elected for
staggered, three year terms. Specifically, the Board is divided into three
classes with three to four directors per class and with the members of one class
being elected annually. On liquidation or dissolution of Bancshares, the holders
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of Bancshares Common Shares are entitled to share ratably in such assets as
remain after creditors have been paid.
In addition, Bancshares has authorized 200,000 shares of serial
preferred stock ("Serial Shares"), none of which are currently outstanding. The
terms of the Serial Shares are to be established by Bancshares' Board of
Directors; therefore, if Bancshares were to issue Serial Shares in the future,
holders thereof might have preference over the holders of Bancshares Common
Shares in the event of a liquidation or dissolution and may have other rights
which are superior to or in addition to the rights of holders of Bancshares
Common Shares. Serial Shares have a par value of $10.00 per share. Bancshares
Common Shares have no par value. Holders of Bancshares Common Shares have no
preemptive rights, subscription rights or conversion rights.
Bancshares' Board of Directors determines whether to declare dividends
and the amount of any dividends declared. Such determinations by the Board of
Directors take into account Bancshares' financial condition, results of
operations and other relevant factors. While management expects to maintain its
policy of paying regular cash dividends, no assurances can be given that any
dividends will be declared, or, if declared, what the amount of such dividends
will be. See "INFORMATION WITH RESPECT TO BANCSHARES--Market Price of Bancshares
Common Shares."
Bancshares is the transfer agent and registrar for Bancshares Common
Shares.
Description of Control Share Acquisition Provisions
Bancshares' Articles of Incorporation restrict certain acquisitions of
Bancshares Common Shares that meet the definition of a Control Share
Acquisition. A Control Share Acquisition is defined as the acquisition, directly
or indirectly, by any person, of Bancshares Common Shares that, when added to
all other shares of Bancshares in respect of which such person may exercise or
direct the exercise of voting power, would entitle such person, immediately
after such acquisition, directly or indirectly, to exercise or direct the
exercise of the voting power in the election of directors within any of the
following ranges of such voting power:
(a) One-fifth or more but less than one-third of such voting
power;
(b) One-third or more but less than a majority of such voting
power;
(c) A majority or more of such voting power.
The Articles of Incorporation provide for certain exceptions to this definition,
such as good faith acquisitions not for the purpose of circumventing the
Articles of Incorporation, bequests, inheritances and gifts, pledges or other
security interests created in good faith and not for the purpose of
circumventing the Articles of Incorporation, or pursuant to certain
shareholder-approved mergers, consolidations or majority share acquisitions. If
an acquisition of Bancshares Common Shares qualifies as a Control Share
Acquisition, authorization for such transaction must be obtained at a special
shareholder meeting held in accordance with procedures contained in the Articles
of Incorporation. If these procedures are violated, the person making such
acquisition loses certain shareholder rights.
Procedures
In order to obtain authorization for a Control Share Acquisition, the
person proposing to make such acquisition must deliver a notice to Bancshares
(the "Notice") including the following information:
(a) The identity of the person who is giving the Notice;
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(b) A statement that the Notice is given pursuant to the
Articles of Incorporation;
(c) The number and class of shares of Bancshares owned,
directly or indirectly, by the person who gives the Notice;
(d) The range of voting power under which the proposed Control
Share Acquisition would, if consummated, fall;
(e) A description in reasonable detail of the terms of the
proposed Control Share Acquisition; and
(f) Reasonable evidence that the proposed Control Share
Acquisition, if consummated, would not be contrary to law and that the
person who is giving the Notice has the financial capacity to make the
proposed Control Share Acquisition.
Within ten days of receiving the Notice, the Board of Directors must call a
special meeting of shareholders to be held not later than 50 days after receipt
of the Notice. The purpose of the special meeting of shareholders is to consider
the proposed Control Share Acquisition; provided, that the Board of Directors
shall have no obligation to call such meeting if they make a determination
within ten days after receipt of the Notice (i) that the Notice was not given in
good faith, (ii) that the proposed Control Share Acquisition would not be in the
best interests of Bancshares and its shareholders or (iii) that the proposed
Control Share Acquisition could not be consummated for financial or legal
reasons.
Requirements for Approval
The person who delivered the Notice may make the proposed Control Share
Acquisition if both of the following occur: (i) the shareholders authorize such
acquisition at the special meeting called by the Board of Directors for that
purpose, at which a quorum is present, by an affirmative vote of a majority of
the shares entitled to vote in the election of directors ("Voting Shares")
represented at such meeting in person or by proxy and by a majority of the
portion of such Voting Shares represented at such meeting in person or by proxy
excluding the votes of "Interested Shares"; and (ii) such acquisition is
consummated, in accordance with the terms so authorized, not later than 360 days
following shareholder authorization of the Control Share Acquisition.
"Interested Shares" are Voting Shares with respect to which any of the following
persons may exercise or direct the exercise of the voting power:
(a) any person whose Notice prompted the calling of the
meeting of shareholders;
(b) any officer of Bancshares elected or appointed by the
directors of Bancshares; and
(c) any employee of Bancshares who is also a director of
Bancshares.
Violation of Restriction
Bancshares Common Shares issued or transferred to any person in
violation of this restriction are valid only with respect to such amount of
shares as does not result in a violation of the Articles of Incorporation, and
such issuance or transfer is null and void with respect to the remainder of such
shares. Any such remainder of shares are called "Excess Shares." Excess Shares
are not entitled to any voting rights, are not considered to be outstanding for
quorum or voting purposes, and are not entitled to receive dividends, interest
or any other distribution with respect to the Excess Shares. Any
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person who receives dividends, interest or any other distribution in respect to
Excess Shares holds the distribution as agent for Bancshares and, following a
permitted transfer, for the transferee. Any holder of Excess Shares may transfer
the Excess Shares (together with any distributions thereon) to any person who,
following such transfer, would not own shares in violation of the Articles of
Incorporation. Upon a permitted transfer, Bancshares will pay or distribute to
the transferee any distributions on the Excess Shares not previously paid or
distributed.
COMPARATIVE RIGHTS OF NAVARRE SHAREHOLDERS
As a consequence of the Merger, shareholders of Navarre will become
shareholders of Bancshares. The following is a summary of certain similarities
and all material differences between the rights of holders of Navarre Common
Shares and the rights of holders of Bancshares Common Shares. As Navarre is a
bank and Bancshares is a corporation, both organized under the laws of Ohio,
these differences arise from various provisions of the Articles of Incorporation
and Code of Regulations of each of Navarre and Bancshares.
The following summary does not purport to be a complete statement of
the rights of shareholders under the Navarre Articles of Incorporation ("Navarre
Articles") and the Code of Regulations of Navarre as compared with the rights of
Bancshares shareholders under the Bancshares Articles of Incorporation
("Bancshares Articles") and the Bancshares Codes of Regulations, or a complete
description of the specific provisions referred to herein. The summary is
qualified in its entirety by reference to the governing corporate instruments,
including the aforementioned instruments, of Navarre and Bancshares.
Voting
The holders of both the Navarre Shares and the Bancshares Shares are
entitled to one vote per share and have the right to cumulative voting for
directors. Pursuant to both the Navarre and Bancshares Articles, a two thirds
vote is required for mergers, consolidations and the disposition of all or
substantially all their respective assets. The Bancshares Articles also provide
for special voting procedures in the event of a Control Share Acquisition. See
"DESCRIPTION OF BANCSHARES CAPITAL STOCK -- Description of Control Share
Acquisition Provisions."
Pre-emptive Rights
Holders of Navarre Shares have pre-emptive rights to purchase Common
Shares to be issued by Navarre. The Bancshares Articles have eliminated
pre-emptive rights for Bancshares Common Shareholders.
Directors
The Navarre Code of Regulations provides for no fewer than six or more
than nine directors, all of the same class. The Bancshares Code of Regulations
provides for no fewer than nine or more than 11 directors who are elected for
staggered three year terms.
Authorized Shares
The Navarre Articles provide only for 280,000 shares of $5.00 par value
stock. The Bancshares Articles provide for 12,000,000 Common Shares, without par
value and 200,000 shares of preferred stock. The rights of holders of the
preferred stock when issued could be superior to the rights of holders of the
Bancshares Common Shares.
-29-
<PAGE> 43
Shareholder Meetings
A special meeting of the Navarre shareholders can be called by board of
directors or the president or a request by shareholders owning at least 25% of
the Navarre Common Shares. A special meeting of the Bancshares shareholders can
be called by the board of directors, the chairman of the board, the president, a
vice president or by shareholders owning 50% or more of the Bancshares Common
Shares. The Navarre Code of Regulations contain no provisions for shareholders
proposals. Bancshares' Code of Regulations require a shareholder to notify
Bancshares of any proposal at least 60 days prior to the shareholders meeting.
Such notice must include a brief description of the proposal, why it is being
proposed, and the name, share ownership and material interest in the proposal,
if any, of such shareholder.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet
as of June 30, 1996 and the unaudited pro forma condensed consolidated
statements of income for the six months ended June 30, 1996 and 1995, and for
the years ended December 31, 1995, 1994 and 1993 have been prepared to reflect
Bancshares' acquisition of Navarre as if the acquisition had occurred on June
30, 1996 with respect to the balance sheet and as of January 1, 1993 with
respect to the income statements, in each case giving effect to the pro forma
adjustments described in the accompanying notes. The pro forma adjustments are
based on estimates made for the purpose of preparing these pro forma financial
statements. The actual adjustments to the accounts of Bancshares will be made
based on the underlying historical financial data at the time of the
transaction. Bancshares' management believes that the estimates used in these
pro forma financial statements are reasonable under the circumstances.
The pro forma condensed consolidated financial information has been
prepared based on the "pooling-of-interests" method of accounting assuming
532,000 Bancshares Common Shares will be issued and that no Navarre shareholders
will dissent with respect to the Merger. This information will vary if any
Navarre shareholders dissent. For a discussion of the pooling-of-interests
method of accounting, see "PROPOSED MERGER--Accounting Treatment" and "Other
Provisions of the Merger Agreement."
The unaudited pro forma condensed consolidated balance sheet as of June
30, 1996 is not necessarily indicative of the combined financial position had
the Merger been effective at that date. The unaudited pro forma condensed
consolidated statements of income are not necessarily indicative of the results
of operations that would have occurred had the Merger been effective at the
beginning of the periods indicated, or of the future results of operations of
Bancshares. These pro forma financial statements should be read in conjunction
with the historical financial statements and the related notes incorporated
elsewhere in this Proxy Statement/Prospectus.
No adjustments to the pro forma financial statements were necessary to
conform accounting methods as contemplated by Accounting Principles Board
Opinion No. 16.
-30-
<PAGE> 44
Citizens Bancshares, Inc.
Pro Forma Condensed Consolidated Balance Sheet
June 30, 1996
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Bancshares Navarre Adjustments Combined
---------- ------- ----------- --------
ASSETS
<S> <C> <C> <C> <C>
Cash & non-interest bearing balances with bank $ 21,357 $ 2,482 $ -- $ 23,839
Federal funds sold 11,500 -- -- 11,500
--------- --------- --------- ---------
Total cash & cash equivalents 32,857 2,482 -- 35,339
Interest-bearing deposits with financial institutions 1,189 -- -- 1,189
Investment securities held to maturity 47,130 482 -- 47,612
Investment securities available for sale 214,481 24,474 -- 238,955
Total loans 528,354 48,870 -- 577,224
Less allowance for loan losses (10,621) (651) -- (11,272)
--------- --------- --------- ---------
Net Loans 517,733 48,219 -- 565,952
Premises & equipment, net 12,468 1,691 -- 14,159
Intangible assets 1,667 -- -- 1,667
Accrued interest receivable and other assets 13,416 1,083 -- 14,499
--------- --------- --------- ---------
Total assets $ 840,941 $ 78,431 $ -- $ 919,372
========= ========= ========= =========
LIABILITIES
Deposits $ 635,155 $ 69,787 $ -- $ 704,942
Federal funds & repurchase agreements 32,361 1,385 -- 33,746
Federal Home Loan Bank advances 88,881 -- -- 88,881
Other borrowings -- -- -- --
Accrued interest payable & other liabilities 7,360 205 -- 7,565
Obligation of employee stock ownership plan 287 -- -- 287
--------- --------- --------- ---------
Total liabilities 764,044 71,377 -- 835,421
--------- --------- --------- ---------
MINORITY INTEREST IN SUBSIDIARY 1,188 -- -- 1,188
SHAREHOLDERS' EQUITY
Serial preferred stock -- -- -- --
Common stock 13,703 1,400 1,400(A) 16,503
Additional paid-in capital -- 1,400 (1,400)(A) --
Retained earnings 63,795 4,503 -- 68,298
Less treasury stock (5) -- -- (5)
ESOP obligations and unearned shares (287) -- -- (287)
Unrealized gain (loss) on securities available-for-sale (1,497) (249) -- (1,746)
--------- --------- --------- ---------
Total shareholders' equity 75,709 7,054 -- 82,763
--------- --------- --------- ---------
Total liabilities & shareholders' equity $ 840,941 $ 78,431 $ -- $ 919,372
========= ========= ========= =========
</TABLE>
(A) Issuance of 532,000 Bancshares Common Shares in exchange for 280,000 Navarre
Common Shares. The exchange ratio used is based upon the average Nasdaq closing
price for Bancshares' Common Shares for the twenty trading days ended June 12,
1996, and it is assumed to be 1.90 Bancshares Common Shares for each of the
280,000 Navarre Common Shares outstanding.
-31-
<PAGE> 45
Citizens Bancshares, Inc.
Pro Forma Consolidated Income Statement
For the six months ended June 30, 1996
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Bancshares Navarre Combined
---------- ------- --------
INTEREST INCOME
<S> <C> <C> <C>
Loans, including fees $ 26,447 $ 2,093 $ 28,540
Investment and mortgage
backed securities
Taxable 6,769 579 7,348
Non-taxable 423 172 595
Federal funds sold 227 51 278
Other 18 -- 18
---------- ---------- ----------
Total interest income 33,884 2,895 36,779
---------- ---------- ----------
INTEREST EXPENSE
Deposits 12,116 1,262 13,378
Federal funds & repurchase agreements 547 27 574
Federal Home Loan Bank advances 1,508 -- 1,508
Other borrowings -- -- --
---------- ---------- ----------
Total interest expense 14,171 1,289 15,460
---------- ---------- ----------
NET INTEREST INCOME 19,713 1,606 21,319
PROVISION FOR LOAN LOSSES 790 66 856
---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 18,923 1,540 20,463
---------- ---------- ----------
OTHER INCOME
Service charges & fees on deposits 922 115 1,037
Investment securities gains (losses) 7 (19) (12)
Other income 1,198 39 1,237
---------- ---------- ----------
Total other income 2,127 135 2,262
---------- ---------- ----------
OTHER EXPENSE
Salaries & employee benefits 4,947 558 5,505
Occupancy & equipment expense 1,691 186 1,877
Merger, integration and restructuring expense 400 -- 400
Other operating expense 3,323 353 3,676
---------- ---------- ----------
Total other expense 10,361 1,097 11,458
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 10,689 578 11,267
INCOME TAXES 3,547 143 3,690
---------- ---------- ----------
NET INCOME $ 7,142 $ 435 $ 7,577
========== ========== ==========
EARNINGS PER COMMON SHARE $ 1.32 $ 1.55 $ 1.28
---------- ---------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING 5,390,195 280,000 5,922,195
========== ========== ==========
</TABLE>
-32-
<PAGE> 46
Citizens Bancshares, Inc.
Pro Forma Consolidated Income Statement
For the six months ended June 30, 1995
(Dollars in Thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Bancshares Navarre Combined
---------- ------- --------
INTEREST INCOME
<S> <C> <C> <C>
Loans, including fees $ 23,984 $ 1,768 $ 25,752
Investment and mortgage
backed securities
Taxable 7,393 602 7,995
Non-taxable 373 170 543
Federal funds sold 191 24 215
Other 5 -- 5
---------- ---------- ----------
Total Interest Income 31,946 2,564 34,510
---------- ---------- ----------
INTEREST EXPENSE
Deposits 10,895 1,148 12,043
Federal funds & repurchase agreements 883 47 930
Federal Home Loan Bank advances 1,914 -- 1,914
Other borrowings 55 -- 55
---------- ---------- ----------
Total interest expense 13,747 1,195 14,942
---------- ---------- ----------
NET INTEREST INCOME 18,199 1,369 19,568
PROVISION FOR LOAN LOSSES 1,069 42 1,111
---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 17,130 1,327 18,457
---------- ---------- ----------
OTHER INCOME
Service charges & fees on deposits 897 101 998
Investment securities gains (losses) 36 (17) 19
Other income 1,233 48 1,281
---------- ---------- ----------
Total other income 2,166 132 2,298
---------- ---------- ----------
OTHER EXPENSES
Salaries & employee benefits 4,892 541 5,433
Occupancy & equipment expense 1,482 140 1,622
Merger, integration and restructuring expense -- -- --
Other operating expense 4,082 398 4,480
---------- ---------- ----------
Total other expense 10,456 1,079 11,535
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 8,840 380 9,220
INCOME TAXES 2,932 81 3,013
---------- ---------- ----------
NET INCOME $ 5,908 $ 299 $ 6,207
========== ========== ==========
EARNINGS PER COMMON SHARE $ 1.09 $ 1.07 $ 1.05
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,390,622 280,000 5,922,622
========== ========== ==========
</TABLE>
-33-
<PAGE> 47
Citizens Bancshares, Inc.
Pro Forma Consolidated Income Statement
For the year ended December 31, 1995
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Bancshares Navarre Combined
---------- ------- --------
INTEREST INCOME
<S> <C> <C> <C>
Loans, including fees $ 49,435 $ 3,729 $ 53,164
Investment and mortgage
backed securities
Taxable 14,694 1,197 15,891
Non-taxable 742 348 1,090
Federal funds sold 612 44 656
Other 18 5 23
---------- ---------- ----------
Total interest income 65,501 5,323 70,824
---------- ---------- ----------
INTEREST EXPENSE
Deposits 23,092 2,427 25,519
Federal funds & repurchase agreements 1,645 81 1,726
Federal Home Loan Bank advances 3,852 -- 3,852
Other borrowings 87 -- 87
---------- ---------- ----------
Total interest expense 28,676 2,508 31,184
---------- ---------- ----------
NET INTEREST INCOME 36,825 2,815 39,640
PROVISION FOR LOAN LOSSES 1,940 84 2,024
---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 34,885 2,731 37,616
---------- ---------- ----------
OTHER INCOME
Service charges & fees on deposits 1,815 211 2,026
Investment securities gains (losses) 53 14 67
Other income 2,320 80 2,400
---------- ---------- ----------
Total other income 4,188 305 4,493
---------- ---------- ----------
OTHER EXPENSE
Salaries & employee benefits 9,998 1,078 11,076
Occupancy & equipment expense 3,118 320 3,438
Merger, integration and restructuring expense 711 -- 711
Other operating expense 7,640 714 8,354
---------- ---------- ----------
Total other expense 21,467 2,112 23,579
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 17,606 924 18,530
INCOME TAXES 5,756 211 5,967
---------- ---------- ----------
NET INCOME $ 11,850 $ 713 $ 12,563
========== ========== ==========
EARNINGS PER COMMON SHARE $ 2.20 $ 2.55 $ 2.12
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,390,622 280,000 5,922,622
========== ========== ==========
</TABLE>
-34-
<PAGE> 48
Citizens Bancshares, Inc.
Pro Forma Consolidated Income Statement
For the year ended December 31, 1994
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Bancshares Navarre Combined
---------- ------- --------
INTEREST INCOME
<S> <C> <C> <C>
Loans, including fees $ 44,652 $ 3,200 $ 47,852
Investment and mortgage
backed securities
Taxable 14,065 1,255 15,320
Non-taxable 758 349 1,107
Federal funds sold 325 26 351
Other 14 4 18
----------- ----------- -----------
Total interest income 59,814 4,834 64,648
----------- ----------- -----------
INTEREST EXPENSE
Deposits 20,082 2,001 22,083
Federal funds & repurchase agreements 1,143 99 1,242
Federal Home Loan Bank advances 2,872 -- 2,872
Other borrowings 223 -- 223
----------- ----------- -----------
Total interest expense 24,320 2,100 26,420
----------- ----------- -----------
NET INTEREST INCOME 35,494 2,734 38,228
PROVISION FOR LOAN LOSSES 2,269 96 2,365
----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 33,225 2,638 35,863
----------- ----------- -----------
OTHER INCOME
Service charges & fees on deposits 1,820 182 2,002
Investment securities gains (losses) (299) 77 (222)
Other income 1,859 48 1,907
----------- ----------- -----------
Total other income 3,380 307 3,687
----------- ----------- -----------
OTHER EXPENSE
Salaries & employee benefits 10,036 969 11,005
Occupancy & equipment expense 3,130 306 3,436
Merger, integration and restructuring expense 514 -- 514
Other operating expense 8,522 744 9,266
----------- ----------- -----------
Total other expense 22,202 2,019 24,221
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 14,403 926 15,329
INCOME TAXES 4,617 210 4,827
----------- ----------- -----------
NET INCOME $ 9,786 $ 716 $ 10,502
=========== =========== ===========
EARNINGS PER COMMON SHARE $ 1.82 $ 2.56 $ 1.77
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,390,622 280,000 5,922,622
=========== =========== ===========
</TABLE>
-35-
<PAGE> 49
Citizens Bancshares, Inc.
Pro Forma Consolidated Income Statement
For the year ended December 31, 1993
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Bancshares Navarre Combined
---------- ------- --------
INTEREST INCOME
<S> <C> <C> <C>
Loans, including fees $ 44,097 $ 2,734 $ 46,831
Investment and mortgage
backed securities
Taxable 12,387 1,563 13,950
Non-taxable 410 343 753
Federal funds sold 267 35 302
Other 10 -- 10
---------- ---------- ----------
Total interest income 57,171 4,675 61,846
---------- ---------- ----------
INTEREST EXPENSE
Deposits 22,378 2,066 24,444
Federal funds & repurchase agreements 460 61 521
Federal Home Loan Bank advances 1,445 -- 1,445
Other borrowings 229 -- 229
---------- ---------- ----------
Total interest expense 24,512 2,127 26,639
---------- ---------- ----------
NET INTEREST INCOME 32,659 2,548 35,207
PROVISION FOR LOAN LOSSES 3,436 137 3,573
---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 29,223 2,411 31,634
---------- ---------- ----------
OTHER INCOME
Service charges & fees on deposits 1,965 167 2,132
Investment securities gains (losses) 526 94 620
Other income 1,955 60 2,015
---------- ---------- ----------
Total other income 4,446 321 4,767
---------- ---------- ----------
OTHER EXPENSE
Salaries & employee benefits 9,970 888 10,858
Occupancy & equipment expense 2,972 236 3,208
Merger, integration and restructuring expense -- -- --
Other operating expense 8,823 689 9,512
---------- ---------- ----------
Total other expense 21,765 1,813 23,578
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 11,904 919 12,823
INCOME TAXES 3,651 224 3,875
---------- ---------- ----------
Net income before cumulative effect of
accounting change 8,253 695 8,948
Cumulative effect of change in accounting
for income taxes -- 13 13
---------- ---------- ----------
NET INCOME $ 8,253 $ 708 $ 8,961
========== ========== ==========
EARNINGS PER COMMON SHARE
Income before cumulative effect of
accounting change $ 1.53 $ 2.48 $ 1.51
Cumulative effect of accounting change -- 0.05 --
---------- ---------- ----------
NET INCOME $ 1.53 $ 2.53 $ 1.51
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,391,924 280,000 5,923,924
========== ========== ==========
</TABLE>
-36-
<PAGE> 50
INFORMATION WITH RESPECT TO BANCSHARES
Business
Bancshares is a bank holding company organized in 1982 under the laws
of the State of Ohio and registered with the Federal Reserve Board pursuant to
the Bank Holding Company Act of 1956, as amended, and engaged in the business of
commercial and retail banking. These activities account for substantially all of
Bancshares revenue, operating income and assets. Bancshares is a holding company
for two wholly owned subsidiary banks, a wholly owned reinsurance company and a
wholly owned courier company. Citizens, owned by Bancshares since 1982, was
organized and chartered under the banking laws of the State of Ohio in 1902.
Citizens is an insured bank under the Federal Deposit Insurance Act ("FDIA").
This subsidiary accounts for approximately 95% of Bancshares' consolidated
assets. The primary market area for Citizens is eastern Ohio and consists of all
of Columbiana County, all of Carroll County, portions of Stark and Mahoning
counties and the northern 75% of Jefferson County. A secondary market is the
southern portion of Jefferson County, the panhandle of West Virginia north of
Follansbee, and a smaller portion of Pennsylvania south of Beaver and west of
Darlington to the Ohio border. Citizens competes not only with locally owned
commercial banks and savings and loans, but also with larger regional financial
institutions in offering consumer and commercial financial service products.
FNB, owned by Bancshares since January 1, 1990, was organized and chartered as a
national banking association under the laws of the United States on December 29,
1969 and formally opened for business on January 2, 1970. FNB is insured under
the FDIA and accounts for approximately four percent of Bancshares' consolidated
assets. FNB's primary market area is Hancock County, West Virginia, with overlap
in the East Liverpool, Ohio market. FNB competes with locally owned commercial
banks, credit unions and savings and loan associations. Freedom Financial Life
Insurance Company ("Freedom Financial"), owned by Bancshares since August, 1985,
was organized and chartered under the laws of the State of Arizona in that same
year. Freedom Financial provides credit life and accident and health insurance
coverage to Citizens' and FNB's loan customers. Freedom Financial accounts for
less than one percent of Bancshares' consolidated assets. Freedom Express, Inc.
("Freedom Express"), owned by Bancshares since August 5, 1994, was organized and
chartered under the laws of the State of Ohio in 1984. Freedom Express
transports papers and documents between and among Ohio, Pennsylvania and West
Virginia. Freedom Express accounts for less than one percent of Bancshares'
consolidated assets. As of June 30, 1996 and December 31, 1995, Bancshares had
total consolidated assets of approximately $840.9 million and $814.1 million and
total shareholders' equity of $75.7 million and $73.0 million, respectively.
Bancshares' principal executive offices are located at 10 East Main Street,
Salineville, Ohio 43945. The telephone number of Bancshares' executive offices
is (330) 679-2328.
Supplementary Financial Information
The following is a summary of consolidated quarterly financial data
with respect to Bancshares for the years 1994, 1995 and 1996.
-37-
<PAGE> 51
Citizens Bancshares, Inc.
Quarterly Selected Financial Data (Unaudited)
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
Quarter Ended
December 31, September 30, June 30, March 31,
------------ ------------- -------- ---------
<S> <C> <C> <C> <C>
1996
Interest income N/A N/A $17,314 $ 16,570
Net interest income N/A N/A 10,314 9,399
Provision for loan losses N/A N/A 436 354
Net income N/A N/A 3,775 3,367
Earnings per share N/A N/A 0.70 0.62
1995
Interest income $ 16,885 $ 16,670 $ 16,223 $ 15,723
Net interest income 9,387 9,239 9,139 9,060
Provision for loan losses 435 436 536 533
Net income 2,783 3,159 2,978 2,930
Earnings per share 0.52 0.59 0.55 0.54
1994
Interest income $ 15,825 $ 15,039 $ 14,691 $ 14,259
Net interest income 9,469 8,962 8,697 8,366
Provision for loan losses 518 580 580 591
Net income 2,382 2,617 2,423 2,364
Earnings per share 0.44 0.49 0.45 0.44
</TABLE>
-38-
<PAGE> 52
Citizens Bancshares, Inc.
Selected Financial Information
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the six months For the year ended
ended June 30, December 31,
----------------------- -------------------------------------------------------------------
FOR THE PERIOD 1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 33,884 $ 31,946 $ 65,501 $ 59,814 $ 57,171 $ 59,417 $ 64,970
Interest expense 14,171 13,747 28,676 24,320 24,512 28,517 36,138
----------- ---------- ----------- ----------- ------------ ----------- -----------
Net interest income 19,713 18,199 36,825 35,494 32,659 30,900 28,832
Provision for loan losses 790 1,069 1,940 2,269 3,436 4,950 4,931
----------- ---------- ----------- ----------- ------------ ----------- -----------
Net interest income after
provision for loan losses 18,923 17,130 34,885 33,225 29,223 25,950 23,901
Other income 2,127 2,166 4,188 3,380 4,446 4,246 3,854
Other expenses 10,361 10,456 21,467 22,202 21,765 22,030 21,434
----------- ---------- ----------- ----------- ------------ ----------- -----------
Income before income taxes 10,689 8,840 17,606 14,403 11,904 8,166 6,321
Income taxes 3,547 2,932 5,756 4,617 3,651 2,385 1,973
----------- ---------- ----------- ----------- ------------ ----------- -----------
Net income $ 7,142 $ 5,908 $ 11,850 $ 9,786 $ 8,253 $ 5,781 $ 4,348
=========== ========== =========== =========== ============ =========== ===========
Cash dividends declared $ 2,156 $ 594 $ 2,762 $ 1,512 $ 818 $ 678 $ 587
=========== ========== =========== =========== ============ =========== ===========
PER SHARE DATA1:
Net income $ 1.32 $ 1.09 $ 2.20 $ 1.82 $ 1.53 $ 1.07 $ .81
Cash dividends declared .40 .11 .51 .28 .15 .13 .11
Book value at period-end 14.04 12.71 13.55 11.24 10.42 8.81 7.88
Weighted average shares
outstanding1 5,390,195 5,390,622 5,390,622 5,390,622 5,391,924 5,390,390 5,383,307
Shares outstanding at
period-end1 5,390,622 5,390,622 5,390,622 5,390,622 5,390,622 5,393,105 5,383,307
BALANCE SHEET DATA:
Total assets $ 840,941 $ 792,770 $ 814,088 $ 790,499 $ 774,945 $ 714,996 $ 669,824
Securities available for sale 214,481 72,649 183,725 85,382 111,756
Investment and mortgage-
backed securities 47,130 174,908 53,207 171,105 149,770 214,879 149,668
Loans, net of unearned
income 528,354 504,190 528,656 491,248 470,462 446,640 434,032
Allowance for loan losses 10,621 10,277 10,283 9,861 9,289 7,536 5,516
Deposits 635,155 609,626 628,512 608,316 628,253 616,024 601,027
Federal Home Loan Bank
advances 88,881 78,379 84,680 85,762 57,198 31,612
Total shareholders' equity
at period-end 75,709 68,533 73,026 60,610 56,172 47,497 42,412
AVERAGE BALANCES:
Total assets $ 797,918 $ 780,238 $ 792,561 $ 777,258 $ 731,376 $ 689,810 $ 666,535
Total earning assets 767,267 750,346 762,531 746,204 697,827 653,112 602,699
Deposits 634,941 606,275 616,022 619,105 622,671 612,380 596,993
Net Loans 512,930 483,459 491,554 465,097 448,077 436,101 424,927
Shareholders' equity 74,895 64,645 67,687 58,581 51,307 44,773 39,846
</TABLE>
1 Per Share date has been restated to reflect the three for two stock split
declared in 1995, the two for one stock split declared in 1993 and the 1995 and
1994 acquisitions accounted for as a pooling of interests.
-39-
<PAGE> 53
Selected Financial Information - Continued
<TABLE>
<CAPTION>
For the six months For the year ended
ended June 30, December 31,
--------------------- ------------------------------------------------------------
FOR THE PERIOD 1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SIGNIFICANT RATIOS:
Return on average assets(2) 1.80% 1.53% 1.50% 1.26% 1.13% .84% .65%
Return on average
shareholders' equity(2) 19.18 18.43 17.51 16.71 16.09 12.91 10.91
Average shareholders' equity
to average assets 9.39 8.29 8.54 7.54 7.02 6.49 5.98
Average loans as a percent
of average deposits 82.45 81.46 81.52 76.72 73.36 72.30 72.12
Shareholders' equity as a
percent of period-end assets 9.00 8.64 8.97 7.67 7.25 6.64 6.33
Allowance for loan losses
as a percent of loans 2.01 2.04 1.95 2.01 1.97 1.69 1.27
Net charge-offs as a percent
of average gross loans(2) .17 .26 .30 .36 .37 .66 1.16
Dividends declared as a
percent of net income 30.19 10.05 23.31 15.45 9.91 11.73 13.50
Net interest margin,
fully taxable equivalent 5.17 4.97 4.91 4.83 4.73 4.79 4.84
Nonperforming loans to
total loans .56 .92 .52 .99 .92 1.22 1.70
Nonperforming assets to
total assets .38 .80 .37 .86 1.03 1.32 1.76
Allowance for loan losses
to nonperforming loans 360.16 222.86 373.52 203.61 215.42 138.15 74.56
Noninterest expense as a
percent of average assets(2) 2.61 2.70 2.71 2.86 2.98 3.19 3.22
Operating efficiency ratio 46.75 50.66 51.67 55.89 58.92 63.51 66.42
</TABLE>
(2) Interim information annualized for comparability
-40-
<PAGE> 54
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Quarter Ended June 30, 1996
Bancshares' Management's Discussion and Analysis of Financial Condition
and Results of Operations for the quarter and six months ended June 30, 1996, as
compared to the same periods ended June 30, 1995, is included in Bancshares'
Form 10-Q for the quarter ended June 30, 1996, which accompanies this Proxy
Statement/Prospectus and is incorporated herein by reference. Such discussion
should be read in conjunction with (i) the interim consolidated financial
statements and the footnotes thereto included in the Form 10-Q and (ii)
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Year Ended December 31, 1995 included in Bancshares' 1995
Annual Report which also accompanies this Proxy Statement/Prospectus and is
incorporated herein by reference.
Certain Statistical Information With Respect to Bancshares
Certain statistical information with respect to Bancshares, such as
information pertaining to the distribution of assets, liabilities and equity,
interest rates and differentials; investment and loan portfolios; loan losses;
deposits; short term borrowings and returns on assets and equity can be found on
pages 40 through 43 of Bancshares' 1995 Annual Report and pages 6 through 16 of
its 1995 Form 10-K and is incorporated herein by reference.
Management
Directors
Marty E. Adams (43). President and Chief Executive Officer of
Bancshares and Citizens, Director since 1984; Director and Chairman of the Board
of FNB since 1990. Mr. Adams has been employed by Citizens for 19 years in
positions of increasing responsibility and as President and Chief Executive
Officer since 1987. (Term expires in 1998).
Keith D. Burgett (53). Director since 1988. Dr. Burgett is a
veterinarian and the owner of Carrollton Animal Hospital, Carrollton, Ohio. He
is the owner of Burgett Angus Farms, Carrollton, Ohio. Dr. Burgett is a member
of the Ohio State Veterinary Medical Board. (Term expires in 1998).
Willard L. Davis (66). Director since 1991. Mr. Davis is the President
of Steel Valley Leasing, Inc. (an auto leasing company) in Steubenville, Ohio,
Vice President of State Park Motors, Inc. (an auto dealership) in Richmond,
Ohio, and co-owner of Cardinal Motors, Inc. (an auto dealership) in Cadiz, Ohio.
(Term expires in 1998).
Fred H. Johnson (79). Director since 1965. Mr. Johnson served as
Chairman of the Board of Bancshares from 1984 through March 30, 1995 and
Chairman of the Board of Citizens from 1984 through 1994. Mr. Johnson is the
retired former owner of Summitville Tile and former President of Summitcrest,
Inc. (Term expires in 1997).
Fred H. Johnson, III (34). Corporate Secretary, Director since 1988.
Mr. Johnson is a director and President of Summitcrest, Inc. (a cattle farm) in
Summitville, Ohio. Mr. Johnson is the son of Fred H. Johnson. (Term expires
1999).
Gerard Mastroianni (40). Director of Citizens since 1993 and appointed
a director of Bancshares in May, 1996 to fill a vacancy on the Board. Mr.
Mastroianni is the President of the Buckeye Village Market, Inc. (a grocery
store chain), Alliance, Ohio, President of Alliance Ventures (a real estate
holding
-41-
<PAGE> 55
company), Alliance, Ohio and is co-owner of Video Safari, a chain of video
retail stores. (Term expires in 1997).
James C. McBane (56). Vice Chairman of the Board since March, 1995;
Director since 1964; Vice Chairman of the Board of Citizens since March, 1994;
Director of FNB since 1990. Mr. McBane is a principal and executive of McBane
Insurance Agency, Inc., of Bergholz, Ohio. (Term expires in 1997).
Kenneth E. McConnell (59). Director since 1973. Mr. McConnell owns,
operates, and is a partner in McConnell's Farm Market (a meat market), Richmond,
Ohio. (Term expires in 1998).
Glenn F. Thorne (67). Director since March, 1994. Mr. Thorne was
formerly a director of The Firestone Bank from 1985 until its affiliation with
Bancshares in February, 1994. Mr. Thorne is the President and Chief Executive
Officer of Thorne Management, Inc. (which owns and operates supermarkets in Ohio
and Pennsylvania and a leasing company in Ohio). Mr. Thorne is also a Trustee of
Mount Vernon Nazarene College. (Term expires in 1999).
Mr. Raymond Lowry, Chairman of the Board and a director of Bancshares
from 1985 to May, 1996, passed away on May 21, 1996.
Directors of Citizens
All of the foregoing, except Mr. Thorne, are also directors of
Citizens. The directors of Citizens are elected for terms of one year. In
addition, Lee A. Smith and Jonathan A. Levy were named to the Board of Citizens
in May, 1996 and April, 1996, respectively, to fill existing vacancies.
Lee A. Smith (43). Director since June, 1996. Mr. Smith is the
President and owner of Pleasant View Nursing Home in Lisbon, Ohio. He practiced
law in Lisbon from 1978 until 1996.
Jonathan A. Levy (35). Director since April, 1996. Mr. Levy is a
partner of Redstone Investments, Youngstown, Ohio, a real estate development,
construction, and management company.
Mr. Thomas W. Liggett, a Citizens director since 1994 and a former
director of the Firestone Bank from 1952 until its affiliation with Bancshares
in February 1994, passed away on May 22, 1996.
Executive Officers
In addition to Mr. Adams, President and Chief Executive Officer, with
respect to whom information is provided above in the subsection pertaining to
Directors, the following persons serve as executive officers of Bancshares
and/or one of its banking subsidiaries:
Frank J. Koch (42). Executive Vice President, Citizens, since 1988.
Lawrence P. Crow (48). Senior Vice President and Branch Administrator,
Citizens since 1987; previously Vice President, Citizens.
Thomas G. Leek (47). Senior Vice President of Bank Operations,
Citizens, since 1989.
William L. White III (38). Senior Vice President and Chief Financial
Officer, Citizens, since 1991.
-42-
<PAGE> 56
Jayson M. Zatta (35). Senior Vice President and Manager, Commercial
Banking Department, Citizens, since 1993; Vice President and Manager, Commercial
Banking Department, Citizens, from 1989 to 1993.
Robert L. Gessford (60). President and Chief Executive Officer of FNB,
Director of FNB since 1974.
Certain information relating to the management, executive compensation,
various benefit plans (including stock plans), certain relationships and related
transactions and other related matters as to Bancshares is set forth in
Bancshares' Proxy Statement dated February 17, 1996 which is incorporated by
reference in Bancshares' Annual Report on Form 10-K for the year ended December
31, 1995. Bancshares' Annual Report on Form 10-K for the year ended December 31,
1995 is incorporated by reference in this Proxy Statement/Prospectus. See
"Information Incorporated by Reference" below. Navarre shareholders who wish to
obtain copies of these documents may contact Bancshares at its address or
telephone number set forth under "AVAILABLE INFORMATION."
Security Ownership of Management
The following table sets forth (i) as of July 1, 1996 and (ii) after
consummation of the Merger, the total number and percentage of Bancshares Common
Shares beneficially owned by each director of Bancshares and Citizens, each
executive officer named in the Summary Compensation Table and by all directors
and executive officers of Bancshares as a group. The number of Bancshares Common
Shares shown as being beneficially owned by each director are those over which
he has either sole or shared voting or investment power. As of July 1, 1996
there were 5,390,622 shares issued and outstanding and 2,250 held in treasury.
The percent of beneficial ownership of management after the Merger was
calculated assuming an exchange ratio of 1.90 Bancshares Common Shares for
Navarre Common Stock and assuming no dissenters' rights will be exercised by
Navarre stockholders. No executive officer or director owns more than five
percent of the outstanding Bancshares Common Shares.
<TABLE>
<CAPTION>
============================================================================================================================
Amount and Nature of Percent of Class as of Percent of Class after
-------------------- ---------------------- ----------------------
Name of Beneficial Owner Beneficial Ownership (a) July 1, 1996 Merger
- ------------------------ ------------------------ ------------ ------
<S> <C> <C> <C>
Marty E. Adams 32,400(b) * *
Keith D. Burgett 9,500(c) * *
Willard L. Davis 56,848(d) 1.05 *
Fred H. Johnson 21,450 * *
Fred H. Johnson, III 64,186(e) 1.19 1.08
Jonathan A. Levy** 3,937 * *
Gerard Mastroianni 5,468 * *
James C. McBane 75,566(f) 1.40 1.28
Kenneth E. McConnell 42,843(g) * *
Lee A. Smith** 7,500(h) * *
Glenn F. Thorne 68,275(i) 1.27 1.15
Frank J. Koch 2,730(j) * *
William L. White, III 1,532(k) * *
============================================================================================================================
All directors and executive officers 415,250(l) 7.70 7.01
as a group (17 persons).
============================================================================================================================
</TABLE>
* Bancshares Common Shares owned represent less than 1% of class.
** Directors of Citizens only.
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<PAGE> 57
(a) Unless otherwise indicated, the person has sole voting and
investment power as to the common shares held. Does not include
common shares owned individually by spouses.
(b) Shared voting and investment power as to 31,687 of the 32,400
common shares. Includes 713 common shares allocated to Mr. Adams
in The Citizens Bancshares, Inc., Employee Stock Ownership Plan.
(c) Shared voting and investment power. Includes 3,500 common shares
held by children, of which Dr. Burgett has power of attorney.
(d) Shared voting and investment power. Includes 2, 811 shares held as
co-trustee of a trust.
(e) Includes 63,186 common shares held in trust as to which Mr.
Johnson is the sole trustee and beneficiary.
(f) Includes 6,146 common shares held as custodian for minor child.
(g) Shared voting and investment power as to 3,843 of the 42,843
common shares.
(h) Shared voting and investment power as to 5,250 of the 7,500 common
shares.
(i) Includes 65,980 common shares held by Thorne Management, Inc., of
which Mr. Thorne is President & Chief Executive Officer.
(j) Shared voting and investment power as to 2,358 of the 2,880 common
shares. Includes 522 common shares allocated to Mr. Koch in the
Bancshares ESOP.
(k) Includes 214 common shares allocated to Mr. White in the
Bancshares ESOP.
(l) Includes an aggregate of 2,431 common shares of the Bancshares
ESOP allocated to executive officers.
Market Price of Bancshares Common Shares
Bancshares Common Shares trade on the Nasdaq National Market under the
symbol "CICS." Six brokerage firms currently act as market makers for Bancshares
Common Shares: Parker/Hunter Incorporated, Advest, Inc., The Ohio Company,
McDonald & Company, Sandler O'Neill & Partners, L.P., and Herzog, Heine, Geduld
Inc. There is no assurance that such firms will continue to make a market in
Bancshares Common Shares.
Information regarding the market price and dividends paid on Bancshares
Common Shares with respect each quarterly period during 1994 and 1995 may be
found on page 51 of Bancshares' 1995 Annual Report. As of July 1, 1996 the
Nasdaq National Market closing price of Bancshares Common Shares was $29.25 and
Bancshares Common Shares were held by approximately 2,850 shareholders.
Information Incorporated by Reference
This Proxy Statement/Prospectus is accompanied by a copy of Bancshares'
Annual Report and a copy of Bancshares' quarterly report on Form 10-Q for the
quarter ended June 30, 1996. Certain of the information contained therein is
incorporated herein by reference. Furthermore, Bancshares filed with the
Commission an annual report on Form 10-K on March 21, 1996, quarterly reports on
Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996, on May 3,
1996 and July 19, 1996 respectively and current reports on Form 8-K on April 23,
1996 and September 26, 1995. Certain of the information contained therein is
also incorporated herein by reference. Specifically, information about
Bancshares' industry segments may be found on pages 2, 4 through 16, and 22 of
the Form 10- K; selected financial information may be found on pages 37 and 38
of the Annual Report; management's discussion and analysis of Bancshares'
financial condition and results of operations for the year ended December 31,
1995 may be found on pages 39 through 51 of the Annual Report;
-44-
<PAGE> 58
management's discussion and analysis of Bancshares' financial condition and
results of operations for the quarter ended June 30, 1996 may be found on pages
15 through 18 of the Form 10-Q for the quarter then ended; and information
regarding any changes in or disagreements with accountants on accounting and
financial disclosures, of which there were none, may be found on page 22 of the
Form 10-K.
INFORMATION WITH RESPECT TO NAVARRE
Business
Navarre is a commercial bank chartered under the laws of the State of
Ohio and is headquartered in Navarre, Ohio. In addition to the Navarre office,
Navarre also maintains a branch office in Navarre (opened in 1984), in Brewster,
Ohio (opened in 1991) and in Richville, Ohio (opened in 1994). Navarre conducts
a general commercial banking business. As of June 30, 1996 and December 31,
1995, Navarre had total assets of approximately $78.4 million and $76.9 million
and total shareholders' equity of approximately $7.05 million and $7.09 million,
respectively. Navarre's principal executive offices are located at 15 North Main
Street, Navarre, Ohio 44622-0026. The telephone number of Navarre's executive
offices are (330) 879-5671.
Navarre is subject to regulation by the State of Ohio, Division of
Financial Institutions and the Federal Reserve Board.
Market Price and Dividends on Navarre Common Shares
Navarre Common Shares are not traded in any established market.
Management of Navarre is not aware of any trades of Navarre Common Shares since
1994. The bid price, as provided by McDonald & Company, and published in the
April 3, 1996 edition of The Repository, which was one day before the
announcement of the Merger, was $39.00. The bid price as of July 1, 1996, was
$44.00. As of July 1, 1996, the number of Navarre shareholders was approximately
90.
The following table sets forth the per share cash dividends declared on
Navarre Common Shares for each quarter since January 1, 1994 (adjusted for the
4:1 stock split paid in 1994):
<TABLE>
<CAPTION>
1994
<S> <C>
First Quarter $0.15
Second Quarter 0.15
Third Quarter 0.15
Fourth Quarter 0.15
1995
First Quarter $0.15
Second Quarter 0.15
Third Quarter 0.15
Fourth Quarter 0.15
1996
First Quarter $0.20
Second Quarter 0.20
Third Quarter _____
</TABLE>
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<PAGE> 59
Dividends by Navarre may be declared by Navarre by its Board of
Directors out of surplus. An Ohio bank must generally maintain surplus in an
amount which is equal to the amount of its capital. In addition to other
limitations under Ohio law with respect to the payment of dividends, approval of
the Division is required for the declaration of dividends by an Ohio bank if the
total of all dividends declared by such bank in any year exceeds the total of
its net profits (as defined in Section 1117.02 of the ORC) for that year
combined with its retained net profits for the preceding two years, less any
required transfers to surplus or a fund for the retirement of any preferred
stock or capital securities.
If, in the opinion of the applicable federal bank regulatory authority,
a bank under its jurisdiction is engaged in or is about to engage in an unsafe
or unsound practice (which, depending on the financial condition of the bank,
could include the payment of dividends), such authority may require, after
notice and hearing, that such bank cease and desist from such practice. In
addition, the Federal Reserve Board and the FDIC have issued policy statements
which provide that banks should generally only pay dividends out of current
operating earnings. Finally, the federal bank regulatory authorities have
established guidelines with respect to the maintenance of appropriate levels of
capital by a bank under their jurisdiction. Compliance with standards set forth
in such policy statements and guidelines could limit the amounts which a bank
can pay as dividends. For discussions of the restrictions on the payment of
dividends on Navarre Common Shares, see "INFORMATION WITH RESPECT TO NAVARRE--
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
-46-
<PAGE> 60
The Navarre Deposit Bank Company
Selected Financial Information
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the 6 months ended For the year ended
June 30, December 31,
---------------------- ----------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
SUMMARY OF OPERATIONS:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ 2,895 $ 2,564 $ 5,323 $ 4,834 $ 4,675 $ 4,696 $ 4,430
Interest expense 1,289 1,195 2,508 2,100 2,127 2,368 2,657
--------- --------- -------- --------- ---------- --------- ----------
Net interest income 1,606 1,369 2,815 2,734 2,548 2,328 1,773
Provision for loan losses 66 42 84 96 137 114 101
--------- --------- -------- --------- ---------- --------- ----------
Net interest income after
provision for loan losses 1,540 1,327 2,731 2,638 2,411 2,214 1,672
Other income 135 132 305 307 321 249 215
Other expenses 1,097 1,079 2,112 2,019 1,813 1,636 1,235
--------- --------- -------- --------- ---------- --------- ----------
Income before income taxes 578 380 924 926 919 827 652
Income taxes 143 81 211 210 224 189 129
--------- --------- -------- --------- ---------- --------- ----------
Income before cumulative effect
of change in accounting for
income taxes 435 299 713 716 695 638 523
Cumulative effect of change in
Accounting for income taxes 0 0 0 0 13 0 0
========= ========= ======== ========= ========== ========= ==========
Net Income $ 435 $ 299 $ 713 $ 716 $ 708 $ 638 $ 523
========= ========= ======== ========= ========== ========= ==========
Cash dividends declared $ 112 $ 84 $ 210 $ 196 $ 196 $ 175 $ 154
========= ========= ======== ========= ========== ========= ==========
PER SHARE DATA: (1)
Net income $ 1.55 $ 1.07 $ 2.55 $ 2.56 $ 2.53 $ 2.28 $ 1.87
Cash dividends declared 0.40 0.30 0.75 0.70 0.70 0.62 0.55
Shareholders' equity 25.19 24.02 25.30 19.30 21.28 19.45 17.79
Weighted average shares
outstanding 280,000 280,000 280,000 280,000 280,000 280,000 280,000
Shares outstanding at
period end 280,000 280,000 280,000 280,000 280,000 280,000 280,000
BALANCE SHEET DATA:
Total assets $ 78,431 $ 73,411 $ 76,881 $ 71,448 $ 69,582 $ 65,024 $ 54,889
Securities available for sale 24,474 23,960 23,263 23,733 30,289 0 0
Securities held-to maturity 482 2,316 499 2,186 2,388 32,203 29,005
Total loans, net of unearned income 48,870 42,198 46,118 39,832 32,676 28,326 21,956
Allowance for loan losses 651 585 612 532 439 353 266
Deposits 69,787 65,603 69,152 63,683 61,132 57,376 49,719
Short term borrowings 1,385 985 480 2,225 2,260 1,929 0
Total shareholders' equity 7,054 6,727 7,085 5,403 5,957 5,445 4,982
AVERAGE BALANCES:
Total assets $ 78,192 $ 72,354 $ 74,066 $ 70,797 $ 67,019 $ 59,901 $ 53,063
Total earning assets 72,843 66,260 68,532 65,975 62,834 56,023 50,068
Deposits 70,121 64,317 65,991 62,811 59,403 53,548 48,074
Net loans 45,509 38,832 41,074 35,246 29,683 24,979 20,528
Shareholders' equity 7,086 6,128 6,467 5,812 5,726 5,214 4,798
</TABLE>
(1) Per share data has been restated to reflect the four-for-one stock split in
1994.
-47-
<PAGE> 61
Selected Financial Information - continued
<TABLE>
<CAPTION>
For the 6 months ended For the year ended
June 30, December 31,
---------------------- ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
SIGNIFICANT RATIOS:
Return on average assets (2) 1.11 0.83 0.96 1.01 1.06 1.07 0.99
Return on average
shareholders' equity (2) 12.28 9.76 11.03 12.32 12.36 12.24 10.90
Average shareholders' equity
to average assets 9.06 8.47 8.73 8.21 8.54 8.70 8.56
Average loans as a percent
of average deposits 64.90 60.38 62.24 56.11 49.97 46.65 42.70
Shareholders' equity as of
percent of year-end assets 8.99 9.16 9.22 7.56 8.56 8.70 8.56
Allowance for loan losses
as a percent of loans 1.33 1.39 1.33 1.34 1.34 1.25 1.21
Net charge-offs as a percent
of average loans (2) 0.12 (0.3) 0.01 0.01 0.17 0.11 0.24
Dividends declared as a
percent of net income 25.75 28.09 29.45 27.37 27.68 27.43 29.45
Net interest margin, fully
taxable equivalent (2) 4.57 4.30 4.28 4.32 4.24 4.33 3.74
Nonperforming loans to
total loans 0.79 0.96 0.84 0.75 1.62 0.58 2.54
Nonperforming assets to
total assets 0.49 0.55 0.51 0.42 0.77 0.76 1.05
Allowance for loan losses
to nonperforming loans 169.09 144.80 157.33 176.74 82.21 216.56 47.33
Non interest expense as a
percent of average assets (2) 2.81 2.94 2.83 2.85 2.69 2.76 2.33
Operating efficiency ratio 58.72 67.93 65.88 65.49 62.69 62.28 60.81
</TABLE>
(2) Interim information annualized for comparability.
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<PAGE> 62
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Introduction
This discussion is intended to focus on certain financial information
regarding Navarre. The purpose of this discussion is to provide the reader with
a more thorough understanding of the financial statements. This discussion
should be read in conjunction with the financial statements and accompanying
notes contained elsewhere in this Proxy Statement/Prospectus.
Management of Navarre is not aware of any market or institutional
trends, events or uncertainties that are expected to have a material effect on
liquidity, capital resources or operations except as discussed herein. Also,
management is not aware of any current recommendations by its regulatory
authorities that would have such effect if implemented.
Overview
The reported results of Navarre are dependent on a variety of factors,
including the general interest rate environment, competitive conditions in the
industry, governmental policies and regulations and conditions in the markets
for financial assets. Net interest income is the largest component of Navarre's
net income, and consists of the difference between income generated on
interest-earning assets and interest expense incurred on interest-bearing
liabilities. Net interest income is primarily affected by the volumes, interest
rates and composition of interest-earning assets and interest-bearing
liabilities.
Average Balances and Yields. The following tables present for the
periods indicated, the total amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed both in dollars and
rates, and the net interest margin. Net interest margin refers to the net
interest income divided by total interest-earnings assets and is influenced by
the level and relative mix of interest-earning assets and interest-bearing
liabilities. All average balances are daily average balances. Non-accruing loans
are included in average loan balances.
-49-
<PAGE> 63
AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31, 1995 1994 1993
----------------------------- ------------------------------ ----------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
INTEREST-EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 766 $ 44 5.74% $ 604 $ 26 4.30% $ 910 $ 35 3.85%
Securities
Taxable 20,006 1,197 5.27 23,519 1,255 5.34 26,397 1,563 5.92
Tax exempt 6,602 348 5.27 6,522 349 5.35 5,844 343 5.87
Dividends 84 5 5.95 84 4 4.76 0 0 0
Loans 41,074 3,729 9.08 35,246 3,200 9.08 29,683 2,734 9.21
--------- -------- --------- -------- --------- --------
Total interest-earning
assets 68,532 5,323 7.77 65,975 4,834 7.3 62,834 4,675 7.44
--------- -------- --------- -------- --------- --------
NON-EARNING ASSETS:
Cash and due from banks 3,392 2,595 2,271
Premises and equipment, net 1,830 1,791 1,370
Other non-earning assets 889 923 938
Allowance for loan losses (577) (487) (394)
--------- --------- ---------
Total assets $ 74,066 $ 70,797 $ 67,019
========= ========= ==========
INTEREST-BEARING LIABILITIES:
Demand deposits $ 9,780 289 2.96 $ 9,484 289 3.05 $ 9,452 270 2.86
Savings deposits 24,031 723 3.01 26,515 798 3.01 25,032 852 3.40
Time deposits 27,317 1,415 6.18 21,716 914 4.21 21,185 944 4.46
Federal funds and
repurchase agreements 1,470 81 5.51 2,030 99 4.88 1,762 61 3.46
--------- -------- --------- -------- ---------- -----
Total interest-bearing
liabilities 62,598 2,508 4.01 59,745 2,100 3.51 57,431 2,127 3.70
-------- -------- -----
NONINTEREST-BEARING LIABILITIES:
Demand deposits 4,863 5,096 3,734
Other liabilities 138 144 128
Shareholders' equity 6,467 5,812 5,726
--------- --------- ----------
Total liabilities and
equity $ 74,066 $ 70,797 $ 67,019
========= ========= ==========
NET INTEREST INCOME $ 2,815 $ 2,734 $ 2,548
NET INTEREST INCOME TO
EARNING ASSETS 4.11 4.14 4.06
</TABLE>
* For purposes of this schedule, nonaccrual loans are included in loans. Net
interest income is reported on historical basis without tax-equivalent
adjustments. Fees collected on loans are included in interest on loans.
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<PAGE> 64
AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
Period Ended June 30, 1996 1995
---------------------------------- ------------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold $ 1,920 $ 51 5.31% $ 826 $ 24 5.81%
Securities
Taxable 18,084 577 6.38 19,508 602 6.17
Tax exempt 6,622 172 5.19 6,454 168 5.21
Dividends 84 2 4.76 84 2 4.76
Loans 45,133 2,093 9.07 39,388 1,768 8.98
-------- ------- -------- -------
Total interest-earning assets 72,843 2,895 7.95 66,260 2,564 7.74
NONEARNING ASSETS:
Cash and due from banks 3,348 3,830
Premises and equipment, net 1,742 1,852
Other nonearning assets 883 968
Allowance for loan losses (624) (556)
--------- ---------
Total assets $ 78,192 $ 72,354
======== =========
INTEREST-BEARING LIABILITIES:
Demand deposits $ 9,995 132 2.64 $ 9,796 146 2.98%
Savings deposits 24,669 352 2.85 24,402 364 2.98
Time deposits 29,775 778 5.23 25,923 638 4.92
Federal funds and repurchase agreements 822 27 6.57 1,786 47 5.26
-------- ------- -------- -------
Total interest-bearing liabilities 65,261 1,289 3.95 61,907 1,195 3.86
------- -------
NONINTEREST-BEARING LIABILITIES:
Demand deposits 5,682 4,196
Other liabilities 163 123
Shareholders' equity 7,086 6,128
-------- --------
Total liabilities and equity $ 78,192 $ 72,354
======== ========
NET INTEREST INCOME $ 1,606 $ 1,369
======= =======
NET INTEREST INCOME TO EARNING ASSETS 4.41 4.13
</TABLE>
*For purposes of this schedule, nonaccrual loans are included in loans. Net
interest income is reported on historical basis without tax-equivalent
adjustment. Fees collected on loans are included in interest on loan.
- 51 -
<PAGE> 65
Rate and Volume Variances. Net interest income is affected by changes
in the level of interest-earnings assets and interest-bearing liabilities and
changes in yields earned on assets and rates paid on liabilities. The following
table sets forth, for the periods indicated, a summary of the changes in average
asset and liability balances and changes in average rates. Changes attributable
to the combined impact of volume and rate have been allocated proportionately to
change due to volume and change due to rate.
RATE/VOLUME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Change from 1994 in Interest Change from 1993 in Interest
Income or Expense Due To Income or Expense Due To
------------------------ ------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold $ 7 $ 11 $ 18 $ (12) $ 3 $ (9)
Securities:
Taxable (188) 130 (58) (170) (138) (308)
Tax exempt 4 (5) (1) 40 (34) 6
Equity 0 1 1 4 0 4
Loans 529 0 529 512 (46) 466
----- ----- ----- ----- ----- -----
Total interest income 352 137 489 374 (215) 159
----- ----- ----- ----- ----- -----
INTEREST-BEARING LIABILITIES:
Deposits:
Interest-bearing
demand deposits 9 (9) 0 1 18 19
Savings deposit (75) 0 (75) 50 (104) (54)
Time deposits 236 265 501 24 (54) (30)
----- ----- ----- ----- ----- -----
Total deposits 170 256 426 75 (140) (65)
Federal funds and
repurchase agreements (27) 9 (18) 9 29 38
----- ----- ----- ----- ----- -----
Total interest expense 143 265 408 84 (111) (27)
----- ----- ----- ----- ----- -----
Net interest income $ 209 $(128) $ 81 $ 290 $(104) $ 186
===== ===== ===== ===== ===== =====
</TABLE>
Net interest income on a fully taxable equivalent basis was $2,933,000 in 1995,
equating to a 4.28% taxable equivalent net interest margin on earning assets.
Taxable equivalent net interest income in 1994 was $2,853,000 or 4.32% of
average earning assets. The following table reconciles net interest income as
shown in the financial statements to taxable equivalent net interest income (in
thousands of dollars):
- 52 -
<PAGE> 66
NET INTEREST INCOME
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net interest income $ 2,815 $ 2,734 $ 2,548
Taxable equivalent adjustments
to net interest income 118 119 117
--------- --------- ---------
Net interest income, fully taxable
equivalent $ 2,933 $ 2,853 $ 2,665
========= ========= =========
Net interest margin 4.11% 4.14% 4.06%
Taxable equivalent adjustment .17 .18 .18
--------- --------- ---------
Net interest margin, fully taxable equivalent 4.28% 4.32% 4.24%
========= ========= =========
</TABLE>
Comparison of Operating Results for Six Months Ended June 30, 1996 and 1995
Net Income. Net income for the six months ended June 30, 1996 was
$435,000, a 45.5% increase from $299,000 reported for the comparable period in
1995. Earnings per share for the six months ended June 30, 1996 was $1.55, an
increase of 44.9% over earnings per share of $1.07 for the six months ended June
30, 1995. This strong increase in earnings was the result of increases in net
interest income and other income together with decreases in non-interest
expense. These effects were partially offset by an increase in the provision for
loan losses and an increase in the provision for income taxes.
Interest Income. Interest income for the six months ended June 30, 1996
was $2,895,000, up 12.9% from $2,564,000 for the six months ended June 30, 1995.
This increase was the result of an increase in earning assets and an increase in
the percentage of earning assets that were in the loan category, which generally
earned higher rates than other categories of interest-earning assets.
Interest Expense. Interest expense rose to $1,289,000 for the six
months ended June 30, 1996 from $1,195,000 for the comparable period in 1995, an
increase of 7.9%. This increase was due to an increase in the average balance of
interest-bearing liabilities, primarily deposits, and an increase in the average
cost of funds.
Net interest income increased 173% to $1,606,000 in the first six
months of 1996, up from $1,369,000 in the same period 1995. This increase
resulted from a 8.1% increase in average earning assets together with an
increase in the net interest margin (FTE) to 4.57% in the first six months of
1996, up 27 basis points from 4.30% for the comparable period in 1995. Navarre
benefitted from increased yields on interest-earning assets, partially offset by
increased yields on interest-bearing liabilities.
Provision for Loan Losses. The provision for loan losses increased to
$66,000 for the six months ended June 30, 1996, up 57.1% from $42,000 for the
same period in 1995. This increase was primarily the result of strong loan
growth in the first two quarters of 1996 as compared to the first two quarters
of 1995.
Other Income. Other income was $135,000 for the six months ended June
30, 1996, an increase of 2.3% over $132,000 reported for the comparable period
1995. This increase was the
- 53 -
<PAGE> 67
result of increases in service charges on deposit accounts and other fees as
well as a favorable comparison to the June 30, 1995 period when Navarre reported
an $17,000 loss on the sale of securities.
Other Expense. Non-interest expense was $1,097,000 for the six months
ended June 30, 1996 compared to $1,079,000 for the comparable period in 1995, or
a 1.7% increase. Non-interest expense decreased primarily as a result of a
reduction in FDIC insurance premiums for BIF insured institutions to a minimum
of $0.04 per $100 of deposits, down from a minimum of $0.23 per $100 of
deposits. This reduction in premiums for most banks became effective as of June
1, 1995. Navarre's FDIC insurance premiums decreased from $71,000 for the first
half of 1995 to $2,000 for the first half of 1996. Offsetting the decrease in
FDIC insurance expense were $25,000 in expenses relating to the Merger, and a
general increase in other expenses.
Provision for Income Taxes. Provision for income taxes was $143,000 for
the six months ended June 30, 1996, a 76.5% increase from $81,000 for the first
six months of 1995. This was the result of an increase in pretax income as well
as an increase in Navarre's effective tax rate of 24.7% for the first six months
of 1996, up from 21.3% for the first six months of 1995. Income from tax-exempt
securities was a lower proportion of total revenues in the first six months of
1996 than in the first six months of 1995.
Comparison of Operating Results for Years Ended December 31, 1995 and 1994
Net Income. Net income for 1995 was $713,000, as compared to $716,000
for 1994. Earnings per share for 1995 was $2.55 essentially even with $2.56 for
1994. This slight decrease in earnings for 1995 compared to 1994 was primarily
due to a decrease in non-interest income and increases in non-interest expense
and the provision for income taxes, partially offset by an increase in net
interest income and a decrease in the provision for loan losses.
Interest Income. Interest income for 1995 was $5,323,000, a 10.1%
increase from $4,834,000 in 1994. This increase was primarily due to a 3.9%
increase in average interest-earning assets and a 0.47% increase in the weighted
average yield on interest-earning assets. This increase in yield was due to a
shift in the composition of interest-earning assets to a greater percentage of
loans which earn higher rates than the other categories of interest-earning
assets. Average loans were 59.9% of total average interest-earning assets in
1995, up from 53.4% of total average interest-earning assets in 1994.
Navarre's net interest margin decreased 4 basis points from 1994 to
1995 due primarily to a slight increase in net interest income and a significant
increase in interest-earning assets.
Interest Expense. Total interest expense increased 19.4% to $2,508,000
in 1995 from $2,100,000 in 1994. This increase was due to a general increase in
interest rates paid on interest-bearing liabilities and a 4.8% increase in the
amount of interest-bearing liabilities. Average interest-bearing deposits, the
major component of interest-bearing liabilities, increased 5.9% to $61,128,000
in 1995 from $57,715,000 in 1994.
Provision for Loan Losses. The provision for loan losses decreased to
$84,000 in 1995 from $96,000 in 1994. Navarre was able to reduce the provision
for loan losses over the last few years as a result of its excellent charge-off
experience. Charge-offs were only $28,000 in 1995 and $9,000 in 1994. The low
levels of charge-offs in recent years has allowed Navarre to decrease the
provision while maintaining very strong reserve levels.
- 54 -
<PAGE> 68
Other Income. Other income totaled $305,000 in 1995, a decrease of 0.7%
from $307,000 reported in 1994. Excluding net securities transactions, other
income was $291,000 in 1995, an increase of 26.5% from $230,000 in 1994. Service
charges and fees on deposit accounts increased 15.9% in 1995 to $211,000 from
$182,000 in 1994. Gain on sale of loans increased in 1995 to $15,000, up from $0
in 1994. These increases were partially offset by a decrease in securities gains
to $14,000 in 1995 from $77,000 in 1994.
Other Expense. Non-interest expense increased 4.6% to $2,112,000 in
1995 compared to $2,019,000 in 1994. This increase was primarily due to
increased expenses from the opening of a new bank branch facility in Richville,
Ohio in July 1994. Salary and employee benefits increased $109,000, or 11.2%, in
1995 as compared to 1994. These increases were partially offset by a decrease in
FDIC insurance premiums pursuant to a plan adopted by the FDIC which reduced
deposit insurance premiums for most banks. This plan became effective in the
second quarter of 1995 and significantly reduced FDIC premiums paid by Navarre.
Provision for Income Taxes. The provision for income taxes increased to
$211,000 in 1995 from $210,000 in 1994, a 0.5% increase. Navarre's securities
portfolio included a small portion of tax-exempt securities, resulting in an
effective tax rate of 22.8% and 22.7% in 1995 and 1994, respectively, less than
the 34% statutory rate.
Comparison of Operating Results for the Years Ended December 31, 1994 and 1993
Net Income. Net income for 1994 was $716,000, a 1.1% increase over
earnings for 1993 of $708,000. Earnings per share reported in 1994 were $2.56,
up 1.2% from $2.53 for 1993. This increase in net income was the result of the
combination of an increase in net interest income, a decrease in the provision
for loan losses, a decrease in the provision for income taxes. These
contributors to the increase in earnings were partially offset by a decrease in
other income, an increase in other expenses and the absence of a cumulative
effect for the change in accounting for income taxes which increased reported
income in 1993.
Interest Income. Interest income increased 3.4% in 1994 to $4,834,000,
up from $4,675,000 in 1993. Navarre benefitted from a 5.0% growth in earning
assets during 1994 which more than offset the slight decrease in the average
rate paid on interest-earnings assets. Navarre also benefitted from a shift in
the composition of its interest-earnings assets to a greater percentage of loans
which bear interest at a higher rate than the other categories of earnings
assets.
Interest Expense. Total interest expense was $2,100,000 in 1994
compared to $2,127,000 for the year ended December 31, 1993. This slight
decrease was due to a 19 basis point decrease in the average rates paid on
interest-bearing liabilities, partially offset by a 4.0% increase in the amount
of average interest-bearing liabilities during 1994.
Provision for Loan Losses. The provision for loan losses decreased to
$96,000 in 1994 from $137,000 in 1993. Navarre has been able to reduce the
provision for loan losses over the last few years as a result of its excellent
charge-off experience. Charge-offs were only $6,000 in 1994 and $62,000 in 1993.
Navarre's low levels of charge-offs in recent years has allowed Navarre to
decrease the provision while maintaining very strong reserve levels.
Other Income. For the year ended December 31, 1994, other income was
$307,000, down 4.4% from $321,000 for the prior year. This decrease was the
result of a decrease in the gains on securities sold which were $77,000 in 1994
compared to $94,000 in 1993. This decrease was partially offset by an increase
in service charges and fees on deposit accounts which increased to $182,000 in
1994, up 9.0% from $167,000 in 1993.
- 55 -
<PAGE> 69
Other Expense. Non-interest expense totaled $2,019,000 for the year
ended December 31, 1994, a 11.4% increase over non-interest expense of
$1,813,000 for the prior year. This increase was primarily the result of
additional expenses relating to the opening of Navarre's Richville branch which
opened in July of 1994.
Provision for Income Taxes. The provision for income taxes decreased in
1994 to $210,000, down 6.3% from $224,000 in 1993. Tax exempt income increased
slightly during 1994. In 1993, Navarre adopted a new accounting pronouncement
SFAS 109 relative to income taxes, the cumulative result of which was an
increase in net income in 1993 of $13,000.
Asset Quality
Non-performing Assets. Non-performing loans consist of loans past due
90 days or more and loans for which the accrual of interest has been
discontinued. Non-performing loans totaled approximately $389,000 or 0.84% of
total loans at December 31, 1995, as compared to $301,000 or 0.76% of total
loans at December 31, 1994. The allowance for loan losses as a percentage of
non-performing loans was 157.33% and 176.74% at year end 1995 and 1994,
respectively. This decrease resulted from a slight increase in non-performing
loans. The following table sets forth non-accrual, past due and restructured
loans at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis $304 $263 $122
Accruing loans which are contractually
past due 90 days or more as to interest
or principal payments 85 38 16
Loans which are "troubled debt restructurings"
as defined in Statement of Financial Accounting
Standards No. 15 exclusive of loans in (a) or (b)
above 0 0 317
---- ---- ----
Total nonperforming loans $389 $301 $455
==== ==== ====
</TABLE>
- 56 -
<PAGE> 70
<TABLE>
<CAPTION>
1995
----
<S> <C>
Gross interest income that would have been
recorded on nonaccrual loans in the period
if the loans had been current, in accordance
with their original terms and had been
outstanding throughout the period or since
origination, if held for part of the period. $ 24
Less:
Interest income actually recorded on nonaccrual
loans and included in net income for the period 11
-------
Interest income not recognized during the period $ 13
=======
Information regarding impaired loans at December 31, 1995
is as follows:
Balance of impaired loans at December 31, 1995 $ 246
Less portion for which no allowance for
loan losses is allocated 0
Portion of impaired loan balance for which
an allowance for credit losses is allocated $ 246
=======
Portion of allowance for loan losses allocated to the
impaired loans balance at December 31, 1995 $ 100
=======
Information regarding impaired loans is as follows for
the year ended December 31, 1995:
Average investment in impaired loans during the year $ 219
=======
Interest income recognized on impaired loans
including interest income recognized on
cash basis during the year $ 2
=======
Cash receipts received on impaired loans
applied to principal during the year $ 4
=======
</TABLE>
(1) The policy for placing loans on nonaccrual status is to cease accruing
interest on loans when management believes that the collection of interest
is doubtful, or when loans are past due as to principal or interest ninety
days or more, except that in certain circumstances interests accruals are
continued on loans deemed by management to be fully collectible. In such
cases, the loans are individually evaluated in order to determine whether
to continue income recognition after ninety days beyond the due dates. When
loans are charged-off, any interest accrued in the current fiscal year is
charged against interest income.
(2) Potential Problem Loans - As of December 31, 1995, there were approximately
$1,100,000 of loans representing the remaining balances of loans classified
as substandard for regulatory purposes that have not been disclosed above
as an impaired loan. These loans and their potential loss exposure have
been considered in management's analysis of the adequacy of the allowance
- 57 -
<PAGE> 71
for loan losses. These loans do not represent trends or uncertainties which
management reasonably expects will materially impact future operating
results, liquidity, or capital resources.
(3) Foreign Outstanding - There were no foreign loans outstanding for any year
presented.
(4) Loan Concentrations - Most of the Navarre's business activity is with
customers located in Northeastern Ohio. As of December 31, 1995, there were
no other concentrations of loans greater than 10% of total loans which were
not otherwise disclosed as a category of loans pursuant to III.
A. above.
(5) No material amount of loans classified during Navarre's most recent
regulatory examinations as loss, substandard, doubtful or special mention
have been excluded from the amounts discussed as nonaccrual, past due
ninety days or more, restructured or potential problem loans.
(6) Other Interest Bearing Assets - As of December 31, 1995, there were no
other interest bearing assets that would be required to be discussed in the
foregoing tables or if such assets were loans.
Allowance and Provision for Loan Losses. The allowance for loan losses is
maintained at a level considered adequate to cover loan losses that are
currently anticipated based on past loss experience, general economic
conditions, changes in mix and size of the loan portfolio, information about
specific borrower situations, and other factors and estimates that are subject
to change over time. Management periodically reviews selected large loans,
delinquent, impaired and other problem loans, and other selected loans. The
collectibility of these loans is evaluated by considering the current financial
position and performance of the borrower, the estimated fair value of the
collateral, Navarre's collateral position in relation to other creditors,
guarantees, and other potential sources of repayment. Management forms
judgments, which are subjective, as to the probability of loss and the amount of
loss on these loans as well as other loans in the aggregate.
The allowance for loan losses totaled $612,000 at December 31, 1995, which
was 1.33% of total loans net of unearned income. This was up from $532,000 or
1.34% of total loans at December 31, 1994. This increased allowance is the
result of increases in the size of the loan portfolio. The allowance for loan
losses was 1.33% and 1.33% of total loans at June 30, 1996 and December 31,
1995, respectively. Loans on nonaccrual status were approximately $205,000, or
.42% of outstanding balances at June 30, 1996, compared to $304,000 or .66% of
total loans at December 31, 1995. This reduction was due to loan payments. The
allowance for loan losses as a percentage of non-performing loans was 169.09% at
June 30, 1996, compared to 157.33% at December 31, 1995.
Summary of Loan Loss Experience
A. The following schedule presents an analysis of the allowance
for loan loss, average loan data and related ratio for the
years ended December 31:
- 58 -
<PAGE> 72
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Loans
Loans outstanding at end of period (1) $ 46,118 $ 39,832 $ 32,676
Average loans outstanding during period 42,666 35,505 30,339
Allowance for loan losses
Balance at beginning of the period $ 532 $ 439 $ 353
Loans charged-off:
Commercial and agricultural 35
Real estate - mortgage
Consumer 28 9 27
---------- ---------- ---------
Total loans charged-off 28 9 62
---------- ---------- ---------
Recoveries:
Commercial and agricultural 3
Real estate - mortgage 1
Consumer 24 6 7
---------- ---------- ---------
Total loan recoveries 24 6 11
---------- ---------- ---------
Net loans charged-off 4 3 51
---------- ---------- ---------
Provision charged to operating expense 84 96 137
---------- ---------- ---------
Balance at the end of period $ 612 $ 532 $ 439
========== ========== =========
Ratio of net charge-offs to average
loans outstanding for period 0.01% 0.01% 0.17%
</TABLE>
(1) Net of unearned income
Net charge-offs for 1995 totaled $4,000 up from $3,000 in 1994 and
significantly down from $51,000 in 1993. This indication of strong asset quality
results from continued strong loan underwriting and collection efforts.
- 59 -
<PAGE> 73
B. The following schedule is a breakdown of the allowance for
loan losses allocated by type of loan and related percentages.
<TABLE>
<CAPTION>
Percentage of
Loans in each
Allowance Category to
(Dollars in thousands) Amount Total loans
------ -----------
<S> <C> <C>
December 31, 1995
Commercial, financial and agricultural $287 9.8%
Real estate - mortgage 99 76.5
Real estate - construction -- --
Consumer 36 2.9
Unallocated 190 10.8
---- -----
Total $612 100.0%
==== =====
December 31, 1994
Commercial, financial and agricultural $266 11.6%
Real estate - mortgage 79 77.6
Real estate - construction -- --
Consumer 21 1.6
Unallocated 166 9.2
---- -----
Total $532 100.0%
==== =====
December 31, 1993
Commercial, financial and agricultural $157 9.7%
Real estate - mortgage 61 76.7
Real estate - construction -- --
Consumer 31 1.9
Unallocated 190 11.7
---- -----
Total $439 100.0%
==== =====
December 31, 1992
Commercial, financial and agricultural $ 57 4.5%
Real estate - mortgage 79 77.0
Real estate - construction -- --
Consumer 37 10.9
Unallocated 181 17.6
---- -----
Total $354 100.0%
==== =====
December 31, 1991
Commercial, financial and agricultural $ 57 4.5%
Real estate - mortgage 74 74.3
Real estate - construction -- --
Consumer 33 1.0
Unallocated 102 20.2
---- -----
Total $266 100.0%
==== =====
</TABLE>
- 60 -
<PAGE> 74
Comparison of June 30, 1996 and December 31, 1995 Financial Condition
Total assets rose slightly to $78,431,000 at June 30, 1996, compared to
$76,881,000 at December 31, 1995, an increase of $1,550,000 or 2.0%. This
increase in assets was funded by slight increases in deposits, short term
borrowings and shareholders' equity.
Total securities increased 5.0% to $24,956,000 at June 30, 1996
compared to $23,762,000 at December 31, 1995, as purchases exceeded maturities
and payments received. Of the $24,956,000 of total securities on the balance
sheet at June 30, 1996, $482,000, or 1.9%, are classified as held-to- maturity
with the remainder classified as available-for-sale.
Total loans increased $2.8 million, or 6.0% to $48,870,000 during the
second quarter of 1996 compared to total loans outstanding at December 31, 1995
of $46,118,000. This was primarily the result of continued strong loan demand.
No significant changes in loan demand are anticipated in the near term.
Navarre's investment in premises and equipment decreased 4.9% from
$1,778,000 at December 31, 1995 to $1,691,000 at June 30, 1996. This was the
result of depreciation expense of $112,000 exceeding equipment purchases of
$25,000.
Total deposits increased approximately $635,000 or .92%, to $69,787,000
at June 30, 1996, compared to $69,152,000 at December 31, 1995. Navarre
experienced strong growth in its savings accounts, with such deposits comprising
36.0% of total deposits at June 30, 1996, up slightly from 34.4% of total
deposits at December 31, 1995.
Navarre's shareholders' equity remained relatively flat during the
first quarter of 1996. At June 30, 1996, Navarre had $7,054,000 in shareholders'
equity, which represented 9.0% of total assets at that date. Shareholders'
equity was $7,085,000 at December 31, 1995, which was equal to 9.22% of total
assets as December 31, 1995. Navarre exceeded all regulatory capital
requirements at June 30, 1996. Its ratio of total capital to risk weighted
assets was 19.99% at June 30, 1996, while its Tier 1 risk-based ratio was
18.74%. Regulatory minimums call for a total risk-based ratio of 8%, at least
half of which must be Tier 1 capital. Navarre's leverage ratio was 9.21% at June
30, 1996, exceeding the regulatory minimum of 4%. All regulatory capital ratios
were calculated before considering unrealized losses on securities
available-for-sale.
Comparison of December 31, 1995 and 1994 Financial Condition
Total assets of Navarre were $76,881,000 at December 31, 1995 compared
to $71,448,000 at year-end 1994, representing an increase of 7.6%. This growth
was primarily in loans, which were funded by increases in Navarre's deposits
from its local customer base, and by maturities of securities held-to-maturity.
Total investment securities decreased $2,157,000, or 8.3%, from
$25,919,000 at year-end 1995 to $23,762,000 at year-end 1994. The proceeds from
this decrease were used to fund loan growth. The distribution within the
investment portfolio has changed as the decrease in the total investment
portfolio has come from U.S. Treasury and Agency securities. At December 31,
1995, U.S. Treasury and Agency securities represented 72.2% of the portfolio,
obligations of states and political subdivision were 27.4%, and equity
securities were 0.4% of the portfolio.
Navarre's mortgage-backed securities portfolio, including U.S. Agency
securities, are all pass-through securities. Over 90% of the securities are
guaranteed by GNMA and the rest are issued
- 61 -
<PAGE> 75
by FNMA or FHLMC. None of the securities are CMO's, REMIC's, or stripped
mortgage backed securities.
Navarre adopted Statement of Financial Standards (SFAS) No. 115 on
January 1, 1994. At December 31, 1995, securities with an amortized cost of
$449,000 were classified as held-to-maturity, and securities with a fair value
of $23,263,000 were classified as available-for-sale. Unrealized losses on
securities available-for-sale at December 31, 1995 totaled $128,000 and
unrealized gains totaled $287,000. SFAS No. 115 requires that available-for-sale
securities be carried at fair value, with unrealized gains and losses reflected
as a component of shareholders' equity, net of tax. Consequently, shareholders'
equity was increased by $105,000, the after-tax effect on the net unrealized
gains, at year-end 1995. At December 31, 1994, the securities available-for-sale
portfolio had net unrealized losses of $1,628,000, which decreased shareholders'
equity by $1,074,000. The change during the year occurred as a result of changes
in market rates of interest.
Loans totaled $45,506,000 at December 31, 1995, as compared to
$39,300,000 at year-end December 31, 1994, representing an increase of
$6,206,000 or 15.8%.
The mix of Navarre's loan portfolio changed somewhat during 1995, with
commercial loans comprising 9.8% of total loans at December 31, 1995, compared
to 11.5% at year-end 1994. Commercial loans decreased $85,000, or 1.8%, ending
with a $4,533,000 balance as of December 31, 1995 as compared to $4,618,000 at
year-end 1994. The decrease was the result of the discontinuation of the
business manager program and loan payments in excess of new loans.
Real estate loans, (including real estate construction, commercial real
estate, and residential real estate), increased 16.0% from year-end 1994, to
$36,829,000 or 79.5% of total loans at December 31, 1995. Real estate loans
comprised 79.3% of total loans at December 31, 1994. The increase in these loans
was the result of increased focus toward increasing overall loans. Consumer
loans increased 35.4%, from $3,686,000 at December 31, 1994 to $4,989,000 at
December 31, 1995. Again, this was the result of increased focus toward
increasing overall loans.
Types of Loans - Total loans on the balance sheet are comprised of the
following classification at December 31:
<TABLE>
<CAPTION>
1995 1994
------------------- ------------------
(Dollars in thousands) Amount % Amount %
------ - ------ -
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 4,533 9.83% $ 4,618 11.59%
Real estate mortgage 35,261 76.46% 30,893 77.56%
Construction 1,338 2.90% 638 1.60%
Consumer 4,986 10.81% 3,683 9.25%
------- ----- ------- ----
Total loans $46,118 100.0% $39,832 100.0%
======= ===== ======= =====
</TABLE>
Net premises and equipment decreased $1,885,000 at year end 1994 to
$1,778,000 at year-end 1995. Other assets decreased $486,000 from year end 1994
primarily as a result of the deferred tax asset on unrealized losses on
securities available for sale decreasing from $554,000 to a negative $54,000 at
December 31, 1995.
Total deposits increased 8.59% to $69,152,000 at December 31, 1995,
compared to $63,683,000 at December 31, 1994. Noninterest bearing balances grew
to $5,680,000 at December 31, 1995 as compared to $5,115,000 at December 31,
1994. The other area of growth
- 62 -
<PAGE> 76
was in certificates of deposit which increased 29.3%. Interest bearing checking
accounts and savings accounts decreased 0.1% and 7.2% respectively. Management
set deposit rates with the goal of increasing time deposits to improve the
bank's liability maturity position. Service charges on demand accounts were
structured to be attractive to generate new deposits.
The amortized costs, unrealized gains and losses and estimated fair
values are as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
--------------------------------------- -------------------------------------
Net Net
Unrealized Unrealized
(Dollars in thousands) Amortized Gains Estimated Amortized Gains Estimated
Cost (Losses) Fair Values Cost (Losses) Fair Values
---- -------- ----------- ---- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury securities $ 2,027 $ 56 $ 2,083 $ 3,538 $ (67) $ 3,471
U.S. Government agencies and
corporations 2,998 58 3,056
Obligations of states and
political subdivisions 5,931 88 6,019 3,903 (177) 3,726
Mortgage-backed securities
GNMA, FHLMC and
FNMA certificates 12,064 (43) 12,021 17,836 (1,384) 16,452
--------- ------- --------- --------- ---------- ---------
Total debt securities
available-for-sale 23,020 159 23,179 25,277 (1,628) 23,649
Marketable equity securities 84 84 84 84
--------- ------ --------- --------- --------- ---------
Total investment and
mortgage-backed securities
available-for-sale $ 23,104 $ 159 $ 23,263 $ 25,361 $ (1,628) $ 23,733
========= ====== ========= ========= ========== =========
Securities held-to-maturity:
Obligations of states and
political subdivisions 499 (18) 481 2,186 (62) 2,124
--------- ------- --------- --------- ---------- ---------
Total investment and
mortgage-backed securities
held-to-maturity $ 499 $ (18) $ 481 $ 2,186 $ (62) $ 2,124
========= ======= ========= ========= ========== ==========
</TABLE>
Liquidity and Capital Resources
Liquidity refers to Navarre's ability to generate sufficient cash to fund
current loan demand, meet deposit withdrawals, pay operating expenses and meet
the other obligations. Navarre's primary sources of liquidity are cash and cash
equivalents, which totaled $5,106,000 at year-end 1995. Net income, securities
available-for-sale and repayments and loan repayments also serve as forms of
liquidity. Other sources of liquidity which Navarre could use to help to ensure
that funds are available when needed include, but are not limited to, the
purchase of federal funds sold, adjustments of interest rates to attract
deposits, borrowings from unused lines of credit, and borrowings at the Federal
Reserve discount window. Management believes that its sources of liquidity are
adequate to meet the needs of Navarre.
- 63 -
<PAGE> 77
As summarized in the statements of cash flow, the most significant
investing cash flows in 1995 were purchases of available-for-sale securities of
$6.2 million, sales of securities available-for-sale of $7.7 million, maturity
of available-for-sale securities of $2.1 million and net loan obligations of
$7.1 million. Navarre's primary financing activity is accepting deposits, which
accounted for a cash infusion of $5.5 million. $1.7 million of these funds were
used to pay down borrowed funds. Cash and cash equivalents increased from $3.1
million at year-end 1994 to $5.1 million at year-end 1995.
Total shareholders' equity increased from $5,403,000 at December 31, 1994
to $7,085,000 at December 31, 1995. Most of this increase resulted from the
impact of decreased market rates of interest on the fair value of securities
available-for-sale. The equity component related to securities
available-for-sale increased from a loss of $1,074,000 at year-end 1994 to a
gain of $105,000 at year-end 1995, both net of the related tax effect. The
increase was supplemented by the retention of earnings, net of dividends paid to
shareholders. Future volatility in shareholders' equity is expected, as changes
in market rates of interest impact the fair value of Navarre's investment
portfolio.
Banking regulations have established minimum capital ratios for banks. As a
result, Navarre must meet a risk-based capital requirement, which defines the
two tiers of capital and compares each to Navarre's "risk-weighted assets."
Navarre's assets and certain off-balance sheet items, such as loan commitments,
are each assigned a risk factor so that assets with potentially higher credit
risk will require more capital support than assets with lower risk. These
regulations require Navarre to have a minimum total risk-based capital ratio of
8%, at least half of which must be Tier 1 capital. Navarre's Tier 1 capital is
its shareholders' equity before any gain or loss on securities
available-for-sale, while total risk-based capital includes Tier 1 capital and a
limited amount of the allowance for loan losses. In addition, a bank's leverage
ratio (which for Navarre equals its shareholders' equity, before any gain or
loss on securities available-for-sale, divided by total assets) must be
maintained at a minimum of 3% to 5%. The following table summarizes Navarre's
capital ratios in comparison with minimum requirements.
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
-------------------- ------------------
(Dollars in thousands) Amount Percent Amount Percent
- ---------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Leverage Ratio
Actual $ 6,981 9.08% $ 6,477 9.07%
Minimum required 2,306 3.00 2,143 3.00
Maximum required 3,844 5.00 3,572 5.00
Total risk-based capital
Actual $ 7,435 20.58 $ 6,857 22.54
Required 2,890 8.00 2,434 8.00
Tier 1 risk-based capital
Actual $ 6,981 19.32 $ 6,477 21.29
Required 1,445 4.00 1,217 4.00
Risk adjusted assets $ 36,131 $ 30,423
</TABLE>
The payment of dividends by Navarre to its shareholders is subject to
restrictions by its regulatory authorities, which generally limit dividends to
the current and prior two years retained earnings, as defined by regulation. In
addition, dividend payments may not reduce regulatory capital
- 64 -
<PAGE> 78
levels below the minimum regulatory guidelines discussed above. At December 31,
1995, approximately $1,794,000 was available for payment of dividends under the
most restrictive of these guidelines. The Merger Agreement also sets forth
certain limitations on the payment of dividends by Navarre to its shareholders.
See "PROPOSED MERGER--Business Pending the Merger."
Asset/Liability Management
Asset/liability management is the process of managing Navarre's
exposure to changes in interest rates. The primary measure of interest rate risk
exposure is Navarre's "gap," or the difference between interest rate sensitive
assets and liabilities that mature or reprice within a certain period of time.
In a rising interest rate environment, banks with negative interest rate
sensitivity gaps, such as Navarre, will generally experience greater increases
in their cost of funds than in the yield of their assets. Conversely, in an
environment of falling interest rates, the cost of funds of banks with negative
interest rate sensitivity gaps will decrease more rapidly than the yield on
their assets. The table below provides a measure of Navarre's interest rate
sensitivity at December 31, 1995. This table may not reflect the actual impact
of general movements in interest rates on Navarre's net interest income because
the repricing of various categories of rate sensitive assets and liabilities are
subject to other factors, such as competition, customer performance, and
management influence.
<TABLE>
<CAPTION>
Maturity or Next Rate Adjustment Date
-------------------------------------
0-3 3-12 One through Over five Not
Months Months Five Years Years Classified Total
------ ------ ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loan (a) $ 2,742 $ 3,926 $ 14,383 $ 24,996 $ 71 $ 46,118
Investments (a)(b) 41 12,001 5,292 6,344 84 23,762
Federal funds sold 1,340 1,340
-------- ---------- ---------- --------- -------- ---------
Rate sensitive assets (RSA) $ 4,123 $ 15,927 $ 19,675 $ 31,340 $ 155 $ 71,220
======== ========== ========== ========= ======== =========
LIABILITIES
Interest-bearing demand deposits $ 9,876 $ 9,876
Interest-bearing savings deposits 23,788 23,788
Interest-bearing time deposits 11,431 $ 10,439 $ 7,938 29,808
Securities sold under
repurchase agreements 480 480
-------- ---------- ---------- ---------
Rate sensitive liabilities (RSL) $ 45,575 $ 10,439 $ 7,938 $ 63,952
======== ========== ========== =========
Gap(c) (41,452) 5,488 11,737 31,340 155
Cumulative Gap (41,452) (35,964) (24,227) 7,113 7,268
RSA/RSL 9.0% 152.6% 247.9% NM NM
Cumulative Gap/RSA (d) (58.2%) (50.5%) (34.0%) 10.0%
</TABLE>
(a) Expected maturities will likely differ from contractual maturities because
some borrowers and issuers have the right to call or prepay obligations
with or without call or prepayment penalties.
(b) Includes securities held to maturity and available for sale.
(c) Gap is defined as rate sensitive assets less rate sensitive liabilities and
may be expressed in dollars or as a percentage.
(d) Computation is based on total RSA of $71,220
NM - Not Meaningful
- 65 -
<PAGE> 79
Impact of Inflation on Changing Prices
The financial statements included herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and results of operations primarily in terms
of historical dollars, without considering changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies, the
assets and liabilities of Navarre are primarily monetary in nature and are more
directly affected by the fluctuation in interest rate than inflation. Interest
rates do not necessarily move in the same direction or magnitude as the prices
of goods and services; therefore, a direct relationship to the inflation rate
cannot be shown.
Certain Statistical Information
The following schedules present, for the periods indicated, certain
financial and statistical information of Navarre under the Commission's Industry
Guide 3, or a specific reference as to the location of the required disclosures
elsewhere in this Proxy Statement/Prospectus.
I. Distribution of Assets, Liabilities and Shareholders' Equity, Interest Rates
and Interest Differential
A. Average Balance Sheet and Related Analysis of Net Interest Earnings:
See the information set forth under the heading "Overview--Average Balances and
Yields" in INFORMATION WITH RESPECT TO NAVARRE--Management's Discussion and
Analysis of Financial Condition and Results of Operations."
B. Interest Differential: See the information set forth under the
heading "Overview--Rate and Volume Variances" in "INFORMATION WITH RESPECT TO
NAVARRE--Management's Discussion and Analysis of Financial Condition and Results
of Operations."
C. Taxable Equivalent Basis: See the information set forth under the
table labelled "Net Interest Income" under the heading "Overview--Rate and
Volume Variances" in "INFORMATION WITH RESPECT TO NAVARRE--Management's
Discussion and Analysis of Financial Condition and Results of Operations."
-66-
<PAGE> 80
II. Investment Portfolio
A. The amortized costs, unrealized gains and losses and estimated fair
values are as follows at December 31:
<TABLE>
<CAPTION>
1995
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S Treasury securities $ 2,027 $ 61 $ (5) $ 2,083
U.S. Government agencies and corporations 2,998 58 3,056
Obligations of states and political subdivisions 5,931 148 (60) 6,019
Mortgage-backed securities
GNMA, FHLMC and FNMA certificates 12,064 20 (63) 12,021
------- ---- ----- -------
Total debt securities available-for-sale 23,020 287 (128) 23,179
Marketable equity securities 84 84
------- ---- ----- -------
Total investment and mortgage-backed
securities available-for-sale $23,104 $287 $(128) $23,263
======= ==== ===== =======
Securities held-to-maturity:
Obligation of states and political subdivisions $ 499 $ $ (18) $ 481
------- ---- ----- -------
Total investment and mortgage-backed
securities held-to-maturity $ 499 $ 0 $ (18) $ 481
======= ==== ===== =======
</TABLE>
<TABLE>
<CAPTION>
1994
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S Treasury securities $ 3,538 $ 5 $ (72) $ 3,471
Obligations of states and political subdivisions 3,903 30 (207) 3,726
Mortgage-backed securities
GNMA, FHLMC and FNMA certificates 17,836 (1,384) 16,452
------- ---- ------- -------
Total debt securities available-for-sale 25,277 35 (1,663) 23,649
Marketable equity securities 84 84
------- ---- ------- -------
Total investment and mortgage-backed
securities available-for-sale $25,361 $ 35 $(1,663) $23,733
======= ==== ======= =======
Securities held-to-maturity:
Obligation of states and political subdivisions $ 2,186 $ 16 $ (78) $ 2,124
------- ---- ------- -------
Total investment and mortgage-backed
securities held-to-maturity $ 2,186 $ 16 $ (78) $ 2,124
======= ==== ======= =======
</TABLE>
-67-
<PAGE> 81
<TABLE>
<CAPTION>
1993
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S Treasury securities $11,908 $332 $ $12,240
Obligations of states and political subdivisions 3,501 155 (12) 3,644
Mortgage-backed securities
GNMA, FHLMC and FNMA certificates 14,880 135 (29) 14,986
------- ---- ---- -------
Total investment and mortgage-backed
securities available-for-sale $30,289 $622 $(41) $30,870
======= ==== ==== =======
Securities held-to-maturity:
Obligation of states and political subdivisions $ 2,388 $ 72 $(15) $ 2,445
------- ---- ---- -------
Total investment and mortgage-backed
securities held-to-maturity $ 2,388 $ 72 $(15) $ 2,445
======= ==== ==== =======
</TABLE>
B. The following is a schedule of maturities or next rate adjustment date
of securities available-for-sale and the related weighted average
yield as of December 31, 1995. This schedule is prepared using the
estimated fair value except for the yields which are calculated using
the amortized cost of the related securities. Equity securities of
$84,000 have been excluded from this schedule.
<TABLE>
<CAPTION>
MATURITY OR NEXT RATE ADJUSTMENT DATE
(in thousands)
0-3 months 3 mos.-1 yr. 1-5 years 5-10 years Over 10 years
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 0 $ 0 $1,002 5.02% $1,081 7.18% $ 0
U.S. Government agencies 0 502 7.56 1,008 6.35 1,546 7.12 0
Obligations of state and
Political subdivisions 41 5.31 259 8.00 2,113 7.34 3,105 6.03 501 7.29
-- ------- ------ ------ ----
Securities 41 5.31 761 7.71 4,123 6.53 5,732 6.54 501 7.29
Mortgage-backed securities 0 11,223 6.17 0 502 7.57 296 5.62
-- ------- ------ ------ ----
Total investment and mortgage-
backed securities available-
for-sale $41 5.31 $11,984 6.27 $4,123 6.53 $6,234 6.62 $797 6.67
=== ==== ======= ==== ====== ==== ====== ==== ==== ====
</TABLE>
The following is a schedule of maturities or next rate adjustment date
of securities held-to- maturity and the related weighted average yield
as of December 31, 1995. This schedule is prepared using the amortized
cost maturing or being placed within the time bracket at the next
interest rate adjustment without regard to principal payment.
-68-
<PAGE> 82
<TABLE>
<CAPTION>
MATURITY OR NEXT RATE ADJUSTMENT DATE
(in thousands)
0-3 months 3 mos.-1 yr. 1-5 years 5-10 years Over 10 years
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Obligations of state and
Political subdivisions $ 0 $ 17 6.63% $ 88 6.57% $ 394 6.35% $ 0
--- --- ---- ----- ---
Total investment securities $ 0 $ 17 6.63 $ 88 6.57 $ 394 6.35 $ 0
=== === ==== ==== ==== ===== ==== ===
</TABLE>
The weighted average yield is based on the effective yield for all
bonds. The yields on the tax exempt portfolio have been adjusted for a
tax equivalency rate of 34%. Mortgage-backed securities have been
classified at their final state maturity date, except for variable rate
securities which are classified at their next rate adjustment date.
C. Excluding those holdings of the investment portfolio in U.S. Treasury
and other agencies and corporations of the U.S. Government, there were
no investments in securities of any one issuer which exceeded 10% of
shareholders' equity of Navarre at December 31, 1995.
III. Loan Portfolio
A. Types of Loans - Total loans on the balance sheet are comprised of
the following classifications at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 4,533 $ 4,618 $ 3,154 $ 1,276 $ 990
Real estate mortgage 35,261 30,893 25,076 21,826 16,321
Construction 1,338 638 625 260 215
Consumer 4,986 3,683 3,821 4,966 4,430
------- ------- ------- ------- -------
Total loans $46,118 $39,832 $32,676 $28,328 $21,956
======= ======= ======= ======= =======
</TABLE>
B. Maturities and Sensitivities of Loans to Changes in Interest
Rates - The following is a schedule of maturities and
sensitivities of loans to changes in interest rates, excluding
$304,000 in nonaccrual loans as of December 31, 1995:
<TABLE>
<CAPTION>
3 months One After
through through five
0-3 months 1 year five years years Total
<S> <C> <C> <C> <C> <C>
Fixed rate $2,160 $3,926 $14,383 $24,763 $45,232
Variable rate 582 0 0 0 582
------ ------ ------- ------- -------
Total $2,742 $3,926 $14,383 $24,763 $45,814
====== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
One
One year through After
or less five years five years Total
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 724 $ 1,624 $ 2,174 $ 4,522
Real estate - construction 99 30 1,209 1,338
Other 5,845 12,729 21,380 39,954
------ ------- ------- -------
Total $6,668 $14,383 $24,763 $45,814
====== ======= ======= =======
</TABLE>
-69-
<PAGE> 83
C. RISK ELEMENTS
The information required by this section is set forth under
the heading "Asset Quality-- Non-performing Assets" in
"INFORMATION WITH RESPECT TO NAVARRE-- Management's Discussion
and Analysis of Financial Condition and Results of
Operations."
IV. Summary of Loan Loss Experience
The information required under this section is set forth under the
heading "Summary of Loan Loss Experience" in "INFORMATION WITH RESPECT
TO NAVARRE--Management's Discussion and Analysis of Financial Condition
and Results of Operations."
V. Deposits
The schedule of average deposit amounts and average rates is set forth
under the heading "Overview--Average Balances and Yields" in
"INFORMATION WITH RESPECT TO NAVARRE-- Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The following is a schedule of maturities of time deposits in amounts
of $100,000 or more as of December 31, 1995:
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1995
<S> <C>
Three months or less $2,280
Three through six months 985
Six through twelve months 305
Over twelve months 539
------
Total $4,109
======
</TABLE>
VI. Return on Equity and Assets
The information required by this section is set forth under the heading
"Selected Financial Information" in "INFORMATION WITH RESPECT TO
NAVARRE."
VII. Short-Term Borrowings
This information is not required to be presented because the average
balance of all short-term borrowings was less than shareholders' equity
at the end of each period.
-70-
<PAGE> 84
Management
Directors
The current directors of Navarre are listed below.
Harold F. Axe (72). Director since 1983. Mr. Axe is retired from East
Ohio Gas Company and former co-owner of Betty's Beauty Salons and Wooster Beauty
School.
Jeffrey J. Define (45). Senior Vice President, Cashier. Director since
1987. Mr. Define has been employed by Navarre Bank for 15 years in positions of
increasing responsibility primarily in lending.
John L. Feucht (49). Director since 1988. Mr. Feucht is the General
Manager of Atkinson- Feucht-Shaidnagle Funeral Homes.
Wilbur D. Haas (68). Director since 1992. Mr. Haas is the former owner
of H & H Carriers, Inc.
Kenneth N. Koher (42). President and Chief Executive Officer. Director
since 1974. Mr. Koher has been employed by Navarre Bank for 24 years in
positions of increasing responsibility. Mr. Koher was appointed C.E.O. in 1985
and elected President in 1990.
Harry E. Myers, Jr. (74). Director since 1951. Mr. Myers serves as
Vice-Chairman of the Board and is retired from The Navarre Deposit Bank in 1989
after completing 40 years of service.
Robert J. Shedlarz (51). Director since 1993. Mr. Shedlarz is a
attorney and Professor Emeritus at the University of Akron where he taught
business law for 24 years.
Elden L. Surbey (68). Director since 1986. Mr. Surbey serves as
Chairman of the Board. He is the founder and former owner of Surbey Feed &
Supply Company.
Roslyn G. Talerico (67). Director since 1990. Mrs. Talerico is retired
from Cuyahoga Community College.
Executive Officers
In addition to Messrs. Define and Koher, with respect to whom
information is provided above in the subsection pertaining to Directors, the
following persons serve as the current executive officers of Navarre:
Debra A. Dorkoff (43). Assistant Vice President and Operations Officer.
Mrs. Dorkoff has been employed by the bank for 23 years in positions of
increasing responsibility. She has served as an officer of the bank since 1979.
Gloria J. Page (52). Executive Secretary and Human Resources Manager.
Ms. Page has been employed by the bank for 20 years in positions of increasing
responsibility. She has served as an officer of the bank since 1986.
-71-
<PAGE> 85
Security Ownership of Management and Certain Beneficial Owners
The following table sets forth as of July 1, 1996, the total number and
percentage of Navarre Common Shares beneficially owned by (i) each director of
Navarre and each owner of more than 5% of the outstanding Navarre Common Shares
and (ii) all directors and executive officers of Navarre as a group. The number
of Navarre Common Shares shown as being beneficially owned by each director are
those over which he has either sole or shared voting or investment power. As of
July 1, 1996, there were 280,000 shares outstanding. The percent of beneficial
ownership of management after the Merger was calculated assuming an Exchange
Ratio of 1.90 Bancshares Common Shares for one Navarre Common Share and assuming
no dissenters' rights will be exercised by Navarre shareholders. No director or
executive officer owns more than five percent of the outstanding Navarre Common
Shares.
<TABLE>
<CAPTION>
Percent of Percent of
------------ -----------
Amount and Nature of Class as of Class After
----------------------- ------------ -----------
Name of Beneficial Owner Beneficial Ownership (a) July 1, 1996 Merger
- ------------------------ ------------------------ ------------ -----------
Directors
<S> <C> <C> <C>
Harold F. Axe 2,000 * *
Jeffrey J. Define 2,000 * *
John L. Feucht 1,000 * *
Roslyn Gretzinger-Talerico 9,400 3.4 *
Wilbur D. Haas 1,000 * *
Kenneth N. Koher 3,100 1.1 *
Harry E. Myers,Jr. 6,000 2.1 *
Robert J. Shedlarz 500 * *
Elden L. Surbey 1,000 * *
5% Beneficial Owners
John L. Zinmaster 20,000 7.1 *
All directors and executive officers 26,000 9.3 *
as a group (12 persons).
</TABLE>
* Common shares owned represents less than 1% of class.
-72-
<PAGE> 86
EXPERTS
The consolidated financial statements of Bancshares as of December 31,
1995 and 1994 and for the years ended December 31, 1995, 1994 and 1993, included
in this Proxy Statement/Prospectus have been audited by Crowe, Chizek and
Company LLP. The financial statements audited by Crowe, Chizek and Company LLP
have been incorporated by reference in reliance on its authority as an expert in
accounting and auditing.
The financial statements of Navarre as of December 31, 1995 and 1994
and for the years ended December 31, 1995, 1994 and 1993, included in this Proxy
Statement/Prospectus have been audited by Robb, Dixon, Francis, Davis, Oneson &
Company. The financial statements audited by Robb, Dixon, Francis, Davis, Oneson
& Company have been included in reliance on its authority as an expert in
accounting and auditing.
LEGAL OPINIONS
A legal opinion has been rendered by Squire, Sanders & Dempsey to the
effect that the issuance of the shares of Bancshares Common Shares offered
hereby has been duly authorized by Bancshares and that the Shares, when issued
in accordance with the Merger Agreement, will be duly issued and outstanding and
fully paid and non-assessable. A tax opinion has been rendered by Emens, Kegler,
Brown, Hill & Ritter to the effect that (i) the Merger will constitute a tax
free reorganization, (ii) the Navarre shareholders will not recognize gain or
loss upon the receipt solely of Bancshares Common Shares in exchange for Navarre
Common Shares, and (iii) no gain or loss will be recognized by Bancshares,
Citizens or Navarre as a consequence of the Merger.
INDEMNIFICATION
The Regulations of Bancshares provide that Bancshares will indemnify
any director or officer of Bancshares or any person who is or has served at the
request of Bancshares as a director, officer or trustee of another corporation,
joint venture, trust or other enterprise (and his heirs, executors and
administrators) against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement, actually or reasonably incurred because he or
she is or was such director, officer or trustee in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative. This indemnification is to the full
extent and according to the procedures and requirements of the Ohio General
Corporation Law.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers or persons controlling Bancshares
pursuant to the foregoing provisions, Bancshares has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the 1933 Act and is therefore unenforceable.
73
<PAGE> 87
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Navarre Deposit Bank Company
- --------------------------------
Report of Independent Auditors............................................................... F-1
Balance Sheet
December 31, 1995 and 1994.......................................................... F-2
Statement of Income - Years Ended
December 31, 1995, 1994, and 1993................................................... F-3
Statement of Changes in Shareholders' Equity
December 31, 1995, 1994, 1993 and 1992.............................................. F-4
Statement of Cash Flows - Years Ended
December 31, 1995, 1994 and 1993.................................................... F-5
Notes to Financial Statements................................................................ F-6
Balance Sheet (Unaudited)
June 30, 1996 ...................................................................... F-17
Statement of Income (Unaudited) - Six Months Ended
June 30, 1996....................................................................... F-18
Statement of Changes in Shareholders' Equity (Unaudited) - Six Months Ended
June 30, 1996....................................................................... F-19
Statement of Cash Flows (Unaudited) - Six Months Ended
June 30, 1996....................................................................... F-20
Notes to Financial Statements................................................................ F-21
</TABLE>
-74-
<PAGE> 88
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
The Navarre Deposit Bank Company
Navarre, Ohio
We have audited the accompanying balance sheets of The Navarre Deposit
Bank Company as of December 31, 1995 and 1994, and the related statements of
income, changes in shareholder's equity and cash flows for the years ended
December 31, 1995, 1994, and 1993. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Navarre Deposit
Bank Company as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years ended December 31, 1995, 1994 and 1993, in
conformity with generally accepted accounting principles.
ROBB, DIXON,
FRANCIS, DAVIS, ONESON
& COMPANY
Granville, Ohio
January 19, 1996
F-1
<PAGE> 89
THE NAVARRE DEPOSIT BANK COMPANY
NAVARRE, OHIO
BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31,
1995 1994
---- ----
<S> <C> <C>
ASSETS
Cash and Cash Equivalents
Cash and amounts due from depository institutions $ 3,766 $ 2,809
Federal funds sold 1,340 320
--------- ---------
Total Cash and Cash Equivalents 5,106 3,129
Investment securities
Securities held-to-maturity (fair value
of $481 in 1995 and $2,124 in 1994) 499 2,186
Securities available-for-sale, at fair value 23,263 23,733
Loans, net 45,506 39,300
Accrued interest receivable 452 359
Premises and equipment, net 1,778 1,885
Deferred income taxes 143 722
Other assets 134 134
--------- ---------
TOTAL ASSETS $ 76,881 $ 71,448
========= =========
LIABILITIES AND SHAREHOLDERS EQUITY
Deposits $ 69,152 $ 63,683
Federal Funds purchased and securities sold under
agreements to repurchase 480 2,225
Accrued interest payable 98 75
Accrued expenses and other liabilities 66 62
--------- ---------
TOTAL LIABILITIES 69,796 66,045
SHAREHOLDERS EQUITY
Common stock of $5 par value; 280,000 shares
authorized, issued, and outstanding 1,400 1,400
Additional paid-in capital 1,400 1,400
Retained earnings 4,180 3,677
Unrealized gain (loss) on securities available-for sale,
net of applicable deferred income taxes 105 (1,074)
--------- ----------
TOTAL SHAREHOLDERS' EQUITY 7,085 5,403
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 76,881 $ 71,448
========= =========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes
F-2
<PAGE> 90
THE NAVARRE DEPOSIT BANK COMPANY
NAVARRE, OHIO
STATEMENTS OF INCOME
================================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
Years ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 3,729 $ 3,200 $ 2,734
Interest on taxable investment securities 1,197 1,255 1,563
Interest on tax-free investment securities 348 349 343
Dividends on investment securities 5 4 0
Interest on federal funds sold 44 26 35
--------- -------- --------
TOTAL INTEREST INCOME 5,323 4,834 4,675
INTEREST EXPENSE
Interest on interest-bearing checking accounts 289 289 270
Interest on savings 723 798 852
Interest on time deposits 1,415 914 944
Interest on borrowed funds 81 99 61
--------- -------- --------
TOTAL INTEREST EXPENSE 2,508 2,100 2,127
--------- -------- --------
NET INTEREST INCOME 2,815 2,734 2,548
Provision for loan losses 84 96 137
--------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS 2,731 2,638 2,411
OTHER INCOME
Service charges 211 182 167
Gain from sales of investment securities, net 14 77 94
Other income 80 48 60
--------- -------- --------
TOTAL OTHER INCOME 305 307 321
--------- -------- --------
OTHER EXPENSES
Salaries and employee benefits 1,078 969 888
Net occupancy and equipment 320 306 236
Other expense 714 744 689
--------- -------- --------
TOTAL OTHER EXPENSES 2,112 2,019 1,813
--------- -------- --------
INCOME BEFORE FEDERAL INCOME TAX EXPENSE 924 926 919
Federal income tax expense 211 210 224
--------- -------- --------
NET INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 713 716 695
Cumulative effect of accounting change 0 0 13
--------- -------- --------
NET INCOME $ 713 $ 716 $ 708
========= ======== ========
PER SHARE DATA:
Net income before cumulative effect of accounting change $ 2.55 $ 2.56 $ 2.48
Cumulative effect of accounting change 0 0 .05
--------- -------- --------
NET INCOME $ 2.55 $ 2.56 $ 2.53
========= ======== ========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes
F-3
<PAGE> 91
THE NAVARRE DEPOSIT BANK COMPANY
NAVARRE, OHIO
STATEMENTS OF CHANGES
IN SHAREHOLDERS'EQUITY
================================================================================
(Dollars in thousands)
<TABLE>
<CAPTION>
Unrealized
Gain on (Loss)
on securities
Available-for-sale,
Net of Total
Common Stock Additional Applicable Share-
------------------- Paid-in Retained Deferred holders
Shares Amount Capital Earnings Income Taxes Equity
------ ------ ------- -------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT 12/31/92 70,000 $ 700 $ 700 $ 4,045 $ 0 $ 5,445
Net income 708 708
Dividends declared
($.70 per share) (196) (196)
------- ------- -------- -------- --------- --------
BALANCES AT 12/31/93 70,000 700 700 4,557 0 5,957
Net income 716 716
Dividends declared
($.70 per share) (196) (196)
Initial adoption
of SFAS # 115 581 581
Stock split 210,000 700 700 (1,400) 0
Change in unrealized
gain (loss) on
securities available-
for-sale (1,655) (1,655)
------- ------- -------- -------- --------- --------
BALANCES AT 12/31/94 280,000 1,400 1,400 3,677 (1,074) 5,403
Net income 713 713
Dividends declared
($.75 per share) (210) (210)
Change in unrealized
gain (loss) on
securities available-
for-sale 1,179 1,179
------- ------- -------- -------- --------- --------
BALANCE AT
12/31/95 280,000 $ 1,400 $ 1,400 $ 4,180 $ 105 $ 7,085
======= ======= ======== ======== ========= ========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes.
F-4
<PAGE> 92
THE NAVARRE DEPOSIT BANK COMPANY
NAVARRE, OHIO
STATEMENT OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
Years ended December 31,
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: 1995 1994 1993
---- ---- ----
Net income $ 713 $ 716 $ 708
Adjustments to reconcile net income to net cash provided by operating
activities:
Net loss on writedown of other real estate 0 0 1
Premium amortization net of discount accretion 74 33 133
Provision for loan losses 84 96 137
Gain from sales of investment securities, net (14) (77) (94)
Gain on sales of loans (18) 0 0
Depreciation 195 172 122
Deferred income taxes (28) (25) (23)
Changes in operating assets and liabilities:
(Increase) decrease in accrued interest receivable (93) 33 138
(Increase) decrease in other assets 2 12 (17)
Increase (decrease) in accrued interest payable 22 (3) (18)
Increase (decrease) in other liabilities 3 (94) (82)
--------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 940 863 1,005
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of held-to maturity securities (179) (555) (15,955)
Proceeds from maturities of held-to-maturity securities 516 749 7,216
Purchase of available-for-sale securities (6,228) (4,789) 0
Proceeds from sales of available-for-sale securities 7,691 8,370 8,226
Proceeds from maturities of available-for-sale securities 2,086 1,400 0
Proceeds from sale of loans 818 0 0
Net change in loans (7,091) (7,159) (4,467)
Purchases of premises and equipment (89) (408) (533)
Proceeds from sale of other real estate 0 0 72
--------- -------- --------
NET CASH IN INVESTING ACTIVITIES (2,476) (2,392) (5,441)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits 5,468 2,552 3,755
Net change in borrowed funds (1,745) (35) 331
Dividends paid (210) (196) (196)
--------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,513 2,321 3,890
--------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,977 792 (546)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 3,129 2,337 2,883
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,106 $ 3,129 $ 2,337
========= ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for interest $ 2,485 $ 2,102 $ 2,145
Cash paid during the year for income taxes $ 224 $ 214 $ 434
Total change in unrealized gain (loss) on securities available-for-sale $ 1,788 $ (1,628) $ 0
Transfer from loans to other real estate owned $ 0 $ 0 $ 66
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes
F-5
<PAGE> 93
THE NAVARRE DEPOSIT BANK COMPANY
NAVARRE, OHIO
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Bank provides a variety of financial services to individuals and
corporate customers, through its four branches in Navarre, Brewster, and
Richville, Ohio, which is primarily a light industrial and agricultural area.
The Bank's primary deposit products are savings and time deposits. Its primary
lending products are single family residential loans.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties.
A majority of the Bank's loan portfolio consists of single family
residential loans in the Navarre area. The regional economy depends heavily on
light industry and agriculture. Accordingly, the ultimate collectibility of a
substantial portion of the Bank's loan portfolio and the recovery of a
substantial portion of the carrying amount of foreclosed real estate are
susceptible to changes in local market conditions.
While management uses available information to recognize losses on
loans and foreclosed real estate, future additions to the allowances may be
necessary based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Bank to recognize additions to the allowances based on
their judgments about information available to them at the time of their
examination. Because of these factors, it is reasonably possible that the
allowances for losses on loans and foreclosed real estate may change materially
in the near term.
INVESTMENT SECURITIES
Debt securities that management has the ability and intent to hold to
maturity are classified as held-to-maturity and carried at cost, adjusted for
amortization of premium and accretion of discounts using methods approximating
the interest method. Other marketable securities are classified as
available-for-sale and are carried at fair value. Unrealized gains and losses on
securities available-for-sale are recognized as direct increases or decreases in
shareholders' equity. Cost of securities sold is recognized using the specific
identification method.
LOANS
Loans are stated at unpaid principal balances, less the allowance for
loan losses and net deferred loan fees and unearned discounts.
Loan origination fees, as well as certain direct origination costs, are
deferred and amortized as a yield adjustment over the lives of the related loans
using the interest method. Amortization of deferred loan fees is discontinued
when a loan is placed on nonaccrual status.
F-6
<PAGE> 94
Loans are placed on nonaccrual when a loan is specifically determined
to be impaired or when principal or interest is delinquent for 90 days or more.
Any unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other nonaccrual loans is recognized only to the extent of interest payments
received.
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses, which is
charged to expense, and reduced by charge-offs, net of recoveries.
PREMISES AND EQUIPMENT
Depreciation and amortization are provided over the estimated useful
lives of the respective assets. All premises and equipment are recorded at cost
and are depreciated on the straight-line method.
FORECLOSED REAL ESTATE
Foreclosed real estate includes both formally foreclosed property and
in-substance foreclosed property. In-substance foreclosed properties are those
properties for which the institution has taken physical possession, regardless
of whether formal foreclosure proceedings have taken place.
At the time of foreclosure, foreclosed real estate is recorded at the
lower of the Bank's cost or the asset's fair value, less costs to sell, which
becomes the property's new basis. Any write-downs based on the asset's fair
value at date of acquisition are charged to the allowance for loan losses. After
foreclosure, these assets are carried at the lower of their new cost basis or
fair value less cost to sell. Costs incurred in maintaining foreclosed real
estate and subsequent write-downs to reflect declines in the fair value of the
property are included in income (loss) on foreclosed real estate.
INCOME TAXES
Income taxes are provided for the tax effects of the transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of
available-for-sale securities, allowance for loan losses, accumulated
depreciation, and accrued employee benefits for financial and income tax
reporting. The deferred tax assets and liabilities represent the future tax
return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
PENSION COSTS
Pension costs are charged to salaries and employee benefits expense and
are funded as accrued.
STATEMENTS OF CASH FLOWS
The Bank considers all cash and amounts due from depository
institutions, interest-bearing deposits in other banks, and federal funds sold
to be cash equivalents for purposes of the statements of cash flows.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statement of financial condition. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by
F-7
<PAGE> 95
comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instruments. Statement No. 107 excluded certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Bank.
The following methods and assumptions were used by the Bank in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
statement of financial condition for cash and cash equivalents
approximate those assets' fair values.
Investment securities: Fair values for investment securities are based
on quoted market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices of
comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
amounts. The fair values for other loans (for example, fixed rate
commercial real estate and rental property mortgage loans and
commercial and industrial loans) are estimated using discounted cash
flow analysis, based on interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. Loan
fair value estimates include judgments regarding future expected loss
experience and risk characteristics. The carrying amount of accrued
interest receivable approximates its fair value.
Deposits: The fair values disclosed for demand deposits (for example,
interest-bearing checking accounts and passbook accounts) are, by
definition, equal to the amount payable on demand at the reporting date
(that is, their carrying amounts). The fair values for certificates of
deposit are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a
schedule of aggregated contractual maturities on such time deposits.
The carrying amount of accrued interest payable approximates fair
value.
Short-term borrowings: The carrying amounts of short-term borrowings
approximate their fair values.
RECLASSIFICATIONS
Certain amounts in 1994 have been reclassified to conform with the 1995
presentation.
NOTE B - INVESTMENT SECURITIES
Securities held-to-maturity consist of the following:
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1995 December 31, 1994
----------------- -----------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
---- ----- ------ ----- ---- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
State &
local
governments $499 $ 0 $ (18) $ 481 $2,186 $ 16 $ (78) $2,124
==== === ======= ====== ====== ===== ======= ======
</TABLE>
F-8
<PAGE> 96
Securities available-for-sale consist of the following:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------- -----------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
---- ----- ------ ----- ---- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.
government
& federal
agencies $17,089 $ 139 $ (68) $17,160 $21,374 $ 5 $(1,456) $19,923
State &
local
governments 5,931 148 (60) 6,019 3,903 30 (207) 3,726
Federal Reserve
Bank stock 84 0 0 84 84 0 0 84
------- ------ ------ ------- ------- ----- ------- -------
$23,104 $ 287 $ (128) $23,263 $25,361 $ 35 $(1,663) $23,733
======= ====== ====== ======= ======= ===== ======= =======
</TABLE>
The following is a summary of maturities of securities held-to-maturity
and available-for-sale as of December 31, 1995:
<TABLE>
<CAPTION>
(Dollars in thousands)
Securities held-to-maturity Securities available-for-sale
--------------------------- -----------------------------
AMOUNTS MATURING IN: Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
One year or less $ 17 $ 17 $ 296 $ 300
After one year through five years 88 87 5,088 5,204
After five years through ten years 394 377 4,587 4,651
After ten years 0 0 13,049 13,024
Federal Reserve stock 0 0 84 84
------ ------ --------- ---------
$ 499 $ 481 $ 23,104 $ 23,263
====== ====== ========= =========
</TABLE>
During 1995, the Bank sold securities available-for-sale for total
proceeds of approximately $7,691,000 resulting in gross realized gains of
approximately $35,000 and gross realized losses of approximately $21,000. During
1994, the Bank sold securities available-for-sale for total proceeds of
approximately $8,370,000, resulting in gross realized gains of approximately
$77,000 and no gross realized losses. During 1993, the Bank sold securities for
total proceeds of approximately $8,226,000 resulting in gross realized gains of
approximately $94,000 and no gross realized losses.
In 1995, debt securities with an amortized cost of $1,345,000 were
transferred from held-to-maturity to available-for-sale because of favorable tax
treatment on available-for-sale securities and to improve the Bank's asset
liability management position. The securities had an unrealized gain of
approximately $12,000. There were no securities transferred between
classifications during 1994, other than to adopt SFAS No. 115 on January 1,
1994.
F-9
<PAGE> 97
NOTE C - LOANS
Loans at December 31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1995 1994
---- ----
<S> <C> <C>
Commercial $ 4,533 $ 4,618
Real estate construction 1,338 638
Commercial real estate 5,421 2,797
Residential real estate 30,070 28,301
Consumer 4,989 3,686
-------- -------
46,351 40,040
------- -------
Allowance for loan losses (612) (532)
Unearned discounts (3) (3)
Net deferred loan origination fees (230) (205)
--------- ----------
Total $45,506 $39,300
======= =======
</TABLE>
An analysis of the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 532 $ 439 $ 353
Provision for losses 84 96 137
Loans charged off, net (4) (3) (51)
----- ----- -----
Balance, end of year $ 612 $ 532 $ 439
===== ===== =====
</TABLE>
In accordance with adopting SFAS No. 114 on January 1, 1995, at
December 31, 1995 the Bank had loans amounting to approximately $246,000 that
were specifically classified as impaired. The average balance of these loans
amounted to approximately $219,000 for the year ended December 31, 1995. The
allowance for loan losses related to impaired loans amounted to approximately
$100,000 at December 31, 1995. The following is a summary of cash receipts on
these loans and how they were applied in 1995.
<TABLE>
<CAPTION>
(Dollars in thousands)
1995
----
<S> <C>
Cash receipts applied to reduce
principal balance $ 4
Cash receipts recognized as
interest income 2
Total cash receipts $ 6
====
</TABLE>
In addition at December 31, 1995, 1994 and 1993, the Bank had other
nonaccrual loans of approximately $219,000, $330,000 and $583,000, respectively,
for which impairment had not been recognized. If interest on these loans had
been recognized at the original interest rates, interest income
F-10
<PAGE> 98
would have increased approximately $13,000 and $19,000 in 1995 and 1994,
respectively, and reduced interest income approximately $28,000 in 1993.
The Bank has no commitments to loan additional funds to the borrowers
of impaired or nonaccrual loans.
In the ordinary course of business, the Bank has and expects to
continue to have transactions, including borrowings, with its officers,
directors, stockholders, and their affiliates. In the opinion of management,
such transactions were on substantially the same terms, including interest rates
and collateral, as those prevailing at the time of comparable transactions with
other persons and did not involve more than a normal risk of collectibility or
present any other unfavorable features to the Bank. Loans to such borrowers,
which at December 31, 1995, are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Balance, beginning of year $ 494
New loans 40
Payments (106)
-----
Balance, end of year $ 428
=====
</TABLE>
NOTE D - PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1995 and 1994
follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1995 1994
---- ----
<S> <C> <C>
Land $ 336 $ 336
Bank premises 1,004 1,133
Furniture and equipment 1,413 1,331
------ ------
Total cost 2,753 2,800
Accumulated depreciation (975) (915)
------ ------
Total $1,778 $1,885
====== ======
</TABLE>
The Bank leases a van under an operating lease expiring in the year
1997.
Minimum future rental payments under the non-cancelable operating lease
having a remaining term in excess of one year as of December 31, 1995 for each
of the next two years, are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
1996 $ 3
1997 1
---
Total minimum future rental payments $ 4
===
</TABLE>
F-11
<PAGE> 99
NOTE E - DEPOSITS
Deposit account balances at December 31, 1995 and 1994, are summarized
as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1995 1994
---- ----
Amount % Amount %
------- ----- ------- -----
<S> <C> <C> <C> <C>
Non-interest bearing checking accounts $ 5,680 8.2% $ 5,115 8.0%
Interest-bearing checking accounts 9,876 14.3 9,881 15.6
Passbook savings account 23,788 34.4 25,640 40.3
Certificates of deposit 29,808 43.1 23,047 36.1
------- ----- ------- -----
$69,152 100.0% $63,683 100.0%
======= ===== ======= =====
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit with
a minimum denomination of $100,000 was approximately $4,228,000, and $2,615,000
at December 31, 1995, and 1994, respectively. Interest expense on certificates
of deposit with a minimum denomination of $100,000 was approximately $120,000,
$75,000 and $106,000 in 1995, 1994 and 1993, respectively.
NOTE F - SHORT-TERM BORROWINGS
Securities sold under agreements to repurchase generally mature within
one to fourteen days from the transaction date. The weighted-average interest
rates of securities sold under agreement to repurchase were 4.88% and 5.72% at
December 31, 1995 and 1994, respectively.
NOTE G - FEDERAL INCOME TAXES
The provision for income taxes for 1995, 1994 and 1993 consists of the
following:
<TABLE>
<CAPTION>
(Dollars in thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current federal tax expense $ 239 $ 235 $ 247
Deferred federal tax expense (28) (25) (23)
----- ----- -----
$ 211 $ 210 $ 224
===== ===== =====
</TABLE>
F-12
<PAGE> 100
The provision for federal income taxes differs from that computed by
applying federal statutory rates to income before federal income tax expense, as
indicated in the following analysis:
<TABLE>
<CAPTION>
(Dollars in thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Expected tax provision at a 34% rate $ 314 $ 315 $ 317
Effect of tax-exempt income (118) (119) (117)
Interest and other nondeductible expenses 21 13 11
Increase (decrease) in deferred tax asset
valuation allowance (11) 11 0
Other 5 (10) 13
----- ----- -----
$ 211 $ 210 $ 224
===== ===== =====
</TABLE>
Deferred tax assets have been provided for deductible temporary
differences related to the allowance for loan loss, net deferred loan fees,
nonaccrual loans, and unrealized losses on available-for-sale securities.
Deferred tax liabilities have been provided for taxable temporary differences
related to accumulated depreciation and unrealized gains on available-for-sale
securities. The net deferred tax assets in the accompanying balance sheets
include the following components:
<TABLE>
<CAPTION>
(Dollars in thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets $ 284 $ 816 $ 243
Deferred tax liabilities (141) (83) (95)
Deferred tax asset valuation allowance 0 (11) 0
----- ----- -----
Net deferred tax assets $ 143 $ 722 $ 148
===== ===== =====
</TABLE>
NOTE H - REGULATORY MATTERS
The Bank, as a State Bank is subject to the dividend restrictions set
forth by the State Division of Financial Institutions. Under such restrictions,
the Bank may not, without the prior approval of the Division of Financial
Institutions, declare dividends in excess of the sum of the current year's
earnings (as defined) plus the retained earnings (as defined) from the prior two
years. The dividends as of December 31, 1995, that the Bank could declare,
without the approval of the State Division of Financial Institutions, amounted
to approximately $1,794,000. The Bank is also required to maintain minimum
amounts of capital to total "risk weighted" assets, as defined by the banking
regulators. At December 31, 1995, the Bank is required to have minimum Tier 1
and Total capital ratios of 4.00% and 8.00%, respectively. The Bank's actual
ratios at that date were 19.32% and 20.58%, respectively. The Bank's leverage
ratio at December 31, 1995, was 9.08%.
NOTE I - EMPLOYEE BENEFITS
The Bank sponsors a defined benefit pension plan that covers all
employees with six or more months of service, and have attained the age of 20
1/2, and who have 1,000 hours of service in a plan year. The plan calls for
benefits to be paid to eligible employees, after retirement, based primarily
upon years of service with the Bank and compensation rates near retirement.
Contributions to the plan reflect benefits attributed to the employee's services
to date.
F-13
<PAGE> 101
Plan assets consist exclusively of insurance annuity contracts. Payment
of retirement benefits is funded solely through these annuity contracts. The
Bank has no rights whatsoever to any of the investments or income of the Plan.
In July 1993 the Bank approved a 401K employer/employee contribution
plan.
The 401K plan provides for the Bank to match each employee's
contribution up to a maximum of 25% of the employees contribution. The
employee's contribution is limited to 6% of the employee's gross salary.
The pension expense for the years 1995 and 1994 includes the following:
<TABLE>
<CAPTION>
(Dollars in thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Defined benefit $45 $36 $27
401K plan 9 3 0
--- --- ---
Total $54 $39 $27
=== === ===
</TABLE>
NOTE J - COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements. The principal commitments of the Bank are as
follows:
The Bank had outstanding commitments at December 31, 1995:
<TABLE>
<S> <C>
Commitments to extend credit $ 560
Unused construction lines 581
------
Total $1,141
======
</TABLE>
Commitments under standby letters of credit totalled approximately
$70,000 at December 31, 1995 (see NOTE K).
In addition, the Bank is periodically a defendant in various legal
proceedings arising in connection with its business. It is the best judgment of
management that neither the financial position nor results of operations of the
Bank will be materially affected by the final outcome of these legal
proceedings.
At December 31, 1995, the Bank had an unused line of credit with three
banks. The line totals $2,000,000, has a variable interest rate based on the
lending bank's daily federal funds rate, and is due on demand.
NOTE K - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts recognized in
the statements of financial condition.
F-14
<PAGE> 102
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instruments for commitments to extend credit
and standby letters of credit is represented by the contractual notional amount
of those instruments (see NOTE J). The Bank uses the same credit policies in
making commitments and conditional obligations as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount and type of collateral
obtained, if deemed necessary by the Bank upon extension of credit, varies and
is based on management's credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. Standby
letters of credit generally have fixed expiration dates or other termination
clauses and may require payment of a fee. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Bank's policy for obtaining collateral, and the
nature of such collateral, is essentially the same as that involved in making
commitments to extend credit.
The Bank has due from bank balances in excess of $100,000 with the
following financial institution as of December 31, 1995:
(Dollars in thousands)
National City Bank $2,506
NOTE L - FAIR VALUES OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
1995
----
Carrying Fair
Amount Value
-------- -----
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 5,106 $ 5,106
Investment securities 23,762 23,744
Loans, net of allowance 45,506 45,541
Financial liabilities:
Deposits 69,152 69,030
Borrowings 480 480
</TABLE>
The carrying amounts in the preceding table are included in the
statement of financial condition under the applicable captions.
NOTE M - STOCK SPLIT
On February 12, 1994, the Shareholders of Directors authorized a
4-for-1 stock split, thereby increasing the number of issued and outstanding
shares to 280,000 and decreasing the par value of each share to $5.00.
F-15
<PAGE> 103
NOTE N - OTHER INCOME AND EXPENSES
<TABLE>
<CAPTION>
(Dollars in thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Other Income
Gain from sale of loans $ 18 $ 0 $ 0
Other income 62 48 60
---- ---- ----
Total Other Income $ 80 $ 48 $ 60
==== ==== ====
Other Expenses
Advertising $ 65 $ 59 $ 59
Supplies 102 80 59
FDIC assessment 74 138 130
Franchise tax 72 89 83
Other expense 401 378 358
---- ---- ----
Total Other Expenses $714 $744 $689
==== ==== ====
</TABLE>
NOTE O - QUARTERLY INFORMATION
The following is a summary of quarterly financial data:
<TABLE>
<CAPTION>
Quarter Ended
Dec. 31 Sept. 30 June 30 March 31
-----------------------------------------
<S> <C> <C> <C> <C>
1995:
Interest income $1,423 $1,336 $1,303 $1,261
Net interest income 751 695 685 684
Provision for loan losses 21 21 21 21
Net income 233 181 158 141
Earnings per common share .84 .65 .56 .50
1994:
Interest income $1,251 $1,205 $1,197 $1,181
Net interest income 685 679 688 682
Provision for loan losses 24 24 24 24
Net income 150 155 185 226
Earnings per common share .54 .55 .66 .81
</TABLE>
F-16
<PAGE> 104
THE NAVARRE DEPOSIT BANK COMPANY
NAVARRE, OHIO
BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents
Cash and amounts due from depository institutions $ 2,482 $ 3,766
Federal funds sold 0 1,340
------- -------
Total cash and cash equivalents 2,482 5,106
Investment securities
Securities held-to-maturity (fair value of $471 and $481) 482 499
Securities available-for-sale, at fair value 24,474 23,263
Loans, net of allowance for loan loss of $651 and $585 48,219 45,506
Accrued interest receivable 546 452
Premises and equipment, net 1,691 1,778
Deferred income taxes 320 143
Other assets 217 134
------- -------
TOTAL ASSETS $78,431 $76,881
======= =======
LIABILITIES
Deposits $69,787 $69,152
Securities sold under agreements to repurchase
and federal funds purchased 1,385 480
Accrued interest payable 101 98
Other liabilities 104 66
------- -------
TOTAL LIABILITIES 71,377 69,796
SHAREHOLDERS' EQUITY
Common stock of $5 par value; 280,000 shares
authorized, issued, and outstanding 1,400 1,400
Additional paid-in capital 1,400 1,400
Retained Earnings 4,503 4,180
Unrealized gain (loss) on securities available-for-sale,
net of applicable deferred income taxes (249) 105
------- -------
TOTAL SHAREHOLDERS' EQUITY 7,054 7,085
======= =======
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $78,431 $76,881
======= =======
</TABLE>
See attached footnotes.
F-17
<PAGE> 105
THE NAVARRE DEPOSIT BANK COMPANY
NAVARRE, OHIO
STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 1,074 $ 909 $ 2,093 $ 1,768
Interest on taxable investment securities 294 291 579 602
Interest on tax-free investment securities 87 87 172 170
Interest on federal funds sold 42 16 51 24
------- ------- ------- -------
TOTAL INTEREST INCOME 1,464 1,303 2,895 2,564
------- ------- ------- -------
INTEREST EXPENSE
Interest on interest-bearing checking accounts 64 73 132 146
Interest on savings accounts 172 177 352 364
Interest on certificates of deposits 386 351 778 638
Interest on short term borrowed funds 15 17 27 47
------- ------- ------- -------
TOTAL INTEREST EXPENSE 637 618 1,289 1,195
------- ------- ------- -------
NET INTEREST INCOME 827 685 1,606 1,369
Provision for loan losses 33 21 66 42
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 794 664 1,540 1,327
OTHER INCOME
Service charges on deposit accounts 60 51 115 101
Loss on sale of investment securities, net (19) (9) (19) (17)
Other 17 35 39 48
------- ------- ------- -------
TOTAL OTHER INCOME 58 77 135 132
------- ------- ------- -------
OTHER EXPENSES
Salaries and employee benefits 290 271 558 541
Net occupancy expense 104 57 186 140
Other operating expenses 190 210 353 398
------- ------- ------- -------
TOTAL OTHER EXPENSES 584 538 1,097 1,079
------- ------- ------- -------
INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 268 203 578 380
Federal income tax expense 64 45 143 81
------- ------- ------- -------
NET INCOME $ 204 $ 158 $ 435 $ 299
======= ======= ======= =======
</TABLE>
See attached notes.
F-18
<PAGE> 106
THE NAVARRE DEPOSIT BANK COMPANY
CONDENSED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------
1996 1995
---- ----
<S> <C> <C>
Balances at January 1, $ 7,085 $ 5,403
Net income 435 299
Cash dividends declared ($.40 in 1996 and $.30 in 1995) (112) (84)
Change in unrealized gain (loss) on
securities available-for-sale (354) 1,109
------- -------
Balances at June 30, $ 7,054 $ 6,727
======= =======
</TABLE>
See attached footnotes.
F-19
<PAGE> 107
THE NAVARRE DEPOSIT BANK CO.
NAVARRE, OHIO
STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in thousands)
Six months ended June 30,
-------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 435 $ 299
Adjustments to reconcile net income to net cash
provided by operating activities:
Premium amortization net of discount accretion 15 21
Provision for loan losses 66 42
Loss from sales of investment securities, net 19 17
Gain on sales of loans 0 (18)
Depreciation 112 81
Deferred income taxes 5 0
Changes in operating assets and liabilities:
(Increase) in accrued interest receivable (94) (36)
(Increase) in other assets (83) (36)
Increase in accrued interest payable 3 11
Increase (decrease) in other liabilities 38 (52)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 516 329
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of held-to-maturity securities 0 (179)
Proceeds from maturities of held-to-maturity securities 17 47
Purchases of available-for-sale securities (5,801) (1,858)
Proceeds from sales of available-for-sale securities 2,640 3,207
Proceeds from maturities of available-for-sale securities 1,380 69
Proceeds from sale of loans 0 818
Net change in loans (2,779) (3,155)
Purchases of premises and equipment (25) (21)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (4,568) (1,072)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits 635 1,920
Net change in borrowed funds 905 (1,240)
Dividends paid (112) (84)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,428 596
------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS (2,624) (147)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,106 3,129
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,482 $ 2,982
======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for interest $ 1,286 $ 1,184
Cash paid during the period for income taxes 117 106
Total change in unrealized gain (losses)
on securities available-for-sale (536) 1,681
</TABLE>
See attached footnotes.
F-20
<PAGE> 108
THE NAVARRE DEPOSIT BANK COMPANY
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit and reflect all
adjustments which, in the opinion of management, are necessary to present fairly
the financial position of the Navarre Deposit Bank Company ("Navarre") at June
30, 1996 and its results of operations and cash flows for the periods presented.
All such adjustments are of a normal recurring nature. The financial statements
do not purport to contain all the necessary financial disclosures required by
generally accepted accounting principles that might otherwise be necessary in
the circumstances and should be read in conjunction with the December 31, 1995
audited financial statements.
The provision from income taxes is based upon the effective tax rate expected
to be applicable for the entire year.
For the six months ended June 30, 1996, Navarre had no transfers from loans
to other real estate owned.
Earnings per share are calculated on the basis of the weighted average number
of shares outstanding. The weighted average number of shares used in the
computation for both 1996 and 1995 was 280,000.
NOTE 2 - INVESTMENT SECURITIES
Securities held-to-maturity consist of the following:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, 1996 December 31, 1995
--------------------------------------------- ------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
--------- ---------- ---------- ----- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
State & local
governments $482 $ 0 $(11) $471 $499 $ 0 $(18) $481
==== === ===== ==== ==== === ===== ====
</TABLE>
F-21
<PAGE> 109
THE NAVARRE DEPOSIT BANK COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
Securities available-for-sale consist of the following:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, 1996 December 31, 1995
--------------------------------------------- ------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
--------- ---------- ---------- ----- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.
governments &
federal agencies $18,624 $16 $(362) $18,278 $17,089 $139 $(68) $17,160
State & local
governments 6,143 81 (112) 6,112 5,931 148 (60) 6,019
Federal Reserve
Bank stock 84 0 0 84 84 0 0 84
--------- ---- ------- --------- --------- ----- ------- ---------
$24,851 $97 $(474) $24,474 $23,104 $287 $(128) $23,263
======= === ====== ======= ======= ==== ====== =======
</TABLE>
F-22
<PAGE> 110
THE NAVARRE DEPOSIT BANK COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
The following is a summary of maturities of securities held-to-maturity
and available-for-sale as of June 30, 1996:
<TABLE>
<CAPTION>
(Dollars in thousands)
Securities held-to-maturity Securities available-for-sale
--------------------------- -----------------------------
AMOUNTS MATURING IN:
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
<S> <C> <C> <C> <C>
One year or less $ 17 $ 17 $ 301 $ 303
After one year through five years 88 88 8,126 8,102
After five years through ten years 377 366 3,046 2,994
After ten years 0 0 13,294 12,991
Federal Reserve Bank stock 0 0 84 84
---- ------- ------- -------
$482 $ 471 $24,851 $24,474
==== ======= ======= =======
</TABLE>
For the quarter and six months ended June 30,1996, Navarre sold
securities available-for-sale for total proceeds of $2,640,000 resulting in
gross realized gains of $1,000 and gross realized losses of $20,000. During the
first quarter of 1995, Navarre sold securities available-for-sale for total
proceeds of $2,572,000 resulting in no gross realized gains and gross realized
losses of $8,000. During the second quarter of 1995, Navarre sold securities
available-for-sale for total proceeds of $635,000, resulting in no gross
realized gains and gross realized losses of $9,000.
F-23
<PAGE> 111
THE NAVARRE DEPOSIT BANK COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
NOTE 3 - LOANS
Loans at June 30, 1996 and December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C> <C>
Commercial $ 4,507 $ 4,533
Real estate construction 1,262 1,338
Commercial real estate 6,191 5,421
Residential real estate 31,555 30,070
Consumer 5,539 4,989
-------- --------
49,054 46,351
-------- --------
Allowance for loan losses (651) (612)
Unearned discounts (3) (3)
Net deferred loan origination fees (181) (230)
-------- --------
Total $ 48,219 $ 45,506
======== ========
</TABLE>
An analysis of the allowance for loan losses for the six months ending
June 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995
---- ----
<S> <C> <C> <C>
Balance at January 1 $ 612 $532
Provision for losses 66 42
Loans charged off, net (27) 11
----- ----
Balance at June 30 $ 651 $585
===== ====
</TABLE>
Nonaccrual and past due loans:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, Dec. 31,
1996 1995
-------- --------
<S> <C> <C>
Loans accounted for on
a nonaccrual basis $205 $304
Loans past due more than 90 days
and still accruing interest 180 85
---- ----
$385 $389
==== ====
</TABLE>
F-24
<PAGE> 112
THE NAVARRE DEPOSIT BANK COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
Impaired Loan Period - End Information
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, Dec. 31,
1996 1995
-------- --------
<S> <C> <C>
Balance of impaired loans $165 $246
Specific allocation associated with impaired loans 148 78
</TABLE>
In addition, for both the six month periods ended June 30, 1996 and
1995, the amount of interest income recognized and received on impaired loans
totaled approximately $1,000.
NOTE 4 - CONCENTRATIONS OF CREDIT RISK
Navarre's major lending products include residential, consumer, and
commercial loans to customers located primarily in the Navarre area.
Real estate mortgage loans, including construction loans, totaled
$32,030,000 of loans at June 30, 1996, and are secured primarily by 1 - 4 family
residences.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Navarre is party to financial instruments which involve off-balance
sheet risk. These instruments are entered into in the normal course of business
to meet the financing needs of their customers. These financial instruments
include commitments to make loans. There were $2,601,000 in such commitments at
June 30, 1996.
The exposure to credit loss in the event of nonperformance by the
financial instrument for commitment to make loans and letters of credit is
represented by the contractual amount of those instruments. Navarre follows the
same credit policy to make such commitments as is followed for those loans
recorded in the financial statements. In management's opinion these commitments
represent normal banking transactions and no material losses are expected to
result therefrom. Collateral obtained upon exercise of the commitments is
determined using management's credit evaluation of the borrower.
Navarre is periodically involved in various legal proceedings in the
ordinary course of business. In the opinion of management, the outcome of these
matters will not have a material effect on Navarre.
F-25
<PAGE> 113
THE NAVARRE DEPOSIT BANK COMPANY
Notes to financial statements (unaudited)-continued
NOTE 6 - ACQUISITION
On April 4, 1996, the Navarre Deposit Bank Company and Citizens
Bancshares, Inc. ("Bancshares") entered into a plan and agreement of merger. The
transaction is structured as a tax-free exchange of stock and will be accounted
for using the pooling-of-interests method of accounting. The exchange ratio at
which Navarre will be exchanged for Bancshares common shares will be based on
the average of the Nasdaq National Market closing prices for the twenty trading
days immediately preceding the tenth day prior to the consummation of the
merger. In no event will the exchange ratio be greater than 2.10 or less than
1.70. The Bancshares common shares to be issued to the Navarre shareholders will
be registered with the Securities and Exchange Commission. The merger is
expected to be consummated during the fourth quarter of 1996 and is subject to
approvals by various regulatory authorities and by the shareholders of Navarre.
F-26
<PAGE> 114
APPENDIX A
PLAN AND AGREEMENT OF MERGER
DATED AS OF APRIL 4, 1996
BETWEEN AND AMONG
THE NAVARRE DEPOSIT BANK COMPANY
AND
CITIZENS BANCSHARES, INC.
AND
THE CITIZENS BANKING COMPANY
<PAGE> 115
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS................................................................................................... 1
2. THE MERGER.................................................................................................... 8
2.1. The Merger......................................................................................... 8
2.2. Effective Time..................................................................................... 8
2.3. Effects of Merger.................................................................................. 9
2.4. Articles of Incorporation of Surviving Corporation................................................. 9
2.5. Code of Regulations of the Surviving Corporation................................................... 9
2.6. Directors and Officers............................................................................. 9
2.7. Tax and Accounting Consequences.................................................................... 9
2.8. Further Assurances................................................................................. 10
3. STATUS AND CONVERSION OF SECURITIES........................................................................... 10
3.1. Conversion of Securities........................................................................... 10
3.2. Exchange of Certificates........................................................................... 11
3.3. Fractional Shares.................................................................................. 13
3.4. Dissenting Shares.................................................................................. 13
3.5. No Further Ownership Rights in Navarre Common Stock................................................ 13
4. REPRESENTATIONS AND WARRANTIES OF NAVARRE..................................................................... 13
4.1. Organization And Good Standing..................................................................... 14
4.2. Authority; No Conflict............................................................................. 14
4.3. Capitalization..................................................................................... 15
4.4. Financial Statements............................................................................... 15
4.5. Condition of Assets................................................................................ 16
4.6. Title To Properties; Encumbrances.................................................................. 16
4.7. Insurance of Deposits.............................................................................. 17
4.8. Loans and Investments.............................................................................. 17
4.9. No Undisclosed Liabilities......................................................................... 17
4.10. Taxes............................................................................................. 18
4.11. No Material Adverse Change........................................................................ 19
4.12. Employee Benefits................................................................................. 19
4.13. Compliance With Legal Requirements; Governmental Authorizations................................... 23
4.14. Legal Proceedings; Orders......................................................................... 25
4.15. Absence Of Certain Changes And Events............................................................. 26
4.16. Contracts; No Defaults............................................................................ 27
4.17. Insurance......................................................................................... 29
4.18. Environmental Matters............................................................................. 30
4.19. Labor Laws; Compliance............................................................................ 31
4.20. Certain Payments.................................................................................. 32
</TABLE>
i
<PAGE> 116
<TABLE>
<S> <C>
4.21. Disclosure........................................................................................ 32
4.22. Brokers Or Finders................................................................................ 32
4.23. Navarre Ownership of Stock........................................................................ 33
4.24. Vote Required..................................................................................... 33
5. REPRESENTATIONS AND WARRANTIES OF BANCSHARES.................................................................. 33
5.1. Organization And Good Standing..................................................................... 33
5.2. Authority; No Conflict............................................................................. 33
5.3. Capitalization..................................................................................... 34
5.4. Financial Statements............................................................................... 35
5.5. No Undisclosed Liabilities......................................................................... 35
5.6. Taxes.............................................................................................. 35
5.7. No Material Adverse Change......................................................................... 36
5.8. Employee Plans..................................................................................... 36
5.9. Compliance with Securities Laws.................................................................... 37
5.10. Compliance with Laws; Legal Proceedings........................................................... 37
5.11. Absence Of Certain Changes And Events............................................................. 37
5.12. Environmental Matters............................................................................. 38
5.13. Labor Laws; Compliance............................................................................ 38
5.14. Certain Payments.................................................................................. 39
5.15. Disclosure........................................................................................ 39
5.16. Brokers Or Finders................................................................................ 39
5.17. Bancshares Ownership of Stock..................................................................... 39
6. COVENANTS PRIOR TO CLOSING DATE............................................................................... 40
6.1. Access And Investigation........................................................................... 40
6.2. Operation Of Navarre's Businesses.................................................................. 40
6.3. Negative Covenant.................................................................................. 41
6.4. Required Approvals................................................................................. 41
6.5. Notification....................................................................................... 41
6.6. Acquisition Proposals.............................................................................. 42
6.7. Registration Statement; Proxy Statement-Prospectus................................................. 42
6.8. Director Nominees.................................................................................. 43
6.9. Advisory Board..................................................................................... 43
6.10. Accounting and Tax Treatment...................................................................... 43
6.11. Affiliates Compliance with The Securities Act..................................................... 44
6.12. Directors and Officers Insurance.................................................................. 44
6.13. Takeover Statutes and Provisions.................................................................. 45
6.14. NASD Listing...................................................................................... 45
6.15. Opportunity of Employment; Benefits and Training.................................................. 45
6.16. The Navarre Name.................................................................................. 45
6.17. Navarre Customers................................................................................. 45
6.18. Shareholder Approval.............................................................................. 46
6.19. Dividends......................................................................................... 46
6.20. Environmental Survey.............................................................................. 46
6.21. Large Deposits.................................................................................... 47
</TABLE>
ii
<PAGE> 117
<TABLE>
<S> <C>
6.22. Best Efforts...................................................................................... 47
6.23. Navarre Retirement Plans.......................................................................... 47
7. CONDITIONS PRECEDENT TO BANCSHARES' OBLIGATION TO CLOSE....................................................... 47
7.1. Accuracy Of Representations........................................................................ 47
7.2. Navarre's Performance.............................................................................. 48
7.3. Consents........................................................................................... 48
7.4. Additional Documents............................................................................... 48
7.5. No Proceedings..................................................................................... 48
7.6. No Prohibition..................................................................................... 49
7.7. Registration Statement............................................................................. 49
7.8. Blue Sky Approvals................................................................................. 49
7.9. Bancshares Common Stock Closing Price.............................................................. 49
7.10. Treasury Shares and Dissenters' Rights............................................................ 49
7.11. Board and Shareholder Approval.................................................................... 49
7.12. Accounting Treatment.............................................................................. 50
7.13. Large Deposits.................................................................................... 50
8. CONDITIONS PRECEDENT TO NAVARRE'S OBLIGATION TO CLOSE......................................................... 50
8.1. Accuracy Of Representations........................................................................ 50
8.2. Bancshares' Performance............................................................................ 50
8.3. Consents........................................................................................... 51
8.4. Additional Documents............................................................................... 51
8.5. No Proceedings..................................................................................... 51
8.6. No Prohibition..................................................................................... 51
8.7. Shareholder Approval............................................................................... 52
8.8. Registration Statement............................................................................. 52
8.9. Blue Sky Approvals................................................................................. 52
8.10. Listing........................................................................................... 52
8.11. Tax and Accounting Opinions....................................................................... 52
8.12. Bancshares Common Stock Closing Price............................................................. 53
8.13. Fairness Opinion.................................................................................. 53
9. CLOSING....................................................................................................... 53
9.1. Date and Place..................................................................................... 53
9.2. Deliveries by Navarre.............................................................................. 53
9.3. Deliveries by Bancshares........................................................................... 54
9.4. Effectiveness of Closing........................................................................... 55
10. TERMINATION.................................................................................................. 55
10.1. Termination Events................................................................................ 55
10.2. Effect Of Termination............................................................................. 56
10.3. Liabilities Upon Termination...................................................................... 56
</TABLE>
iii
<PAGE> 118
<TABLE>
<S> <C>
11. GENERAL PROVISIONS........................................................................................... 56
11.1. Expenses.......................................................................................... 56
11.2. Public Announcements.............................................................................. 57
11.3. Confidentiality................................................................................... 57
11.4. Non-Survival of Representations, Warranties....................................................... 57
11.5. Notices........................................................................................... 58
11.6. Jurisdiction; Service Of Process.................................................................. 58
11.7. Further Assurances................................................................................ 59
11.8. Waiver............................................................................................ 59
11.9. Entire Agreement And Modification................................................................. 59
11.10. Disclosure Letters............................................................................... 59
11.11. Assignments, Successors, And No Third-Party Rights............................................... 60
11.12. Severability..................................................................................... 60
11.13. Section Headings, Construction................................................................... 61
11.14. Certain Obligations of Bancshares................................................................ 61
11.15. Governing Law.................................................................................... 61
11.16. Counterparts..................................................................................... 61
</TABLE>
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PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER (this "Agreement"), dated as of April
4, 1996, is by and among Citizens Bancshares, Inc., an Ohio corporation
("Bancshares"), The Citizens Banking Company, an Ohio corporation and
wholly-owned subsidiary of Bancshares ("Citizens"), and The Navarre Deposit Bank
Company, an Ohio corporation ("Navarre").
W I T N E S S E T H :
WHEREAS, the parties hereto intend to effect the merger ("Merger") of
Navarre with and into Citizens with Citizens being the corporation surviving the
Merger, in accordance with the provisions of the Ohio General Corporation Law as
set forth in Chapter 1701 and the Bank Reorganization Law as set forth in
Chapter 1121 of the Ohio Revised Code ("ORC"); and
WHEREAS, the parties hereto intend for the Merger to qualify as a
tax-free "reorganization" within the meaning of Section 368(a) of the IRC and to
be accounted for as a pooling-of-interests; and
WHEREAS, the respective Boards of Directors of Bancshares, Citizens and
Navarre have determined that this Agreement is desirable and in the best
interests of Bancshares, Citizens and Navarre, as the case may be, and their
respective shareholders, and have each duly approved this Agreement upon the
terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"APPLICABLE CONTRACT"--any Contract (a) under which Bancshares or Navarre has
or may acquire any rights, (b) under which Bancshares or Navarre has or may
become subject to any obligation or liability, or (c) by which Bancshares or
Navarre or any of the assets owned or used by them is or may become bound.
"AVERAGE CLOSING PRICE" -- the arithmetic mean of the Nasdaq National Market
Closing Prices for the twenty (20) trading days immediately preceding the tenth
(10th) trading day prior to the Closing Date.
"BALANCE SHEET" AND "BANCSHARES BALANCE SHEET"--as defined in Sections 4.4 and
5.4 respectively.
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"BEST EFFORTS"--the efforts that a prudent Person desirous of achieving a result
would use in similar circumstances to ensure that such result is achieved as
expeditiously as possible; provided, however, that an obligation to use Best
Efforts under this Agreement does not require the Person subject to that
obligation to take actions that would result in a materially adverse change in
the benefits to such Person of this Agreement and the Contemplated Transactions.
"BREACH"--a "Breach" of a representation, warranty, covenant, obligation, or
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"CLOSING"--as defined in Section 9.1.
"CLOSING DATE"--the date and time as of which the Closing actually takes place.
"CLOSING PRICE" -- the price per share of the last sale of Bancshares Common
Shares reported on the Nasdaq National Market at the close of the trading day by
the National Association of Securities Dealers, Inc.
"CONSENT"--any approval, consent, ratification, waiver, or other authorization
(including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by this
Agreement, including:
(a) the Merger of Navarre into Citizens;
(b) the performance by Navarre and Bancshares of their respective covenants
and obligations under this Agreement; and
(c) the issuance of the Bancshares Common Shares to the Navarre
shareholders pursuant to the Merger.
"CONTRACT"--any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"DISCLOSURE LETTERS"--the disclosure letters delivered concurrently with the
execution and delivery of this Agreement.
"ENCUMBRANCE"--any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any
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restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
"ENVIRONMENT"--soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"--any cost, damages, expense,
liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions (including
on-site or off- site contamination, occupational safety and health, and
regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and
response, investigative, remedial, or inspection costs and expenses and
related attorney fees arising under Environmental Law or Occupational
Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational Safety
and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or
response actions ("Cleanup") required by applicable Environmental Law
or Occupational Safety and Health Law (whether or not such Cleanup has
been required or requested by any Governmental Body or any other
Person) and for any natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial measures
required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the
types of activities covered by the United States Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as
amended ("CERCLA").
"ENVIRONMENTAL LAW"--any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of intended
or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or
construction, that could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of pollutants
or hazardous substances or materials into the Environment;
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(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and used so
that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the transportation
of hazardous substances, pollutants, oil, or other potentially harmful
substances;
(g) cleaning up pollutants that have been released, preventing the threat
of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment, or permitting self-
appointed representatives of the public interest to recover for
injuries done to public assets.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any successor
law, and regulations and rules issued pursuant to that Act or any successor law.
"FACILITIES"--any real property, leaseholds, or other interests (other than
interests as a mortgagee) currently or formerly owned or operated by Navarre or
Bancshares, as the context requires, and any buildings, plants, structures, or
equipment (including motor vehicles) currently or formerly owned or operated by
Navarre or Bancshares, as the context requires, other than real estate or
personal property owned through foreclosure or deed in lieu of foreclosure.
"GAAP"--generally accepted accounting principles, applied on a basis consistent
with the basis on which the Balance Sheet, the Bancshares Balance Sheet and the
other financial statements referred to in Sections 4.4 and 5.4 were prepared.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit, waiver, or
other authorization issued, granted, given, or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement.
"GOVERNMENTAL BODY"--any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature (including
any governmental agency, branch, department, official, or entity and
any court or other tribunal);
(d) multi-national organization or body; or
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(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.
"HAZARDOUS ACTIVITY"--the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other
use of groundwater) of Hazardous Materials in, on, under, about, or from the
Facilities or any part thereof into the Environment, and any other act,
business, operation, or thing that increases the danger, or risk of danger, or
poses an unreasonable risk of harm to persons or property on or off the
Facilities, or that may affect the value of the Facilities or Navarre or
Bancshares.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed, defined,
designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"INSTITUTION AFFILIATED PARTY" -- as defined in 12 U.S.C. Section 1813(u).
"IRC"--the Internal Revenue Code of 1986 or any successor law, and regulations
issued by the IRS pursuant to the Internal Revenue Code or any successor law.
"IRS"--the United States Internal Revenue Service or any successor agency, and,
to the extent relevant, the United States Department of the Treasury.
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a particular
fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise become
aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of such
fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, officer, partner, executor, or trustee of
such Person (or in any similar capacity) has, or at any time had, Knowledge of
such fact or other matter.
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
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"OCCUPATIONAL SAFETY AND HEALTH LAW"--any Legal Requirement designed to provide
safe and healthful working conditions and to reduce occupational safety and
health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"ORDER"--any award, decision, injunction, judgment, order, ruling, subpoena, or
verdict entered, issued, made, or rendered by any court, administrative agency,
or other Governmental Body or by any arbitrator, including without limitation
any stipulation, net worth maintenance agreement, capital directive or
memorandum of understanding with any Governmental Body, any "written agreement"
or "condition imposed in writing" within the meaning of 12 U.S.C. Section 1818,
or any Order issued under 12 U.S.C. Section 1818.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be deemed to
have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of
such Person; and
(b) such action is not required to be authorized by the board of directors
of such Person (or by any Person or group of Persons exercising similar
authority) and is not required to be specifically authorized by the
parent company (if any) of such Person; and
(c) such action is similar in nature and magnitude to actions customarily
taken, without any authorization by the board of directors (or by any
Person or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other Persons
that are in the same line of business as such Person.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of incorporation and
the bylaws or code of regulations of a corporation; (b) the partnership
agreement and any statement of partnership of a general partnership; (c) the
limited partnership agreement and the certificate of limited partnership of a
limited partnership; (d) any charter or similar document adopted or filed in
connection with the creation, formation, or organization of a Person; and (e)
any amendment to any of the foregoing.
"PERSON"--any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
"PLAN"--as defined in Section 4.12.
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator, including without limitation any
request by a Governmental Body for consent to any Order.
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"RELATED PERSON"--with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such individual
or one or more members of such individual's Family;
(c) any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a Material Interest; and
(d) any Person with respect to which such individual or one or more members
of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common
control with such specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor, or
trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse and former spouses,
(iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other natural person
who resides with such individual, and (b) "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of voting securities or other voting interests
representing at least 5% of the outstanding voting power of a Person or equity
securities or other equity interests representing at least 5% of the outstanding
equity securities or equity interests in a Person.
"RELEASE"--any spilling, leaking, emitting, discharging, depositing, escaping,
leaching, dumping, or other releasing into the Environment, whether intentional
or unintentional.
"REPRESENTATIVE"--with respect to a particular Person, any director, officer,
employee, agent, consultant, advisor, or other representative of such Person,
including legal counsel, accountants, and financial advisors.
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"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SUBSIDIARY"--with respect to any Person (the "Owner"), any corporation or other
Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of Bancshares.
"TAX RETURN"--any return (including any information return), report, statement,
schedule, notice, form, or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection, or payment of any tax
or in connection with the administration, implementation, or enforcement of or
compliance with any Legal Requirement relating to any tax.
"THREAT OF RELEASE"--a substantial likelihood of a Release that may require
action in order to prevent or mitigate damage to the Environment that may result
from such Release.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter will be
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
2. THE MERGER
2.1. THE MERGER
At the Effective Time (as defined in Section 2.2 hereof), upon the
terms and subject to the conditions set forth in this Agreement, and in
accordance with the provisions of the ORC, Navarre shall be merged with and into
Citizens, whereupon the separate corporate existence of Navarre (except insofar
as it may be continued by applicable law) shall cease and Citizens shall be the
surviving corporation ("Surviving Corporation") in the Merger and shall continue
to be governed by the laws of the State of Ohio.
2.2. EFFECTIVE TIME
As soon as practicable after each of the conditions set forth in
Sections 7 and 8 hereof have been satisfied or waived the parties hereto shall
cause the Merger to be consummated by signing and filing with the Superintendent
of Banks an agreement of merger in accordance with the provisions of
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Section 1121.04 of the ORC and with the Secretary of the State of Ohio a
certificate of merger in accordance with the provisions of Section 1701.81 of
the ORC ("Certificate of Merger"). The Merger shall become effective on the date
and at the time when the Certificate of Merger has been filed with the Secretary
of State of the State of Ohio or at such later date and time specified in the
Certificate of Merger as agreed to by the parties hereto. The date and time at
which the Merger becomes effective is herein referred to as the "Effective
Time."
2.3. EFFECTS OF MERGER
The Merger shall have the effects set forth in Section 1121.06 of the
ORC. Without limiting the generality of the foregoing, and subject thereto, from
and after the Effective Time, the Surviving Corporation shall succeed to,
possess and be vested in all of the properties, rights, privileges, powers and
franchises of Navarre and Citizens, and shall be subject to all of the debts,
liabilities, restrictions, disabilities and duties of Navarre and Citizens.
2.4. ARTICLES OF INCORPORATION OF SURVIVING CORPORATION
The Articles of Incorporation of Citizens, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation of the
Surviving Corporation until amended in accordance with the provisions thereof
and applicable law.
2.5. CODE OF REGULATIONS OF THE SURVIVING CORPORATION
The Code of Regulations of Citizens, as in effect immediately prior to
the Effective Time, shall be the Code of Regulations of the Surviving
Corporation, until amended in accordance with the provisions thereof and
applicable law.
2.6. DIRECTORS AND OFFICERS
The directors and officers of Citizens immediately prior to the
Effective Time shall be the directors and officers, respectively, of the
Surviving Corporation, each to hold office until his respective successor is
duly elected or appointed and qualified in accordance with the provisions of the
Articles of Incorporation and Code of Regulations of the Surviving Corporation
and of applicable law, or until his earlier death, resignation or removal.
2.7. TAX AND ACCOUNTING CONSEQUENCES
The parties hereto intend for the Merger (a) to constitute a tax-free
"reorganization" within the meaning of Section 368(a) of the IRC, and (b) to
qualify for a "pooling-of-interests" in accordance with GAAP.
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2.8. FURTHER ASSURANCES
If, at any time after the Effective Time, any further action is
necessary, convenient or desirable to carry out the purposes of this Agreement
or to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation the full right, title, interest and possession of all assets,
properties, rights, privileges, powers and franchises of Navarre and Citizens or
to otherwise carry out the provisions of this Agreement, the officers and
directors of Navarre and Citizens are fully authorized in the names of and on
behalf of their respective corporations or otherwise to take all such lawful
actions including, without limitation, the execution, delivery and filing of all
deeds, bills of sale, assignments, assurances, and other documents, instruments
and agreements as may be necessary, convenient or desirable to effect the same.
3. STATUS AND CONVERSION OF SECURITIES
3.1. CONVERSION OF SECURITIES
At the Effective Time, by virtue of the Merger and without any action
on the part of Bancshares, Citizens, Navarre or the holder of any of the
following securities:
(a) Navarre Common Stock. Each share of common stock, par value $5.00 per
share, of Navarre ("Navarre Common Stock") issued and outstanding
immediately prior to the Effective Time (other than any Dissenting
Shares) shall be converted, subject to Section 3.2 into the right to
receive duly authorized, validly issued, fully paid and non-assessable
common stock, without par value, of Bancshares ("Bancshares Common
Stock") having an aggregate value of $15,646,000. On a per share basis
for each share of Navarre Common Stock, the merger price equals
$55.8786 per share in Bancshares Common Stock. Subject to the following
limitations, the exchange ratio shall be determined by dividing
$55.8786 by the Average Closing Price (the "Exchange Ratio"). The
number of shares of Bancshares Common Stock issuable to holders of
Navarre Common Shares will adjust based upon changes in the Average
Closing Price; provided, however, that in no event will the Exchange
Ratio with respect to the conversion of Navarre Common Shares be
greater than 2.10 or less than 1.70. All such shares of Navarre Common
Stock shall no longer be outstanding, shall be cancelled and Navarre
shall cease to exist, and certificates previously representing any such
shares shall thereafter represent the right to receive, upon the
surrender of such certificates and in accordance with the provisions of
Section 3.2 certificates representing such number of whole shares of
Bancshares Common Stock into which such Navarre Common Shares were
converted in accordance with the Exchange Ratio. The holders of such
certificates previously evidencing such share of Navarre Common Shares
outstanding immediately prior to the Effective Time shall cease to have
any rights with respect to any shares of Navarre Common Stock except as
otherwise provided herein or by law.
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(b) Navarre Treasury Stock. Each share of Navarre Common Stock held in
Navarre's treasury or owned by Bancshares or any Subsidiary of
Bancshares shall be cancelled and retired without payment of any
consideration therefor and shall cease to exist.
(c) Citizens Common Stock. All shares of Citizens Common Stock issued and
outstanding immediately prior to the Effective Time shall remain issued
and outstanding and shall be unimpaired by the Merger.
(d) Changes in Bancshares Common Shares. If between the date of this
Agreement and the Effective Time, the shares of Bancshares Common Stock
shall be changed into a different number of shares or a different class
or a different type of security by reason of any reclassification,
recapitalization, pro rata rights offering, subdivision, split,
combination or exchange of shares, or if a stock dividend thereon shall
be declared with a record date within such period, the Exchange Ratio
shall be adjusted appropriately to preserve the aggregate consideration
to be exchanged for the shares of Navarre Common Stock.
3.2. EXCHANGE OF CERTIFICATES
(a) Appointment of Exchange Agent. Bancshares shall act as exchange agent
("Exchange Agent") for holders of Navarre Common Stock to effect the
exchange of their shares as provided for herein. At or prior to the
Effective Time, Bancshares shall make available to Bancshares as the
Exchange Agent the shares of Bancshares Common Stock to which holders
of Navarre Common Stock shall be entitled pursuant to Section 3.1
hereof.
(b) Exchange Procedures. At the time the Proxy Statement-Prospectus is
mailed, Bancshares shall mail, to each holder of record of a
certificate ("Old Certificate") which immediately prior to the
Effective Time represented outstanding shares of Navarre Common Stock,
a letter of transmittal mutually acceptable to Bancshares and Navarre
containing instructions for use in effecting the surrender of the Old
Certificates in exchange for certificates representing shares of
Bancshares Common Stock ("New Certificates"). Risk of loss and title to
the Old Certificates shall pass only upon proper delivery of the Old
Certificates and the letter of transmittal to the Exchange Agent. Upon
surrender of an Old Certificate for cancellation to the Exchange Agent,
together with a duly executed letter of transmittal, the holder of such
Old Certificate shall be entitled to receive in exchange therefor one
or more New Certificates, representing the whole number of shares of
Bancshares Common Stock which such holder has the right to receive
pursuant to Section 3.1 hereof, and the Old Certificate so surrendered
shall be cancelled. Until so surrendered, each outstanding Old
Certificate shall be deemed from and after the Effective Time for all
purposes to represent only the right to receive upon such surrender a
New Certificate representing the number of whole shares of Bancshares
Common Stock into which the shares of Navarre Common Stock theretofore
represented by the Old Certificate shall have been converted and cash
in lieu of any fractional shares in accordance with the provisions of
Sections 3.1 and 3.3 hereof.
(c) Special Issuance or Delivery. If any New Certificate is to be issued in
a name or delivered to a person other than the registered holder of the
Old Certificate surrendered in exchange therefor, it
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shall be a condition to such exchange that the Old Certificate shall be
properly endorsed or be otherwise in proper form for transfer and that
the person requesting such exchange shall pay any transfer or other
taxes required as a result of the issuance in a name or delivery to a
person other than the registered holder or shall establish to the
satisfaction of Exchange Agent that such has been paid or is not
applicable.
(d) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions, if any, payable to the holders of record of Bancshares
Common Stock as of any date subsequent to the Effective Time shall be
paid to any holder of any outstanding Old Certificate until the holder
thereof surrenders such Old Certificate as provided herein, subject to
applicable law. Subject to applicable law, following surrender of any
such Old Certificates, there shall be paid to the record holders of the
New Certificates issued in exchange therefor, without interest, at the
time of such surrender, the amount of dividends and other
distributions, if any, with a record date after the Effective Time,
theretofore payable with respect to the shares of Bancshares Common
Stock represented thereby and not previously paid. Subject to
applicable law, no holder of an unsurrendered Old Certificate shall be
entitled, until the surrender of such certificate, to vote the shares
of Bancshares Common Stock into which such holder's Navarre Common
Stock is convertible pursuant to Section 3.1 hereof or to exercise any
of the other rights of a holder of Bancshares Common Stock.
(e) Termination of Exchange Agent; No Liability. Neither Bancshares nor the
Surviving Corporation shall be liable to any holder of Navarre Common
Stock for any shares of Bancshares Common Stock (or dividends or
distributions with respect thereto) properly delivered to a public
official pursuant to any abandoned property, escheat or similar laws.
(f) Lost, Stolen and Destroyed Certificates. In the event any Old
Certificate shall have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming such Old
Certificate to be lost, stolen or destroyed, and, if required by the
Surviving Corporation or the Exchange Agent, the providing of
indemnification by such person or a bond in such reasonable amount as
the Surviving Corporation or Exchange Agent may direct as indemnity
against any claim that may be made against it with respect to the Old
Certificates, the Exchange Agent shall, in exchange for such lost,
stolen or destroyed Old Certificate, issue the shares of Bancshares
Common Stock and cash in lieu of fractional shares (and any dividends
or distributions with respect thereto as provided in (d) above)
deliverable in respect thereof in accordance with the provisions of
Section 3.1 hereof.
(g) No Further Transfers. At and after the Effective Time, the share
transfer books of Navarre shall be closed and there shall be no further
registration of transfers of shares of Navarre Common Stock thereafter
on the stock transfer books of Navarre. If, after the Effective Time,
certificates are presented to the Exchange Agent or the Surviving
Corporation for any reason, they shall be cancelled and exchanged as
provided in this Section 3.
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3.3. FRACTIONAL SHARES
Notwithstanding any provision of Section 3.1 hereof to the contrary, no
fractional shares of Bancshares Common Stock shall be issued pursuant to Section
3.1 hereof, but in lieu thereof, each holder of Navarre Common Stock who, except
for the provisions of this Section 3.3, would be entitled to receive a
fractional share of Bancshares Common Stock shall, upon surrender of the
certificate or certificates representing shares of Navarre Common Stock, be
entitled to receive an amount of cash (rounded to the nearest whole cent),
without interest, equal to the product of such fraction multiplied by the
Average Closing Price of Bancshares Common Stock.
3.4. DISSENTING SHARES
Notwithstanding any provision of Section 3.1 hereof to the contrary,
shares of Navarre Common Stock which are held by holders of such shares who have
not voted in favor of the Merger and who have delivered a written demand for
purchase of such shares in the manner provided in Sections 1121.09 and 1701.85
of the ORC ("Dissenting Shares") shall not be converted into or exchanged for or
represent the right to receive any shares of Bancshares Common Stock, unless
such holder fails to perfect or effectively withdraws or loses such rights to
payment. If, after the Effective Time, such holder fails to perfect or
effectively withdraws or loses such right to payment, then such Dissenting
Shares shall thereupon be deemed to have been converted into and exchanged
pursuant to Section 3.1 hereof, as of the Effective Time, for the right to
receive shares of Bancshares Common Stock issued in the Merger to which the
holder of such shares of Navarre Common Stock is entitled, without any interest
thereon. Navarre and Citizens shall give Bancshares prompt notice of any demands
received for purchase of shares of Navarre Common Stock, and Bancshares shall
have the right to participate in all negotiations and proceedings with respect
to such demands. Navarre shall not, except with the prior written consent of
Bancshares, make any payment with respect to, or settle or offer to settle, any
such demands.
3.5. NO FURTHER OWNERSHIP RIGHTS IN NAVARRE COMMON STOCK
All shares of Bancshares Common Stock issued upon the surrender for
exchange of shares of Navarre Common Stock in accordance with the terms hereof
(including any cash paid in lieu of fractional shares) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Navarre Common Stock, subject, however, to the Surviving Corporation's
obligation to pay any dividends or make any other distributions with the record
date prior to the Effective Time which may have been declared or made by Navarre
on such shares of Navarre Common Stock prior to the date hereof, which remain
unpaid at the Effective Time.
4. REPRESENTATIONS AND WARRANTIES OF NAVARRE
Navarre represents and warrants to Bancshares as follows:
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4.1. Organization And Good Standing
(a) Part 4.1 of the Disclosure Letter contains Navarre's jurisdiction of
incorporation, other jurisdictions in which it is authorized to do
business, and its capitalization (including the identity of each
shareholder and the number of shares held by each). Navarre is a
corporation duly organized, validly existing, and in good standing
under the laws of Ohio, with full corporate power and authority to
conduct its business as it is now being conducted, to own or use the
properties and assets that it purports to own or use, and to perform
all its obligations under Applicable Contracts.
(b) Navarre has delivered to Bancshares copies of its Organizational
Documents, as currently in effect.
4.2. AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
Navarre, enforceable against Navarre in accordance with its terms.
Navarre has the absolute and unrestricted right, power, authority, and
capacity to execute and deliver this Agreement and, subject to the
required approval of the Navarre shareholders and the required approval
of Governmental Bodies, to perform its obligations under this
Agreement.
(b) Except as set forth in Part 4.2 of the Disclosure Letter, neither the
execution and delivery of this Agreement nor the consummation or
performance of any of the Contemplated Transactions will, directly or
indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of Navarre, or (B)
any resolution adopted by the board of directors or the
shareholders of Navarre;
(ii) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to exercise
any remedy or obtain any relief under, any Legal Requirement
or any Order to which Navarre or any of the assets owned or
used by Navarre may be subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Body
the right to revoke, withdraw, suspend, cancel, terminate, or
modify, any Governmental Authorization that is held by Navarre
or that otherwise relates to the business of, or any of the
assets owned or used by Navarre;
(iv) cause Navarre to become subject to, or to become liable for
the payment of, any Tax;
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(v) cause any of the assets owned by Navarre to be reassessed or
revalued by any taxing authority or other Governmental Body;
(vi) contravene, conflict with, or result in a violation or breach
of any provision of, or give any Person the right to declare a
default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or
modify, any Applicable Contract; or
(vii) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by Navarre.
Except for the Board of Governors of the Federal Reserve System, the
FDIC, the Ohio Department of Commerce, Division of Financial Institutions,
Office of Banks and Savings & Loans, the Securities and Exchange Commission and
the Navarre shareholders, Navarre is not or will not be required to give any
notice to or obtain any Consent from any Person in connection with the execution
and delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
4.3. CAPITALIZATION
The authorized equity securities of Navarre consist of 280,000 shares
of common stock, par value $5.00 per share, of which 280,000 shares are issued
and outstanding. All of the outstanding Navarre Common Stock has been duly
authorized and validly issued and is fully paid. There are no Contracts relating
to the issuance, sale, or transfer of any equity securities or other securities
of Navarre. None of the Navarre Common Stock was issued in violation of the
Securities Act or any other Legal Requirement. Navarre does not own, or have any
Contract to acquire, any equity securities or other securities of any Person or
any direct or indirect equity or ownership interest in any other business other
than pledges of securities taken in Navarre's Ordinary Course of Business as a
lender.
4.4. FINANCIAL STATEMENTS
Navarre has delivered to Bancshares: (a) balance sheets of Navarre as
at December 31 in each of the years 1993 and 1994, and the related statements of
income, changes in stockholders' equity, and cash flows for each of the fiscal
years then ended, together with the report thereon of Robb, Dixon, Frances,
Davis, Oneson & Company, independent certified public accountants; (b) a
consolidated balance sheet of Navarre as at December 31, 1995 (including the
notes thereto, the "Balance Sheet"), and the related consolidated statements of
income, changes in stockholders' equity, and cash flow for the fiscal year then
ended, together with the report thereon of Robb, Dixon, Frances, Davis, Oneson &
Company, independent certified public accountants; and (c) financial statements
for the months of January and February 1996 included in Navarre's monthly report
to its directors. Such financial statements and notes fairly present the
financial condition and the results of operations, changes in shareholders'
equity, and cash flow of Navarre
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as at the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP subject, in the case of the monthly
financial statements, to normal recurring year-end adjustments and the absence
of Notes. The financial statements referred to in this Section 4.4 reflect the
consistent application of such accounting principles throughout the periods
involved, except as disclosed in the notes to such financial statements. No
financial statements of any Person other than Navarre are required by GAAP to be
included in the financial statements of Navarre.
4.5. CONDITION OF ASSETS
All of the assets necessary for the conduct of the business (whether
real or personal, owned or leased) of Navarre have been well maintained and are
in normal operating condition, free from defects other than normal wear and tear
and such minor defects as do not interfere with the continued use thereof in the
conduct of normal operations.
4.6. TITLE TO PROPERTIES; ENCUMBRANCES
Part 4.6 of the Disclosure Letter contains a complete and accurate list
of all real property, leaseholds, or other interests therein other than as a
mortgagee or secured party owned by Navarre. Navarre made available to
Bancshares copies of the deeds and other instruments (as recorded) by which
Navarre acquired such real property and interests, and copies of all title
insurance policies, opinions, abstracts, and surveys in the possession of
Navarre and relating to such property or interests. Navarre owns (with good and
marketable title in the case of real property, subject only to the matters
permitted by the following sentence) all the properties and assets (whether
real, personal, or mixed and whether tangible or intangible) that they purport
to own located in the facilities owned or operated by Navarre or reflected as
owned in the books and records of Navarre, including all of the properties and
assets reflected in the Balance Sheet (except for assets held under capitalized
leases disclosed or not required to be disclosed in Part 4.6 of the Disclosure
Letter and personal property sold since the date of the Balance Sheet, as the
case may be, in the Ordinary Course of Business), and all of the properties and
assets purchased or otherwise acquired by Navarre since the date of the Balance
Sheet, which subsequently purchased or acquired properties and assets (other
than short-term investments) are listed in Part 4.6 of the Disclosure Letter.
Each property and asset reflected in the Balance Sheet having a fair market
value of at least $10,000 is free and clear of all Encumbrances and is not, in
the case of real property, subject to any rights of way, building use
restrictions, exceptions, variances, reservations, or limitations of any nature
except, with respect to all such properties and assets, (a) mortgages or
security interests shown on the Balance Sheet as securing specified liabilities
or obligations, with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists, (b) mortgages or
security interests incurred in connection with the purchase of property or
assets (such mortgages and security interests being limited to the property or
assets so acquired), with respect to which no default (or event that, with
notice or lapse of time or both, would constitute a default) exists, (c) liens
for current taxes not yet due, and (d) with respect to real property, (i) minor
imperfections of title, if any, none of
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which is substantial in amount, materially detracts from the value or impairs
the use of the property subject thereto, or impairs the operations of Navarre,
and (ii) zoning laws and other land use restrictions that do not impair the
present or anticipated use of the property subject thereto. All buildings owned
by Navarre lie wholly within the boundaries of the real property owned by
Navarre and do not encroach upon the property of, or otherwise conflict with the
property rights of, any other Person.
4.7. INSURANCE OF DEPOSITS
The deposits of Navarre are insured by the Federal Deposit Insurance
Corporation ("FDIC") in accordance with the Federal Deposit Insurance Act
("FDIA"). Navarre has paid all assessments and filed all reports required under
the FDIA.
4.8. LOANS AND INVESTMENTS
To Navarre's Knowledge, all loans and leases made or purchased by
Navarre that are reflected on the Balance Sheet or on the accounting records of
Navarre as of the Closing Date (collectively, the "Loans") represent or will
represent valid obligations arising from loans actually made or purchased by
Navarre in the Ordinary Course of Business and no loan with a principal balance
in excess of $25,000 is subject to any defense or counterclaim. Unless paid
prior to the Closing Date, the Loans, on an aggregate basis, are collectible net
of the aggregate reserves shown on the Balance Sheet of Navarre as of its date
and the Closing Date, as applicable (which reserves are adequate and calculated
in a manner consistent with past practice.) There is no contest or claim under
any Loan relating to the amount or validity of such Loan which Loans are in the
aggregate material to the business or financial condition of Navarre. Except as
set forth in Part 4.8 of the Disclosure Letter, there are no loans of Navarre,
the present principal balance of which is in excess of $10,000, that have been
classified orally or in writing by internal loan review personnel as "Other
Loans Specifically Mentioned," "Substandard," "Doubtful," or "Loss," as of
December 31, 1995. Except for pledges to secure public and trust deposits, none
of the investments reflected in the Balance Sheet under the heading "Investment
Securities," and none of the investments made by Navarre since December 31,
1995, is subject to any restriction, whether contractual or statutory, which
impairs the ability of Navarre freely to dispose of such investment at any time.
Except as set forth in Part 4.8 of the Disclosure Letter, Navarre is not a party
to any repurchase agreement. Part 4.8 of the Disclosure Letter contains a list
of all securities held by Navarre, delineating whether they are held in the
"available for sale" category, "held to maturity" category or in a trading
account.
4.9. NO UNDISCLOSED LIABILITIES
Except as set forth in Part 4.9 of the Disclosure Letter, Navarre has
no liabilities or obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent,
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or otherwise) except for liabilities or obligations reflected or reserved
against in the Balance Sheet and current liabilities incurred in the Ordinary
Course of Business since the date thereof.
4.10. TAXES
(a) Navarre has filed or caused to be filed (on a timely basis since 1992)
all Tax Returns that are or were required to be filed by it, pursuant
to applicable Legal Requirements. Navarre has made available to
Bancshares copies of, and Part 4.10 of the Disclosure Letter contains a
complete and accurate list of, all such Tax Returns relating to income
or franchise taxes filed since 1992. Navarre has paid, or made
provision for the payment of, all Taxes that have or may have become
due pursuant to those Tax Returns or otherwise, or pursuant to any
assessment received by Navarre, except such Taxes, if any, as are
listed in Part 4.10 of the Disclosure Letter and are being contested in
good faith and as to which adequate reserves (determined in accordance
with GAAP) have been provided in the Balance Sheet.
(b) The United States federal and state income Tax Returns of Navarre have
been audited by the IRS or relevant state tax authorities or are closed
by the applicable statute of limitations for all taxable years through
1992. Part 4.10 of the Disclosure Letter contains a complete and
accurate list of all audits of all such Tax Returns, including a
reasonably detailed description of the nature and outcome of each
audit. All deficiencies proposed as a result of such audits have been
paid, reserved against, settled, or, as described in Part 4.10 of the
Disclosure Letter, are being contested in good faith by appropriate
proceedings. Part 4.10 of the Disclosure Letter describes all
adjustments to the United States federal income Tax Returns filed by
Navarre for all taxable years since 1992, and the resulting
deficiencies proposed by the IRS. Except as described in Part 4.10 of
the Disclosure Letter, Navarre has not given or been requested to give
waivers or extensions (or is or would be subject to a waiver or
extension given by any other Person) of any statute of limitations
relating to the payment of taxes of Navarre or for which Navarre may be
liable.
(c) The charges, accruals, and reserves with respect to taxes on the books
of Navarre are adequate (determined in accordance with GAAP) and are at
least equal to Navarre's liability for Taxes. There exists no proposed
tax assessment against Navarre except as disclosed in the Balance Sheet
or in Part 4.10 of the Disclosure Letter. No consent to the application
of Section 341(f)(2) of the IRC has been filed with respect to any
property or assets held, acquired, or to be acquired by Navarre. All
Taxes that Navarre is or was required by Legal Requirements to withhold
or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Body or other
Person.
(d) All Tax Returns filed by Navarre are true, correct, and complete. There
is no tax sharing agreement that will require any payment by Navarre
after the date of this Agreement.
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4.11. NO MATERIAL ADVERSE CHANGE
To Navarre's Knowledge, since the date of the Balance Sheet, there has
not been any material adverse change in the business, operations, properties,
prospects, assets, or condition of Navarre, and no event has occurred or
circumstance exists that may result in such a material adverse change.
4.12. EMPLOYEE BENEFITS
(a) As used in this Section 4.12, the following terms have the meanings set
forth below.
"Company Other Benefit Obligation" means an Other Benefit Obligation owed,
adopted, or followed by Navarre or an ERISA Affiliate of Navarre.
"Company Plan" means all Plans of which Navarre or an ERISA Affiliate of Navarre
is or was a Plan Sponsor, or to which Navarre or an ERISA Affiliate of Navarre
otherwise contributes or has contributed, or in which Navarre or an ERISA
Affiliate of Navarre otherwise participates or has participated. All references
to Plans are to Company Plans unless the context requires otherwise.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto.
"Pension Plan" has the meaning given in ERISA Section 3(2)(A).
"Plan" has the meaning given in ERISA Section 3(3).
"Plan Sponsor" has the meaning given in ERISA Section 3(16)(B).
"Qualified Plan" means any Plan that meets or purports to meet the requirements
of IRC Section 401(a).
"Title IV Plans" means all Pension Plans that are subject to Title IV of ERISA,
29 U.S.C. Section 1301 et seq., other than Multi-Employer Plans.
"Welfare Plan" has the meaning given in ERISA Section 3(1).
(b)(i) Part 4.12(b)(i) of the Disclosure Letter contains a complete and accurate
list of all Company Plans and identifies as such all Company Plans that are (A)
defined benefit Pension Plans, (B) Qualified Plans, or (C) Title IV Plans.
(ii) Part 4.12(b)(ii) of the Disclosure Letter sets forth the financial cost of
all obligations owed under any Company Plan that is not subject to the
disclosure and reporting requirements of ERISA.
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(c) Navarre has delivered to Bancshares, or will deliver to Bancshares within
ten days of the date of this Agreement:
(i) all documents that set forth the terms of each Company Plan, including (A)
all plan descriptions and summary plan descriptions of Company Plans for which
Navarre is required to prepare, file, and distribute plan descriptions and
summary plan descriptions;
(ii) all personnel, payroll, and employment manuals and policies;
(iii) all registration statements filed with respect to any Company Plan;
(iv) all insurance policies purchased by or to provide benefits under any
Company Plan;
(v) all contracts with third party administrators, actuaries, investment
managers, consultants, and other independent contractors that relate to any
Company Plan;
(vi) all reports submitted within the four years preceding the date of this
Agreement by third party administrators, actuaries, investment managers,
consultants, or other independent contractors with respect to any Company Plan;
(vii) all notifications to employees of their rights under ERISA Section 601 et
seq. and IRC Section 4980B;
(viii) the Form 5500 filed in the three (3) most recent plan years with respect
to each Company Plan, including all schedules thereto and the opinions of
independent accountants;
(ix) with respect to Qualified Plans, the most recent determination letter for
each Plan of Navarre that is a Qualified Plan; and
(x) with respect to Title IV Plans, the Form PBGC-1 filed for the most recent
plan year.
(d) Except as set forth in Part 4.12(d) of the Disclosure Letter:
(i) Navarre has performed all of its obligations under all Company
Plans. Navarre has made appropriate entries in their financial
records and statements for all obligations and liabilities
under such Plans that have accrued but are not due.
(ii) Navarre, with respect to all Company Plans is, and each
Company Plan has been, since its inception and is, in full
compliance with ERISA, the IRC, and other applicable Laws
including the provisions of such Laws expressly mentioned in
this Section 4.12.
(A) No transaction prohibited by ERISA Section 406 and no
"prohibited transaction" under IRC Section 4975(c)
have occurred with respect to any Company Plan.
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(B) Navarre has no liability to the IRS or to any other
government agency or to any participant or former
participant with respect to any Plan, including any
liability imposed by Chapter 43 of the IRC.
(C) Navarre has no liability to the PBGC with respect to
any Plan or has any liability under ERISA Section 502
or Section 4071.
(D) All filings required by ERISA and the IRC as to each
Plan have been timely filed, and all notices and
disclosures to participants required by either ERISA
or the IRC have been timely provided.
(E) All contributions and payments (past and current)
made or accrued with respect to all Company Plans
have been and are timely made and deductible under
IRC Section 162 or Section 404. No amount, or any
asset of any Company Plan, is subject to tax as
unrelated business taxable income.
(iii) Each Company Plan can be terminated within thirty days,
without payment of any additional contribution or amount and
without the vesting or acceleration of any benefits promised
by such Plan.
(iv) Since December 31, 1995, there has been no establishment or
amendment of any Company Plan.
(v) No event has occurred or circumstance exists that could result
in a material increase in premium costs of Company Plans that
are insured.
(vi) Other than claims for benefits submitted by participants or
beneficiaries, no claim against, or legal proceeding
involving, any Company Plan is pending or, to Navarre's
Knowledge, is Threatened.
(vii) Each Qualified Plan of Navarre is qualified in form and
operation under IRC Section 401(a); each trust for each such
Plan is exempt from federal income tax under IRC Section
501(a).
(viii) Navarre has met the minimum funding standard, and has made all
contributions required, under ERISA Section 302 and IRC
Section 412.
(ix) Navarre has not filed a notice of intent to terminate any Plan
or has adopted any amendment to treat a Plan as terminated.
The PBGC has not instituted proceedings to treat any Company
Plan as terminated. No event has occurred or circumstance
exists that may constitute grounds under ERISA Section 4042
for the termination of, or the appointment of a trustee to
administer, any Company Plan.
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(x) No amendment has been made, or is reasonably expected to be
made, to any Plan that has required or could require the
provision of security under ERISA Section 307 or IRC Section
401(a)(29).
(xi) No accumulated funding deficiency, whether or not waived,
exists with respect to any Company Plan; no event has occurred
or circumstance exists that may result in an accumulated
funding deficiency as of the last day of the current plan year
of any such Plan.
(xii) The actuarial report for each Pension Plan of Navarre fairly
presents the financial condition and the results of operations
of each such Plan in accordance with GAAP.
(xiii) Since the last valuation date for each Pension Plan of
Navarre, no event has occurred or circumstance exists that
would increase the amount of benefits under any such Plan or
that would cause the excess of Plan assets over benefit
liabilities (as defined in ERISA Section 4001) to decrease, or
the amount by which benefit liabilities exceed assets to
increase.
(xiv) No reportable event (as defined in ERISA Section 4043 and in
regulations issued thereunder) has occurred.
(xv) Except to the extent required under ERISA Section 601 et seq.
and IRC Section 4980B, Navarre does not provide health or
welfare benefits for any retired or former employee nor is it
obligated to provide health or welfare benefits to any active
employee following such employee's retirement or other
termination of service.
(xvi) Navarre has the right to modify and terminate benefits to
retirees (other than pensions) with respect to both retired
and active employees.
(xvii) Navarre has complied with the provisions of ERISA Section 601
et seq. and IRC Section 4980B.
(xviii) The consummation of the Contemplated Transactions will not
result in the payment, vesting, or acceleration of any
benefit.
(xix) The plan assets of each Company Plan are sufficient to provide
all Accrued Benefits or benefits promised under the terms and
conditions of the Plan. In addition, the Plan assets of the
Navarre Deposit Bank Company Defined Benefit Pension Plan are
sufficient to provide all Accrued Benefits, as that term is
defined in the Company Plan, of the Plan either by (a)
purchase of annuity contracts; or (b) by any other method of
providing such Accrued Benefits that is in full conformity
with the applicable provisions of the IRC and which is
acceptable under relevant PBGC regulations.
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(xx) Any notices required by ERISA or the IRC or any other state or
federal law or any ruling or regulation of any state or
federal administrative agency with respect to each Company
Plan have been appropriately given.
(xxi) All accrued contributions for each Company Plan for all
periods ending prior to closing (including periods from the
first day of the current Plan Year to closing) will be made to
each Company Plan prior to closing by Navarre.
(xxii) Navarre has no Knowledge of any liability under Title IV of
ERISA: (i) attributable to the termination or partial
termination on or before the Closing Date of any "Single
Employer Plan" (as defined in Section 4001(a)(15) of ERISA);
or (ii) for any unpaid premiums under Section 4007 of ERISA.
In addition, the PBGC has not instituted or threatened to
institute a proceeding to terminate any Company Plan pursuant
to ERISA.
(xxiii) Each Qualified Plan, from its inception, has been determined
by the Internal Revenue Service to be qualified under IRC
Section 401(a) and has been administered in all respects in
accordance with IRC Sections 401, 402(f), 410, 411, 414, 415,
416 and 417 and the rulings and regulations issued thereunder;
and nothing has occurred prior to the closing that could
reasonably be expected to cause the IRS to revoke such
determination or that it would adversely affect the continued
qualified status of such Plan under the appropriate provisions
of the IRC.
4.13. COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Part 4.13 of the Disclosure Letter and except
for violations which, either individually or in the aggregate would not
have or could not be reasonably expected to have a materially adverse
effect on Navarre:
(i) Navarre is, and at all times since December 31, 1992 has been,
in full compliance with each Legal Requirement that is or was
applicable to it or to the conduct or operation of its
business or the ownership or use of any of its assets;
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) may constitute or result
in a violation by Navarre of, or a failure on the part of
Navarre to comply with, any Legal Requirement, or (B) may give
rise to any obligation on the part of Navarre to undertake, or
to bear all or any portion of the cost of, any remedial action
of any nature;
(iii) Navarre has not received, at any time since December 31, 1992,
any notice or other communication (whether oral or written)
from any Governmental Body or any other Person except for
Reports of Examination regarding (A) any actual, alleged,
possible, or potential violation of, or failure to comply
with, any Legal Requirement, or (B) any actual, alleged,
possible, or potential obligation on the
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part of Navarre to undertake, or to bear all or any portion of
the cost of, any remedial action of any nature;
(iv) Navarre at all times since December 31, 1992, has complied
with all applicable "conditions imposed in writing" within the
meaning of 12 U.S.C. Section1818 and neither Navarre nor
Bancshares has any further obligations under any such
condition.
(b) Part 4.13 of the Disclosure Letter contains a complete and accurate
list of each Governmental Authorization that is held by Navarre or that
otherwise relates to the business of, or to any of the assets owned or
used by, Navarre. Each Governmental Authorization listed or required to
be listed in Part 4.13 of the Disclosure Letter is valid and in full
force and effect. Except as set forth in Part 4.13 of the Disclosure
Letter:
(i) Navarre is, and at all times since December 31, 1992 has been,
in full compliance with all of the terms and requirements of
each Governmental Authorization identified or required to be
identified in Part 4.13 of the Disclosure Letter;
(ii) no event has occurred or circumstance exists that may (with or
without notice or lapse of time) (A) constitute or result
directly or indirectly in a violation of or a failure to
comply with any term or requirement of any Governmental
Authorization listed or required to be listed in Part 4.13 of
the Disclosure Letter, or (B) result directly or indirectly in
the revocation, withdrawal, suspension, cancellation, or
termination of, or any modification to, any Governmental
Authorization listed or required to be listed in Part 4.13 of
the Disclosure Letter;
(iii) Navarre has not received, at any time since December 31, 1992,
any notice or other communication except for Reports of
Examination (whether oral or written) from any Governmental
Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of or failure to comply with
any term or requirement of any Governmental Authorization, or
(B) any actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or
modification to any Governmental Authorization; and
(iv) all applications required to have been filed for the renewal
of the Governmental Authorizations listed or required to be
listed in Part 4.13 of the Disclosure Letter have been duly
filed on a timely basis with the appropriate Governmental
Bodies, and all other filings required to have been made with
respect to such Governmental Authorizations have been duly
made on a timely basis with the appropriate Governmental
Bodies.
(c) Navarre possesses all licenses, franchises, permits and other
governmental authorizations and all material patents, trademarks,
service marks, trade names, copyrights or rights thereto necessary for
the continued conduct of Navarre's banking business without material
interference or interruption.
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The Governmental Authorizations listed in Part 4.13 of the Disclosure
Letter collectively constitute all of the Governmental Authorizations necessary
to permit Navarre to lawfully conduct and operate its business in the manner it
currently conducts and operate such business and to permit Navarre to own and
use its assets in the manner in which it currently owns and uses such assets.
4.14. LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Part 4.14 of the Disclosure Letter, there is no
pending Proceeding:
(i) that has been commenced by or against Navarre or that
otherwise relates to or may affect the business of, or any of
the assets owned or used by, Navarre; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any
of the Contemplated Transactions.
To the Knowledge of Navarre, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding. Navarre
has delivered to Bancshares copies of all pleadings, correspondence, and other
documents relating to each Proceeding listed in Part 4.14 of the Disclosure
Letter. To the Knowledge of Navarre, none of the Proceedings listed in Part 4.14
of the Disclosure Letter will have a material adverse effect on the business,
operations, assets, condition, or prospects of Navarre.
(b) Except as set forth in Part 4.14 of the Disclosure Letter:
(i) there is no Order to which Navarre, or any of the assets owned
or used by Navarre, is subject;
(ii) to the Knowledge of Navarre, no officer, director, agent, or
employee of Navarre is subject to any Order that prohibits
such officer, director, agent, or employee from engaging in or
continuing any conduct, activity, or practice relating to the
business of Navarre.
(iii) there has been no Order under 12 U.S.C. Section 1818 against
Navarre or any person who is or has been an Institution
Affiliated Party of Navarre.
(c) Except as set forth in Part 4.14 of the Disclosure Letter:
(i) Navarre is, and at all times since December 31, 1992 has been,
in full compliance with all of the terms and requirements of
each Order to which it, or any of the assets owned or used by
it, is or has been subject;
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(ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of
time) a violation of or failure to comply with any term or
requirement of any Order to which Navarre, or any of the
assets owned or used by Navarre, is subject; and
(iii) Navarre has not received, at any time since December 31, 1992,
any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding any
actual, alleged, possible, or potential violation of, or
failure to comply with, any term or requirement of any Order
to which Navarre, or any of the assets owned or used by
Navarre, is or has been subject.
4.15. ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 4.15 of the Disclosure Letter, since the
date of the Balance Sheet, Navarre has conducted its business only in the
Ordinary Course of Business and there has not been any:
(a) change in Navarre's authorized or issued capital stock; grant of any
stock option or right to purchase shares of capital stock of Navarre;
issuance of any security convertible into such capital stock; grant of
any registration rights; purchase, redemption, retirement, or other
acquisition by Navarre of any shares of any such capital stock; or
declaration or payment of any dividend or other distribution or payment
in respect of shares of capital stock;
(b) amendment to the Organizational Documents of Navarre;
(c) payment or increase by Navarre of any bonuses, salaries, or other
compensation to any shareholder, director, officer, or (except in the
Ordinary Course of Business) employee or entry into any employment,
severance, or similar Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any
employees of Navarre;
(e) damage to or destruction or loss of any asset or property of Navarre,
whether or not covered by insurance involving a loss in excess of
$1,000;
(f) entry into, termination of, or receipt of notice of termination of (i)
any license, distributorship, dealer, sales representative, joint
venture, credit, or similar agreement, or (ii) any Contract or
transaction involving a total remaining commitment by or to Navarre of
at least $25,000;
(g) sale, lease, or other disposition of any asset or property of Navarre
or mortgage, pledge, or imposition of any lien or other encumbrance on
any material asset or property of Navarre, other than in the Ordinary
Course of Business;
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(h) cancellation or waiver of any claims or rights with a value to Navarre
in excess of $25,000;
(i) change in the accounting methods used by Navarre; or
(j) agreement, whether oral or written, by Navarre to do any of the
foregoing.
4.16. CONTRACTS; NO DEFAULTS
(a) Part 4.16(a) of the Disclosure Letter contains a complete and accurate
list, and Navarre has delivered to Bancshares true and complete copies,
of:
(i) each Applicable Contract that involves performance of services
by Navarre of an amount or value in excess of $25,000;
(ii) each Applicable Contract that involves performance of services
or delivery of goods or materials to Navarre of an amount or
value in excess of $25,000;
(iii) each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or
receipts of Navarre in excess of $15,000;
(iv) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other
Applicable Contract affecting the ownership of, leasing of,
title to, use of, or any leasehold or other interest in, any
real or personal property (except personal property leases and
installment and conditional sales agreements having a value
per item or aggregate payments of less than $25,000 and with
terms of less than one year);
(v) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs,
or liabilities by Navarre with any other Person;
(vi) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of Navarre or any
affiliate of Navarre or limit the freedom of Navarre or any
affiliate of Navarre to engage in any line of business or to
compete with any Person;
(vii) each power of attorney that is currently effective and
outstanding;
(viii) each Applicable Contract entered into other than in the
Ordinary Course of Business that contains or provides for an
express undertaking by Navarre to be responsible for
consequential damages;
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(ix) each Applicable Contract for capital expenditures in excess of
$25,000;
(x) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended
by Navarre other than in the Ordinary Course of Business; and
(xi) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
Part 4.16 (a) of the Disclosure Letter sets forth reasonably complete
details concerning such Contracts, including the parties to the Contracts, the
amount of the remaining commitment of Navarre under the Contracts, and Navarre's
office where details relating to the Contracts are located.
(b) Except as set forth in Part 4.16 (b) of the Disclosure Letter:
(i) to the Knowledge of Navarre, no officer, director, agent,
employee, consultant, or contractor of Navarre is bound by any
Contract that purports to limit the ability of such officer,
director, agent, employee, consultant, or contractor to engage
in or continue any conduct, activity, or practice relating to
the business of Navarre.
(c) Except as set forth in Part 4.16 (c) of the Disclosure Letter, each
Contract identified or required to be identified in Part 4.16 (a) of
the Disclosure Letter is in full force and effect and is valid and
enforceable in accordance with its terms.
(d) Except with respect to Loans and leases in the Ordinary Course of
Business and except as set forth in Part 4.16 (d) of the Disclosure
Letter:
(i) Navarre is, and at all times since December 31, 1992 has been,
in full compliance with all applicable terms and requirements
of each Contract under which Navarre has or had any obligation
or liability or by which Navarre or any of the assets owned or
used by Navarre is or was bound;
(ii) each other Person that has or had any obligation or liability
under any Contract under which Navarre has or had any rights
is, and at all times since December 31, 1992 has been, in full
compliance with all applicable terms and requirements of such
Contract;
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict
with, or result in a violation or breach of, or give Navarre
or other Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any Applicable Contract;
and
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(iv) Navarre has not given to or received from any other Person, at
any time since December 31, 1992, any notice or other
communication (whether oral or written) regarding any actual,
alleged, possible, or potential violation or breach of, or
default under, any Contract.
(e) Except with respect to Loans and leases in the Ordinary Course of
Business there are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable
to Navarre under current or completed Contracts with any Person and, to
the Knowledge of Navarre, no such Person has made written demand for
such renegotiation.
(f) The Contracts relating to the provision of services by Navarre have
been entered into in the Ordinary Course of Business and have been
entered into without the commission of any act alone or in concert with
any other Person, or any consideration having been paid or promised,
that is or would be in violation of any Legal Requirement.
4.17. INSURANCE
(a) Navarre has delivered to Bancshares:
(i) true and complete copies of all policies of insurance to which
Navarre is a party or under which Navarre, or any director of
Navarre, is or has been covered at any time within the three
years preceding the date of this Agreement;
(ii) true and complete copies of all pending applications for
policies of insurance; and
(iii) any statement by the auditor of Navarre's financial statements
with regard to the adequacy of such entity's coverage or of
the reserves for claims.
(b) Part 4.17(b) of the Disclosure Letter describes:
(i) any self-insurance arrangement by or affecting Navarre,
including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of insurance,
for the transfer or sharing of any risk by Navarre; and
(iii) all obligations of Navarre to third parties with respect to
insurance (including such obligations under leases and service
agreements) and identifies the policy under which such
coverage is provided.
(c) Except as set forth on Part 4.17(c) of the Disclosure Letter:
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(i) All policies to which Navarre is a party or that provide
coverage to Navarre, or any director or officer of Navarre:
a) are valid, outstanding, and enforceable;
b) are issued by an insurer that is financially
sound and reputable;
c) taken together, provide adequate insurance
coverage for the assets and the operations
of Navarre for all risks normally insured
against by a Person carrying on the same
business as Navarre;
d) are sufficient for compliance with all Legal
Requirements and Contracts to which Navarre
is a party or by which it is bound;
e) will continue in full force and effect
following the consummation of the
Contemplated Transactions; and
f) do not provide for any retrospective premium
adjustment or other experienced-based
liability on the part of Navarre.
(ii) Navarre has not received (A) any refusal of coverage or any
notice that a defense will be afforded with reservation of
rights, or (B) any notice of cancellation or any other
indication that any insurance policy is no longer in full
force or effect or will not be renewed or that the issuer of
any policy is not willing or able to perform its obligations
thereunder.
(iii) Navarre has paid all premiums due, and has otherwise performed
all of its obligations, under each policy to which Navarre is
a party or that provides coverage to Navarre or any director
thereof.
(iv) Navarre has given notice to the insurer of all claims that may
be insured thereby.
4.18. ENVIRONMENTAL MATTERS
Except as set forth in Part 4.18 of the Disclosure Letter:
a) Navarre is, and at all times has been, in material compliance with, and
has not been and is not in material violation of or materially liable
under, any Environmental Law. Navarre has not received, any actual or
Threatened order, notice, or other communication from (i) any
Governmental Body or private citizen acting in the public interest, or
(ii) the current or prior owner or operator of any Facilities, of any
actual or potential violation or failure to comply with any
Environmental Law, or of any actual or Threatened obligation to
undertake or bear the cost of any Environmental, Health, and Safety
Liabilities with respect to any of the Facilities in which Navarre has
an interest, or with respect to any Facility at or to which
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Hazardous Materials were generated, manufactured, refined, transferred,
imported, used, or processed by Navarre, or any Facility from which
Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
b) There are no pending or Threatened claims, Encumbrances, or other
restrictions of any nature, resulting from any Environmental, Health,
and Safety Liabilities or arising under or pursuant to any
Environmental Law, with respect to or affecting any of the Facilities.
c) Navarre has no Knowledge of, nor has any basis to expect it has
received, any citation, directive, inquiry, notice, Order, summons, or
warning, or other written communication from a Government Body that
relates to Hazardous Activity or Hazardous Materials with respect to
the Facilities or any alleged, actual, or potential violation or
failure to comply with any Environmental Law, with respect to the
Facilities or of any alleged, actual, or potential obligation to
undertake or bear the cost of any Environmental, Health, and Safety
Liabilities with respect to any of the Facilities.
d) To the Knowledge of Navarre, Navarre has no Environmental, Health, and
Safety Liabilities with respect to the Facilities.
e) There are no Hazardous Materials present on or in the Environment at
the Facilities in material violation of any applicable Environmental
Law including any Hazardous Materials contained in barrels, above or
underground storage tanks, landfills, land deposits, dumps, equipment
(whether moveable or fixed) or other containers, either temporary or
permanent, and deposited or located in land, water, sumps, or any other
part of the Facilities, or incorporated into any structure therein or
thereon. Navarre has not permitted or conducted, or to its Knowledge,
is aware of, any Hazardous Activity conducted with respect to the
Facilities except in material compliance with all applicable
Environmental Laws.
f) There has been no Release, or Threat of Release, of any Hazardous
Materials at or from the Facilities.
4.19. LABOR LAWS; COMPLIANCE
Navarre has complied in all respects with all Legal Requirements
relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes, occupational safety and health, and plant
closing. Navarre is not liable for the payment of any compensation, damages,
taxes, fines, penalties, or other amounts, however designated, for failure to
comply with any of the foregoing Legal Requirements.
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4.20. CERTAIN PAYMENTS
Since December 31, 1992, neither Navarre nor any director or officer of
Navarre, or to Navarre's Knowledge any other Person associated with or acting
for or on behalf of Navarre, has directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any Person, private or public, regardless of form, whether in money,
property, or services (i) to obtain favorable treatment in securing business,
(ii) to pay for favorable treatment for business secured, (iii) to obtain
special concessions or for special concessions already obtained, for or in
respect of Navarre or any affiliate of Navarre, or (iv) in violation of any
Legal Requirement, or (b) established or maintained any fund or asset that has
not been recorded in the books and records of Navarre.
4.21. DISCLOSURE
(a) No representation or warranty of Navarre in this Agreement and no
statement in the Disclosure Letter or the Registration Statement or
applications to or filings with Governmental Bodies related to the
Merger omits to state a material fact necessary to make the statements
herein or therein, in light of the circumstances in which they were
made, not misleading.
(b) No notice given by Navarre pursuant to Section 6.5 or the Registration
Statement or applications to or filings with Governmental Bodies
related to the Merger will contain any untrue statement or omit to
state a material fact necessary to make the statements therein or in
this Agreement, in light of the circumstances in which they were made,
not misleading.
(c) There is no fact known to Navarre that has specific application to
Navarre (other than general economic or industry conditions) and that
materially adversely affects or, as far as Navarre can reasonably
foresee, materially threatens, the assets, business, financial
condition, or results of operations of Navarre (on a consolidated
basis) that has not been set forth in this Agreement or the Disclosure
Letter.
4.22. BROKERS OR FINDERS
Except for fees paid and payable to McDonald & Company Securities, Inc.
in an amount heretofore disclosed to Bancshares and usual, customary and
reasonable attorney's and accountant's fees, Navarre has not paid and will not
become obligated to pay any fee or commission to any broker, finder or
intermediary in connection with the transactions contemplated by this Agreement.
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4.23. NAVARRE OWNERSHIP OF STOCK
Neither Navarre nor, to its Knowledge, any of its Related Persons (i)
beneficially owns, directly or indirectly, or (ii) are parties to any agreement,
arrangement or commitment for the purpose of acquiring, holding, voting or
disposing of, in each case Bancshares Common Stock (other than Bancshares Common
Stock held in a fiduciary, trust, custodial or agency capacity) which in the
aggregate represent 1% or more of the outstanding Bancshares Common Stock.
4.24. VOTE REQUIRED
The affirmative vote of the holders of two-thirds of the outstanding
shares of Navarre Common Stock is necessary to approve this Agreement and the
transactions contemplated hereby.
5. REPRESENTATIONS AND WARRANTIES OF BANCSHARES
Bancshares represent and warrant to Navarre as follows with references
to Bancshares in this Section deemed to include its Subsidiaries unless the
context otherwise requires:
5.1. ORGANIZATION AND GOOD STANDING
Bancshares and Citizens are incorporated under the laws of the State of
Ohio. Bancshares and Citizens are corporations duly organized, validly existing,
and in good standing under the laws of Ohio, with full corporate power and
authority to conduct their business as it is now being conducted and to own or
use the properties and assets that they purport to own or use.
(a) Bancshares and Citizens have delivered to Navarre copies of their
Organizational Documents, as currently in effect.
5.2. AUTHORITY; NO CONFLICT
a) This Agreement constitutes the legal, valid, and binding obligation of
Bancshares and Citizens, enforceable against Bancshares and Citizens in
accordance with its terms. Bancshares and Citizens have the absolute
and unrestricted right, power, authority, and capacity to execute and
deliver this Agreement and, subject to the required approval of
Governmental Bodies, to perform their obligations under this Agreement.
b) Except as set forth in Part 5.2 of the Bancshares Disclosure Letter,
neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions
will, directly or indirectly (with or without notice or lapse of time):
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(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of Bancshares, or
(B) any resolution adopted by the board of directors of
Bancshares;
(ii) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to exercise
any remedy or obtain any relief under, any Legal Requirement
or any Order to which Bancshares or any of the assets owned or
used by Bancshares may be subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Body
the right to revoke, withdraw, suspend, cancel, terminate, or
modify, any Governmental Authorization that is held by
Bancshares or that otherwise relates to the business of, or
any of the assets owned or used by Bancshares;
(iv) cause Navarre, Citizens or Bancshares to become subject to, or
to become liable for the payment of, any Tax;
(v) cause any of the assets owned by Bancshares to be reassessed
or revalued by any taxing authority or other Governmental
Body;
(vi) contravene, conflict with, or result in a violation or breach
of any provision of, or give any Person the right to declare a
default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or
modify, any Applicable Contract; or
(vii) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by
Bancshares.
Except for the Board of Governors of the Federal Reserve System, the
FDIC, the Ohio Department of Commerce, Division of Financial Institutions,
Office of Banks and Savings & Loans and the Securities and Exchange Commission,
Bancshares is not or will not be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
5.3. CAPITALIZATION
The authorized equity securities of Bancshares consist of 12,000,000
shares of common stock, without par value, of which 5,392,871 shares are issued
and outstanding and 200,000 shares of serial preferred stock, none of which are
issued, outstanding or held in treasury. All of the outstanding Bancshares
Common Stock has been, and the Bancshares Common Stock to be issued in the
Merger will be, duly authorized, validly issued, fully paid and nonassessable.
Except
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for this Agreement and the Bancshares 1995 Non-Statutory Stock Option and
Stock Appreciation Rights Plan, a copy of which has been provided to Navarre,
there are no Contracts relating to the issuance, sale, or transfer of any equity
securities or other securities of Bancshares. None of the Bancshares Common
Stock was issued in violation of the Securities Act or any other Legal
Requirement. Bancshares does not own, or have any Contract to acquire, any
equity securities or other securities of any Person or any direct or indirect
equity or ownership interest in any other business other than pledges of
securities taken in Bancshares' Ordinary Course of Business as a lender.
5.4. FINANCIAL STATEMENTS
Bancshares has delivered to Navarre: (a) consolidated balance sheets of
Bancshares as at December 31 in each of the years 1991 through 1994, and the
related statements of income, changes in shareholders' equity, and cash flow for
each of the fiscal years then ended, together with the report thereon of Crowe,
Chizek and Company, independent certified public accountants; (b) a consolidated
balance sheet of Bancshares as at December 31, 1995 (including the notes
thereto, the "Bancshares Balance Sheet"), and the related consolidated
statements of income, changes in shareholders' equity, and cash flow for the
fiscal year then ended, together with the report thereon of Crowe, Chizek and
Company, independent certified public accountants; and (c) will deliver when
available quarterly unaudited consolidated balance sheets and related unaudited
consolidated statements of income and changes in shareholders equity. Such
financial statements and notes fairly present the financial condition and the
results of operations, changes in shareholders' equity, and cash flow of
Bancshares as at the respective dates of and for the periods referred to in such
financial statements, all in accordance with GAAP subject in the case of the
quarterly financial statements to normal recurring year-end adjustments and the
absence of Notes. The financial statements referred to in this Section 5.4
reflect the consistent application of such accounting principles throughout the
periods involved, except as disclosed in the notes to such financial statements.
No financial statements of any Person other than Bancshares and its Subsidiaries
are required by GAAP to be included in the financial statements of Bancshares.
5.5. NO UNDISCLOSED LIABILITIES
Except as set forth in Part 5.5 of the Bancshares Disclosure Letter,
Bancshares has no liabilities or obligations of any nature (whether known or
unknown and whether absolute, accrued, contingent, or otherwise) except for
liabilities or obligations reflected or reserved against in the Bancshares
Balance Sheet and current liabilities incurred in the Ordinary Course of
Business since the respective dates thereof.
5.6. TAXES
a) Bancshares has filed or caused to be filed (on a timely basis since
1992) all Tax Returns that are or were required to be filed by it,
pursuant to applicable Legal Requirements.
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b) All Tax Returns filed by (or that include on a consolidated basis)
Bancshares are true, correct, and complete. There is no tax sharing
agreement that will require any payment by Bancshares after the date of
this Agreement.
5.7. NO MATERIAL ADVERSE CHANGE
To Bancshares' Knowledge, since the date of the Bancshares Balance
Sheet, there has not been any material adverse change in the business,
operations, properties, prospects, assets, or condition of Bancshares, and no
event has occurred or circumstance exists that may result in such a material
adverse change.
5.8. EMPLOYEE PLANS
To Bancshares' Knowledge, all employee bonus, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase, employee
stock ownership, stock appreciation rights, savings, consulting, severance,
collective bargaining, group insurance, fringe benefit and other employee
benefit, incentive and welfare plans, policies, contracts and arrangements and
all trust agreements related thereto, now in effect and relating to any present
or former directors, officers or employees of Bancshares or Bancshares
Subsidiaries, whether or nor described in ERISA, are identified in Part 5.8 of
the Bancshares Disclosure Letter ("Bancshares Employee Plans"). All of the
Bancshares Employee Plans have been maintained, operated and administered in
substantial compliance with their terms, and Bancshares, all of Bancshares'
Subsidiaries and all of Bancshares' Employee Plans currently comply, and have at
all relevant times complied, in all material respects with ERISA, the IRC, and
any other applicable laws. Bancshares has previously delivered or made available
to Navarre copies of all Bancshares' Employee Plans, in each case as in effect
on the date of this Agreement.
To Bancshares' Knowledge, there is no accumulated funding deficiency
(as defined in Section 301 of ERISA and Section 412 of the IRC), whether or not
waived, and no waiver of the minimum funding standards of such sections has been
requested from the IRS; neither Bancshares nor any of its subsidiaries has
provided, or is required to provide, security to any pension plan pursuant to
Section 401(a)(29) of the IRC; the fair market value of the assets of each
defined benefit plan (as defined in Section 3(35) of ERISA) as of January 1,
1995 exceeds the value of the "benefit liabilities" within the meaning of
Section 4001(a)(16) of ERISA under such defined benefit plan as of the end of
the most recent plan year thereof ending prior to the date hereof, calculated on
the basis of the actuarial assumptions used in the most recent actuarial
valuation for such defined benefit plan as of the date hereof; and no reportable
event described in Section 4043 of ERISA for which the 30 day reporting
requirement has not been waived has occurred.
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5.9. COMPLIANCE WITH SECURITIES LAWS
To its Knowledge, Bancshares is in compliance with all federal and
state securities laws and regulations, including but not limited to all filing
requirements, except to the extent that additional filings will be required in
connection with the Contemplated Transactions. All information provided in such
filings is accurate and complete, in all material respects, to the extent
required by such laws and regulations.
5.10. COMPLIANCE WITH LAWS; LEGAL PROCEEDINGS
To Bancshares' Knowledge, there are no Proceedings or Orders
instituted, pending or Threatened by any state or federal banking agency or any
other Proceedings or Orders instituted, pending or Threatened that are
reasonably anticipated to have, either individually or in the aggregate, a
material adverse effect on the financial condition, results of operations,
assets, or business of Bancshares or Citizens. To Bancshares' Knowledge, there
is no litigation, proceeding or governmental investigation pending or Threatened
(or which Bancshares has any basis to anticipate) which relates to any of the
Contemplated Transactions. To its Knowledge, Bancshares has received no written
notice of noncompliance with respect to any law, regulation, reporting or
licensing requirement or Order applicable to its business or employees, the
breach or violation of which would have a material adverse effect on the
financial condition or results of operations of Bancshares or Citizens.
Bancshares has not received, at any time since December 31, 1992, any
notice or other communication (whether oral or written) from any Governmental
Body or any other Person regarding any actual, alleged, possible, or potential
violation of, or failure to comply with, any term or requirement of any Order to
which Bancshares, or any of the assets owned or used by Bancshares, is or has
been subject.
5.11. ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 5.11 of the Bancshares Disclosure Letter,
since the date of the Bancshares Balance Sheet, Bancshares has conducted its
business only in the Ordinary Course of Business and there has not been any:
(a) change in Bancshares' authorized or issued capital stock;
(b) amendment to the Organizational Documents of Bancshares or Citizens;
(c) damage to or destruction or loss of any asset or property of
Bancshares, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, financial
condition, or prospects of Bancshares, taken as a whole;
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(d) sale, lease, or other disposition of any asset or property of
Bancshares or mortgage, pledge, or imposition of any lien or other
encumbrance on any material asset or property of Bancshares with a
value in excess of $500,000 other than in the Ordinary Course of
Business;
(e) cancellation or waiver of any claims or rights with a value to
Bancshares in excess of $500,000;
(f) material change in the accounting methods used by Bancshares; or
(g) agreement, whether oral or written, by Bancshares to do any of the
foregoing.
5.12. ENVIRONMENTAL MATTERS
Except as set forth in Part 5.12 of the Bancshares Disclosure Letter:
a) Bancshares is, and at all times has been, in material compliance with,
and has not been and is not in material violation of or materially
liable under, any Environmental Law with respect to any of its
Facilities. Bancshares has not received, any actual or Threatened
order, notice, or other communication from (i) any Governmental Body or
private citizen acting in the public interest, or (ii) the current or
prior owner or operator of any Facilities, of any actual or potential
violation or failure to comply with any Environmental Law, or of any
actual or Threatened obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of
its Facilities, or with respect to any Facility at or to which
Hazardous Materials were generated, manufactured, refined, transferred,
imported, used, or processed by Bancshares, or any Facility from which
Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
b) There are no pending or Threatened claims resulting from any
Environmental, Health, and Safety Liabilities or arising under or
pursuant to any Environmental Law, with respect to or affecting any of
the Facilities.
5.13. LABOR LAWS; COMPLIANCE
Bancshares has complied, in all material respects, with all Legal
Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. Bancshares is not liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
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5.14. CERTAIN PAYMENTS
Since December 31, 1992, neither Bancshares nor any director or officer
of Bancshares, or to Bancshares' Knowledge any other Person associated with or
acting for or on behalf of Bancshares, has directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any Person, private or public, regardless of form, whether in money,
property, or services (i) to obtain favorable treatment in securing business,
(ii) to pay for favorable treatment for business secured, (iii) to obtain
special concessions or for special concessions already obtained, for or in
respect of Bancshares or any Affiliate of Bancshares, or (iv) in violation of
any Legal Requirement, (b) established or maintained any fund or asset that has
not been recorded in the books and records of Bancshares.
5.15. DISCLOSURE
(a) No representation or warranty of Bancshares in this Agreement and no
statement in the Bancshares Disclosure Letter or the Registration
Statement or applications to or filings with Governmental Bodies
related to the Merger omits to state a material fact necessary to make
the statements herein or therein, in light of the circumstances in
which they were made, not misleading.
(b) No notice given by Bancshares pursuant to Section 6.5, or the
Registration Statement or applications to or filings with Governmental
Bodies related to the Merger will contain any untrue statement or omit
to state a material fact necessary to make the statements therein or in
this Agreement, in light of the circumstances in which they were made,
not misleading.
(c) There is no fact known to Bancshares that has specific application to
Bancshares (other than general economic or industry conditions) and
that materially adversely affects or, as far as Bancshares can
reasonably foresee, materially threatens, the assets, business,
financial condition, or results of operations of Bancshares (on a
consolidated basis) that has not been set forth in this Agreement or
the Bancshares Disclosure Letter.
5.16. BROKERS OR FINDERS
Except as set forth in Part 5.16 of the Bancshares Disclosure Letter,
Bancshares has incurred no obligation or liability, contingent or otherwise, for
brokerage or finders' fees or agents' commissions or other similar payment in
connection with this Agreement.
5.17. BANCSHARES OWNERSHIP OF STOCK
Neither Bancshares nor, to the best of its Knowledge, any of its
Related Persons (i) beneficially owns, directly or indirectly, or (ii) are
parties to any agreement, arrangement or commitment for the purpose of
acquiring, holding, voting or disposing of, in each case, Navarre
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Common Stock (other than Navarre Common Stock held in a fiduciary, trust,
custodial or agency capacity by a bank or trust subsidiary of Bancshares) which
in the aggregate, represent 1% or more of the outstanding Navarre Common Stock.
6. COVENANTS PRIOR TO CLOSING DATE
6.1. ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, Navarre will
and will cause Navarre's Representatives to, (a) afford Bancshares and
Bancshares' Representatives full and free access to Navarre's personnel,
properties (including subsurface testing), contracts, books and records, and
other documents and data, (b) furnish Bancshares and Bancshares' Representatives
with copies of all such contracts, books and records, and other existing
documents and data as the other may reasonably request, and (c) furnish
Bancshares and Bancshares' Representatives with such additional financial,
operating, and other data and information as they may reasonably request.
Between the date of this Agreement and the Closing Date Bancshares will
provide Navarre with all filings made under the Securities Exchange Act of 1934
and will provide reasonable access to Navarre and Navarre's Representatives upon
written request to review specific Bancshares documents.
6.2. OPERATION OF NAVARRE'S BUSINESSES
Between the date of this Agreement and the Closing Date, Navarre will:
(a) conduct its business only in the Ordinary Course of Business;
(b) use its Best Efforts to preserve intact the current business
organization of Navarre, keep available the services of the current
officers, employees, and agents of Navarre, and maintain the relations
and good will with customers, landlords, employees, agents, and others
having business relationships with them;
(c) confer with Bancshares concerning operational matters of a material
nature and will obtain Bancshares' prior written consent before it (i)
engages in any lending activities other than in the Ordinary Course of
Business; (ii) makes any 1-4 family unit residential real estate loans
in excess of $100,000 to any borrower; (iii) makes any consumer
installment or construction loans in excess of $30,000 to any borrower;
(iv) extends any equity lines of credit in excess of $50,000 to any
borrower; or (v) makes any commercial loans in excess of $50,000 to any
borrower (taking into account existing borrowings but not including
renewals.)
(d) otherwise report periodically to Bancshares concerning the status of
its business, operations, and finances, including delivery of monthly
reports given to Navarre directors.
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6.3. NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the
date of this Agreement and the Closing Date, Bancshares and Navarre will not,
without the prior consent of the other, take any affirmative action, or fail to
take any reasonable action within its control, as a result of which any of the
changes or events listed in Section 4.15 or 5.11 is likely to occur.
6.4. REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Navarre
and Bancshares will make all filings required by Legal Requirements to be made
by them in order to consummate the Contemplated Transactions (including all
filings under applicable banking law). Between the date of this Agreement and
the Closing Date, Navarre and Bancshares will (a) cooperate with respect to all
filings that they elect to make or are required by Legal Requirements to make in
connection with the Contemplated Transactions, and (b) cooperate in obtaining
all consents identified in Section 4.2 and Section 5.2 of the Disclosure Letters
(including taking all actions required to cause early termination of any
applicable waiting period under applicable banking law), and (c) in no event,
however, shall any party hereto be liable for any untrue statement of a material
fact or omission to state a material fact in any filing made with any
Governmental Body pursuant to this Section 6.4 made in reliance upon, and in
conformity with, written information concerning the other party hereto furnished
by such other party specifically for use in such filing. Each party hereto shall
advise the other party hereto promptly of the occurrence of any event which
makes untrue any statement of a material fact contained in any such filing or
any amendment or supplement thereto or that requires the making of a change in
any such filing or any amendment or supplement thereto in order to make any
material statement therein not misleading.
6.5. NOTIFICATION
Between the date of this Agreement and the Closing Date, Navarre and
Bancshares each will promptly notify the other in writing if it becomes aware of
any fact or condition that causes or constitutes a Breach of any of its
representations and warranties as of the date of this Agreement, or if it
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. Should any such fact or condition require any change
in the Disclosure Letters if the Disclosure Letters were dated the date of the
occurrence or discovery of any such fact or condition, each of Bancshares and
Navarre will promptly deliver to the other a supplement to the Disclosure Letter
specifying such change. During the same period, each party will promptly notify
the other of the occurrence of any Breach
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of any covenant of this Section 6 or of the occurrence of any event that may
make the satisfaction of the conditions in Sections 7 or 8 impossible or
unlikely.
6.6. ACQUISITION PROPOSALS
From and after the date hereof, Navarre will not, directly or
indirectly, through any of its officers, directors, employees, agents or
advisors or other representatives or consultants, solicit or initiate or
knowingly encourage, including by means of furnishing information, any proposals
or offers from any person (other than Bancshares) relating to any acquisition or
purchase of all or a material amount of the assets of, or any securities of, or
any merger, tender offer, consolidation or business combination with, Navarre
(an "Acquisition Proposal"); provided, however, that Navarre may furnish
information and may consider, evaluate and engage in discussions or negotiations
with any person if outside counsel advises Navarre's directors that failure to
furnish such information or engage in such discussions or negotiations could
involve Navarre's directors in a breach of their fiduciary duties. If the Board
of Directors of Navarre receives a request for confidential information from a
potential bidder for Navarre and the Board of Directors determines, after
consultation with outside counsel, that the Board of Directors has a fiduciary
obligation to provide such information to a potential bidder, then Navarre may,
subject to a confidentiality agreement substantially similar to that previously
executed with Bancshares, provide such potential bidder with access to
information regarding Navarre. Navarre shall promptly notify Bancshares, orally
and in writing, if any such proposal or offer is made and shall, in any such
notice, indicate the identity and terms and conditions of any proposal or offer,
or any such inquiry or contact. Navarre shall keep Bancshares advised of the
progress and status of any such proposals or offers. The obligation of the Board
of Directors of Navarre to convene a meeting of its shareholders and to
recommend the adoption and approval of this Agreement to the shareholders of
Navarre shall be subject to the fiduciary duties of the Directors, as determined
by the Directors after consultation with their outside counsel, and nothing
contained in this Agreement shall prevent the Board of Directors of Navarre from
approving or recommending to the shareholders of Navarre any unsolicited offer
or proposal by a third party if required in the exercise of their fiduciary
duties, as determined by the Directors after consultation with outside counsel.
6.7. REGISTRATION STATEMENT; PROXY STATEMENT-PROSPECTUS
a) As promptly as practicable after the execution of this Agreement,
Bancshares and Navarre shall prepare the Proxy Statement-Prospectus and
Bancshares shall file with the Securities and Exchange Commission
("SEC") the Registration Statement and Bancshares shall use all
reasonable efforts to have the Registration Statement declared
effective by the SEC as promptly as practicable and to maintain the
effectiveness of the Registration Statement through the Effective Time.
Navarre shall mail to its shareholders the Proxy Statement-Prospectus
along with Transmittal Letter provided by Bancshares, as Exchange
Agent, as soon as practicable after the Registration Statement has
become effective.
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b) Navarre agrees to promptly furnish to Bancshares all information
regarding its assets, properties, business, affairs, operations,
condition (financial or otherwise), prospects and corporate
organization as shall be required by the rules and regulations under
the Securities Act or by the SEC for inclusion in the Registration
Statement and shall otherwise assist Bancshares in the preparation and
filing of the Registration Statement.
c) Bancshares and Navarre each agree that none of the information supplied
by it for inclusion in the Registration Statement shall, at (i) the
time of the Registration Statement and each amendment and supplement
thereto, if any, becomes effective under the Securities Act, (ii) the
date of mailing of the Proxy Statement-Prospectus (or any amendment or
supplement thereto) to the shareholders of Navarre, (iii) the time of
the Navarre shareholders meeting, and (iv) at the Effective Time,
contain any untrue statements of a material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not false or misleading. If at any time prior to the
Effective Time any event or circumstances relating to the parties or
any of their respective officers or directors should be discovered
which should be set forth in an amendment to the Registration Statement
or a supplement to the Proxy Statement-Prospectus, the party learning
of such discovery shall promptly inform the other party.
6.8. DIRECTOR NOMINEES
One member of Navarre's Board of Directors shall have the right to
serve on the Board of Directors of Bancshares and one member of Navarre's Board
of Directors shall have the right to serve on the Board of Directors of
Citizens, each for a three (3) year term. Navarre hereby agrees to cause its
Board of Directors to provide Bancshares with nominees, subject to Bancshares'
approval, to serve as Directors of Bancshares and Citizens effective at or prior
to Bancshares' 1997 annual shareholder meeting.
6.9. ADVISORY BOARD
The members of the Board of Directors of Navarre will be given the
opportunity to serve on the Stark County Advisory Board for Citizens for a
period of five years.
6.10. ACCOUNTING AND TAX TREATMENT
Each of the parties hereto agrees not to take any actions subsequent to
the date of this Agreement that would adversely affect the ability of Bancshares
to treat the Merger as a "pooling-of-interests" in accordance with GAAP or the
characterization of the Merger as a tax-free reorganization under Section 368(a)
of the IRC, and each of the parties hereto agree to take such action as may be
reasonably required, if such action may be reasonably taken to reverse the
impact of any past actions which would adversely impact the ability of
Bancshares to treat the Merger as
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a "pooling-of-interests" for accounting purposes or of the Merger to be
characterized as a tax-free reorganization under Section 368(a) of the IRC.
6.11. AFFILIATES COMPLIANCE WITH THE SECURITIES ACT
a) Within 30 days after the date of this Agreement Navarre shall identify
to Bancshares all persons whom it reasonably believes are its
"affiliates" as that term is used in paragraphs (c) and (d) of Rule 145
under the Securities Act and/or Accounting Series, Releases 130 and
135, as amended, of the Commission (the "Rule 145 AFFILIATES").
Thereafter and until the Effective Time, Navarre shall identify to
Bancshares each additional person whom it reasonably believes to have
thereafter become its Rule 145 Affiliate.
b) Navarre shall use its diligent efforts to cause each person who is
identified as a Rule 145 Affiliate pursuant to clause (a) above to
deliver to Bancshares not later than the date on which the Merger is
approved, a written agreement, substantially in the form of Exhibit
6.11. Because the Merger is intended to qualify for "pooling-of-
interests" accounting treatment, the shares of Bancshares Common
Stock received by such Rule 145 Affiliates in the Merger shall not be
transferable until such time as financial results covering at least 30
days of post- Merger operations have been published within the meaning
of Section 201.01 of the SEC's Codification of Financial Reporting
Policies, regardless of whether each such Rule 145 Affiliate has
provided the written agreement referred to in this Section, and the
certificates representing such shares will bear an appropriate
restrictive legend.
6.12. DIRECTORS AND OFFICERS INSURANCE
From and after the Effective Time Bancshares or Citizens shall
indemnify the officers and directors of Navarre who do not become officers and
directors of Bancshares or Citizens to the maximum extent permitted by the
Organizational Documents of Bancshares or Citizens for persons who were officers
or directors of Bancshares or Citizens.
For a period of at least three years following the Effective Time,
Bancshares shall maintain in effect the current insurance policies maintained by
Navarre (or substitute policies with substantially the same coverage and terms)
covering Navarre's directors' and officers' liability with respect to claims
which arise from factors or events which occurred before the Effective Time.
Navarre shall notify Bancshares prior to purchasing or continuing any insurance
to cover the matters contained herein, provided, however, it is the intent of
Bancshares that tail coverage will be purchased if such is available. To the
extent insurance is available under any of the provisions in this Section to
cover such claims and costs, such insurance shall be the primary source of
funding these obligations. Bancshares' obligation under this Section to pay for
insurance is limited to $15,000 less any rebate on Navarre's current directors'
and officers' liability insurance.
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6.13. TAKEOVER STATUTES AND PROVISIONS
Navarre shall take all necessary steps to (i) exempt Navarre, this
Agreement and the Merger from the requirements of any state takeover law
(including without limitation, statutes relating to business combinations,
control share acquisitions and merger moratoriums) and from any provisions under
its Organizational Documents, as applicable, by action of Navarre's Board of
Directors or otherwise, and (ii) assist in any challenge by Bancshares to the
applicability to the Merger of any state takeover law.
6.14. NASD LISTING
Bancshares will file a Form 10-C with the SEC and the National
Association of Securities Dealers, Inc. at the time prescribed by applicable
rules and regulations. In additions, Bancshares will use its best efforts to
maintain its listing on the Nasdaq National Market.
6.15. OPPORTUNITY OF EMPLOYMENT; BENEFITS AND TRAINING
Bancshares shall offer the existing full time employees of Navarre the
opportunity to become employees of Citizens or one of Bancshares' other
affiliates; provided however, that nothing in this Section 6.15 or elsewhere in
this Agreement shall be deemed to be a contract of employment or be construed to
give said employees any rights other than as employees at will under Ohio law
and said employees shall not be deemed to be third-party beneficiaries of this
provision. In addition, as of the Closing Date, Bancshares shall assume the
employment security agreements dated November 14, 1995 between Navarre and
Kenneth N. Koher and Navarre and Jeffrey J. Define, respectively. Navarre
employees who become employees of Citizens or one of Bancshares' other
affiliates will have their years of service credited toward eligibility and
vesting in Citizens' Profit Sharing Plan and Defined Benefit Pension Plan and
will be entitled to participate in and are subject to the terms of Bancshares'
ESOP and may participate in a variety of on-going training programs offered by
Citizens.
6.16. THE NAVARRE NAME
Following the Closing, the Navarre name will continue to be featured in
signage at all former Navarre branch locations. Given the notable recognition
associated with Navarre's name, Citizens would anticipate that the Navarre name
would also continue to be used in other, as yet undetermined, applications.
6.17. NAVARRE CUSTOMERS
As soon as reasonably practicable after the Closing, officers of
Citizens (including former Navarre officers) will make joint calls on larger
business and commercial customers of Navarre to insure their continued
satisfaction with the products and services available at Citizens.
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6.18. SHAREHOLDER APPROVAL
Navarre shall take all action necessary in accordance with applicable
law and its Organizational Documents to duly call and hold a meeting of its
shareholders, to be held as promptly as practicable after the Registration
Statement is declared effective by the SEC, to consider and vote on the adoption
and approval of the Merger. The Board of Directors of Navarre shall recommend
that its shareholders adopt and approve the Merger and shall take all lawful
action (including the solicitation from shareholders of proxies in favor of such
adoption and approval) to secure the vote or consent of shareholders required to
adopt and approve the Merger unless otherwise necessary under the applicable
fiduciary duties of the directors of Navarre as determined by such Board of
Directors in good faith after consultation with and based upon advice of
independent legal counsel.
6.19. DIVIDENDS
Navarre shall not declare, set aside, pay or make any dividend or other
distribution or payment (whether in cash, stock or property) with respect to, or
purchase or redeem, any shares of the capital stock other than regular quarterly
cash dividends in an amount not to exceed $.20 per share of Navarre Common Stock
for the March 31, 1996 quarter, not to exceed $.20 per share of Navarre Common
Stock for the June 30, 1996 quarter and not to exceed $.20 per share of Navarre
Common Stock for the September 30, 1996 quarter and any other quarter preceding
the Closing Date. It is agreed by the parties hereto that they will cooperate to
assure that as a result of the Merger, during any quarter, there shall not be a
payment of both a Bancshares and a Navarre dividend nor omission of payment of
dividends to shareholders of Navarre. The parties further agree that if the
Closing Date is at the end of a fiscal quarter then they will cooperate to
assure that the Navarre shareholders receive the dividend, if any, declared by
Navarre rather than the dividend for that quarter, if any, declared by
Bancshares.
6.20. ENVIRONMENTAL SURVEY
In the event Bancshares elects to conduct, or have conducted on its
behalf, an environmental review, study or assessment to verify the
representations and warranties given by Navarre with respect to Environmental
Matters referred to in Section 4.18 of this Agreement, such environmental
review, study, survey or assessment shall be completed, and all reports and
findings related thereto shall be disclosed to Navarre within 45 days of the
date hereof. Nothing in this Section, however, is intended to be a limit or a
waiver of the representation and warranty contained in Section 4.18.
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6.21. LARGE DEPOSITS
Navarre will have provided Bancshares and Citizens with a list of all
certificates of deposit or checking, savings or other deposits owned by
directors and officers of Navarre and their respective affiliates as of the last
day of the calendar month immediately prior to the Closing. In addition, Navarre
shall provide Bancshares and Citizens with a list of (i) all certificates of
deposit, checking, savings or other deposits in excess of $25,000 and (ii) all
customers with aggregate deposits in excess of $50,000.
6.22. BEST EFFORTS
Between the date of this Agreement and the Closing Date, Navarre and
Bancshares will use their Best Efforts to cause the conditions in Sections 7 and
8 to be satisfied.
6.23. NAVARRE RETIREMENT PLANS
Navarre will use its best efforts to make such filings, including
appropriate filings seeking IRS approval of the Plans' qualified status, and
take such other actions as are necessary to terminate the The Navarre Deposit
Bank Company 401(k) Plan and the The Navarre Deposit Bank Company Defined
Benefit Pension Plan and Trust at Closing. The obligation to make such filings
and take such actions to terminate the Plans does not include any obligation to
distribute Plan assets prior to Closing. In taking such action Navarre will
comply with the Plans and all applicable Legal Requirements. In the event
termination of the Plans and the distribution of benefits to all participants
has not been completed at or prior to Closing, Bancshares shall assume the
responsibility to complete such process, provided that if the Plan assets are
not sufficient to provide all Accrued Benefits or benefits promised under the
terms and conditions of such Plans at the time of distribution by Bancshares
subsequent to Closing, unless Bancshares causes the insufficiency through
Bancshares' actions or inaction subsequent to Closing, Bancshares shall have the
option to revoke the termination of either or both of the Plans and administer
the Plan(s) in any manner Bancshares determines appropriate in its absolute
discretion.
7. CONDITIONS PRECEDENT TO BANCSHARES' OBLIGATION TO CLOSE
Bancshares' obligation to consummate the Merger and to take the other
actions required to be taken by Bancshares at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Bancshares, in whole or in part):
7.1. ACCURACY OF REPRESENTATIONS
(a) All of Navarre's representations and warranties in this Agreement
(considered collectively), and each of these representations and
warranties (considered individually), must have been accurate in all
material respects as of the date of this Agreement, and must be
accurate in all
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material respects as of the Closing Date as if made on the Closing
Date, without giving effect to any supplement to Navarre's Disclosure
Letter.
(b) Each of Navarre's representations and warranties in Sections 4.3, 4.4,
4.11, and 4.21 must have been accurate in all respects as of the date
of this Agreement, and must be accurate in all respects as of the
Closing Date as if made on the Closing Date, without giving effect to
any supplement to Navarre's Disclosure Letter.
7.2. NAVARRE'S PERFORMANCE
(a) All of the covenants and obligations that Navarre is required to
perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed
and complied with in all material respects.
(b) Each document required to be delivered pursuant to Section 9.2 must
have been delivered, and each of the other covenants and obligations in
Sections 6.4 and 6.22 must have been performed and complied with by
Navarre in all respects.
7.3. CONSENTS
Each of the Consents identified in Section 5.2 must have been obtained
and must be in full force and effect.
7.4. ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Bancshares:
(a) an opinion of Emens, Kegler, Brown, Hill & Ritter dated the Closing
Date, substantially in the form of Exhibit 7.4(a);
(b) such other documents as Bancshares may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to
in Section 8.4(a), (ii) evidencing the accuracy of any of Navarre's
representations and warranties, (iii) evidencing the performance by
Navarre, or the compliance by Navarre with, any covenant or obligation
required to be performed or complied with by Navarre, (iv) evidencing
the satisfaction of any condition referred to in this Section 7, or (v)
otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
7.5. NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced
against Bancshares, or against any Person affiliated with Bancshares, any
Proceeding excluding proxy contests (a) involving any challenge to, or seeking
damages or other relief in connection with, any
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of the Contemplated Transactions, or (b) which Bancshares' Board of Directors,
after an evaluation of the circumstances, determines may have the effect of
preventing or making illegal the Contemplated Transactions.
7.6. NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Bancshares or any Person affiliated with Bancshares to
suffer any material adverse consequence under, (a) any applicable Legal
Requirement or Order, or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise formally proposed by or before any
Governmental Body.
7.7. REGISTRATION STATEMENT
The Registration Statement shall have become effective under the
Securities Act and no stop orders or similar restraining orders suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or, to the Knowledge of
Navarre or Bancshares, threatened by the SEC.
7.8. BLUE SKY APPROVALS
Bancshares shall have received all state securities and "blue sky"
permits and other authorizations and approvals necessary to consummate the
Merger and the Contemplated Transactions and no order restraining the ability of
Bancshares to issue shares of Bancshares Common Stock pursuant to the Merger
shall have been issued and no proceedings for that purpose shall have been
initiated or Threatened by any state securities administrator.
7.9. BANCSHARES COMMON STOCK CLOSING PRICE
The Average Closing Price is $34.00 or greater.
7.10. TREASURY SHARES AND DISSENTERS' RIGHTS
In the aggregate, no more than ten percent (10%) of the issued Navarre
Common Shares shall be held (i) in Navarre's treasury and (ii) by Navarre
shareholders who have taken such actions as are required by ORC Sections 1121.09
and 1701.85 to be entitled to relief as a dissenting shareholder in connection
with the transactions contemplated by this Agreement.
7.11. BOARD AND SHAREHOLDER APPROVAL
The Board of Directors of Navarre shall have approved and Navarre
shareholders shall have adopted the Merger.
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7.12 ACCOUNTING TREATMENT
Bancshares shall have received from Crowe, Chizek and Company, a letter
dated the Closing Date, substantially in the Form of Exhibit 7.10, stating its
opinion that, based upon the information furnished, the transactions
contemplated by this Agreement should be accounted for by Bancshares as a
"pooling of interests" for financial statement reporting purposes and that such
accounting treatment is in accordance with generally accepted accounting
principles.
7.13. LARGE DEPOSITS
Navarre will have provided Bancshares and Citizens with a list of all
certificates of deposit or checking, savings or other deposits owned by
directors and officers of Navarre and their respective affiliates as of the last
day of the calendar monthly immediately prior to the Closing. In addition,
Navarre shall provide Bancshares and Citizens with a list of (i) all
certificates of deposit, checking, savings or other deposits in excess of
$25,000 and (ii) all customers with aggregate deposits in excess of $50,000.
8. CONDITIONS PRECEDENT TO NAVARRE'S OBLIGATION TO CLOSE
Navarre's obligation to consummate the Merger and to take the other
actions required to be taken by Navarre at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Navarre, in whole or in part):
8.1. ACCURACY OF REPRESENTATIONS
(a) All of Bancshares' representations and warranties in this Agreement
(considered collectively), and each of these representations and
warranties (considered individually), must have been accurate in all
material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Closing Date as if made on
the Closing Date, without giving effect to any supplement to
Bancshares' Disclosure Letter.
(b) Each of Bancshares' representations and warranties in Sections 5.3,
5.4, 5.7, 5.9, 5.10, 5.12 and 5.15 must have been accurate in all
respects as of the date of this Agreement, and must be accurate in all
respects as of the Closing Date as if made on the Closing Date, without
giving effect to any supplement to Bancshares' Disclosure Letter.
8.2. BANCSHARES' PERFORMANCE
(a) All of the covenants and obligations that Bancshares is required to
perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been performed and
complied with in all material respects.
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(b) Each document required to be delivered pursuant to Section 9.3 must
have been delivered, and each of the other covenants and obligations in
Sections 6.4 and 6.22 must have been performed and complied with by
Bancshares in all respects.
8.3. CONSENTS
Each of the Consents identified in Section 4.2 must have been obtained
and must be in full force and effect.
8.4. ADDITIONAL DOCUMENTS
Bancshares must have caused the following documents to be delivered to
Navarre:
(a) opinions of Squire, Sanders and Dempsey and The Hull Law Office, dated
the Closing Date, substantially in the form of Exhibit 8.4(a); and
(b) such other documents as Navarre may reasonably request for the purpose
of (i) enabling its counsel to provide the opinion referred to in
Section 7.4(a), (ii) evidencing the accuracy of any representation or
warranty of Bancshares, (iii) evidencing the performance by Bancshares
of, or the compliance by Bancshares with, any covenant or obligation
required to be performed or complied with by Bancshares, (ii)
evidencing the satisfaction of any condition referred to in this
Section 8, or (v) otherwise facilitating the consummation of any of the
Contemplated Transactions.
8.5. NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced
against Navarre, or against any Person affiliated with Navarre, any Proceeding,
excluding proxy contests (a) involving any challenge to, or seeking damages or
other relief in connection with, any of the Contemplated Transactions, or (b)
that Navarre's Board of Directors, after an evaluation of the circumstances
determines may have the effect of preventing or making illegal the Contemplated
Transactions.
8.6. NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Navarre or any Person affiliated with Navarre to suffer
any material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise formally proposed by or before any Governmental Body.
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8.7 SHAREHOLDER APPROVAL
This Agreement and the transactions contemplated hereby shall have been
duly adopted and approved by the requisite vote of the shareholders of Navarre
in accordance with the provisions of the ORC, other applicable law and the
Organizational Documents of Navarre.
8.8. REGISTRATION STATEMENT
The Registration Statement shall have become effective under the
Securities Act and no stop orders or similar restraining orders suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or, to the Knowledge of
Navarre or Bancshares, threatened by the SEC.
8.9. BLUE SKY APPROVALS
Bancshares shall have received all state securities and "blue sky"
permits and other authorizations and approvals necessary to consummate the
Merger and the Contemplated Transactions and no order restraining the ability of
Bancshares to issue shares of Bancshares Common Stock pursuant to the Merger
shall have been issued and no proceedings for that purpose shall have been
initiated or Threatened by any state securities administrator.
8.10. LISTING
The shares of Bancshares Common Stock to be issued by Bancshares
pursuant to the Merger shall have been approved for listing on the Nasdaq
National Market subject to official notice of issuance.
8.11. TAX AND ACCOUNTING OPINIONS
Navarre shall have obtained an opinion of its counsel, reasonably
satisfactory in form and substance to Navarre and Bancshares and dated as of
Closing, to the effect that (i) the Merger will constitute a tax-free
reorganization within the meaning of Section 368(a)(1)(A) of the IRC by reason
of the application of IRC Section 368(a)(2)(D), (ii) no gain or loss will be
recognized by Bancshares, Citizens or Navarre as a consequence of the
transaction contemplated herein, and (iii) no gain or loss will be recognized by
the shareholders of Navarre upon the conversion of their shares of Navarre
Common Stock into shares of Bancshares Common Stock pursuant to the terms of the
Merger (except for the effect of any cash received in lieu of fractional shares
or pursuant to dissenters rights.)
Bancshares shall have received a letter, dated the date of the Closing,
from Crowe, Chizek and Company substantially in the form of Exhibit 7.10 to the
effect that, for financial reporting purposes, the Merger qualifies for
pooling-of-interests accounting treatment under GAAP, if consummated in
accordance with this Agreement.
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8.12 BANCSHARES COMMON STOCK CLOSING PRICE
The Average Closing Price is $24.50 or less.
8.13. FAIRNESS OPINION
The receipt of a fairness opinion from McDonald & Company Securities,
Inc., dated as of a date reasonably proximate to the Effective Date of the
Registration Statement stating that as of the date of such opinion, the Exchange
Ratio pursuant to this Agreement is fair to the Navarre shareholders from a
financial point of view.
9. CLOSING
9.1. DATE AND PLACE
The consummation of the Merger and the other transactions contemplated
hereby (the "Closing") shall be held as soon as practicable (but in any event
within 30 business days) following the date upon which all conditions set forth
in Sections 7 and 8 hereof have been satisfied or waived ("Closing Date"), at
the offices of Squire, Sanders and Dempsey, Cleveland, Ohio or such time, date
or place as Navarre and Bancshares shall mutually agree.
9.2. DELIVERIES BY NAVARRE
At the Closing, Navarre shall deliver to Bancshares, in form reasonably
acceptable to Bancshares' counsel:
a) True and complete copies of corporate resolutions, certified as of the
Closing Date by the Secretary of Navarre as having been duly adopted by
the Board of Directors and shareholders of Navarre as in effect on the
Closing Date, authorizing Navarre's execution and delivery of this
Agreement and consummation of the Merger and the other transactions
contemplated hereby.
b) Navarre's Organizational Documents as in effect on the Closing Date,
certified by the Secretary of Navarre.
c) A certificate duly executed by the chief executive officer and
principal financial officer of Navarre, dated as of the Closing Date,
each certifying that, (i) Navarre has fully performed, satisfied and
complied with all agreements, obligations, covenants and conditions
required by this Agreement to be performed, satisfied or complied with
at or prior to the Closing, (ii) all of the representations and
warranties of Navarre set forth in Section 4 of this Agreement are true
and correct as of the Closing Date, and (iii) that to his Knowledge,
that Navarre participated in the preparation of the Registration
Statement and the Proxy Statement - Prospectus, including review and
discussion of the contents thereof, and nothing came to the
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attention of Navarre that caused it to believe that the Registration
Statement or the Proxy Statement - Prospectus at the time such
documents became effective, and as of the date of Closing, contained
any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they are made, not misleading.
d) A certificate of Good Standing of Navarre dated within five business
days of the Closing Date, issued by the Secretary of State of Ohio as
to the legal existence and good standing of Navarre as of such date.
e) An opinion of counsel for Navarre, dated as of the Closing Date,
substantially in the form of Exhibit 7.4(a).
f) Counterparts of the Plan and Agreement of Merger and Certificate of
Merger, duly executed by each of the parties.
g) All other items required to be delivered by Navarre to Bancshares
hereunder.
h) Such other documents, instruments and certificates relating to the
transactions contemplated hereby as Bancshares may reasonably request.
9.3. DELIVERIES BY BANCSHARES
At the Closing, Bancshares shall deliver to Navarre, in form reasonably
acceptable to Navarre's counsel:
a) True and complete copies of corporate resolutions, certified as of the
Closing Date by the Secretary of Bancshares and Citizens as having been
duly adopted by the Board of Directors of Bancshares and the Board of
Directors and Shareholder of Citizens as in effect on the Closing Date,
authorizing Bancshares' and Citizens' execution and delivery of this
agreement and consummation of the Merger and the other transactions
contemplated hereby.
b) Bancshares' and Citizens' Organizational Documents as in effect on the
Closing Date, certified by the Secretary of Bancshares and Citizens.
c) A certificate duly executed by the chief executive officer and
principal financial officer of Bancshares dated as of the Closing Date,
each certifying that, (i) Bancshares has fully performed, satisfied and
complied with all agreements, obligations, covenants and conditions
required by this Agreement to be performed, satisfied or complied with
at or prior to the Closing, (ii) all of the representations and
warranties of Bancshares set forth in Section 5 of this Agreement are
true and correct as of the Closing Date, and (iii) that to his
Knowledge, that Bancshares participated in the preparation of the
Registration Statement and the Proxy Statement - Prospectus, including
review and discussion of the contents thereof, and nothing came to the
attention of Bancshares that caused it to believe that the Registration
Statement or the Proxy Statement - Prospectus at the time such
documents became effective, and as of
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the date of Closing, contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
d) Certificates of Good Standing of Bancshares and Citizens, dated within
five business days of the Closing Date, issued by the Secretary of
State of each state in which Bancshares or Citizens is incorporated or
qualified as a foreign corporation, as to the legal existence and good
standing of the party as of such date.
e) An opinion of counsel of Bancshares, dated as of the Closing Date,
substantially in the form of Exhibit 8.4(a).
f) Counterparts of the Plan and Agreement of Merger and Certificate of
Merger, duly executed by each of the parties.
g) All other items required to be delivered by Bancshares to Navarre
hereunder.
h) Such other documents, instruments and certificates relating to the
transactions contemplated hereby as Navarre may reasonably request.
9.4. EFFECTIVENESS OF CLOSING
No action to be taken or delivery to be made at the Closing shall be
effective until all of the actions to be taken and all of the deliveries to be
made at the Closing are complete.
10. TERMINATION
10.1. TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) by either Bancshares or Navarre if a material Breach of any provision
of this Agreement has been committed by the other party and such Breach
has not been waived;
(b) (i) by Bancshares if any of the conditions in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such a condition
is or becomes impossible (other than through the failure of Bancshares
to comply with its obligations under this Agreement) and Bancshares has
not waived such condition on or before the Closing Date; or (ii) by
Navarre, if any of the conditions in Section 8 has not been satisfied
as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Navarre to comply
with its obligations under this Agreement) and Navarre has not waived
such condition on or before the Closing Date;
(c) by mutual consent of Bancshares and Navarre; or
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(d) by either Bancshares or Navarre if the Closing has not occurred (other
than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on
or before December 31, 1996 unless the failure to consummate by such
date is related to the action or inaction of the Governmental Bodies,
then on or before March 31, 1997, or such later date as the parties may
agree upon.
10.2. EFFECT OF TERMINATION
Each party's right of termination under Section 10.1 is in addition to
any other rights it may have under this Agreement or otherwise, and the exercise
of a right of termination will not be an election of remedies. If this Agreement
is terminated pursuant to Section 10.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections
11.1 and 11.3 will survive; provided, however, that if this Agreement is
terminated by a party because of the Breach of the Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
10.3. LIABILITIES UPON TERMINATION
If Bancshares terminates this Agreement because of Navarre's failure to
meet the conditions set forth in Section 6.18 because of the Board of Directors
exercising of its fiduciary duty pursuant to Sections 6.6 and 6.18, then Navarre
shall pay to Bancshares the sum of $500,000. If Navarre terminates this
Agreement as a result of its determination that the condition set forth in
Section 8.5 exists and Navarre does not waive said condition then Navarre shall
pay to Bancshares, Bancshares' reasonable expenses in connection with the
transaction up to $250,000.
11. GENERAL PROVISIONS
11.1. EXPENSES
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. Bancshares shall be responsible for all expenses
incident to the obtaining of the requisite regulatory approvals. Without
limiting the generality of the foregoing, the expenses to be assumed by
Bancshares shall include (i) all expenses for its own legal counsel and other
expenses incurred by Bancshares incident to the preparation and filing of
applications on its behalf and on behalf of Navarre and other requests for
regulatory consents and approvals with the appropriate regulatory agencies as
contemplated by this Agreement; and (ii) all expenses for its own legal counsel
and all other expenses incurred in connection with the registration of the
Bancshares Common Stock under the federal and state securities laws. Navarre
will pay all amounts payable to McDonald & Company Securities, Inc. in
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connection with this Agreement and the Contemplated Transactions. In the event
of termination of this Agreement, the obligation of each party to pay its own
expenses will be subject to any rights of such party arising from a breach of
this Agreement by another party.
11.2. PUBLIC ANNOUNCEMENTS
The initial press release announcing this Agreement shall be a joint
press release in a form mutually agreed upon by the parties and thereafter
Navarre and Bancshares shall consult with each other and provide a written copy
to each other prior to issuing any press releases, or otherwise making public
statements, with respect to the transactions contemplated hereby and in making
any filings with any Governmental Body. Navarre and Bancshares will consult with
each other concerning the means by which Navarre's employees, customers, and
others having dealings with Navarre will be informed of the Contemplated
Transactions, and Bancshares will have the right to be present for any such
communication.
11.3. CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, Bancshares and
Navarre will maintain in confidence, and will cause the respective directors,
officers, employees, agents, and advisors of Bancshares and Navarre to maintain
in confidence, and not use to the detriment of the other party any written,
oral, or other information obtained in confidence from the other party in
connection with this Agreement or the Contemplated Transactions, unless (a) such
information is already known to such party or to others not bound by a duty of
confidentiality or such information becomes publicly available through no fault
of such party, (b) the use of such information is necessary or appropriate in
making any filing or obtaining any consent or approval required for the
consummation of the Contemplated Transactions, or (c) the furnishing or use of
such information is necessary or appropriate in connection with legal
proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request. Whether or not the Closing takes place, each party waives
any cause of action, right, or claim arising out of the access of the other
party or its representatives to any trade secrets or other confidential
information of the other party except for the intentional competitive misuse by
such party of such trade secrets or confidential information.
11.4. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES
The representations and warranties or covenants in this Agreement will
terminate at the Effective Time or the earlier termination of this Agreement
pursuant to Section 10.1, as the case may be; provided, however, that if the
Merger is consummated, Sections 2, 3, 6.4, 6.8, 6.9, 6.10, 6.11, 6.12, 6.13,
6.14, 6.15, 6.16, 6.17, 11.1, 11.4, 11.5 and 11.8 will survive the Effective
Time to the extent contemplated by such Sections.
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11.5. NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
The Navarre Deposit Bank Company:
15 N. Main St.
Navarre, Ohio 44662
Attention: Ken Koher
Facsimile No.: (216) 879-5400
with a copy to:
Emens, Kegler, Brown, Hill & Ritter
65 East State Street, Suite 1800
Columbus, Ohio 43215
Attention: John C. Deal
Facsimile No.: (614) 464-2634
Citizens Bancshares, Inc.:
10 E. Main Street
Salineville, Ohio 43945
Attention: Marty Adams
Facsimile No.: (216) 679-0530
with a copy to:
Squire, Sanders & Dempsey
4900 Society Tower
127 Public Square
Cleveland, Ohio 44114
Attention: M. Patricia Oliver
Facsimile No.: (216) 479-8776
11.6. JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against any of the
parties in the courts of the State
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of Ohio, County of Columbiana, or, if it has or can acquire jurisdiction, in the
United States District Court for the Northern District of Ohio, and each of the
parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world.
11.7. FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such
further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement.
11.8. WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
11.9. ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter and constitutes (along with the documents referred
to in this Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This Agreement
may not be amended except by a written agreement executed by the party to be
charged with the amendment.
11.10. DISCLOSURE LETTERS
(a) The disclosures in the Disclosure Letters, and those in any Supplement
thereto, must relate only to the representations and warranties in the
Section of the Agreement to which they expressly relate and not to any
other representation or warranty in this Agreement.
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(b) In the event of any inconsistency between the statements in the body of
this Agreement and those in the Disclosure Letters (other than an
exception expressly set forth as such in the Disclosure Letters with
respect to a specifically identified representation or warranty), the
statements in the body of this Agreement will control.
11.11. ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without
the prior consent of the other parties, which may be withheld, except that
Bancshares may assign any of its rights under this Agreement to any Subsidiary
of Bancshares. Subject to the preceding sentence, this Agreement will apply to,
be binding in all respects upon, and inure to the benefit of the successors and
permitted assigns of the parties. Except as specifically set forth herein,
nothing expressed or referred to in this Agreement will be construed to give any
Person other than the parties to this Agreement any legal or equitable right,
remedy, or claim under or with respect to this Agreement or any provision of
this Agreement. This Agreement and all of its provisions and conditions are for
the sole and exclusive benefit of the parties to this Agreement and their
successors and assigns.
11.12. SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
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11.13. SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
11.14. CERTAIN OBLIGATIONS OF BANCSHARES
Whenever this Agreement requires Bancshares or a Subsidiary of
Bancshares to take any action, this Agreement shall be deemed to include an
undertaking on the part of Bancshares to cause such Subsidiary to take such
action.
11.15. GOVERNING LAW
This Agreement will be governed by the laws of the State of Ohio
without regard to conflicts of laws principles.
11.16. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
CITIZENS BANCSHARES, INC.: THE NAVARRE DEPOSIT BANK COMPANY:
By:/s/ Marty E. Adams By:/s/ Kenneth N. Koher
----------------------------- ----------------------------------
Marty E. Adams, President Kenneth N. Koher, President
THE CITIZENS BANKING COMPANY:
By:/s/ Marty E. Adams
-----------------------------
Marty E. Adams, President
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APPENDIX B
DISSENTERS' RIGHTS UNDER SECTIONS 1121.09 AND 1701.85 OF THE OHIO REVISED CODE
<PAGE> 181
APPENDIX B
DISSENTERS' RIGHTS UNDER SECTIONS 1121.09 AND 1701.85 OF THE OHIO REVISED CODE
1121.09 DISSENTING SHAREHOLDERS
Unless the articles of the state bank otherwise provide, any
shareholder of a bank organized under the laws of this state, whose assets have
been transferred to another state or national bank by the board of directors
pursuant to division (B) of section 1121.05 of the Revised Code, who did not
vote in favor of any proposed consolidation, merger, or transfer authorized by
such section, shall be paid the fair cash value of his shares as of the day
before the vote was taken authorizing any such action, excluding from any such
fair cash value any appreciation or depreciation in consequence of the
consolidation, merger, or transfer which entitled him to such relief. Section
1701.85 of the Revised Code shall govern with respect to all rights of such
shareholder and any limitations thereon. Any shareholder who does not object and
demand in writing the payment of the fair cash value of his shares in the manner
and at the time provided in such section, shall be bound by the vote of the
board or the assenting shareholders of such state bank.
1701.85 QUALIFICATIONS OF AND PROCEDURES FOR DISSENTING SHAREHOLDERS
(A)(l) 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.
(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
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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 nay be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with interest at
such rate and from such date as the court considers equitable. The costs of the
proceeding, including reasonable compensation to the appraisers to be fixed by
the court, shall be assessed or apportioned as the court considers equitable.
The proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505. of the
Revised Code. If, during the pendency of any proceeding instituted under this
section, a suit or proceeding is or has been instituted to enjoin or otherwise
to prevent the carrying out of the action as to which the shareholder has
dissented, the proceeding instituted under this section shall be stayed until
the final determination of the other suit or proceeding. Unless any provision in
division (D) of this section is applicable, the fair cash value of the shares
that is agreed upon by the parties or fixed under this section shall be paid
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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 directors waives such failure;
(b) The corporation abandons the action involved or is finally enjoined
or prevented from carrying it out, or the shareholders rescind their adoption of
the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder nor
the corporation has filed or joined in a complaint under division (B) of this
section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
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APPENDIX C
FAIRNESS OPINION OF MCDONALD & COMPANY
<PAGE> 185
[McDONALD & COMPANY SECURITIES, INC. LETTERHEAD]
April 3, 1996
Board of Directors
The Navarre Deposit Bank Company
15 North Main Street
Navarre, OH 44662
Gentlemen and Madam:
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 common stock,
par value $5.00 per share ("Navarre Common"), of The Navarre Deposit Bank
Company ("Navarre") of the exchange ratio (the "Exchange Ratio") as set forth
in Section 3.1 of the Plan and Agreement of Merger, dated April 4, 1996 (the
"Merger Agreement"), by and among Citizens Bancshares, Inc. ("Bancshares"), The
Citizens Banking Company, a wholly owned subsidiary of Bancshares ("Citizens"),
and Navarre.
The Merger Agreement provides for the merger (the "Merger") of Navarre
with and into Citizens, pursuant to which, among other things, at the Closing
(as defined in the Merger Agreement), outstanding shares of Navarre Common will
be exchanged for a specified number of shares of common stock, without par value
("Bancshares Common") of Bancshares as set forth in Section 3.1 of the Merger
Agreement. Under the terms of the Merger Agreement, the Exchange Ratio will be
determined by reference to the average of the closing prices of Bancshares
Common as reported on the Nasdaq National Market during the twenty trading days
immediately preceding the tenth trading day prior to the Closing Date (the
"Average"). The terms and conditions of the Merger are more fully set forth in
the Merger Agreement.
McDonald & Company Securities, 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 unlisted securities,
private placements and valuations for estate, corporate and other purposes.
<PAGE> 186
Board of Directors
April 3, 1996
Page 2
We have acted as Navarre's financial advisor in connection with, and
have participated in certain of the negotiations leading to, the execution of
the Merger Agreement. In connection with rendering our opinion set forth
herein, we have among other things:
(i) Reviewed Navarre's Annual Reports for each of the years ended
December 31, 1995, December 31, 1994 and December 31, 1993,
including the audited financial statements contained therein;
(ii) Reviewed Bancshares' Annual Reports to Shareholders and Annual
Reports on Form 10-K for each of the years ended December 31,
1995, December 31, 1994 and December 31, 1993, 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 Navarre and
Bancshares furnished to us and prepared by Navarre and
Bancshares;
(iv) Participated in meetings and telephone conferences with members
of senior management of Navarre and Bancshares concerning the
financial condition, business, assets, financial forecasts and
prospects of the respective companies as well as other matters
which we believe were relevant to our inquiry;
(v) Reviewed certain stock market information for Navarre Common and
Bancshares Common, 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
Navarre and Bancshares 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 Merger Agreement and its schedules and exhibits and
certain related documents; and
<PAGE> 187
Board of Directors
April 3, 1996
Page 3
(ix) Performed such other analyses as we have deemed appropriate.
In our review and analysis in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all the financial and other
information reviewed by us and have relied upon the accuracy and completeness
of the representations and warranties of Navarre and Bancshares contained in
the Merger Agreement, without undertaking any responsibility for independent
investigation or verification of such matters. We have not conducted a physical
inspection of any of the assets, properties or facilities of either Navarre or
Bancshares, nor have we made or obtained or been furnished with any independent
evaluation or appraisal of any of such assets, properties or facilities or any
of the liabilities of either Navarre or Bancshares. With respect to financial
forecasts provided to us by management of Navarre and Bancshares, we have
assumed, with each party's consent, that such forecasts have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the management of Navarre and Bancshares as to the future
performance of Navarre and Bancshares. We express no view as to such financial
forecasts or earnings estimates, 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 Merger Agreement, including the tax-free treatment of the
Merger to the holders of Navarre Common, would be satisfied and that the Merger
would be consummated on a timely basis in the manner contemplated by the Merger
Agreement.
We will receive a fee for our services as financial advisor to Navarre,
a significant portion of which is contingent upon consummation of the Merger.
Furthermore, in the ordinary course of business, we may actively trade
securities of Navarre and Bancshares 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 to
Navarre's stockholders, as of the date hereof, from a financial point of view,
of the Exchange Ratio, based on the current market price of Bancshares Common,
and does not address Navarre's underlying business decision to effect the
Merger or any other terms of the Merger and does not constitute a
recommendation to any Navarre shareholder as to how such shareholder should
vote with respect to the Merger. This opinion does not represent our opinion as
to what the value of Navarre Common or Bancshares Common may be at the Closing
Date or as to the prospects of Bancshares' business, nor are we making any
recommendation to Navarre's shareholders with respect to the advisability of
disposing or retaining Bancshares Common received pursuant to the Merger.
<PAGE> 188
Board of Directors
April 3, 1996
Page 4
This opinion has been prepared for the use of the Board of Directors
and senior management of Navarre and will 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 a proxy
statement to be mailed to the holders of Navarre Common 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 acceptable to
us and our counsel.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Exchange Ratio, pursuant to the Merger Agreement, is fair
to the holders of Navarre Common from a financial point of view.
Very truly yours,
/s/ McDonald & Company Securities, Inc.
------------------------------------------
MCDONALD & COMPANY SECURITIES, INC.
<PAGE> 189
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1701.13(E) of the Ohio Revised Code grants corporations broad
powers to indemnify directors, officers, employees and agents. Section
1701.13(E) provides:
(E)(1) A corporation may indemnify or agree to indemnify any
person who was or is a party or is threatened to be made a party, to
any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, other than
an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as
a director, trustee, officer, employee, member, manager, or agent of
another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or
other enterprise, against expenses, including attorney's 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 or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, if
he had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order,
settlement, or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, he had reasonable cause
to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any
person who was or is a party, or is threatened to be made a party, to
any threatened, pending, or completed action or suit by or in the right
of the corporation to procure a judgment in its favor, by reason of the
fact that he is or was a director, officer, employee, member, manager,
or agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee, member, manager,
or agent of another corporation, domestic or foreign, nonprofit or for
profit, a limited liability company, or a partnership, joint venture,
trust, or other enterprise, against expenses, including attorney's
fees, actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit, if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification shall
be made in respect of any of the following:
(a) Any claim, issue, or matter as to which such person is
adjudged to be liable for negligence or misconduct in the performance
of his duty to the corporation unless, and only to the extent that, the
court of common pleas or the court in which such action or suit was
brought determines, upon application, that, despite the adjudication of
liability, but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses
as the court of common pleas or such other court shall deem proper;
(b) Any action or suit in which the only liability asserted
against a director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee,
member, manager, or agent has been successful on the merits or
otherwise in defense of any action, suit, or proceeding referred to in
division (E)(1) or (2) of this section, or in defense of any claim,
issue, or matter
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therein, he shall be indemnified against expenses, including attorney's
fees, actually and reasonably incurred by him in connection with the
action, suit, or proceeding.
(4) Any indemnification under division (E)(1) or (2) of this
section, unless ordered by a court, shall be made by the corporation
only as authorized in the specific case, upon a determination that
indemnification of the director, trustee, officer, employee, member,
manager, or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in division (E)(1) or (2) of
this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of
the indemnifying corporation who were not and are not parties to or
threatened with the action, suit, or proceeding referred to in division
(E)(1) or (2) of this section;
(b) If the quorum described in division (E)(4)(a) of this
section is not obtainable or if a majority vote of a quorum of
disinterested directors so directs, in a written opinion by independent
legal counsel other than an attorney, or a firm having associated with
it an attorney, who has been retained by or who has performed services
for the corporation or any person to be indemnified within the past
five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which the
action, suit, or proceeding referred to in division (E)(1)(2) of this
section was brought.
Any determination made by the disinterested directors under
division (E)(4)(a) or by independent legal counsel under division
(E)(4)(b) of this section shall be promptly communicated to the person
who threatened or brought the action or suit by or in the right of the
corporation under division (E)(2) of this section, and, within ten days
after receipt of such notification, such person shall have the right to
petition the court of common pleas or the court in which such action or
suit was brought to review the reasonableness of such determination.
(5)(a) Unless at the time of a director's act or omission that
is the subject of an action, suit, or proceeding referred to in
division (E)(1) or (2) of this section, the articles or the regulations
of a corporation state, by specific reference to this division, that
the provisions of this division do not apply to the corporation and
unless the only liability asserted against a director in an action,
suit, or proceeding referred to in division (E)(1) or (2) of this
section is pursuant to section 1701.95 of the Revised Code, expenses,
including attorney's fees, incurred by a director in defending the
action, suit, or proceeding shall be paid by the corporation as they
are incurred, in advance of the final disposition of the action, suit,
or proceeding upon receipt of an undertaking by or on behalf of the
director in which he agrees to do both of the following:
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or
failure to act involved an act or omission undertaken with deliberate
intent to cause injury to the corporation or undertaken with reckless
disregard for the best interests of the corporation;
(ii) Reasonably cooperate with the corporation concerning the
action, suit, or proceeding.
(b) Expenses, including attorney's fees, incurred by a
director, trustee, officer, employee, member, manager, or agent in
defending any action, suit, or proceeding referred to
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in division (E)(1) or (2) of this section, may be paid by the
corporation as they are incurred, in advance of the final disposition
of the action, suit, or proceeding, as authorized by the directors in
the specific case, upon receipt of an undertaking by or on behalf of
the director, trustee, officer, member, manager, employee, or agent to
repay such amount, if it ultimately is determined that he is not
entitled to be indemnified by the corporation.
(6) The indemnification authorized by this section shall not
be exclusive of, and shall be in addition to, any other rights granted
to those seeking indemnification under the articles, the regulations,
any agreement, a vote of shareholders or disinterested directors, or
otherwise, both as to action in their official capacities and as to
action in another capacity while holding their offices or positions,
and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, member, manager, or agent and shall inure
to the benefit of the heirs, executors, and administrators of such a
person.
(7) A corporation may purchase and maintain insurance or
furnish similar protection, including, but not limited to trust funds,
letters of credit, or self-insurance, on behalf of or for any person
who is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as
a director, trustee, officer, employee, member, manager, or agent of
another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or
other enterprise, against any liability asserted against him and
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 this section. Insurance may be
purchased from or maintained with a person in which the corporation has
a financial interest.
(8) The authority of a corporation to indemnify persons
pursuant to division (E)(1) or (2) of this section does not limit the
payment of expenses as they are incurred, indemnification, insurance,
or other protection that may be provided pursuant to divisions (E)(5),
(6), and (7) of this section. Divisions (E)(1) and (2) of this section
do not create any obligation to repay or return payments made by the
corporation pursuant to division (E)(5), (6), or (7).
(9) As used in division (E) of this section, "corporation"
includes all constituent entities in a consolidation or merger and the
new or surviving corporation, so that any person who is or was a
director, officer, employee, trustee, member, manager, or agent of such
a constituent entity, or is or was serving at the request of such
constituent entity as a director, trustee, officer, employee, member,
manager, or agent of another corporation, domestic or foreign,
nonprofit or for profit, a limited liability company, or a partnership,
joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving
corporation as he would if he had served the new or surviving
corporation in the same capacity.
Section 33 of the Regulations of Citizens Bancshares, Inc. states as
follows:
Section 33. Indemnification. The Corporation shall indemnify any
director or officer and any former director or officer of the Corporation and
any such director or officer who is or has served at the request of the
Corporation as a director, officer or trustee of another corporation,
partnership, joint venture, trust or other enterprise (and his heirs, executors
and administrators) against expenses, including attorney's fees, judgments,
fines and amounts paid in settlement, actually and reasonably incurred by him by
reason of the fact that he is or was such director, officer or trustee in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative to the full extent
permitted by applicable law. The indemnification provided for herein shall not
be deemed to restrict the power of the Corporation (i) to indemnify
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employees, agents and others to the extent not prohibited by law, (ii) to
purchase and maintain insurance or furnish similar protection on behalf of or
for any person who is or was a director, officer or employee of the Corporation,
or any person who is or was serving at the request of the Corporation as a
director, officer, trustee, employee or agent 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, and (iii) to enter into agreements with persons of the class
identified in clause (ii) above indemnifying them against any and all
liabilities (or such lesser indemnification as may be provided in such
agreements) asserted against or incurred by them in such capacities.
In addition, Bancshares has entered into indemnification agreements
with each of its directors and executive officers which expand the indemnitees'
rights in the event that Ohio law and Bancshares' Regulations are further
changed. Pursuant to the agreements, indemnitees receive the highest available
of the following: (i) the benefits provided by Bancshares' Regulations as of the
date of the agreement; (ii) the benefits provided by Bancshares' Regulations in
effect at the time that indemnification expenses are incurred; (iii) the
benefits allowable under Ohio law which is in effect on the date of the
agreement; (iv) the benefits allowable under the law of the jurisdiction under
which Bancshares exists at the time indemnifiable expenses are incurred; (v) the
benefits available under liability insurance obtained by Bancshares; (vi) the
benefits which would have been available to the indemnitee under a Bancshares
insurance policy which was in effect prior to and expired on May 8, 1986; or
(vii) such other benefits as are or may be otherwise available to the
indemnitee. The indemnification rights available under the agreements are
subject to certain exclusions, including a provision that no indemnification
shall be made if a court determines by clear and convincing evidence that the
indemnitee has acted or failed to act with deliberate intent to cause injury to,
or with reckless disregard for the best interests of, Bancshares.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are being filed as part of this Registration
Statement:
Exhibit No. Exhibit
(2) Plan and Agreement of Merger (included as Appendix A to the
Prospectus).
(3.1) Registrant's Third Amended Articles of Incorporation
(incorporated by reference in Exhibit 3(1) to the Form 10-Q
the Registrant for the quarter ended June 30, 1993).
(3.2) Registrant's Code of Regulations, as amended (incorporated by
reference in Exhibit 3(2) to the Form S-4 Registration
Statement No. 0-18209 of Registrant).
(5) Opinion of Squire, Sanders & Dempsey regarding legality.
(8) Form of Opinion of Emens, Kegler, Brown, Hill & Ritter
regarding tax matters.
(10) Material Contracts (incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
(21) Subsidiaries of the Registrant.
(23.1) Consent of Squire, Sanders & Dempsey (included in Exhibit
(5)).
(23.2) Consent of Crowe, Chizek and Company LLP.
(23.3) Consent of Emens, Kegler, Brown, Hill & Ritter regarding tax
matters.
(23.4) Consent of Robb, Dixon, Francis, Davis, Oneson & Company.
(27) Financial Data Schedule (EDGAR filing).
(99.1) Form of Proxy
(99.2) Fairness opinion dated April 3, 1996 delivered by McDonald &
Company Securities, Inc. (included as Appendix C to the
Prospectus.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim information.
The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration
S-5
<PAGE> 194
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.
The registrant undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph, 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.
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 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.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes that, 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 section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, 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 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.
S-6
<PAGE> 195
SIGNATURES
Pursuant to the requirements of the 1933 Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Salineville, Ohio, on August 2, 1996.
CITIZENS BANCSHARES, INC.
By: /s/ Marty E. Adams
------------------------------------------------
Marty E. Adams,
President and Chief Executive Officer
Pursuant to the requirements of the 1933 Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
/s/ Marty E. Adams August 2, 1996
- -------------------------------- --------------
Marty E. Adams, President, Date
Chief Executive Officer and
Director
/s/ William L. White August 2, 1996
- -------------------------------- --------------
William L. White, III Date
Chief Financial Officer and
Principal Accounting Officer
/s/ James C. McBane August 2, 1996
- -------------------------------- --------------
James C. McBane, Director Date
/s/ Fred H. Johnson, III August 2, 1996
- -------------------------------- --------------
Fred H. Johnson, III, Director Date
/s/ Keith D. Burgett August 2, 1996
- -------------------------------- --------------
Keith D. Burgett, Director Date
S-7
<PAGE> 196
/s/ Willard L. Davis August 2, 1996
- -------------------------------- --------------
Willard L. Davis, Director Date
/s/ Fred H. Johnson August 2, 1996
- -------------------------------- --------------
Fred H. Johnson, Date
Director
/s/ Kenneth E. McConnell August 2, 1996
- -------------------------------- --------------
Kenneth E. McConnell, Date
Director
/s/ Glenn F. Thorne August 2, 1996
- -------------------------------- --------------
Glenn F. Thorne, Date
Director
/s/ Gerard Mastroianni August 2, 1996
- -------------------------------- --------------
Gerard Mastroianni, Date
Director
/s/ Lee A. Smith August 2, 1996
- -------------------------------- --------------
Lee A. Smith, Director Date
of The Citizens Banking Company
/s/ Jonathan A. Levy August 2, 1996
- -------------------------------- --------------
Jonathan A. Levy, Director Date
of The Citizens Banking Company
S-8
<PAGE> 197
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
(2) Plan and Agreement of Merger (included as Appendix A to the
Prospectus).
(3.1) Registrant's Third Amended Articles of Incorporation
(incorporated by reference in Exhibit 3(1) to the Form 10-Q
the Registrant for the quarter ended June 30, 1993).
(3.2) Registrant's Code of Regulations, as amended (incorporated by
reference in Exhibit 3(2) to the Form S-4 Registration
Statement No. 0-18209 of Registrant).
(5) Opinion of Squire, Sanders & Dempsey regarding legality.
(8) Form of Opinion of Emens, Kegler, Brown, Hill & Ritter
regarding tax matters.
(10) Material Contracts (incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
(21) Subsidiaries of the Registrant.
(23.1) Consent of Squire, Sanders & Dempsey (included in Exhibit
(5)).
(23.2) Consent of Crowe, Chizek and Company LLP.
(23.3) Consent of Emens, Kegler, Brown, Hill & Ritter.
(23.4) Consent of Robb, Dixon, Francis, Davis, Oneson & Company.
(27) Financial Data Schedule (EDGAR filing).
(99.1) Form of Proxy.
(99.2) Fairness opinion dated April 3, 1996 delivered by McDonald &
Company Securities, Inc. (included as Appendix C to the
Prospectus).
E-1
<PAGE> 1
EXHIBIT (5)
OPINION OF SQUIRE, SANDERS & DEMPSEY REGARDING LEGALITY
<PAGE> 2
EXHIBIT (5)
July __, 1996
Citizens Bancshares, Inc.
10 East Main Street
Salineville, Ohio 43945
Ladies & Gentlemen:
We have acted as counsel for Citizens Bancshares, Inc. an Ohio
corporation (the "Corporation") in connection with a Registration Statement on
Form S-4 (Registration No. ____________) (the "Registration Statement") filed
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended, with respect to the offer and sale by the Corporation of up to ________
of its common shares, without par value (the "Shares"), to be issued to
shareholders of The Navarre Deposit Bank Company ("Navarre") upon consummation
of the merger of Navarre with and into The Citizens Banking Company, a
wholly-owned subsidiary of the Corporation, all as further described in the
Registration Statement.
We have reviewed the Registration Statement and the exhibits thereto,
and have examined such other documents and matters of law as we have deemed
necessary for purposes of this opinion. In rendering this opinion, we have
assumed there will be no changes in applicable law between the date of this
opinion and any date of issuance or delivery of the Shares.
Based upon the foregoing, it is our opinion that when issued and sold
in the manner described in the Registration Statement (including all exhibits
thereto) and in compliance with the Securities Act of 1933, as amended and all
applicable state securities laws, (i) the Shares will be duly authorized and
validly issued; (ii) the Shares will be fully paid and nonassessable, and (iii)
issuance of the Shares is not subject to any preemptive rights.
<PAGE> 3
Citizens Bancshares, Inc.
July __, 1996
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to us under the caption "Legal Matters"
in the proxy statement/prospectus included as part of the Registration
Statement.
Respectfully submitted,
/s/ Squire, Sanders & Dempsey
Squire, Sanders & Dempsey
<PAGE> 1
Exhibit (8)
------------------------------
FORM OF TAX OPINION
------------------------------
The Navarre Deposit Bank Company
and its Shareholders
15 North Main Street
Navarre, OH 44662
Re: The Merger of The Navarre Deposit Bank Company with and into
The Citizens Banking Company, a Wholly-Owned Subsidiary of
Citizens Bancshares, Inc. (the "Merger") -- Federal Income Tax
Opinion
Gentlemen:
Pursuant to Section 8.11 of the Reorganization Agreement (defined
below), you have requested our opinion respecting certain of the material
federal income tax consequences attendant with the Merger. Pursuant to the Plan
and Agreement of Merger, dated April 4, 1996 (the "Reorganization Agreement"),
by and among Citizens Bancshares, Inc., an Ohio corporation ("Bancshares"), The
Citizens Banking Company, an Ohio corporation and a wholly-owned subsidiary of
Bancshares ("Citizens") and The Navarre Deposit Bank Company, an Ohio
corporation ("Navarre"), Navarre shall merge with and into Citizens. Pursuant to
the Merger all issued and outstanding common shares, $5.00 par value per share,
of Navarre (the "Navarre Shares") shall be cancelled and converted into the
common shares, without par value, of Bancshares (the "Bancshares Shares").
Except as otherwise provided in this opinion letter, capitalized terms
not defined in this opinion shall have the meanings set forth in the
Reorganization Agreement or in the certificates delivered to our firm by
Bancshares and Navarre containing certain representations of Bancshares,
Citizens and Navarre (the "Representation Certificates"). All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
<PAGE> 2
The Navarre Deposit Bank Company
July ___, 1996
Page 2
We have acted as counsel to Navarre in connection with the negotiation,
preparation, execution and delivery of the Reorganization Agreement, and the
related transactions contemplated by the Reorganization Agreement.
EXAMINED DOCUMENTS
In connection with rendering our opinion, we have examined the
following:
1. The Reorganization Agreement,
2. the Representation Certificates, and
3. such other documents, records and matters of law as
we have deemed necessary or appropriate in connection
with the rendering of our opinion (collectively, the
"Examined Documents").
In our review and examination of each of the foregoing, we have
assumed, without independent investigation or examination (a) the genuineness of
all signatures, the authenticity of all original documents submitted to us, the
conformity to all original documents of all documents submitted to us as
certified or photostatic copies, and the authenticity of all such originals of
such letter documents; (b) the due execution, completion, acknowledgment and
public filing, where applicable, of any of the EXAMINED DOCUMENTS, as indicated
in such documents, and the delivery of all documents and instruments and the
consideration recited in such documents by all parties; (c) that all parties
have the necessary power and authority, corporate or otherwise, to execute and
deliver the EXAMINED DOCUMENTS, and documents attendant therewith, to which they
are a party and to perform their obligations under such documents, and that all
such actions have been duly and validly authorized by all necessary proceedings;
(d) that the EXAMINED DOCUMENTS, and documents attendant therewith, constitute
legal, valid and binding obligations of each party thereto enforceable against
each party in accordance with the respective terms, except (i) as enforcement of
such documents may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, moratorium, and other similar laws, both state and
federal, affecting the enforcement of creditors' rights or remedies in general,
from time to time in effect and (ii) subject to the general principles of
equity, regardless of whether such enforceability is considered in a proceeding
in equity or at law and the availability of equitable remedy; and (iii) subject
to the implied covenants of good faith, fair dealing and commercially reasonable
conduct, judicial discretion and instances of multiple or equitable remedies and
applicable public policies and laws.
<PAGE> 3
The Navarre Deposit Bank Company
July ___, 1996
Page 3
FACTUAL ASSUMPTIONS
In rendering our opinion, we have made the following factual
assumptions:
1. The factual representations of the parties contained
in the Representation Certificates, which we may deem
material to our opinion, are all true in all respects
as of the date of our opinion, except as may
otherwise be set forth in or contemplated by any of
the EXAMINED DOCUMENTS;
2. The factual representations and warranties, other
than those matters about which we specifically opine,
of the parties, contained in the EXAMINED DOCUMENTS,
which we may deem material to our opinion, are all
true in all respects as of the date hereof, except as
may be otherwise set forth in or contemplated by the
EXAMINED DOCUMENTS;
3. The transactions contemplated in the EXAMINED
DOCUMENTS and all the transactions related thereto or
contemplated thereby shall be consummated in
accordance with the terms and conditions of such
documents, except as may be set forth in or
contemplated by any closing document delivered by the
parties at the closing of the Merger;
4. Each document derived from a public authority is
accurate, complete and authentic and all official
public records (including their proper indexing and
filing) are accurate and complete; and
5. There are no agreements or understandings among the
parties, written or oral, and there is no usage of
trade or course of prior dealings among any of the
foregoing which would, in any case, define,
supplement or qualify the terms of the EXAMINED
DOCUMENTS (collectively, the "Factual Assumptions").
LIMITATIONS ON OUR OPINION
The following limitations shall apply with respect to our opinion:
1. Our opinion is based on the various provisions of the
Code, the Treasury Regulations promulgated
thereunder, and the interpretations thereof by the
Internal Revenue Service and the courts having
jurisdiction over such matters
<PAGE> 4
The Navarre Deposit Bank Company
July ___, 1996
Page 4
as of the date hereof, all of which are subject to
change either prospectively or retroactively. No
opinion is rendered with respect to the effect, if
any, of any pending or future legislation, judicial
or administrative regulation or ruling, which may
have a bearing on any of the foregoing. We have not
been asked to render an opinion with respect to any
federal income tax matters except those set forth
below. We have not been asked to render any opinion
respecting any foreign, local or state tax
consequences of the Merger. By rendering this
opinion, we undertake no responsibility to advise you
of any new developments in the application or
interpretation of the federal income tax laws.
Accordingly, our opinion should not be construed as
applying in any manner to any aspect of the
transactions contemplated by EXAMINED DOCUMENTS other
than as set forth below.
2. Our opinion does not consider the potential
application of the "golden parachute" provisions of
Sections 280G, 3121(v)(2) and 4999 of the Code or
Sections 305, 306, and 357 of the Code or the
regulations promulgated thereunder or the effect of
the classification of Navarre, Citizens or Bancshares
as a collapsible corporation within the meaning of
Section 341 of the Code.
3. Our opinion does not consider the survival and/or
availability to Bancshares, Citizens or Navarre,
after the Merger, of any federal income tax
attributes, including any net operating loss
carryforward, after application of any provision of
the Code, as well as the regulations promulgated
thereunder.
4. Our opinion does not consider the tax consequences of
the Merger that may be relevant to particular
securityholders of Navarre such as dealers in
securities, foreign persons, holders of options or
warrants, and holders of shares acquired upon
exercise of share options or in other compensatory
transactions.
5. Our opinion does not consider the tax consequences to
the Navarre shareholders of other transactions
effected prior to or after the Merger (whether or not
such transactions are consummated in connection with
the Merger).
6. All the factual assumptions set forth above are
material to our opinion and have been relied upon by
us in rendering our opinion. Any inaccuracy in any
one or more of the FACTUAL ASSUMPTIONS may render all
or a part of our opinion inapplicable to the
transactions contemplated by the EXAMINED DOCUMENTS.
<PAGE> 5
The Navarre Deposit Bank Company
July ___, 1996
Page 5
OPINION
Based upon the foregoing and subject to the qualifications set forth
herein, it is our opinion that:
1. The Merger shall be a reorganization within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Code.
2. No gain or loss shall be recognized by Bancshares,
Citizens or Navarre as a consequence of participating
in the Merger.
3. No gain or loss shall be recognized by the Navarre
shareholders who exchange all their Navarre Shares
solely for shares of Bancshares Shares pursuant to
the Merger.
4. The aggregate basis of the Bancshares Shares to be
received by each Navarre shareholder (including a
fractional share interest not actually received)
shall be the same, in each instance, as the basis of
the Navarre Shares surrendered in exchange therefor.
5. The holding period of the shares of Bancshares Shares
to be received by each Navarre shareholder in the
Merger shall include the period during which the
Navarre Shares surrendered in exchange therefor was
held; provided, that, such Navarre Shares is held as
a capital asset in the hands of such Navarre
shareholder.
6. Navarre shareholders who exercise dissenters' rights
with respect to their Navarre Shares and who receive
payments for such shares in cash shall generally
recognize capital gain or loss for federal income tax
purposes, measured by the difference between such
Navarre shareholder's basis in such Navarre Shares
and the amount of cash received therefor; provided,
that, such Navarre Shares was held as a capital asset
at the time of the Merger.
7. Cash payments received in lieu of fractional
Bancshares Share interests shall be treated as if
such fractional shares had been received in the
Merger and then redeemed by Bancshares. A Navarre
shareholder receiving such cash shall recognize gain
or loss upon such payment equal to the difference
between such Navarre shareholder's basis in the
fractional share interest and the amount of
<PAGE> 6
The Navarre Deposit Bank Company
July ___, 1996
Page 6
the cash received in exchange therefor. The resulting
gain or loss shall be capital gain or loss if such
Navarre Shares exchanged for such fractional share
interest was held as a capital asset by such Navarre
shareholder on the effective date of the Merger.
This opinion represents our best judgment as to the federal income tax
consequences of the Merger. It is not binding on the Internal Revenue Service or
the courts. This opinion may not be distributed or otherwise made available to
any other person or entity without our firm's prior written consent.
Sincerely,
EMENS, KEGLER, BROWN, HILL & RITTER CO.,
L.P.A.
By:_______________________________________
<PAGE> 1
EXHIBIT (21)
SUBSIDIARIES OF THE REGISTRANT
<PAGE> 2
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Name Under Which
Subsidiary State of Incorporation Subsidiary Does Business
- ---------- ---------------------- ------------------------
<S> <C> <C>
The Citizens Banking Company Ohio The Citizens Banking Company
Freedom Financial Life
Insurance Company Arizona Freedom Financial Life
Insurance Company
First National Bank of Chester United States First National Bank of Chester
Freedom Express, Inc. Ohio Freedom Express, Inc.
</TABLE>
<PAGE> 1
EXHIBIT (23.2)
CONSENT OF CROWE, CHIZEK AND COMPANY LLP
<PAGE> 2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement of Citizens Bancshares,
Inc. on Form S-4, of our report dated January 23, 1996 on the 1995, 1994 and
1993 consolidated financial statements of Citizens Bancshares, Inc. We also
consent to the reference to us under the heading "Expert" in the Prospectus,
which is part of this Registration Statement.
/s/ Crowe, Chizek and Company LLP
---------------------------------------
Crowe, Chizek and Company LLP
Columbus, Ohio
July 31, 1996
<PAGE> 1
EXHIBIT (23.3)
CONSENT OF EMENS, KEGLER, BROWN, HILL & RITTER
<PAGE> 2
EXHIBIT (23.3)
July 29, 1996
The Navarre Deposit Bank Company
15 N. Main St.
Navarre, OH 44662
Gentlemen:
We hereby consent to the reference to us relating to the federal income
tax consequences of the Merger in the Form S-4 Registration Statement and any
amendments thereto, and the Prospectus/Proxy Statement of Citizens Bancshares,
Inc. and The Navarre Deposit Bank Company.
Very truly yours,
EMENS, KEGLER, BROWN, HILL
& RITTER CO., L.P.A.
By: /s/ John R. Thomas
-----------------------------------
John R. Thomas, Vice President
<PAGE> 1
EXHIBIT (23.4)
CONSENT OF ROBB, DIXON, FRANCIS, DAVIS, ONESON & COMPANY
<PAGE> 2
ROBB, DIXON
FRANCIS, DAVIS, ONESON & COMPANY [LETTERHEAD]
CERTIFIED PUBLIC ACCOUNTANTS
1205 WEAVER DRIVE GRANVILLE, OHIO 43023 614-321-1000
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation in this Registration Statement on Form S-4 of
Citizens Bancshares, Inc. of our report dated January 19, 1996 on the 1995, 1994
and 1993 financial statements of The Navarre Deposit Bank Company and to the
reference made to us under the heading "Experts" in the Prospectus.
/s/ Robb, Dixon, Francis, Davis,
Oneson & Company
----------------------------
Robb, Dixon,
Francis, Davis, Oneson
& Company
Date: July 31, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000855876
<NAME> CITIZENS BANCSHARES, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 21,357
<INT-BEARING-DEPOSITS> 1,189
<FED-FUNDS-SOLD> 11,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 214,481
<INVESTMENTS-CARRYING> 47,130
<INVESTMENTS-MARKET> 47,058
<LOANS> 528,354
<ALLOWANCE> 10,621
<TOTAL-ASSETS> 840,941
<DEPOSITS> 635,155
<SHORT-TERM> 50,500
<LIABILITIES-OTHER> 7,647
<LONG-TERM> 70,742
<COMMON> 13,703
0
0
<OTHER-SE> 62,006
<TOTAL-LIABILITIES-AND-EQUITY> 840,941
<INTEREST-LOAN> 26,447
<INTEREST-INVEST> 7,192
<INTEREST-OTHER> 245
<INTEREST-TOTAL> 33,884
<INTEREST-DEPOSIT> 12,116
<INTEREST-EXPENSE> 14,171
<INTEREST-INCOME-NET> 19,713
<LOAN-LOSSES> 790
<SECURITIES-GAINS> 7
<EXPENSE-OTHER> 10,361
<INCOME-PRETAX> 10,689
<INCOME-PRE-EXTRAORDINARY> 10,689
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,142
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.32
<YIELD-ACTUAL> 8.88
<LOANS-NON> 1,978
<LOANS-PAST> 971
<LOANS-TROUBLED> 929
<LOANS-PROBLEM> 2,459
<ALLOWANCE-OPEN> 10,283
<CHARGE-OFFS> 1,061
<RECOVERIES> 609
<ALLOWANCE-CLOSE> 10,621
<ALLOWANCE-DOMESTIC> 582
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 10,039
</TABLE>
<PAGE> 1
EXHIBIT (99.1)
FORM OF PROXY
<PAGE> 2
THE NAVARRE DEPOSIT BANK COMPANY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
September __, 1996
The undersigned shareholder of The Navarre Deposit Bank Company
("Navarre") hereby constitutes and appoints _______________________________,
_______________________ and _________________________ as members of the Proxy
Committee of Navarre, and appoints the Proxy Committee as proxy of the
undersigned, with full power of substitution, to exercise all the powers that
the undersigned would have if personally present to act and to vote all of the
shares that the undersigned is entitled to vote at the Special Meeting of
Shareholders called to be held on _______________, September ___, 1996, unless
revoked, and at any adjournments and postponements thereof, for the following
purposes:
1. Adopt the Plan and Agreement of Merger, dated as of April 4, 1996, by and
among Navarre, Citizens Bancshares, Inc. and The Citizens Banking Company
("Citizens"), as amended, providing for the merger (the "Merger") of
Navarre with and into Citizens, and approve the transactions contemplated
thereby, including the Merger.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In its discretion, the Proxy Committee is authorized to take action and to
vote upon such other business as may properly come before the meeting or
any adjournments thereof.
A VOTE FOR THE PROPOSAL IS RECOMMENDED BY THE BOARD OF DIRECTORS.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE PROPOSALS. ALL PROXIES
PREVIOUSLY GIVEN ARE HEREBY REVOKED. RECEIPT OF THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS IS HEREBY ACKNOWLEDGED.
Signature___________________________________
Print Name__________________________________
Certificate Nos.____________________________
Date _______________________________________
Additional Signature________________________
Print Additional Name_______________________
Date _______________________________________
An executed proxy may be revoked at any time prior to its exercise by
submitting another proxy with a later date, by appearing in person at the
Navarre Special Meeting and advising the Secretary of the shareholder's intent
to vote the share or by sending a written, signed and dated revocation which
clearly identifies the proxy being revoked to the principal executive offices of
Navarre at 15 North Main Street, Navarre, Ohio 44662-0026, Attention: Gloria
Page, Secretary. A revocation may be in any written form validly signed by the
record holder as long as it clearly states that the proxy previously given is no
longer effective.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THE LABEL ABOVE AND RETURN THIS
PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE. IF THE SHARES ARE ISSUED IN THE
NAMES OF TWO OR MORE PERSONS, ALL PERSONS SHOULD SIGN THE PROXY. IF THE SHARES
ARE ISSUED IN THE NAME OF A CORPORATION OR PARTNERSHIP, PLEASE SIGN IN THE
CORPORATE NAME, BY THE PRESIDENT OR OTHER AUTHORIZED OFFICER, OR IN THE
PARTNERSHIP NAME, BY AN AUTHORIZED PERSON. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE, GUARDIAN OR IN ANY OTHER REPRESENTATIVE CAPACITY, PLEASE
GIVE YOUR FULL TITLE AS SUCH.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY USING THE ENCLOSED SELF-ADDRESSED
ENVELOPE.
[ ] PLEASE CHECK THIS BOX IF YOU ARE PLANNING TO ATTEND THE SPECIAL
MEETING OF SHAREHOLDERS.
