<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1998
REGISTRATION NO. 333-63533
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
SKY FINANCIAL GROUP, INC.
(FORMERLY KNOWN AS CITIZENS BANCSHARES, INC.)
<TABLE>
<S> <C> <C>
OHIO 6022 34-1372535
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) NO.)
</TABLE>
221 South Church Street, Bowling Green, Ohio 43402
(419) 327-6300
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MARTY E. ADAMS
221 South Church Street
Bowling Green, Ohio 43402
(419) 327-6300
(NAME, ADDRESS, INCLUDING ZIP CODE & TELEPHONE NUMBER,
INCLUDING AREA CODE OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
M. PATRICIA OLIVER, ESQ. W. GRANGER SOUDER, ESQ. WILLIAM APPLETON, ESQ.
Squire, Sanders & Dempsey Sky Financial Group, Inc. Baker & Hostetler, LLP
L.L.P. 221 South Church Street 312 Walnut Street
4900 Key Tower Bowling Green, Ohio 43402 Suite 2650
127 Public Square Cincinnati, Ohio 45202
Cleveland, Ohio 44114-1304
</TABLE>
------------------------
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: [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
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 THAT 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 SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE OHIO BANK LOGO
236 SOUTH MAIN STREET
FINDLAY, OHIO 45840
OCTOBER 15, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of shareholders of
The Ohio Bank to be held on November 18, 1998, at 5:30 p.m., local time, at the
Findlay Inn and Conference Center, 200 East Main Cross, Findlay, Ohio 45840. The
accompanying Notice of the Special Meeting of Shareholders, 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, you will be asked to consider and vote upon a
proposal to adopt the Agreement and Plan of Merger dated as of July 22, 1998, by
and between Ohio Bank and Citizens Bancshares, Inc. (now renamed "Sky Financial
Group, Inc."), a holding company organized and existing under the laws of Ohio,
providing for the merger of an interim bank subsidiary of Sky Financial with and
into Ohio Bank. Following the merger, the combined organization of which Ohio
Bank will be an integral part will have approximately $4.7 billion in assets,
163 branches and over 2,550 employees and will be the seventh largest banking
organization in Ohio.
Holders of Class A Common Shares of Ohio Bank will have one vote per share,
and holders of Class B Common Shares of Ohio Bank will have twenty votes per
share, on the merger proposal. Holders of Class A Common Shares and Class B
Common Shares will vote together as one class on the merger proposal.
Upon consummation of the merger, you will receive 63.25 common shares of
Sky Financial for each Ohio Bank Common Share that you hold. Cash will be paid
in lieu of fractional shares. The exchange of Ohio Bank Common Shares for common
shares of Sky Financial is intended to qualify generally as tax-free to Ohio
Bank, Sky Financial and holders of Ohio Bank Common Shares for federal income
tax purposes.
Consummation of the merger is subject to certain conditions, including, but
not limited to, obtaining the requisite vote of the shareholders of Ohio Bank
and the approval of the merger by various regulatory agencies.
Ohio Bank's financial advisor, Danielson Associates, Inc., has rendered an
opinion dated July 21, 1998, and updated to the date hereof, to the Ohio Bank
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 of 63.25
Sky Financial Common Shares for each Ohio Bank Common Share is fair to the
shareholders of Ohio Bank from a financial point of view.
If the accompanying Proxy Card is executed properly and returned to Ohio
Bank 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 merger proposal. The presence
of a shareholder at the Special Meeting will not automatically revoke such
shareholder's proxy. A 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 Gary L. Cole, Corporate
Secretary, The Ohio Bank, 236 South Main Street, Findlay, Ohio 45840, or by
attending the Special Meeting and advising the Secretary of the shareholder's
intent to vote the shares.
<PAGE> 3
Approval of the merger proposal requires the affirmative vote of the
holders of a majority of the voting power of the outstanding Ohio Bank Common
Shares. Certain directors and executive officers of Ohio Bank who collectively
own Class A Common Shares and Class B Common Shares representing a majority of
the voting power have agreed to vote such shares in favor of the merger
proposal.
The Ohio Bank Board of Directors has unanimously concluded that the merger
is fair to, and in the best interests of, Ohio Bank and its shareholders and
unanimously recommends that you vote for the merger proposal.
I urge you to vote FOR the merger 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 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,
Richard R. Hollington, Jr.
Chairman
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> 4
THE OHIO BANK LOGO
236 SOUTH MAIN STREET
FINDLAY, OHIO 45840
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
October 15, 1998
To the Shareholders of The Ohio Bank:
A special meeting of shareholders of The Ohio Bank will be held on November
18, 1998, at 5:30 p.m. at the Findlay Inn and Conference Center, 200 East Main
Cross, Findlay, Ohio 45840. 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 to:
Adopt the Agreement and Plan of Merger, dated as of July 22, 1998 by
and between Ohio Bank and Citizens Bancshares, Inc. (now renamed "Sky
Financial Group, Inc.") providing for the merger of an interim bank
subsidiary of Sky Financial with and into Ohio Bank, and approve the
transactions contemplated thereby. A copy of the merger agreement is
attached as Appendix A to the accompanying Proxy Statement/Prospectus.
The Board of Directors of Ohio Bank has fixed the close of business on
October 15, 1998, as the record date for the determination of the shareholders
of Ohio Bank entitled to notice of and to vote at the Special Meeting.
Holders of Class A Common Shares of Ohio Bank will have one vote per share,
and holders of Class B Common Shares of Ohio Bank will have twenty votes per
share, on the merger proposal. Approval of the proposal requires the affirmative
vote of the holders of outstanding Class A Common Shares and Class B Common
Shares representing a majority of the voting power of such classes voting as one
class. Certain directors and executive officers of Ohio Bank who collectively
own Class A Common Shares and Class B Common Shares representing a majority of
the voting power of such classes have agreed to vote such shares in favor of the
merger proposal.
The Ohio Bank Board of Directors has unanimously concluded that the merger
is in the best interests of the Ohio Bank and its shareholders and unanimously
recommends that you vote for the merger proposal.
It is 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 Ohio Bank, 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.
Jack W. Donaldson
President and Chief Executive Officer
<PAGE> 5
[LOGO]
PROSPECTUS
SHARES OF COMMON STOCK, WITHOUT PAR VALUE
THE OHIO BANK LOGO
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 18, 1998
This Proxy Statement/Prospectus is being furnished to shareholders of
record on October 15, 1998 of The Ohio Bank, a bank organized and existing under
the laws of the State of Ohio ("Bank"), in connection with the solicitation of
proxies by Bank for use at the special meeting of shareholders (the "Special
Meeting"). The Special Meeting of Bank (the "Bank Special Meeting") is to be
held at the Findlay Inn and Conference Center, 200 East Main Cross, Findlay,
Ohio 45840, on November 18, 1998 at 5:30 p.m., local time.
At the Bank Special Meeting, Bank's shareholders will be asked to approve
the following:
An Agreement and Plan of Merger, dated as of July 22, 1998 (the
"Merger Agreement"), by and between Bank and Citizens Bancshares, Inc. (now
renamed "Sky Financial Group, Inc.") ("Sky Financial"), and the
transactions contemplated thereby, including the merger of an interim bank
subsidiary of Sky Financial with and into Bank (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 of Bank represented by proxy will be voted at the Bank Special
Meeting as specified by the shareholders of Bank. Executed but unmarked proxies
will be voted FOR the Merger. Upon consummation of the Merger, each outstanding
share of common stock of Bank, consisting of Class A Common shares, par value
$50 per share, and Class B Common shares, par value $50 per share (collectively,
the "Bank Common Shares"), other than shares held by shareholders who exercise
their right to be dissenting shareholders, will be converted into 63.25 common
shares of Sky Financial, without par value ("Sky Financial Common Shares"), upon
the terms set forth in the Merger Agreement (the "Exchange Ratio"). Dissenters'
rights are described in the section entitled "PROPOSED MERGER -- Rights of
Dissenting Shareholders." For a more detailed description of the Merger
Agreement, the terms of the Merger and the Exchange Ratio, see "PROPOSED
MERGER."
Holders of Class A Common Shares will have one vote per share, and holders
of Class B Common Shares will have twenty votes per share, on the Merger
Proposal. Holders of Class A Common Shares and Class B Common Shares shall vote
together as one class on the Merger Proposal. Approval of the Merger Proposal
requires the affirmative vote of the holders of outstanding Class A Common
Shares and Class B Common Shares of Bank representing a majority of the voting
power of such classes voting as one class. Certain directors and executive
officers of Bank who collectively own Class A Common Shares and Class B Common
Shares representing a majority of the voting power of such classes have agreed
to vote such shares in favor of the Merger Proposal. A copy of the voting
agreement is attached to this Proxy Statement/Prospectus as Appendix E and is
incorporated herein by reference.
This Proxy Statement/Prospectus constitutes the Proxy Statement of Bank and
the Prospectus of Sky Financial covering the Sky Financial Common Shares to be
issued pursuant to the Merger.
This Proxy Statement/Prospectus and the accompanying Proxy Card are first
being mailed to Bank shareholders on or about October 16, 1998.
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.
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 October 14, 1998.
<PAGE> 6
THE OHIO BANK
SKY FINANCIAL GROUP, INC.
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION....................................... iii
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........... iii
SUMMARY..................................................... 1
COMPARATIVE MARKET VALUE DATA............................... 7
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA.............. 7
SUPPLEMENTAL CONSOLIDATED SELECTED FINANCIAL DATA OF
SKY FINANCIAL............................................. 9
SELECTED FINANCIAL DATA OF BANK (HISTORICAL)................ 11
BANK AND SKY FINANCIAL UNAUDITED PRO FORMA COMBINED SELECTED
FINANCIAL DATA............................................ 13
INFORMATION WITH RESPECT TO SKY FINANCIAL................... 14
INFORMATION WITH RESPECT TO BANK............................ 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS OF BANK............................. 24
BENEFICIAL OWNERSHIP OF SHAREHOLDERS OF BANK OWNING MORE
THAN FIVE PERCENT......................................... 32
BENEFICIAL OWNERSHIP OF MANAGEMENT OF BANK.................. 33
INFORMATION CONCERNING THE BANK SPECIAL MEETING............. 34
General................................................... 34
Solicitation, Voting and Revocability of Proxies.......... 34
PROPOSED MERGER............................................. 35
Bank Background and Reasons for the Merger................ 35
Recommendation of the Bank Board of Directors............. 36
Opinion of Bank's Financial Advisor....................... 36
Pro Forma Merger Analysis................................. 37
Comparable Companies...................................... 37
Comparable Transaction Analysis........................... 38
Other Analysis............................................ 38
Sky Financial Background and Reasons for the Merger....... 38
Description of the Merger................................. 39
Consideration for Bank Common Shares...................... 39
Payment of Cash in Lieu of Fractional Shares.............. 39
Other Provisions of the Merger Agreement.................. 39
Representations and Warranties......................... 39
Conditions to the Merger............................... 39
Amendments; Termination................................ 40
Federal Income Tax Consequences of the Merger............. 41
Accounting Treatment...................................... 41
Sky Financial Board of Directors; Interest of Bank
Management in the Merger............................... 42
Expenses of the Merger.................................... 42
Regulatory Approvals...................................... 42
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Effective Time of the Merger.............................. 42
Operations of Bank After the Merger....................... 42
Business Pending the Merger............................... 43
Stock Option Agreement.................................... 43
Surrender of Certificates................................. 43
Resale of Sky Financial Common Shares..................... 44
Rights of Dissenting Shareholders......................... 44
DESCRIPTION OF SKY FINANCIAL CAPITAL SHARES................. 46
General................................................... 46
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF COMMON SHARES OF
SKY FINANCIAL AND BANK.................................... 46
Introduction.............................................. 46
Authorized Shares......................................... 46
Amendments to Articles of Incorporation or Code of
Regulations............................................ 47
Special Meeting of Shareholders........................... 47
Number of Directors; Classified Board of Directors........ 47
Removal of Directors...................................... 48
Advance Notice of Director Nominations.................... 48
Cumulative Voting......................................... 48
Control Share Acquisitions................................ 48
Business Combination Provisions........................... 48
Vote Required to Approve a Merger, a Consolidation, or a
Sale of Substantially All Assets....................... 49
Indemnification........................................... 49
Shareholder Rights Plan................................... 50
Preemptive Rights......................................... 50
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS................................................ 51
EXPERTS..................................................... 58
LEGAL OPINIONS.............................................. 58
INDEMNIFICATION............................................. 58
PROPOSALS FOR 1999 ANNUAL MEETING........................... 59
THE OHIO BANK FINANCIAL STATEMENTS.......................... F-1
APPENDICES:
A. Agreement and Plan of Merger dated as of July 22,
1998................................................... A-1
B. Dissenters' Rights Under Section 1701.85 of the Ohio
Revised Code........................................... B-1
C. Fairness Opinion of Danielson Associates, Inc. dated as
of July 21, 1998, updated as of October 12, 1998....... C-1
D. Stock Option Agreement dated as of July 23, 1998....... D-1
E. Voting Agreement dated as of July 22, 1998............ E-1
</TABLE>
ii
<PAGE> 8
AVAILABLE INFORMATION
Sky Financial 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 Sky Financial 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, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The public can obtain information on the
operation of the Public Reference Section of the Commission by calling the
Commission at (800) SEC-0330. The Commission also maintains a Web site that
contains reports, proxy statements and other information filed electronically by
Sky Financial. The Commission's Internet address is http://www.sec.gov. Sky
Financial Common Shares are quoted on the Nasdaq National Market and reports,
proxy statements and other information concerning Sky Financial 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.
Sky Financial 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 Sky Financial Common Shares to be issued in connection with the Merger. This
Proxy Statement/Prospectus was filed with the Registration Statement as the
Prospectus of Sky Financial; 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.
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 Sky Financial 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 Sky Financial contained in this Proxy
Statement/Prospectus has been furnished by Sky Financial and all information
concerning Bank has been furnished by Bank.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission under the 1934 Act by Sky
Financial Group, Inc. (under the name "Citizens Bancshares Inc.") are
incorporated by reference into this Proxy Statement/Prospectus: (a) Sky
Financial's Annual Report on Form 10-K for the year ended December 31, 1997; (b)
the portions of Sky Financial's Proxy Statement for the annual meeting of
Shareholders held on May 11, 1998 that have been incorporated by reference into
Sky Financial's 1997 Form 10-K; (c) Sky Financial's Quarterly Reports on Form
10-Q for the three months ended March 31, 1998 and for the three months ended
June 30, 1998; (d) Sky Financial's Current Reports on Form 8-K, dated January 2,
1998, February 12, 1998, May 21, 1998, June 2, 1998, June 25, 1998, July 24,
1998, July 29, 1998, September 23, 1998 and October 15, 1998, on Form 8-K/A,
dated June 25, 1998 and on Form 8-A, dated September 17, 1998.
The following documents filed with the Commission under the 1934 Act by Mid
Am Inc. ("Mid Am") are incorporated by reference into this Proxy
Statement/Prospectus: (a) Mid Am's Annual Report on Form 10-K for the year ended
December 31, 1997; (b) the portions of Mid Am's Proxy Statement for the annual
meeting of Shareholders held on April 24, 1998 that have been incorporated by
reference into Mid Am's 1997 Form 10-K; (c) Mid Am's Quarterly Reports on Form
10-Q for the three months ended March 31, 1998 and for the three months ended
June 30, 1998; (d) Mid Am's Current Reports on Form 8-K, dated January 28, 1998,
May 7, 1998, May 21, 1998 and August 3, 1998; (e) Mid Am's Form 15, dated
October 6, 1998.
iii
<PAGE> 9
All documents filed by Sky Financial pursuant to Sections 13(a), 13(c), 14
or 15(d) of the 1934 Act after the date of this Proxy Statement/Prospectus and
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference in this Proxy Statement/Prospectus and to be a part hereof from the
date of filing such documents.
In addition to the foregoing, the Sky Financial (under the name "Citizens
Bancshares, Inc.") Schedule 13D, dated May 29, 1998, and the Sky Financial
(under the name "Citizens Bancshares, Inc.") Schedule 13D, dated July 10, 1998,
are incorporated herein by reference.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document that 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.
The information relating to Sky Financial and Bank contained in this Proxy
Statement/Prospectus should be read together with the information in the
documents incorporated by reference.
THIS PROXY STATEMENT INCORPORATES BY REFERENCE CERTAIN DOCUMENTS WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS ARE AVAILABLE WITHOUT
CHARGE UPON REQUEST FROM W. GRANGER SOUDER, CORPORATE SECRETARY, SKY FINANCIAL
GROUP, INC., 221 SOUTH CHURCH STREET, BOWLING GREEN, OHIO 43402, (419) 327-6300.
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST TO SKY
FINANCIAL SHOULD BE MADE BY NOVEMBER 10, 1998.
THIS PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS
WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF
SKY FINANCIAL 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 SKY FINANCIAL AND BANK ARE GREATER THAN EXPECTED; (5) CHANGES IN
THE INTEREST RATE ENVIRONMENT THAT MAY 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 THAT COULD AFFECT THE FINANCIAL RESULTS OF SKY FINANCIAL AFTER THE
MERGER IS INCLUDED IN THE COMMISSION FILINGS INCORPORATED BY REFERENCE HEREIN.
iv
<PAGE> 10
SUMMARY
This summary is necessarily general and abbreviated and has been prepared
to assist the shareholders of Bank 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 the shareholders of Bank
are urged to read carefully.
PARTIES TO THE MERGER
Sky Financial Group,
Inc........................ The merger of Mid Am, Inc. ("Mid Am") and Citizens
Bancshares, Inc. ("Bancshares") (the "Mid Am
Merger") was consummated on October 2, 1998. Upon
consummation, Bancshares' name as the surviving
entity changed to Sky Financial Group, Inc. Sky
Financial has over $4 billion in assets, 145
branches and over 2,300 employees. Following the
Merger of an interim bank subsidiary of Sky
Financial with and into Bank, the combined entity
will have over $4.7 billion in assets, 163 branches
and over 2,550 employees.
The Mid Am Merger was structured as a
merger-of-equals transaction with Mid Am
shareholders and Bancshares shareholders owning
50.36% and 49.64%, respectively, of Sky Financial
and was accounted for as a pooling of interests.
Bancshares, a bank holding company organized and
existing 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 (the "BHC Act"), was a holding
company for (i) The Citizens Banking Company, a
wholly owned commercial bank subsidiary organized
and existing under the banking laws of the State of
Ohio ("Citizens"); (ii) Century National Bank and
Trust Company, a wholly owned commercial bank
subsidiary organized under the laws of the United
States ("CNB"); (iii) Freedom Express, Inc., a
wholly owned courier company; and (iv) Freedom
Financial Life Insurance Company, a wholly owned
reinsurance company. At June 30, 1998, Bancshares
had total consolidated assets of approximately $1.8
billion and total shareholders' equity of
approximately $159 million. For the year ended
December 31, 1997, Bancshares' return on average
total assets and return on average common
shareholders' equity was 1.34% and 15.23%,
respectively (all amounts are restated to reflect
the March 1998 merger of Unibank with and into
Citizens and the May 1998 merger of Century
Financial Corporation ("Century") with and into
Bancshares).
Mid Am, a bank holding company organized and
existing under the laws of the State of Ohio and
headquartered in Bowling Green, Ohio, was a holding
company for five bank subsidiaries with a total of
83 banking offices located in western Ohio along
the Interstate 75 corridor and in southern
Michigan. Mid Am also owned seven financial
services subsidiaries which engaged in lines of
business which are closely related to banking.
Through its bank subsidiaries, Mid Am offered a
wide range of lending, depository, trust, and
related financial services to individual and
business customers. Through its financial services
subsidiaries, Mid Am offered specialty lending,
investment, trust, collection and related financial
services to individual and business customers. Mid
Am's market area was economically diverse, with a
base of manufacturing, service industries,
transportation and agriculture, and was not
dependent upon any single
1
<PAGE> 11
industry or employer. As of June 30, 1998, Mid Am
had total consolidated assets of $2.3 billion and
shareholders' equity of $163 million. Mid Am had
net income of $15.9 million for the six months
ended June 30, 1998 and net income of $30.9 million
for the year ended December 31, 1997.
The Board of Directors of Sky Financial currently
consists of twenty-two (22) members. Eleven (11)
directors were nominated by Bancshares, and eleven
(11) directors were nominated by Mid Am. Mr. Edward
J. Reiter (formerly the Chairman of the Board and
Chief Executive Officer of Mid Am) is the Senior
Chairman of the Board of Directors of Sky
Financial. Mr. David R. Francisco (formerly the
President and Chief Operating Officer of Mid Am) is
the Chairman of the Board of Directors and Chief
Executive Officer of Sky Financial and Mr. Marty E.
Adams (formerly the President and Chief Executive
Officer of Bancshares) is the President and Chief
Operating Officer of Sky Financial. Mr. James C.
McBane (formerly the Chairman of the Board of
Bancshares) is the Vice Chairman of the Board of
Directors of Sky Financial. In addition, certain
officers of Sky Financial will sit on a management
executive committee consisting of at least eight
(8) persons. Mr. Reiter serves as chairman of the
management executive committee. If an Executive
Committee of the Board of Directors of Sky
Financial is formed within three years after the
effective time of the Mid Am Merger it will contain
equal numbers of members selected by former
directors of Bancshares and former directors of Mid
Am, respectively, who sit on the Board of Directors
of Sky Financial. For a description of the make-up
of the Board of Directors after consummation of the
Merger, see "Sky Financial Board of Directors;
Interest of Bank Management in the Merger."
Sky Financial Common Shares are currently traded on
the Nasdaq National Market System under the symbol
"SKYF." The mailing address of Sky Financial's
principal executive offices is 221 South Church
Street, Bowling Green, Ohio 43402 and the telephone
number is (419) 327-6300.
The Ohio Bank.............. Bank is a state banking association organized and
existing under the laws of the State of Ohio and
whose deposits are insured by the Federal Deposit
Insurance Corporation (the "FDIC").
Bank engages in commercial and consumer banking and
trust services through eighteen (18) branch
offices. During the five-year period beginning in
1993 and ending in 1997, Bank's combined total
assets have grown from approximately $363 million
in 1993 to approximately $579.4 million in 1997. As
of December 31, 1997, Bank had total deposits of
$522.3 million, consolidated total assets of
approximately $579.4 million and total
shareholders' equity of approximately $49.9
million, and had a total of 268 full-time and 189
part time employees.
Bank's principal executive offices are located at
236 South Main Street, Findlay, Ohio 45840. The
telephone number of Bank's executive offices is
(419) 424-4000.
INFORMATION CONCERNING THE BANK SPECIAL MEETING
General.................... The Bank Special Meeting will be held at the
Findlay Inn and Conference Center, 200 East Main
Cross, Findlay, Ohio 45840, on November 18, 1998 at
5:30 p.m., local time. The purpose of the Bank
Special Meeting is to consider and vote upon the
Merger Agreement and the transactions
2
<PAGE> 12
contemplated thereby, as hereinafter described,
including the conversion of Bank Common Shares into
Sky Financial Common Shares and the merger of an
interim bank subsidiary of Sky Financial with and
into Bank 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 Bank on October 15,
1998 (the "Record Date") will be entitled to vote
at the Bank Special Meeting. The affirmative vote,
in person or by proxy, of the holders of not less
than a majority of the voting power of the issued
and outstanding Bank Common Shares is required for
approval of the Merger Agreement. Certain directors
and executive officers of the Bank who collectively
own Class A Common Shares and Class B Common Shares
representing a majority of the voting power have
agreed to vote such shares in favor of the Merger
Proposal.
PROPOSED MERGER
The Merger Agreement....... Sky Financial and Bank have entered into the Merger
Agreement, pursuant to which an interim bank
subsidiary formed by Sky Financial will merge with
and into Bank. Consummation of the Merger, however,
is subject to the approval of the Bank shareholders
of the Merger Agreement and the transactions
contemplated thereby. The Merger is expected to
qualify as a pooling-of-interests for accounting
and financial reporting purposes. For a description
of the Merger Agreement, which is incorporated by
reference herein in its entirety, see "PROPOSED
MERGER."
Sky Financial and Bank have also entered into the
Stock Option Agreement dated as of July 23, 1998
that grants Sky Financial a binding option to
purchase up to 5.42% of Bank's Common Shares in
certain circumstances. The Stock Option Agreement
is attached as Appendix D to this Proxy Statement
Prospectus. For a description of the Stock Option
Agreement, see "PROPOSED MERGER."
Consideration for Bank
Common Shares.............. Upon consummation of the Merger, each Bank Common
Share outstanding (other than dissenting shares)
will be converted into 63.25 Sky Financial Common
Shares, plus cash in lieu of fractional shares (the
"Exchange Ratio"). For a complete description of
the consideration to be received by Bank
shareholders, see "PROPOSED MERGER -- Consideration
for Bank Common Shares."
Bank Background and Reasons
for the Merger............. Bank's Board of Directors has unanimously concluded
that the Merger would be in the best interests of
Bank's shareholders, depositors, other customers
and employees. The Board of Directors believes that
the Merger offers Bank and its shareholders an
attractive opportunity to participate in a company
with enhanced financial strength that should be
able to compete more effectively in Ohio. The Board
of Directors also believes that this enhanced
financial strength will increase opportunities for
growth as a combined company, and will offer
greater flexibility in meeting the challenges
affecting the banking and financial services
industries.
3
<PAGE> 13
Sky Financial Background
and Reasons for the
Merger................... Sky Financial's Board of Directors has concluded
that the Merger would be in the best interests of
Sky Financial's shareholders, depositors, other
customers and employees, as well as those of its
subsidiary banks. The Merger is consistent with Sky
Financial's overall strategic acquisition program
and, in particular, its interest in expanding Sky
Financial's facilities and services in Ohio. Sky
Financial's philosophy of emphasizing customer
service and satisfaction, promoting local and
branch level decision-making power by employees and
making strong, ongoing commitments to each
community it and its subsidiary banks serve are
consistent with Bank's management philosophies and
its long-standing reputation of service to Ohio. In
addition, the current products and services offered
by Bank are similar to, and in many respects
complement, the products and services provided by
Sky Financial and its subsidiary banks. Sky
Financial anticipates that the additional products
and services that will become available to Bank
customers as a result of the Merger will provide
opportunities for expanded and new customer
relationships. Sky Financial also believes that the
Merger can be accomplished with little or no
resulting dilution in the per share earnings of Sky
Financial Common Shares. See "PROPOSED MERGER --
Sky Financial Background and Reasons for the
Merger."
Bank Fairness Opinion...... Danielson Associates, Inc. has rendered an original
opinion to Bank's Board of Directors, dated as of
July 21, 1998, updated as of October 12, 1998, that
the Merger is fair from a financial point of view
to the Bank shareholders. For additional
information, see "PROPOSED MERGER -- Fairness
Opinion of Danielson Associates, Inc." The opinion
of Danielson Associates, Inc. is attached as
Appendix C to this Proxy Statement/ Prospectus.
Bank shareholders are urged to read such opinion in
its entirety for a description of the procedures
followed and matters considered in connection
therewith.
Sky Financial Board of
Directors; Interest of Bank
Management in the
Merger................... Upon consummation of the Merger, the size of the
Sky Financial Board of Directors will expand to
twenty-five (25) members and it is anticipated that
the current directors and executive officers of Sky
Financial will remain directors and executive
officers thereof, as outlined above under PARTIES
TO THE MERGER -- Sky Financial Group, Inc. Three
members of Bank's Board of Directors will be
elected to serve on the Sky Financial Board of
Directors, with one of such persons to be
designated for membership on the Executive
Committee of the Board of Directors if such a
committee is formed. In addition, a member of
Bank's management will be selected by Sky Financial
to serve on the Management Executive Committee of
Sky Financial. Furthermore, Mr. Jack W. Donaldson
will enter into an employment agreement with Bank
and severance agreements will go into effect with
several other Bank officers. See "PROPOSED
MERGER -- Interest of Bank Management in the
Merger."
Recommendation of the
Boards of Directors........ The Boards of Directors of Sky Financial and Bank
have unanimously approved the Merger Agreement and
believe that the Merger is fair to and in the best
interests of their respective shareholders. The
Bank Board of Directors unanimously recommends that
its shareholders adopt the Merger
4
<PAGE> 14
Agreement. See "PROPOSED MERGER -- Recommendation
of the Bank Board of Directors."
Dissenters' Rights of Bank
Shareholders............. Holders of Bank Common Shares may exercise their
right to become dissenting shareholders to the
extent, and in strict compliance with the
procedure, specified in Section 1701.85 of the Ohio
Revised Code. HOLDERS OF BANK 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 BANK COMMON SHARES WITHIN TEN
DAYS AFTER THE SPECIAL MEETING. See "PROPOSED
MERGER -- Rights of Dissenting Shareholders" and
the text of Section 1701.85 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
(the "IRC"), and that, accordingly, for federal
income tax purposes no gain or loss will be
recognized by Bank or Sky Financial as a result of
the Merger. The obligation of Bank to consummate
the Merger is conditioned upon the receipt by it of
an opinion of its counsel, reasonably satisfactory
in form and substance to it, to the effect that (i)
the Merger will constitute a tax-free
reorganization within the meaning of Section
368(a)(i)(A) of the IRC, (ii) no gain or loss will
be recognized by Bank as a consequence of the
Merger, and (iii) no gain or loss will be
recognized by the shareholders of Bank pursuant to
the terms of the Merger (except for the effect of
any cash received pursuant to dissenters' rights or
paid in lieu of the issuance of fractional shares).
Shareholders who exercise dissenters' rights and
receive cash for their Bank 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 Bank 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 conditioned upon
approval of the Merger Agreement by the
shareholders of Bank 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 parties.
The Merger Agreement may be terminated as follows:
(i) by mutual consent of the parties; (ii) by Bank
if the Average NMS Closing Price (as defined below)
is less than $26.00; (iii) by either party if the
transactions contemplated by the Merger Agreement
are not consummated by March 31, 1999; or (iv) by
either party in the event of a material breach by
the other party.
Prior to exercise by Bank of its right of
termination in the event that the Average NMS
Closing Price is less than $26.00, Sky Financial
may offer to distribute to Bank shareholders under
the Merger Agreement an additional
5
<PAGE> 15
number of Sky Financial Common Shares at least
sufficient to offset the amount by which the
Average NMS Closing Price is below $26.00 plus some
additional number of Sky Financial Common Shares.
For purposes of the Merger Agreement, the term
"Average NMS Closing Price" is defined as the
arithmetic mean of the NMS Closing Price (i.e., the
reported price at the close of the trading day) for
the ten trading days immediately preceding the
fifth (5th) trading day prior to consummation of
the Merger. Bank shall have the opportunity to
accept or reject any such offer. If Bank rejects
such offer, Bank may then terminate the Merger
Agreement.
See "PROPOSED MERGER -- Other Provisions of the
Merger Agreement."
Comparison of Certain
Rights of Holders of Common
Shares of Sky Financial
and Bank................. The rights of shareholders of Sky Financial and
shareholders of Bank, respectively, while similar
in many respects, also differ in some respects. For
a description of the relative rights of the holders
of Sky Financial Common Shares and Bank Common
Shares under the respective charter documents, see
"COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF COMMON
SHARES OF SKY FINANCIAL AND BANK."
6
<PAGE> 16
COMPARATIVE MARKET VALUE DATA
Sky Financial Common Shares began trading on the Nasdaq National Market
under the symbol "CICS" as of June 1, 1993. On October 2, 1998, in light of the
Bancshares name change, the Nasdaq National Market symbol for Sky Financial
Common Shares was changed to "SKYF." Neither class of Bank Common Shares is
listed for trading on a securities exchange or an automated dealer quotation
system, and no comparative market price data is available. The information
presented in the following table reflects the last reported sale price for Sky
Financial on (i) July 21, 1998, the last trading day preceding the public
announcement of the Merger Proposal and (ii) October 12, 1998, a date shortly
prior to the date of this Proxy Statement/Prospectus. No assurance can be given
as to what the market price of Sky Financial Common Shares will be if and when
the Merger is consummated. The equivalent per share basis has been calculated by
multiplying the last reported sale price of Sky Financial Common Shares on the
dates indicated by the Exchange Ratio of 63.25.
<TABLE>
<CAPTION>
EQUIVALENT VALUE OF
CLOSING SALE PRICE PER SKY FINANCIAL
SKY FINANCIAL COMMON SHARES
DATE COMMON SHARE PER BANK COMMON SHARE
---- ------------------------ ------------------------
<S> <C> <C>
July 21, 1998................................. $35.25 $2,229.56
October 12, 1998.............................. $30.375 $1,921.22
</TABLE>
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following summary presents selected comparative unaudited per share
data for Sky Financial on a supplemental basis considering the October 2, 1998
merger of Bancshares and MidAm, Bank on an historical basis, on a pro forma
combined basis, and with respect to Bank, on an equivalent pro forma combined
basis, assuming the Merger had been effective during the periods presented and
accounted for under the pooling-of-interests accounting method. Pro forma data
is derived accordingly. The information shown below should be read in
conjunction with the supplemental consolidated financial statements and other
data of Sky Financial and the historical consolidated financial statements and
data of Bancshares and Mid Am incorporated by reference herein, and the
historical financial data and statements of Bank included herein, including the
respective notes thereto. See "Available Information," "Incorporation of Certain
Information by Reference," " -- Selected Financial Data of Sky Financial
(Historical)," "-- Selected Financial Data of Bank (Historical)," and "The
Merger -- Accounting Treatment."
The per share data set forth herein are presented for comparative purposes
only and are not necessarily indicative of the future combined financial
position, the results of the future operations or the actual results or combined
financial position of Sky Financial that would have been achieved had the Merger
been consummated as of the dates or for the periods indicated. While no
assurance can be given, Sky Financial expects that it will achieve substantial
benefits from the Merger, including operating cost savings and revenue
enhancements. However, the pro forma comparative unaudited per share data do not
reflect any direct costs, potential savings or revenue enhancements which are
expected to result from the consolidation of operations of Bank and Sky
Financial and, therefore, do not purport to be indicative of results which may
be expected for any other interim or annual period.
7
<PAGE> 17
SKY FINANCIAL GROUP, INC.
THE OHIO BANK
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX AS OF AND FOR THE YEAR ENDED
MONTHS ENDED JUNE 30, DECEMBER 31,
---------------------- -----------------------------
1998 1997 1997 1996 1995
--------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE:
HISTORICAL
Sky Financial (Supplemental)
Basic............................... $ 0.70 $ 0.79 $ 1.46 $ 1.29 $ 1.15
Diluted............................. 0.69 0.77 1.43 1.25 1.13
Bank
Class A............................. 44.63 35.33 75.62 68.20 66.67
Class B............................. 40.57 32.12 68.74 62.00 60.61
PRO FORMA COMBINED
Basic.................................. 0.70 0.76 1.42 1.25 1.14
Diluted................................ 0.69 0.74 1.40 1.22 1.11
EQUIVALENT AMOUNT OF BANK (a)
Basic.................................. 44.28 48.07 89.82 79.06 72.11
Diluted................................ 43.64 46.81 88.55 77.17 70.21
DIVIDENDS PER COMMON SHARE:
HISTORICAL
Sky Financial (Supplemental)........... $ 0.31 $ 0.27 $ 0.56 $ 0.42 $ 0.25
Bank
Class A............................. 10.34 7.04 15.18 12.98 10.78
Class B............................. 9.40 6.40 13.80 11.80 9.80
Equivalent amount of Bank (a)....... 19.61 17.08 35.42 26.25 15.81
BOOK VALUE PER COMMON SHARE:
HISTORICAL
Sky Financial (Supplemental)........... $ 9.02 8.81 $ 9.27 $ 8.56 $ 8.08
Bank................................... 633.14 561.70 600.61 536.51 490.25
PRO FORMA COMBINED....................... 8.71 8.82 9.30 8.55 8.04
EQUIVALENT AMOUNT OF BANK (a)............ 550.91 557.87 588.23 540.70 508.53
</TABLE>
- ---------------
(a) The equivalent per share data for Bank are computed by multiplying pro forma
combined information by 63.25, the Exchange Ratio, except for dividends per
common share which is calculated by multiplying historical Sky Financial
dividends per common share by the Exchange Ratio.
8
<PAGE> 18
SUPPLEMENTAL CONSOLIDATED SELECTED FINANCIAL DATA OF SKY FINANCIAL
The following table sets forth supplemental consolidated selected financial
data of Sky Financial and has been derived from the supplemental consolidated
financial statements. Such selected financial data should be read in conjunction
with Sky Financial's audited supplemental consolidated financial statements, Mid
Am's and Bancshares' historical audited consolidated financial statements,
including the respective notes thereto, and unaudited interim financial
information, in each case incorporated herein by reference. See "Incorporation
of Certain Information by Reference." The interim financial information has been
derived from unaudited financial statements which, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for fair statement of the results for the unaudited interim periods.
Results for the interim periods are not necessarily indicative of results which
may be expected for any other interim or annual period.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS
ENDED JUNE 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------ ------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Income
Statement Data
Interest income...... $ 157,065 $ 147,323 $ 302,869 $ 282,965 $ 273,334 $ 239,519 $ 234,280
Interest expense..... 76,077 69,345 144,885 131,486 128,939 99,549 101,220
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income.. 80,988 77,978 157,984 151,479 144,395 139,970 133,060
Provision for credit
losses............. 5,859 3,974 9,862 6,816 5,506 4,119 9,409
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
credit losses...... 76,129 74,004 148,122 144,663 138,889 135,851 123,651
Other income......... 45,344 38,835 77,560 58,236 43,486 39,738 41,958
Other expenses....... 84,322 70,000 147,280 133,156 118,588 119,139 113,246
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes.............. 36,151 42,839 78,402 69,743 63,787 56,450 52,363
Income taxes......... 11,083 13,977 25,101 22,021 20,026 17,251 15,140
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income........... $ 25,068 $ 28,862 $ 53,301 $ 47,722 $ 43,761 $ 39,199 $ 37,223
========== ========== ========== ========== ========== ========== ==========
Net income available
to common
shareholders....... $ 25,068 $ 28,257 $ 52,696 $ 45,315 $ 41,010 $ 36,282 $ 34,305
========== ========== ========== ========== ========== ========== ==========
Weighted average
shares outstanding
basic.............. 35,848 35,602 36,025 35,213 35,547 35,500 35,193
Weighted average
shares outstanding
diluted............ 36,391 37,558 37,203 38,215 38,782 38,852 38,546
Per Share Data: (1)
Basic net income... $ 0.70 $ 0.79 $ 1.46 $ 1.29 $ 1.15 $ 1.02 $ .97
Diluted net
income........... 0.69 0.77 1.43 1.25 1.13 1.01 .97
Cash dividends
declared......... 0.31 0.25 .56 .42 .25 .15 .09
Book value at
period-end....... 9.02 8.81 9.27 8.56 8.08 7.09 6.99
Balance Sheet Data at
Period-end:
Total assets....... $4,086,460 $3,888,671 $3,982,898 $3,724,003 $3,646,446 $3,438,791 $3,384,739
Securities
available for
sale............. 944,128 791,058 818,267 766,815 793,502 372,861 380,170
</TABLE>
9
<PAGE> 19
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS
ENDED JUNE 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------ ------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Securities held to
maturity........... -- 93,629 87,207 88,371 74,851 508,382 561,874
Loans held for
sale............. 18,003 18,133 17,711 15,118 16,550 13,547 97,285
Loans, net of
unearned income.. 2,777,796 2,668,714 2,741,406 2,570,143 2,398,757 2,288,390 2,041,401
Allowance for
credit losses.... 39,278 32,823 35,901 31,301 29,715 30,415 29,872
Deposits........... 3,211,921 3,056,364 3,140,625 3,065,253 3,039,541 2,850,451 2,881,913
Shareholders'
equity........... 322,221 321,373 337,427 332,665 322,263 292,143 284,548
Selected Financial
Ratios:
Return on average
total assets..... 1.25% 1.54% 1.38% 1.31% 1.24% 1.16% 1.14%
Return on average
common
shareholders'
equity........... 15.67 18.43 16.50 15.67 15.12 14.45 15.02
Average
shareholders'
equity to average
assets........... 7.99 8.74 8.56 8.89 8.74 8.63 8.23
Average loans to
average
deposits......... 87.30 87.29 88.06 81.43 79.26 75.36 70.50
Shareholders'
equity to period-
end assets....... 7.89 8.26 8.47 8.93 8.84 8.50 8.41
Allowance for
credit losses as
a percent of
period-end
loans............ 1.41 1.23 1.31 1.22 1.24 1.33 1.46
Net charge-offs to
average loans.... 0.18 0.19 .20 .21 .26 .17 .35
Dividends declared
as a percent of
net income 51.97 39.97 45.20 44.02 42.87 39.39 34.00
Net interest
margin, fully
taxable
equivalent....... 4.45 4.55 4.49 4.56 4.46 4.53 4.46
Nonperforming loans
to period end
loans............ 0.35 0.25 .36 .36 .55 .61 .73
Allowance for
credit losses to
nonperforming
loans............ 401.66 488.87 360.46 341.01 226.47 217.59 199.51
</TABLE>
- ---------------
(1) Per share data has been restated to reflect the two-for-one stock split
declared on May 12, 1998 and the three-for-two stock split declared in 1995
and all mergers accounted for as poolings of interests (see Note 2 of the
financial statements.)
10
<PAGE> 20
SELECTED FINANCIAL DATA OF BANK (HISTORICAL)
The following table sets forth selected historical financial data of Bank
and has been derived from its financial statements. Such selected historical
financial data should be read in conjunction with Bank's audited financial
statements, including the respective notes thereto, and unaudited interim
financial information. The interim financial information has been derived from
the unaudited financial statements of Bank, which, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for fair statement of the results for the unaudited interim periods.
Results for the interim periods are not necessarily indicative of results which
may be expected for any other interim or annual period.
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS
ENDED JUNE 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Interest income..................... $ 23,375 $ 21,786 $ 44,662 $ 40,085 $ 34,514 $ 28,382 $ 26,473
Interest expense.................... 11,425 10,690 22,032 19,450 15,581 11,141 10,811
-------- -------- -------- -------- -------- -------- --------
Net interest income................. 11,950 11,096 22,630 20,635 18,933 17,241 15,662
Provision for loan losses........... 528 528 1,066 897 966 869 762
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision
for loan losses................... 11,422 10,568 21,564 19,738 17,967 16,372 14,900
Other income........................ 2,630 2,112 4,607 4,008 3,126 2,997 3,493
Other expense....................... 8,874 8,626 17,503 15,975 13,465 12,539 11,767
-------- -------- -------- -------- -------- -------- --------
Income before income tax............ 5,178 4,054 8,668 7,771 7,628 6,830 6,626
Income tax expense.................. 1,625 1,242 2,649 2,343 2,322 2,078 2,069
-------- -------- -------- -------- -------- -------- --------
Net income.......................... $ 3,553 $ 2,812 $ 6,019 $ 5,428 $ 5,306 $ 4,752 $ 4,557
======== ======== ======== ======== ======== ======== ========
PER COMMON SHARE DATA:
Earnings per share(1)
Class A........................... $ 44.63 $ 35.33 $ 75.62 $ 68.20 $ 66.67 $ 61.58 $ 59.50
Class B........................... 40.57 32.12 68.74 62.00 60.61 55.98 54.09
Cash dividends declared
Class A........................... 10.34 7.04 15.18 12.98 10.78 10.34 9.90
Class B........................... 9.40 6.40 13.80 11.80 9.80 9.40 9.00
Book value.......................... 633.14 561.70 600.61 536.51 490.25 415.61 371.19
CONSOLIDATED BALANCE SHEET DATA
(PERIOD END):
Total amount of:
Assets............................ $599,548 $569,964 $579,405 $539,031 $442,347 $410,580 $363,287
Securities available for sale..... 143,369 130,340 142,932 134,825 112,529 29,691 --
Securities held to maturity....... -- -- -- -- -- 52,408 88,436
Loans, net of unearned income..... 425,052 404,892 404,636 371,130 299,900 293,957 255,566
Allowance for loan losses......... 4,897 4,520 4,475 4,100 3,600 3,275 3,075
Deposits.......................... 530,975 506,019 522,316 486,473 397,449 347,774 328,994
Other borrowings.................. 11,317 12,338 2,326 3,927 755 17,385 2,000
Shareholders' equity.............. 52,551 46,621 49,851 44,530 40,690 34,496 29,695
</TABLE>
- ---------------
(1) Bank has two classes of stock with no potentially dilutive securities.
11
<PAGE> 21
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS ENDED
JUNE 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS:
Return on average assets............ 1.21% 1.02% 1.07% 1.07% 1.27% 1.25% 1.27%
Return on average shareholders'
equity............................ 13.88 12.44 12.87 13.01 14.30 15.04 16.47
Average shareholders' equity to
average assets.................... 8.68 8.19 8.35 8.25 8.85 8.34 7.83
Average loans to average deposits... 77.96 76.16 78.25 75.34 79.65 84.53 75.76
Shareholders' equity to period-end
assets............................ 8.77 8.18 8.60 8.26 9.20 8.59 8.17
Allowance for loan losses to
period-end loans.................. 1.15 1.12 1.11 1.10 1.20 1.11 1.20
Net charge-offs to average loans.... 0.24 0.19 0.18 0.12 0.21 0.25 0.23
Dividends declared as a percent of
net income........................ 23.19 19.91 20.07 19.03 16.19 16.67 16.63
Net interest margin................. 4.25 4.25 4.26 4.32 4.76 4.79 4.62
Nonperforming loans to total
loans............................. 0.49 0.43 0.54 0.37 0.64 0.55 0.51
Allowance for loan losses to
nonperforming loans............... 234.31 257.99 205.65 299.27 188.98 217.61 232.25
</TABLE>
12
<PAGE> 22
BANK AND SKY FINANCIAL
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA
The following table sets forth selected unaudited pro forma condensed
combined financial data of Sky Financial and Bank giving effect to the Merger as
of the beginning of the earliest period presented, after giving effect to the
pro forma adjustments described in the Notes to Unaudited Pro Forma Condensed
Combined Financial Statements contained elsewhere in this Proxy
Statement/Prospectus. The Merger is expected to be accounted for as a pooling of
interests. Such selected unaudited pro forma financial data should be read in
conjunction with the Unaudited Pro Forma Condensed Combined Financial
Statements, including the notes thereto. The Sky Financial and Bank Unaudited
Pro Forma Condensed Combined Balance Sheet is not necessarily indicative of the
actual financial condition that would have existed had the Merger been
consummated on the date indicated or that may be achieved in the future. The Sky
Financial and Bank Unaudited Pro Forma Condensed Combined Income Statements are
not necessarily indicative of the results that would have occurred had the
Merger been consummated as of the beginning of the earliest period presented
below, or that may exist in the future. See "Incorporation of Certain
Information by Reference" and "Unaudited Pro Forma Combined Financial
Statements."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------ --------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income............. $ 92,938 $ 89,074 $ 180,614 $ 172,114 $ 163,328
Provision for loan losses....... 6,387 4,502 10,928 7,713 6,472
Net income...................... 28,621 31,674 59,320 53,150 49,067
Net income available to common
shareholders.................. 28,621 31,069 58,715 50,743 46,316
PER COMMON SHARE DATA:
Net income - basic.............. $ 0.70 $ 0.76 $ 1.42 $ 1.25 $ 1.14
Net income - diluted............ 0.69 0.74 1.40 1.22 1.11
Book value at period end........ 8.71 8.82 9.30 8.55 8.04
Weighted average shares
outstanding - basic........... 41,098 40,852 41,275 40,463 40,797
Weighted average shares
outstanding - diluted......... 41,641 42,808 42,453 43,465 44,032
BALANCE SHEET DATA (AT PERIOD-
END):
Total assets.................... $4,694,408 $4,463,516 $4,562,303 $4,263,034 $4,088,793
Net loans....................... 3,176,676 3,047,806 3,123,377 2,920,990 2,681,892
Total deposits.................. 3,742,896 3,568,306 3,662,941 3,551,726 3,436,990
Total shareholders' equity...... 353,172 367,994 387,278 377,195 362,953
RATIOS:
Return on average assets........ 1.25% 1.48% 1.34% 1.28% 1.24%
Return on average common
equity........................ 15.44% 17.68% 16.04% 15.33% 15.02%
Average total equity to average
assets........................ 8.08% 8.67% 8.53% 8.81% 8.75%
</TABLE>
13
<PAGE> 23
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to holders of Bank
Common Shares in connection with the solicitation of proxies by the Board of
Directors of Bank for use at the Bank Special Meeting. This Proxy Statement/
Prospectus also serves as a prospectus for Sky Financial Common Shares which
will be issued upon the effectiveness of the Merger.
At the Bank Special Meeting, the shareholders of Bank will be asked to
approve and adopt the Merger Proposal.
All information contained in this Proxy Statement/Prospectus relating to
Sky Financial has been furnished by Sky Financial. All information contained in
this Proxy Statement/Prospectus relating to Bank has been furnished by Bank.
INFORMATION WITH RESPECT TO SKY FINANCIAL
The merger of Mid Am and Bancshares was consummated on October 2, 1998.
Upon consummation, Bancshares' name as the surviving entity changed to Sky
Financial Group, Inc. Sky Financial has over $4 billion in assets, 145 branches
and over 2,300 employees. Following the Merger of an interim bank subsidiary of
Sky Financial with and into Bank, the combined entity will have over $4.7
billion in assets, 163 branches and over 2,550 employees.
The Mid Am Merger was structured as a merger-of-equals transaction with Mid
Am shareholders and Bancshares shareholders owning 50.36% and 49.64%,
respectively, of Sky Financial and was accounted for as a pooling of interests.
Bancshares was a bank holding company organized in 1982 under the laws of the
State of Ohio and was registered with the Federal Reserve Board pursuant to the
BHC Act and was engaged in the business of commercial and retail banking. These
activities accounted for substantially all of Bancshares' revenue, operating
income and assets. Bancshares was 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 its formation in 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 accounted for approximately 72% 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. On
May 12, 1998, Bancshares acquired Century, and CNB became a wholly owned
commercial bank subsidiary of Bancshares organized under the laws of the United
States. CNB engages in full service commercial and consumer banking and trust
services through thirteen branch offices in southwestern Pennsylvania. CNB
accounted for approximately 25% of Bancshares' consolidated assets. CNB is
expected to merge with and into Citizens as of December 28, 1998. 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' loan customers. Freedom Financial
accounted 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 in Ohio, Pennsylvania and West Virginia.
Freedom Express accounted for less than one percent of Bancshares' consolidated
assets. On August 1, 1997, Citizens acquired ValueNet, Inc., an Internet access
company. This was the first step in a plan to begin offering Internet banking to
all of Bancshares' customers in 1998. A part of Bancshares' long term strategy
was 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 15 acquisitions totaling approximately $1.3 billion in
assets. At June 30, 1998, Bancshares had total consolidated assets of
approximately $1.8 billion and total shareholders' equity of approximately $159
million. As of December 31, 1997 and December 31, 1996, Bancshares had total
consolidated assets of approximately $1.79 billion and $1.54 billion and total
shareholders' equity of $156.7 million and $139.5 million, respectively.
Mid Am, a bank holding company organized and existing under the laws of the
State of Ohio and headquartered in Bowling Green, Ohio, was a holding company
for five bank subsidiaries with a total of 83 banking offices located in western
Ohio along the Interstate 75 corridor and in southern Michigan. Mid Am also
owned seven financial services
14
<PAGE> 24
subsidiaries which engaged in lines of business which were closely related to
banking. Through its bank subsidiaries, Mid Am offered a wide range of lending,
depository, trust, and related financial services to individual and business
customers. Through its financial services subsidiaries, Mid Am offered specialty
lending, investment, trust, collection and related financial services to
individual and business customers. Mid Am's market area was economically
diverse, with a base of manufacturing, service industries, transportation and
agriculture, and was not dependent upon any single industry or employer. As of
June 30, 1998, Mid Am had total consolidated assets of $2.3 billion and
shareholders' equity of $163 million. Mid Am had net income of $15.9 million for
the six months ended June 30, 1998 and net income of $30.9 million for the year
ended December 31, 1997.
The Board of Directors of Sky Financial currently consists of twenty-two
(22) members. Eleven (11) directors were nominated by Bancshares, and eleven
(11) directors were nominated by Mid Am. Mr. Edward J. Reiter (formerly the
Chairman of the Board and Chief Executive Officer of Mid Am) is the Senior
Chairman of the Board of Directors of Sky Financial. Mr. David R. Francisco
(formerly the President and Chief Operating Officer of Mid Am) is the Chairman
of the Board of Directors and Chief Executive Officer of Sky Financial and Mr.
Marty E. Adams (formerly the President and Chief Executive Officer of
Bancshares) is the President and Chief Operating Officer of Sky Financial. Mr.
James C. McBane (formerly the Chairman of the Board of Bancshares) is the Vice
Chairman of the Board of Directors of Sky Financial. In addition, certain
officers of Sky Financial will sit on a management executive committee
consisting of at least eight (8) persons. Mr. Reiter serves as chairman of the
management executive committee. If an Executive Committee of the Board of
Directors of Sky Financial is formed within three years after the effective time
of the Mid Am Merger it will contain equal numbers of members selected by former
directors of Bancshares and former directors of Mid Am, respectively, who sit on
the Board of Directors of Sky Financial. For a description of the make-up of the
Board of Directors after completion of the Merger, see "Sky Financial Board of
Directors; Interest of Bank Management in the Merger."
Sky Financial is continually evaluating acquisition opportunities and
frequently conducts due diligence activities in connection with possible
acquisitions. As a result, acquisition discussions and, in some cases,
negotiations frequently take place and future acquisitions involving cash, debt
or equity securities can be expected. Acquisitions typically involve the payment
of a premium over book and market values and, therefore, some dilution of Sky
Financial's book value and net income per common share may occur in connection
with any future transactions.
Sky Financial Common Shares are currently traded on the Nasdaq National
Market System under the symbol "SKYF." Sky Financial's principal executive
offices are located at 221 South Church Street, Bowling Green, Ohio 43402 and
its telephone number is (419) 327-6300.
Year 2000. The Year 2000 issue deals with the fact that many computer
applications, if not corrected, could fail or create erroneous results by or at
the year 2000 because many existing computer programs use only two digits to
identify a year in the date field and those programs were not designed or
developed while considering the impact of the upcoming change in the century for
Sky Financial and its subsidiaries. In order to assess the Year 2000 issue, Sky
Financial established a project group that represents functional areas to be
affected by Year 2000 changes. The Year 2000 project group meets regularly to
review Sky Financial's progress. All data processing systems have been
identified and all major systems and most lesser systems have been assessed for
Year 2000 compliance. This assessment indicates that there will be no material
impact on Sky Financial's operations or budgets to bring systems into compliance
by year end 1998. Most security and environmental systems have also been
assessed with no material impact indicated. Regardless of the Year 2000
compliance of the corporation's systems, there is not complete assurance that
Sky Financial will not be adversely affected to the extent other entities not
affiliated with Sky Financial, such as vendors, service suppliers and loan and
other counterparties are unsuccessful in properly addressing this issue.
For additional information regarding Sky Financial and its business,
reference is made to Sky Financial's 1997 Form 10-K, Sky Financial's Form 10-Q,
for the quarter ended June 30, 1998 and Sky Financial's Form 8-K, dated June 25,
1998 and October 15, 1998, which are incorporated by reference to this Proxy
Statement/Prospectus. For information regarding the voting securities and
principal holders thereof of Sky Financial, please see the portions of the 1998
Proxy Statement of Sky Financial incorporated by reference to Sky Financial's
1997 Form 10-K.
15
<PAGE> 25
INFORMATION WITH RESPECT TO BANK
The Ohio Bank is a state-chartered bank based in Findlay, Ohio. Bank
commenced operations in 1887, serving only Hancock County, Ohio until 1985.
Beginning in 1985, Bank expanded its territory through a series of acquisitions
and branch openings. Today, Bank operates in five regions -- Hancock County,
Seneca County, Putnam County, Franklin County and Chagrin Falls -- with a total
of 18 banking offices. Bank's newest branch is located in Franklin County, which
includes Columbus, Ohio and its suburbs. Bank's principal executive offices are
located at 236 South Main Street, Findlay, Ohio 45840. The telephone number of
Bank's executive offices is (419) 424-4000.
Bank engages in full service commercial and consumer banking and trust
services through its branch offices. During the five-year period beginning in
1993 and ending in 1997, Bank's combined total assets have grown from
approximately $363.2 million in 1993 to approximately $579.4 million in 1997. As
of December 31, 1997, Bank had total deposits of $522.3 million, consolidated
total assets of approximately $579.4 million and total shareholders' equity of
approximately $49.9 million, and had a total of 268 full-time and 189 part-time
employees.
Bank offers a broad range of traditional retail, deposit and loan services
through its regional locations, including checking and savings accounts, time
deposits, IRAs, ATMs, safe deposit facilities, personal loans, commercial loans,
real estate mortgage loans, installment loans and night depository facilities.
In addition, Bank provides third-party administrator and trust and investment
services for employee benefit and profit-sharing programs, as well as general
trust and investment services.
Loans. Bank grants residential real estate, commercial real estate,
consumer and commercial loans to customers located primarily in its regional
areas. No material industry or group concentrations exist in Bank's loan
portfolio.
Commercial, industrial and agricultural loans are generally offered at
variable rates and include operating lines of credit and term loans made to
small businesses primarily on the basis of their ability to repay the loan from
cash flow from operations. Such loans are typically secured by business assets
such as equipment and inventory.
Residential real estate loans and home equity lines of credit, which are
secured by the borrower's residence, carry primarily adjustable rates, although
fixed-rate loans are also originated. Such loans are made on the basis of the
borrower's ability to make repayment from employment and other income. Bank
generally makes these loans in amounts of 80% or less of the value of the
collateral. An appraisal is obtained from a qualified real estate appraiser for
substantially all loans secured by real estate.
Construction loans are secured by residential and business real estate,
generally occupied by the borrower on completion. While not contractually
required to do so, Bank usually makes the permanent loan at the end of the
construction phase. Construction loans are generally made in amounts of 80% or
less of the value of the collateral.
Consumer installment loans to individuals include loans secured by
automobiles and other consumer assets, including second mortgages on personal
residences. Credit card and overdraft protection loans are unsecured personal
lines of credit to individuals with reasonably assured sources of income and
satisfactory credit histories.
Loan Portfolio. The following table sets forth the classification of loans
of Bank by major categories as of December 31 of the following years:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural... $220,010 $196,764 $159,836 $158,035 $144,449
Real estate construction................. 46,327 35,472 26,430 18,345 12,389
Residential real estate mortgage and home
equity................................. 104,109 95,040 76,286 77,019 52,971
Consumer................................. 32,587 34,977 33,580 39,892 40,888
Real estate mortgage loans held for
sale................................... 1,603 8,877 3,768 666 4,869
-------- -------- -------- -------- --------
Total loans.................... $404,636 $371,130 $299,900 $293,957 $255,566
======== ======== ======== ======== ========
</TABLE>
There were no foreign loans outstanding during any period presented. At
December 31, 1997, there were no concentrations of loans greater than 10% of
total loans which are not otherwise disclosed as a category of loans in the
table above.
16
<PAGE> 26
The following table sets forth the maturities of loans based on contractual
terms and assuming no amortization or prepayments, excluding residential real
estate mortgage loans, consumer loans and loans held for sale, as of December
31, 1997:
<TABLE>
<CAPTION>
MATURING
-------------------------------------------------
ONE YEAR ONE THROUGH AFTER FIVE
OR LESS FIVE YEARS YEARS TOTAL
-------- ----------- ---------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
FIXED RATE
Commercial, financial and agricultural............. $ 6,233 $22,117 $ 16,271 $ 44,621
Real estate construction........................... 3,576 235 5,359 9,170
------- ------- -------- --------
Total.................................... $ 9,809 $22,352 $ 21,630 $ 53,791
======= ======= ======== ========
VARIABLE RATE
Commercial, financial and agricultural............. $25,635 $45,962 $103,792 $175,389
Real estate construction........................... 12,534 10,298 14,325 37,157
------- ------- -------- --------
Total.................................... $38,169 $56,260 $118,117 $212,546
======= ======= ======== ========
</TABLE>
Non-performing loans. The following table sets forth nonaccrual, past due
and restructured loans.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis.......... $1,634 $1,002 $1,657 $ 770 $ 591
Accruing loans which are contractually past due 90
days or more as to interest or principal
payments......................................... 542 368 248 735 733
Loans which are "troubled debt restructurings" as
defined in Statement of Financial Accounting
standards No. 15 (excluding loans included in the
items above):.................................... -- -- -- -- --
------ ------ ------ ------ ------
Totals $2,176 $1,370 $1,905 $1,505 $1,324
====== ====== ====== ====== ======
</TABLE>
Bank ceases to accrue interest on loans when management believes that
collection of interest is doubtful and loans are past due as to principal and
interest 90 days or more. In certain circumstances interest accruals are
continued on past due loans deemed by management to be fully collectible. When
loans are placed on nonaccrual, any accrued interest is charged against interest
income.
During the year ended December 31, 1997, interest income of $171,000 would
have been recorded on non-accruing loans had such loans been accruing pursuant
to contractual terms. During such period, interest income of $53,000 was
received and recorded on such loans.
Information regarding impaired loans at December 31, 1997, 1996 and 1995 is
set forth in the following table:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Year-end impaired loans with no allowance for loan losses
allocated................................................. $ -- $ -- $ --
Year-end impaired loans with allowance for loan losses
allocated................................................. 1,619 1,034 1,582
Amount of the allowance allocated........................... 522 314 473
</TABLE>
Impaired loans are comprised of commercial and commercial real estate
loans, and are carried at present value of expected cash flows, discounted at
the loan's effective interest rate or at fair value of collateral, if the loan
is collateral dependent. A portion of the allowance for loan losses is allocated
to impaired loans.
Smaller-balance homogeneous loans are evaluated for impairment in total.
Such loans include residential first mortgage and construction loans secured by
one- to four-family residences, consumer, credit card and home equity
17
<PAGE> 27
loans. Such loans are included in nonaccrual and past due disclosures above, but
not in impaired loan totals. Commercial loans and mortgage loans secured by
other properties are evaluated individually for impairment. In addition, loans
held for sale are excluded from consideration of impairment. When analysis of
borrower operating results and financial condition indicates that borrower's
underlying cash flows are not adequate to meet its debt service requirements,
the loan is evaluated for impairment. Impaired loans, or portions thereof, are
charged off when deemed uncollectible.
At December 31, 1997, there were approximately $1,084,000 of loans
representing the remaining balances of loans classified as substandard for
regulatory purposes excluding those previously disclosed. These loans and their
potential loss exposure have been considered in management's analysis of the
adequacy of the allowance 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.
Other Real Estate Owned. Other real estate owned ("OREO") includes property
acquired in foreclosure proceedings or under agreements with delinquent
borrowers. There is no material other real estate owned by Bank.
Analysis of Allowance for Loan Losses. The allowance for loan losses
balance and provision charged to expense are determined by management based on
periodic reviews of the loan portfolio, past loan loss experience, economic
conditions and various other circumstances which are subject to change over
time. In making this judgment, management reviews selected large loans as well
as impaired loans, other delinquent, nonaccrual and problem loans and loans to
industries experiencing economic difficulties. The collectibility of these loans
is evaluated after considering current operating results and financial position
of the borrower, estimated market value of collateral, guarantees and Bank's
collateral position versus other creditors. Judgments, which are necessarily
subjective, as to probability of loss and amount of such loss are formed on
these loans, as well as other loans taken together. At June 30, 1998, Bank had
an allowance for loan losses of $4,897,000.
The following table sets forth the historical relationship between Bank's
loan charge offs and recoveries and allowance for loan losses as of December 31
for the years indicated:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
LOANS
Loans outstanding at end of period
(1)................................. $404,636 $371,130 $299,900 $293,957 $255,566
======== ======== ======== ======== ========
Average loans outstanding during period
(1)................................. $394,065 $341,417 $299,829 $272,958 $258,247
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Net of deferred loan fees, loan discounts and loans in process.
18
<PAGE> 28
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period................... $4,100 $3,600 $3,275 $3,075 $2,900
Loans charged off:
Commercial, financial and agricultural........ (558) (239) (288) (205) (218)
Real estate construction...................... -- -- -- -- --
Residential real estate mortgage and home
equity...................................... -- -- -- (8) (2)
Consumer...................................... (275) (313) (580) (621) (805)
------ ------ ------ ------ ------
Total loans charged off.................. (833) (552) (868) (834) (1,025)
------ ------ ------ ------ ------
Recoveries of loans previously charged off:
Commercial, financial and agricultural........ 38 50 56 21 18
Real estate construction...................... -- -- -- -- --
Residential real estate mortgage and home
equity...................................... -- -- -- 1 --
Consumer...................................... 104 105 171 143 420
------ ------ ------ ------ ------
Total loan recoveries.................... 142 155 227 165 438
------ ------ ------ ------ ------
Net loans charged off............................ (691) (397) (641) (669) (587)
Provision charged to operating expense........... 1,066 897 966 869 762
------ ------ ------ ------ ------
Balance at end of period......................... $4,475 $4,100 $3,600 $3,275 $3,075
====== ====== ====== ====== ======
Ratio of net charge-offs to average loans
outstanding for period........................... .18% .12% .21% .25% .23%
</TABLE>
While management's periodic analysis of the adequacy of allowance for loan
losses may allocate portions of the allowance for specific problem-loan
situations, the entire allowance is available for any loan charge-offs that
occur.
The following table sets forth the allowance for loan losses allocated by
type of loan and related ratios for the periods indicated:
<TABLE>
<CAPTION>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
--------------------------------------------------------------------------------------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
LOANS IN EACH LOANS IN EACH LOANS IN EACH
ALLOWANCE CATEGORY TO ALLOWANCE CATEGORY TO ALLOWANCE CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
--------- ------------- --------- ------------- --------- -------------
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------- -------------------------- --------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural.............. $1,870 54.37% $1,476 53.02% $1,199 53.30%
Real estate construction.... 93 11.45 77 9.56 53 8.80
Real estate mortgage and
home equity............... 260 25.73 231 25.61 191 25.44
Consumer.................... 488 8.05 525 9.42 537 11.20
Real estate mortgage loans
held for sale............. -- .40 -- 2.39 -- 1.26
Unallocated................. 1,764 -- 1,791 -- 1,620 --
------ ------ ------ ------ ------ ------
Total.............. $4,475 100.00% $4,100 100.00% $3,600 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
19
<PAGE> 29
<TABLE>
<CAPTION>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
--------------------------------------------------------
PERCENTAGE OF PERCENTAGE OF
LOANS IN EACH LOANS IN EACH
ALLOWANCE CATEGORY TO ALLOWANCE CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
--------- ------------- --------- -------------
DECEMBER 31, 1994 DECEMBER 31, 1993
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural.......... $1,106 53.76% $1,011 56.51%
Real estate construction........................ 37 6.24 25 4.85
Real estate mortgage and home equity............ 193 26.20 132 20.73
Consumer........................................ 638 13.57 654 16.00
Real estate mortgage loans held for sale........ -- .23 -- 1.91
Unallocated..................................... 1,301 -- 1,253 --
------ ------ ------ ------
Total................................. $3,275 100.00% $3,075 100.00%
====== ====== ====== ======
</TABLE>
Investment Securities. Bank maintains a portfolio of investment securities
to provide liquidity, additional diversification and earnings on funds not being
utilized for loan activity or other purposes. Under its investment policy, Bank
may invest in direct obligations of the U.S. Treasury; securities backed by
Federal agencies; state, county and municipal securities that represent general
obligations of the issuer; revenue bonds rated Baa or higher by Moody's or
Standard & Poor's; money market instruments of federally insured institutions;
and corporate securities rated Baa or higher.
The following table sets forth the carrying value of securities at December
31 for the years indicated:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Securities available for sale (at fair value)
U.S. Treasury securities and obligations of U.S.
Government agencies and corporations................... $ 80,604 $ 77,080 $ 67,807
Obligations of states and political subdivisions.......... 24,088 22,233 20,008
Mortgage-backed securities................................ 35,083 32,545 22,606
-------- -------- --------
Total debt securities............................. 139,775 131,858 110,421
Other securities.......................................... 3,157 2,967 2,108
-------- -------- --------
Total securities available for sale............... $142,932 $134,825 $112,529
======== ======== ========
</TABLE>
The following table sets forth the maturities for each category of debt
securities and the related weighted-average yield of such securities as of
December 31, 1997:
<TABLE>
<CAPTION>
MATURING
---------------------------------------------------------------------
AFTER ONE AFTER FIVE
ONE YEAR YEAR THROUGH YEARS THROUGH AFTER
OR LESS FIVE YEARS TEN YEARS TEN YEARS
--------------- --------------- --------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ----- ------- ----- ------- ----- ------- -----
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale
U.S. Treasury securities and
obligations of U.S.
Government agencies and
corporations............... $26,951 5.50% $47,275 6.00% $ 6,378 10.84% $ -- --%
Obligations of states and
political subdivisions..... 483 7.47 4,507 8.59 12,991 8.42 6,107 8.13
Mortgage-backed securities...... 118 7.56 117 9.29 5,562 6.66 29,286 6.60
------- ---- ------- ---- ------- ----- ------- ----
Total................. $27,552 5.54% 1,899 6.23% $24,931 8.65% $35,393 6.86%
======= ==== ======= ==== ======= ===== ======= ====
</TABLE>
20
<PAGE> 30
The weighted-average yields are calculated using amortized cost of
securities and are based on coupon rates for securities purchased at par value
and on effective interest rates considering amortization or accretion if the
securities were purchased at a premium or discount. The weighted-average yield
on tax-exempt obligations is presented on a taxable equivalent basis based on
Bank's marginal federal income tax rate of 34%. Other securities consist of
Federal Home Loan Bank stock and Federal Reserve Board stock. These securities
bear no stated maturity or yield and are not included in this analysis.
Excluding holdings of U.S. Treasury securities and other agencies and
corporations of the U.S. Government, there were no investments in securities of
any one issuer exceeding 10% of Bank's shareholders' equity at December 31,
1997.
Deposits. A large part of Bank's business is acceptance of commercial and
retail deposits. At December 31, 1997, deposits of public funds (i.e., funds of
governmental agencies and municipalities) were 7.5% of total deposits. This
amount can fluctuate, but generally not by a material amount.
The following table presents the average balances of Bank for each major
category of deposits and the weighted average interest rate paid for
interest-bearing deposits as of December 31 for the years indicated:
<TABLE>
<CAPTION>
AVERAGE AVERAGE
AMOUNTS OUTSTANDING RATE PAID
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
-------------------------------- -----------------------
1997 1996 1995 1997 1996 1995
-------- -------- -------- ----- ----- -----
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand.............. $ 50,905 $ 42,613 $ 36,217 N/A N/A N/A
Interest-bearing demand deposits........ 105,540 78,187 64,129 3.40% 2.79% 2.61%
Savings deposits........................ 65,262 78,404 65,926 3.36 3.16 3.02
Time deposits........................... 281,840 253,957 210,150 5.63 5.65 5.59
-------- -------- -------- ---- ---- ----
Total deposits................ $503,547 $453,161 $376,422 4.78% 4.63% 4.53%
======== ======== ======== ==== ==== ====
</TABLE>
The following table sets forth the amount and maturity of certificates of
deposit with balances of more than $100,000 as of December 31, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
<S> <C>
Three months or less........................................ $42,362
Over three through six months............................... 12,679
Over six through twelve months.............................. 8,649
Over twelve months.......................................... 11,439
-------
Total............................................. $75,129
=======
</TABLE>
Competition. Bank operates in a highly-competitive industry due to
statewide and interstate branching by banks, savings and loan associations and
credit unions. In its primary market area of Hancock and surrounding counties,
Bank competes for new deposit dollars and loans with other commercial banks,
large regional banks, community banks, savings and loan associations, credit
unions, finance companies, insurance companies, brokerage firms and investment
companies. The primary factors affecting competition for deposits are interest
rates, cost of services, the quality and range of financial products offered and
the convenience of locations and office hours. The primary factors in competing
for loans are interest rates, loan origination fees and the quality and range of
lending products offered. Other factors which affect competition include the
general availability and reliability of lendable funds/credit, general and local
economic conditions and the quality of service and loan approval turn-around
provided to customers.
Some of Bank's competitors are larger and have more assets than Bank.
Furthermore, because larger financial institutions frequently benefit from
economies of scale, many of Bank's competitors are able to offer more attractive
interest rates, lower cost services and a wider range of services and products.
Bank believes that it has been successful in the past in competing due to its
focus on building and maintaining comprehensive banking relationships in the
community.
21
<PAGE> 31
Employees. At December 31, 1997, Bank employed 268 employees, 189 of which
were full-time. No employee is represented by a union or collective bargaining
group. Management of Bank believes that their relationships with their employees
are satisfactory.
Regulatory Matters. Bank is subject to supervision, regulation and periodic
examination by the State of Ohio Superintendent of Financial Institutions (the
"State Superintendent"), the FDIC, which insures its deposits up to applicable
limits, and the Federal Reserve Board. Bank is also a member of the Federal
Reserve System and the Federal Home Loan Bank (the "FHLB") of Cincinnati.
Earnings of Bank are affected by state and federal laws and regulations, and by
policies of various regulatory authorities. These policies include, for example,
statutory maximum lending rates, requirements on maintenance of reserves against
deposits, domestic monetary policies of the Board of Governors of the Federal
Reserve System, United States fiscal policy, international currency regulations
and monetary policies, consumer compliance and community reinvestment policies,
certain restrictions on banks' relationships with many phases of the securities
business and capital adequacy and liquidity restraints.
Asset and Liability Management and Market Risk. Bank's primary market risk
exposure is interest rate risk and, to a lesser extent, liquidity risk. Interest
rate risk is the risk that Bank's financial condition will be adversely affected
due to movements in interest rates. The income of financial institutions is
primarily derived from the excess of interest earned on interest-earning assets
over the interest paid on interest-bearing liabilities. Accordingly, Bank places
great importance on monitoring and controlling interest rate risk.
The principal goal of asset/liability management -- profit
management -- can be accomplished by establishing decision processes and control
procedures for all bank assets and liabilities. Thus, the full scope of
asset/liability management encompasses the entire balance sheet of Bank. The
broader principal components of asset/liability management include, but are not
limited to liquidity planning, capital planning, gap management and spread
management.
By definition, liquidity is measured by Bank's ability to raise cash at a
reasonable cost or with a minimum of loss. Liquidity planning is necessary so
that Bank will be capable of funding all obligations to its customers at all
times, from meeting their immediate cash withdrawal requirements to fulfilling
their short-term credit needs.
Capital planning is an essential portion of asset/liability management, as
capital is a limited bank resource, which, due to minimum capital requirements,
can place possible restraints on bank growth. Capital planning refers to
maintaining capital standards through effective growth management, dividend
policies and asset/liability strategies.
Gap is defined as the dollar difference between rate sensitive liabilities
with respect to a specified time frame. A gap has three components -- the asset
component, the liability component, and the time component. Gap management
involves the management of all three components.
Gap management is defined as those actions taken to measure and match rate
sensitive assets to rate sensitive liabilities. A rate sensitive asset is any
interest-earning asset, which can be repriced to a market rate in a given time
frame. Similarly, a rate sensitive liability is any interest-bearing liability,
which can have its interest rate changed to a market rate during the specified
time period. Caps and collars may prevent the loans from adjusting to the market
rate.
A negative gap is created when rate sensitive liabilities exceed rate
sensitive assets and, conversely, a positive gap occurs when rate sensitive
assets exceed rate sensitive liabilities. A negative gap position will cause
profits to decline in a rising interest rate environment and a positive gap will
cause profits to decline in a falling interest rate environment. Under either
scenario, profits suffer. Bank's goal is to have acceptable profits under any
interest rate environment. To avoid volatile profits as a result of interest
rate fluctuations, Bank must match interest rate fluctuations and interest rate
sensitivities, while pricing both the asset and liability components to yield a
sufficient interest rate spread so that profits will remain relatively
consistent across interest rate cycles.
Management of the income statement is called spread management and is
defined as managing investments, loans, and liabilities to achieve and
acceptable spread between Bank's return on its earning assets and its cost of
funds. Gap management without consideration of interest spread can cause
unacceptably low profit margins while assuring that the level of profits is
steady. Spread management without consideration of gap positions can cause
acceptable profits in some interest rate environments and unacceptable profits
in others. A sound asset/liability management program
22
<PAGE> 32
combines gap and spread management into a single cohesive system. Gap and spread
management are the foundations for effective interest rate risk simulation
modeling.
Management believes interest rate risk is best measured by simulation
modeling which calculates expected net interest-earning assets and
interest-bearing liabilities. The model projections are based upon historical
trends and management's expectations of balance sheet growth patterns and
spreads to market rates. Bank monitors exposure to rate changes utilizing four
economic forecasts provided by an external source over a twelve month rolling
period and an interest-rate shock of an instantaneous change in rates of 150
basis points over the same period. The policy limit of Bank for the maximum
negative impact on net interest-income from an instantaneous change in interest
rates over a twelve month period is 9.0 percent. As of December 31, 1997, the
model indicated net interest income would decrease 6.8 percent from a 150 basis
point instantaneous increase in rates, while net interest income would increase
4.1 percent from a 150 basis point instantaneous decrease in rates. Actual
results will differ from simulated due to timing, magnitude and frequency of
interest rate changes and changes in market conditions and management
strategies, among other factors.
Net portfolio value ("NPV") represents the market value of portfolio equity
and is equal to the market value of assets minus the market value of
liabilities. Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, loan prepayments and deposit decay rates, and should not be
relied upon as indicative of actual results. Further, the computations do not
contemplate any actions that may be taken in response to changes in interest
rates. The NPV calculation is a static snapshot at a point in time, and
therefore does not consider such factors as management intervention or
circumstances such as shifts in the yield curve during an interest rate cycle.
Value at risk analysis is most relevant and useful in assessing the exposure of
the FDIC to banks with minimal or negative capital and earnings.
Certain shortcomings are inherent in the method of analysis presented in
the computation of estimated NPV. Certain assets such as adjustable-rate loans
have features that restrict changes in interest rates on a short-term basis and
over the life of the asset. In addition, the proportion of adjustable-rate loans
in the loan portfolio could decrease in future periods if market interest rates
remain at or decrease below current levels due to refinancing activity. Further,
in the event of a change in interest rates, prepayment and early withdrawal
levels would likely deviate from those assumed in the table. Finally, the
ability of many borrowers to repay their adjustable-rate debt may decrease in
the case of an increase in interest rates.
The following table sets forth the amount of and change in the NPV of Bank
as of December 31, 1997.
NET PORTFOLIO VALUE
<TABLE>
<CAPTION>
CHANGE IN RATES $ AMOUNT $ CHANGE % CHANGE
- --------------- -------- -------- --------
<S> <C> <C> <C>
+150 bp $41,292 $(7,621) (15.6)%
+100 bp 43,965 (4,948) (10.1)
+ 50 bp 46,516 (2,397) (4.9)
Base 48,913 0 0
- 50 bp 51,339 2,426 5.0
-100 bp 53,625 4,712 9.6
-150 bp 55,873 6,960 14.2
</TABLE>
23
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF BANK
INTRODUCTION
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 related footnotes.
Management is not aware of any trend, events or uncertainties that will have or
are reasonably likely to have a material affect on the liquidity, capital
resources or operations except as discussed herein. In addition, management is
not aware of any current recommendations by regulatory authorities that would
have such effect if implemented. Bank cautions that any forward-looking
statements contained in this report, or made by management of Bank involves
risks and uncertainties and are subject to change based on various important
factors. Actual results could differ materially from those expressed or implied.
Additionally, Bank claims no notification responsibilities should their opinions
change from those expressed herein.
ANALYSIS OF FINANCIAL CONDITION
JUNE 30, 1998 AND DECEMBER 31, 1997
Bank's assets totaled $599,548 at June 30, 1998 compared to $579,405 at
December 31, 1997, an increase of $20,143, or 3.5%. The growth in assets was the
result of the growth in loans funded by strong deposit growth and increased
borrowings by Bank.
Total securities increased only $437, or 0.3%, from $142,932 at December
31, 1997 to $143,369 at June 30, 1998. Balances remained stable as a result of
the reinvestment of proceeds from maturities, calls and principal repayments.
Bank invests primarily in U.S. Treasury notes, securities issued by U.S.
government agencies, municipal bonds, and mortgage-backed securities.
Mortgage-backed securities include Federal Home Loan Mortgage Corporation
("FHLMC"), Government National Mortgage Association ("GNMA") and Federal
National Mortgage Association ("FNMA") participation certificates. The entire
securities portfolio was classified as available for sale at June 30, 1998.
Management classifies all securities as available for sale to provide Bank with
the flexibility to move funds into loans as demand warrants. The mortgage-backed
securities portfolio, totaling $45,809 at June 30, 1998, provides Bank with a
constant cash flow stream from principal repayments. Bank held no derivative
securities during any period discussed.
Loans increased $20,416, or 5.0%, from $404,636 at December 31, 1997 to
$425,052 at June 30, 1998. The loan growth occurred primarily in commercial,
financial, and agricultural lending. This area of lending increased $20,095, or
9.1%, as Bank was able to take advantage of strong local economies and new
lending opportunities. Real estate mortgage loan totals declined slightly
because of the increased refinancing and prepayment of existing loans due to
lower available mortgage rates and the increased sale of loans by Bank in the
secondary market. Although pricing has become more competitive in all Bank's
primary lending markets, Bank has not changed its philosophy regarding
underwriting standards.
As a result of the strong loan growth, the gross loan to deposit ratio
increased to 80.1% at June 30,1998 from 77.5% at December 31, 1997.
Total deposits increased $8,659, or 1.7%, from $522,316 at December 31,
1997 to $530,975 at June 30,1998. Noninterest-bearing deposits increased $745,
or 1.2%, while interest-bearing deposits increased $7,914, or 1.7%.
Interest-bearing demand and money market deposits increased from 22.3% of total
interest-bearing deposits at December 31, 1997 to 26.8% of total
interest-bearing deposits at June 30, 1998 due to an increase in volume of
$22,492, or 21.8%. Bank experienced a slight decrease in savings deposits which
decreased from 16.7% of total interest-bearing deposits at December 31, 1997 to
15.9% of total interest-bearing deposits at June 30, 1998. The certificates of
deposit portfolio decreased from 60.9% of total interest-bearing deposits at
December 31, 1997 to 57.4% of total interest-bearing deposits at June 30, 1998.
The shift in the make-up of the deposit portfolio as well as the overall growth
in deposits is attributable to the introduction of a new money market account
indexed to a market rate and the reduction in and simplification of Bank's
deposit products. Management believes that because of these steps the growth in
and turnover of deposits will remain fairly stable, as Bank deposit products are
better able to compete with other investments.
24
<PAGE> 34
Other borrowings, primarily advances from the Federal Home Loan Bank,
increased $8,991, from $2,326 at December 31, 1997 to $11,317 at June 30, 1998
to help fund the increase in loans.
DECEMBER 31, 1997 AND 1996
Bank's assets totaled $579,405 at December 31, 1997 compared to $539,031 at
December 31, 1996, an increase of $40,374, or 7.5%. The growth in assets was the
result of the investment of funds provided by strong deposit growth in loans,
securities and other investments.
Total securities increased $8,107, or 6.0%, from $134,825 at December 31,
1996 to $142,932 at December 31, 1997. The increase was the result of the
reinvestment of proceeds from sales of available for sale securities,
maturities, calls and principal repayments, as well as the investment of excess
liquidity and funds provided from increased deposits. The entire securities
portfolio was classified as available for sale at December 31, 1997. The
mortgage-backed securities portfolio totalled $35,083 at December 31, 1997. Bank
held no derivative securities during any period discussed.
Total loans increased $33,506, or 9.0%, from $371,130 at December 31, 1996
to $404,636 at December 31, 1997. Growth was experienced primarily in commercial
and real estate loans. The growth occurred primarily in the Franklin County
region and Bank's newest two markets, Fostoria and Chagrin Falls. The Franklin
County regional market continues to grow with a strong economy. In Fostoria and
Chagrin Falls, Bank has been able to take advantage of new lending
opportunities. The commercial, financial and agricultural portfolio grew
$23,246, or 11.8%, from $196,764 at December 31, 1996 to $220,010 at December
31, 1997, as Bank was able to take advantage of strong local economies and new
lending opportunities. Construction loans, both residential and commercial,
increased $10,855, or 30.6%, from December 31, 1996 to December 31, 1997. Strong
construction loan demand in Bank's markets contributed to the increase.
Residential real estate and home equity loans increased $9,069, or 9.5%, from
$95,040 at December 31, 1996 to $104,109 at December 31, 1997. There was no
concentration of lending to any one industry.
Total deposits increased $35,843, or 7.4%, from $486,473 at December 31,
1996 to $522,316 at December 31, 1997. Noninterest-bearing deposits increased
$10,096, or 20.3%, while interest-bearing deposits increased $25,747, or 5.9%.
Interest-bearing demand and money market deposits increased from 19.6% of total
interest-bearing deposits at December 31, 1996 to 22.3% of total
interest-bearing deposits at December 31, 1997 due to an increase in volume of
$17,857, or 20.9%. Bank experienced a slight decrease in savings deposits from
18.0% of total interest-bearing deposits at December 31, 1996 to 16.7% of total
interest-bearing deposits at December 31, 1997. Certificates of deposit
increased 3.4%, or $9,243. The certificates of deposit portfolio decreased from
62.4% of total interest-bearing deposits at December 31, 1996 to 60.9% of total
interest-bearing deposits at December 31, 1997. Growth in deposits was primarily
attributable to the introduction of new deposit products.
The following table sets forth certain information relating to Bank's
average balance sheet and reflects the average yield on interest-earning assets
and the average cost of interest-bearing liabilities for the periods indicated.
Such yields and costs are derived by dividing income or expense by the average
monthly balance of interest-earning assets or
25
<PAGE> 35
interest-bearing liabilities, respectively, for the periods presented. Average
balances are derived from daily balances, which include nonaccruing loans in the
loan portfolio.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------- ------------------------------- -------------------------------
AVERAGE INTEREST AVERAGE INTEREST AVERAGE INTEREST
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE BALANCE PAID RATE
----------- -------- ------ ----------- -------- ------ ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold........ $ 3,884 $ 214 5.51% $ 3,337 $ 183 5.48% $ 10,693 $ 628 5.87%
Securities (1)
Taxable................. 110,528 6,776 6.12 112,316 6,804 6.03 69,397 4,112 5.90
Tax-exempt (2).......... 23,031 1,223 5.49 20,779 1,120 5.57 18,185 1,017 5.63
Loans (3)................. 394,065 36,449 9.25 341,417 31,978 9.37 299,829 28,757 9.59
-------- ------- -------- ------- -------- -------
Total
interest-earning
assets............ 531,508 44,662 8.40 477,849 40,085 8.39 398,104 34,514 8.67
------- ------- -------
Noninterest-earning
assets.................... 28,969 28,142 21,019
-------- -------- --------
Total assets........ $560,477 $505,991 $419,123
======== ======== ========
Interest-bearing
liabilities:
Demand deposits........... $105,540 3,592 3.40 $ 78,187 2,180 2.79 $ 64,129 1,673 2.61
Savings deposits.......... 65,262 2,191 3.36 78,404 2,477 3.16 65,926 1,993 3.02
Certificates of deposit... 281,840 15,879 5.63 253,957 14,345 5.65 210,150 11,742 5.59
Other borrowings.......... 6,511 370 5.68 8,152 448 5.50 2,962 173 5.84
-------- ------- -------- ------- -------- -------
Total
interest-bearing
liabilities....... 459,153 22,032 4.80 418,700 19,450 4.65 343,167 15,581 4.54
------- ------- -------
Noninterest-bearing
liabilities............... 54,541 45,559 38,857
Shareholders' equity........ 46,783 41,732 37,099
-------- -------- --------
Total liabilities &
shareholders'
equity............ $560,477 $505,991 $419,123
======== ======== ========
Net interest income;
interest rate spread...... $22,630 3.60% $20,635 3.74% $18,933 4.13%
======= ====== ======= ====== ======= ======
Net interest margin (net
interest income as a
percent of average
interest-earning
assets)................... 4.26% 4.32% 4.76%
====== ====== ======
Average interest-earning
assets to average
interest-bearing
liabilities............... 115.76% 114.13% 116.01%
====== ====== ======
</TABLE>
- ---------------
(1) Average balance includes unrealized gains and losses while yield is based on
amortized cost.
(2) Interest on tax-exempt securities is reported on a historical basis without
tax-equivalent adjustment. Interest on tax-exempt securities on a tax
equivalent basis was $1,853 in 1997, $1,697 in 1996 and $1,541 in 1995.
(3) Calculated net of deferred loan fees, loan discounts, unearned interest and
loans in process.
The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected Bank's interest income and expense during the years indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in volume
(multiplied by prior year rate); (2) changes in rate (multiplied by prior year
volume); and,
26
<PAGE> 36
(3) total changes in rate and volume. The combined effects of changes in both
volume and rate, that are not separately identified, have been allocated
proportionately to the change due to volume and change due to rate:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 VS. 1996 1996 VS. 1995
--------------------------- -------------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
DUE TO DUE TO
----------------- ---------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ------- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Federal funds sold...................... $ 30 $ 1 $ 31 $ (406) $ (39) $ (445)
Securities:
Taxable.............................. (109) 81 (28) 2,584 108 2,692
Tax-exempt........................... 124 (21) 103 144 (41) 103
Loans................................... 4,874 (403) 4,471 3,909 (688) 3,221
------ ------- ------ ------ ----- ------
Total interest income........... 4,919 (342) 4,577 6,231 (660) 5,571
------ ------- ------ ------ ----- ------
Interest expense attributable to:
Demand deposits......................... 866 546 1,412 386 121 507
Savings deposits........................ (434) 148 (286) 391 93 484
Certificates of deposit................. 1,571 (37) 1,534 2,473 130 2,603
Borrowings.............................. (93) 15 (78) 286 (11) 275
------ ------- ------ ------ ----- ------
Total interest expense.......... 1,910 672 2,582 3,536 333 3,869
------ ------- ------ ------ ----- ------
Increase (decrease) in net interest
income.................................. $3,009 $(1,014) $1,995 $2,695 $(993) $1,702
====== ======= ====== ====== ===== ======
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Net Income. Net income for the six months ended June 30, 1998 totaled
$3,553 compared to net income of $2,812 for the same period in 1997.
Net Interest Income. Net interest income represents the amount by which
interest income on interest-earning assets exceeds interest paid on
interest-bearing liabilities. Net interest income is the largest component of
Bank's income and is affected by the interest rate environment and the volume
and composition of interest-earning assets and interest-bearing liabilities.
Net interest income was $11,950 for the six months ended June 30, 1998
compared to $11,096 for the same period in 1997. Such increase is the result of
an increased volume of interest-earning assets partially offset by an increase
in interest-bearing liabilities that carried a higher average yield. The average
yield earned on interest-earning assets remained constant over the comparable
periods while the average rate paid on interest-bearing liabilities increased.
The increase in the cost of funds was the result of the shift of funds from
lower yielding demand deposit and savings accounts to higher yielding money
market deposits.
Noninterest Income and Noninterest Expense. Total noninterest income
increased $518, or 24.5%, for the six months ended June 30, 1998, compared to
the same period in 1997. This increase is due to increased trust fee income and
increased gains on loan sales and other miscellaneous income. Gain on loan sales
increased $318 for the six months ended June 30, 1998, compared to the same
period in 1997. The increase is due to increases in residential real estate
loans originated and sold in the secondary market. For the six months ended June
30, 1998, loans originated and sold totaled $53,034 and $50,616, respectively,
compared to $18,153 and $17,107, respectively, for the same period in 1997.
Total noninterest expense increased $248, or 2.9%, for the six months ended
June 30, 1998, compared to the same period in 1997. The increase was primarily
the result of planned general salary and benefit increases for the 1998 year.
The core deposit amortization related to the acquisition of branches from
another bank decreased $161, or 54.2%, for the six months ended June 30, 1998,
compared to the same period in 1997. This was due to the difference in
accelerated amortization between the periods. Other noninterest expense changes
were not significant.
27
<PAGE> 37
Income Taxes. The provision for income taxes totaled $1,625, for an
effective rate of 31.4%, for the six months ended June 30, 1998, compared to
$1,242, or an effective rate of 30.6%, for the six months ended June 30, 1997.
The difference in income tax expense is primarily attributable to the increase
in income before income taxes.
Provision and Allowance for Loan Losses. The provision for loan losses
represents the charge to income necessary to adjust the allowance for loan
losses to an amount that represents management's assessment of the losses
inherent in Bank's loan portfolio. All lending activity contains associated
risks of loan losses. Management recognizes these credit risks as a necessary
element of its business activity. To assist in identifying and managing
potential loan losses, Bank maintains a loan review function that periodically
evaluates individual credit relationships as well as overall loan-portfolio
conditions. The loan review function assists management to determine the
adequacy of the specific loss reserves and overall portfolio-loss reserves.
The provision for loan losses totaled $528 for each of the six months ended
June 30, 1998 and June 30, 1997. The level of the provision was made possible by
the quality of the loan portfolio remaining stable over the comparable years.
Net charge-offs for the six months ended June 30, 1998 were $106, compared to
net charge-offs of $108 for the same period in 1997.
The allowance for loan losses increased from $4,475 at December 31, 1997 to
$4,897 at June 30, 1998. The increase was primarily due to lower charge-offs
than anticipated. As a percent of loans, the reserve increased from 1.11% of
gross loans to 1.15% over the same period.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Net Income. Net income for 1997 totaled $6,019, increasing over net income
for 1996 of $5,428. Return on average assets was 1.07% for both 1997 and 1996,
while return on average shareholders' equity was 12.87% and 13.01% over the same
two years, respectively.
Net Interest Income. Net interest income was $22,630 at December 31, 1997
compared to $20,635 at December 31, 1996. The $1,995 increase in 1997 over 1996
was the result of an increased volume of interest-earning assets partially
offset by an increase in interest-bearing liabilities that carried a higher
average yield. The average yield earned on interest-earning assets remained
constant over the comparable periods while the average rate paid on interest-
bearing liabilities increased. The increase in the cost of funds was the result
of the shift of funds from lower yielding demand deposit and savings accounts to
higher yielding money market deposits and certificates of deposit. As part of
the new streamlined deposit product line, Bank introduced a new market indexed
money market account offering a competitive rate to attract and retain deposits.
Management has elected to offer attractive, competitive rates to retain
deposits, provided the funds can be invested in income-earning assets with
adequate yields. As a result, Bank's net interest margin, which is calculated by
dividing net interest income by average interest-earning assets, decreased
slightly from 4.32% in 1996 to 4.26% in 1997.
Provision and Allowance for Loan Losses. The provision for loan losses
totaled $1,066 in 1997 compared to $897 in 1996. The level of the provision was
made possible by the quality of the loan portfolio remaining stable over the
comparable years. Net charge-offs for 1997 were $691, which represents .18% of
average loans, compared to net charge-offs of $397, or .12% of average loans in
1996.
The allowance for loan losses increased from $4,100 at December 31, 1996 to
$4,475 at December 31, 1997. As a percent of loans, the reserve increased from
1.10% of gross loans to 1.11% over the same period. Nonperforming loans, defined
as loans on nonaccrual status plus accruing loans past due 90 days or more, were
$1,370, or .37% of gross loans at December 31, 1996 compared to $2,176, or 0.54%
of gross loans at December 31, 1997. Such loans have been considered in
management's analysis of the allowance for loan losses. The allowance was 205.7%
of nonperforming loans at December 31, 1997 compared to 299.3% at December 31,
1996.
Noninterest Income and Noninterest Expense. Total noninterest income
increased $599, or 14.9%, in 1997 compared to 1996. The increases are due to
increased fee income from Bank's trust department, increased gains on loan
sales, and increased fee income on deposit accounts. The trust fee income
increased $345, or 38.3%, in 1997 compared to 1996 due to continued new business
development and market value increases in managed assets.
28
<PAGE> 38
Total noninterest expense increased $1,528, or 9.6%, in 1997 compared to
1996. The largest increase was primarily the result of increases in salaries and
employee benefits which made up $886 of the total increase. The increases were
due to general salary increases, additions to staff, implementation of a
stakeholder incentive program, and an amendment to the 401(k) plan which allowed
earlier entry into the plan. The increases and benefit changes were necessary to
support growth and remain competitive in attracting and retaining bankers.
Income Taxes. The provision for income taxes totaled $2,649 in 1997 and
$2,343 in 1996, resulting in effective tax rates of 30.6%, and 30.2%,
respectively. The difference in income tax expense was primarily attributable to
the increase in income before income taxes.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Net Income. Net income for 1996 totaled $5,428, increasing over net income
for 1995 of $5,306. Return on average assets was 1.07% and 1.27% for 1996 and
1995, respectively, while return on average shareholders' equity was 13.01% and
14.30% over the same periods. The decline in return on average assets is due to
the acquisition of certain branches from another bank that added costs without
adding the same level of earnings of existing Bank branches.
Net Interest Income. Net interest income was $20,635 for 1996 compared to
$18,933 for 1995. The $1,702 increase in 1996 over 1995 was the result of an
increased volume of interest-earning assets partially offset by an increase in
interest-bearing liabilities. The increase in earning asset and deposit volumes
is directly attributed to the net acquisition of three branch offices from
another bank. As a result, net deposits assumed totaled $61,397. The net
proceeds were reinvested in loans and securities during the year. The average
yield earned on interest-earning assets decreased 28 basis points over the
comparable periods while the average rate paid on interest-bearing liabilities
increased 11 basis points. As a result, Bank's net interest margin decreased
from 4.76% in 1995 to 4.32% in 1996.
Provision and Allowance for Loan Losses. The provision for loan losses
totaled $897 in 1996 compared to $966 in 1995. The level of the provision was
made possible by the quality of the loan portfolio. Net charge-offs for 1996
were $397, which represents .12% of average loans, compared to net charge-offs
of $641, or .21% of average loans in 1995.
The allowance for loan losses increased from $3,600 at December 31, 1995 to
$4,100 at December 31, 1996. As a percent of loans, the reserve decreased from
1.20% of gross loans to 1.10% over the same period. Nonperforming loans were
$1,370, or .37% of gross loans at December 31, 1996 compared to $1,905, or 0.64%
of gross loans at December 31, 1995. The allowance was 299.3% of nonperforming
loans at December 31, 1996 compared to 189.0% at December 31, 1995.
Noninterest Income and Noninterest Expense. Total noninterest income
increased $882, or 28.2%, in 1996 compared to 1995. The increases are due to
increased fee income from Bank's trust department, increased fee income on
deposit accounts and the adoption of a new accounting standard in 1996 which
changed the method of accounting for loans sold, adding $378 of income that
would not have been recognized prior to such adoption.
Total noninterest expense increased $2,510, or 18.6%, in 1996 compared to
1995. These increases were primarily the result of branch acquisitions and
related conversion costs. Additionally, Bank amortized $468 of the core deposit
premium paid in connection with the acquisition of branches from another bank.
Offsetting some of the expense increase was a $408 reduction in FDIC insurance
cost.
Income Taxes. The provision for income taxes totaled $2,343 in 1996 and
$2,322 in 1995 resulting in effective tax rates of 30.2%, and 30.4%,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. Liquidity is the ability of Bank to fund customers' needs for
borrowing and deposit withdrawals. The purpose of liquidity management is to
assure sufficient cash flow to meet all of the financial commitments. This
ability depends on the institution's financial strength, asset quality and types
of deposit and investment instruments offered by Bank to its customers. Bank's
principal sources of funds are deposits, loan and securities repayments,
maturities of securities, sales of securities available for sale and other funds
provided by operations. Bank also has the ability to borrow from the FHLB. While
scheduled loan repayments and maturing investments are relatively predictable,
deposit
29
<PAGE> 39
flows and early loan and mortgage-backed security prepayments are more
influenced by interest rates, general economic conditions and competition. Bank
maintains investments in liquid assets based upon management's assessment of (1)
need for funds, (2) expected deposit flows, (3) yields available on short-term
liquid assets and (4) objectives of the asset/liability management program.
Cash and cash equivalents decreased $581, or 3.7%, from $15,893 at December
31, 1997 to $15,312 at June 30, 1998, and decreased $4,676, or 22.7%, from
$20,569 at December 31, 1996 to $15,893 at December 31, 1997. Cash and cash
equivalents at December 31, 1997 represented 2.7% of total assets compared to
3.8% of total assets at December 31, 1996. Cash and cash equivalents at June 30,
1998 represented 2.6% of total assets compared to 2.7% of total assets at
December 31, 1997. The decrease is the result of a shift of funds from cash and
cash equivalents to investments. Bank has the ability to borrow up to
approximately $38,400 from the Federal Home Loan Bank and has various federal
fund sources from correspondent banks, should Bank need to supplement its future
liquidity needs in order to meet loan demand or to fund investment
opportunities. Management believes Bank's liquidity position is adequate based
on its high level of cash, cash equivalents, and core deposits and the stability
of its other funding sources.
As summarized in the Statements of Cash Flows, the most significant
transactions which affected Bank's level of cash and cash equivalents, cash
flows and liquidity during the first half of 1998 were the net increase in loans
of $17,761; the receipt of proceeds from maturities and repayments of securities
of $25,821; the receipt of proceeds from the sale of loans originated for sale
of $50,616; the disbursement on loans originated for sale of $53,034; securities
purchases of $26,289 and the net increase in deposits of $8,659. The most
significant transactions which affected Bank's level of cash and cash
equivalents, cash flows and liquidity during 1997 were the net increase in loans
of $42,967; the receipt of proceeds from maturities and repayments of securities
of $23,109; the receipt of proceeds from the sale of loans originated for sale
of $53,184; the disbursement on loans originated for sale of $45,751; securities
purchases of $35,521 and the net increase in deposits of $35,843.
Capital Resources. For the year ended December 31, 1997, total
shareholders' equity increased $5,321 primarily due to earnings retained. The
increase is net of cash dividends paid of $1,208. The dividends consisted of
semi-annual payments in January and July 1997.
For the six months ended June 30, 1998, total shareholders' equity
increased $2,700 primarily due to earnings retained. The increase is net of cash
dividends paid January 1998 of $824.
Tier 1 capital is shareholders' equity excluding the unrealized gain or
loss on securities classified as available for sale and intangible assets. Tier
2 capital, or total capital, includes Tier 1 capital plus the allowance for loan
losses not to exceed 1.25% of risk weighted assets. Risk weighted assets are
Bank's total assets after such assets are assessed for risk and assigned a
weighting factor based on their inherent risk.
Bank meets all regulatory capital requirements. Regulatory minimums call
for a total risk-based capital ratio of 8%, at least half of which must be Tier
1 capital. The ratio of total capital to risk weighted assets was 11.9% at June
30, 1998, while the Tier 1 risk-based capital ratio was 10.8%. Bank's leverage
ratio, defined as Tier 1 capital divided by average assets, of 8.1% at June 30,
1998 exceeded the regulatory minimum for capital adequacy purposes of 4%. The
ratio of total capital to risk weighted assets was 11.8% at December 31, 1997,
while the Tier 1 risk-based capital ratio was 10.8%. Regulatory minimums call
for a total risk-based capital ratio of 8%, at least half of which must be Tier
1 capital. Bank's leverage ratio, defined as Tier 1 capital divided by average
assets, of 8.1% at December 31, 1997 exceeded the regulatory minimum for capital
adequacy purposes of 4%.
IMPACT OF NEW ACCOUNTING STANDARDS
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," and SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," will be effective for Bank's 1998 financial
statements. SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," will be effective for fiscal years beginning after June 15, 1999,
with early adoption encouraged for any fiscal quarter beginning July 1, 1998 or
later, with no retroactive application. Management believes that the adoption of
these standards will not have a significant impact on Bank's financial
statements.
30
<PAGE> 40
IMPACT OF INFLATION AND CHANGING PRICES
The financial information included herein has been prepared in accordance
with generally accepted accounting principals ("GAAP"). GAAP requires Bank to
measure financial position and operating results primarily in terms of historic
dollars. Changes in the relative value of money due to inflation or recession
are generally not considered.
Management believes that changes in interest rates affect the financial
condition of a financial institution to a far greater degree than changes in the
inflation rate. While interest rates are greatly influenced by changes in the
inflation rate, they do not change at the same rate or in the same magnitude as
the inflation rate. Rather, interest rate volatility is based on changes in the
expected rate of inflation and on changes in monetary and fiscal policies.
YEAR 2000 ISSUE
Many computer programs that are in use today use only two digits to
indicate which year is represented. If such computer applications are not
changed to allow the data field to reflect the change in the century, the
application may fail or create erroneous results at the year 2000 due to the
improper sequence of the year changing from "99" to "00."
Management of Bank has conducted an evaluation of all significant computer
systems used in the business of Bank to determine whether such systems will
function at the change of the century. Management determined that most programs
are or will be capable of identifying the turn of the century. In order to
prevent potential credit quality issues, management is also assessing the Year
2000 ("Y2K") compliance status of major loan customers to determine whether or
not such entities are taking steps to ensure their systems will function
properly in the year 2000. Management closely monitors the issue and full
compliance is expected by the end of 1998. Management does not anticipate any
material costs to be incurred to update its systems to be Y2K compliant.
There is the risk that Y2K failure by clients of Bank may have a material
adverse effect on the financial condition and results of operations of Bank. To
minimize this risk, Bank has reviewed each borrower with outstanding
indebtedness to Bank greater than $100,000 to assess the risk to Bank should
that borrower's business be affected by a Y2K issue. All clients evaluated as
high risk have been allocated a specific additional reserve in determining the
adequacy of Bank's loan loss reserve. Notwithstanding these steps, there can be
no assurance that defaults on loans as a result of the Y2K issue will not
negatively affect Bank's operations.
MANAGEMENT OF BANK
The following discussion provides certain information with respect to the
executive officers of Bank, who are expected to serve in their capacities as
described below, unless otherwise noted, following the Merger.
Richard R. Hollington, Jr., is Chairman of the Board of Directors. He is a
senior partner with the law firm of Baker & Hostetler LLP, Cleveland, Ohio.
Jack W. Donaldson is President and Chief Executive Officer.
Gary L. Cole is Corporate Secretary, Treasurer and Executive Vice
President, Private Banking.
Richard R. Hollington III is currently Chief Operating Officer.
Following the Merger, James F. Burwell will serve as Chief Operating
Officer of Bank. He is currently President and Chief Executive Officer of First
National Bank, Northwest Ohio, a wholly-owned banking subsidiary of Sky
Financial. The Merger Agreement contemplates that Mr. Burwell will become the
Chief Executive Officer of Bank upon Mr. Donaldson's retirement.
Frank R. Goebel is Franklin County Regional President.
Kathleen C. Radebaugh is Northeast Ohio Regional President.
Harold A. Schierloh is Putnam County Regional President.
Thomas J. Weissling is Greater Hancock County Regional President.
Craig F. Fortin is Senior Vice President and Chief Financial Officer.
31
<PAGE> 41
Mark A. Maiberger is Senior Vice President, Credit Administration and
Operations.
Curtis E. Sheppard is Senior Vice President, Marketing.
Michael C. Spragg is Senior Vice President, Commercial Banking.
Judy K. Webb is Senior Vice President, Human Resources.
BENEFICIAL OWNERSHIP OF SHAREHOLDERS OF BANK
OWNING MORE THAN FIVE PERCENT
The following table sets forth certain information regarding the beneficial
ownership of each class of Bank Common Shares by each person who is known by
Bank to beneficially own five percent or more of the outstanding Class A Common
Shares or Class B Common Shares.
<TABLE>
<CAPTION>
SKY FINANCIAL
OHIO BANK COMMON SHARES (2) COMMON SHARES (2)
----------------------------------------------- -----------------------
NAME OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF TOTAL VOTING NUMBER OF PERCENT OF
BENEFICIAL OWNER (1) CLASS A CLASS CLASS B CLASS PERCENTAGE (3) SHARES CLASS
-------------------- --------- ---------- --------- ---------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Mary H. Chandler................ 4,358 9.5% 5,069 13.6% 13.4% 596,257 1.5%
Marie M. Dally.................. 3,260 7.1 3,260 8.8 8.7 412,390 1.0
Daniel Fort Flowers, Jr. (4).... 7,100 15.5 6,980 18.7 18.6 890,560 2.2
Annett H. Guglielmi............. 5,521 12.1 5,491 14.7 14.6 696,509 1.7
Richard R. Hollington, Jr....... 3,556 7.8 2,697 7.2 7.3 395,502 1.0
Marcia H. Kehres................ 3,778 8.3 4,511 12.1 11.9 524,279 1.3
</TABLE>
- ---------------
(1) The address of each beneficial owner is c/o The Ohio Bank, 236 South Main
Street, Findlay, Ohio 45840.
(2) As of September 30, 1998, there were 45,772 Class A Common Shares of Bank
and 37,228 Class B Common Shares of Bank issued and outstanding. At the
closing of the Merger, there will be approximately 40,983,265 Sky Financial
Common Shares issued and outstanding.
(3) Represents total voting percentage of Class A Common Shares and Class B
Common Shares, considering that each Class A Common Share has one vote and
each Class B Common Share has 20 votes.
(4) Includes 6,900 Class A Common Shares and 6,880 Class B Common Shares held by
family trusts of which he is co-trustee.
32
<PAGE> 42
BENEFICIAL OWNERSHIP OF MANAGEMENT OF BANK
The following table sets forth certain information regarding the beneficial
ownership of each class of Bank Common Shares by (i) Bank's directors, (ii)
Bank's executive officers and (iii) all directors and executive officers of Bank
as a group.
<TABLE>
<CAPTION>
SKY FINANCIAL COMMON
OHIO BANK COMMON SHARES (1) SHARES (1)
----------------------------------------------- -----------------------
NAME OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF TOTAL VOTING NUMBER OF PERCENT OF
DIRECTOR OR OFFICER CLASS A CLASS CLASS B CLASS PERCENTAGE (2) SHARES CLASS
------------------- --------- ---------- --------- ---------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
DIRECTORS
Paul V. Ballinger............. 175 * 5 * * 11,385 *
C.R. Beckett.................. 48 * -- * * 3,036 *
Gary L. Cole (4).............. 532 1.2% 121 * * 41,302 *
George N. Chandler (3)........ 406 * 400 1.1% 1.1% 50,979 *
Mary H. Chandler.............. 4,358 9.5 5,069 13.6 13.4 596,257 1.5%
Jack W. Donaldson (4)......... 422 * 182 * * 38,203 *
John C. Fergus, II............ 95 * -- * * 6,008 *
Daniel Fort Flowers, Jr.
(5)......................... 7,100 15.5 6,980 18.7 18.6 890,560 2.2
Frank L. Goebel (4)........... 451 * 140 * * 37,380 *
Annett H. Guglielmi........... 5,521 12.1 5,491 14.7 14.6 696,509 1.7
Frank A. Guglielmi............ 475 1.0 201 * * 42,757 *
Richard R. Hollington, Jr..... 3,556 7.8 2,697 7.2 7.3 395,502 1.0
Marcia H. Kehres.............. 3,778 8.3 4,511 12.1 11.9 524,279 1.3
Dan E. Meyer.................. 10 * 10 * * 1,265 *
Lorie H. Smith................ 330 * 590 1.6 1.5 58,190 *
Patrick W. Rooney............. 45 * 10 * * 3,478 *
EXECUTIVE OFFICERS (6)
Craig Fortin.................. 79 * -- * * 4,996 *
Richard R. Hollington III..... 300 * 626 1.7 1.6 58,569 *
Mark A. Maiberger............. 187 * 20 * * 13,092 *
Harold A. Schierloh........... 148 * 60 * * 13,156 *
Curtis E. Sheppard............ -- * -- * * -- *
Mike C. Spragg................ 55 * -- * * 3,478 *
Kathleen C. Radebaugh......... 53 * 20 * * 4,617 *
Judy K. Webb.................. -- * -- * * -- *
Thomas J. Weissling........... 84 * -- * * 5,313 *
All directors and executive
officers as a group (25
persons)...................... 28,208 61.6 27,133 72.9 72.2 3,500,311 8.5
</TABLE>
- ---------------
* Denotes less than one percent (1%)
(1) As of September 30, 1998, there were 45,772 Class A Common Shares of Bank
and 37,228 Class B Common Shares of Bank issued and outstanding. At the
closing of the Merger, approximately 40,983,265 Sky Financial Common Shares
will be issued and outstanding.
(2) Represents total voting percentage of Class A Common Shares and Class B
Common Shares, considering that each Class A Common Share has one vote and
each Class B Common Share has 20 votes.
(3) Represents Bank Common Shares held by family trusts of which he is trustee.
Mr. Chandler disclaims beneficial ownership of such shares.
(4) Messrs. Cole, Donaldson and Goebel are also executive officers of Bank.
(5) Includes 6,900 Class A Common Shares and 6,880 Class B Common Shares held by
family trusts of which he is a trustee.
(6) Includes all executive officers of Bank except those who are also directors.
33
<PAGE> 43
INFORMATION CONCERNING THE BANK SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of Bank
Common Shares as part of the solicitation of proxies by the Bank Board of
Directors for use at the Bank Special Meeting to be held on November 18, 1998 at
5:30 p.m., at the Findlay Inn and Conference Center, 200 East Main Cross,
Findlay, Ohio 45840, including any adjournments or reschedulings thereof. This
Proxy Statement/Prospectus and the accompanying Proxy Card are first being
mailed to shareholders of Bank on or about October 16, 1998.
The purpose of the Bank Special Meeting is to consider and vote upon the
Merger Proposal. No other business will be transacted at the Bank Special
Meeting.
The Merger is subject to a number of conditions, including the receipt of
required regulatory and shareholder approval. (See "PROPOSED MERGER--"Regulatory
Approvals" and "Other Provisions of the Merger Agreement.")
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
The Bank Board has fixed the close of business on October 15, 1998 (the
"Record Date") as the record date for the determination of the shareholders of
Bank entitled to notice of and to vote at the Bank Special Meeting. Only holders
of record of Bank Common Shares at the close of business on the Record Date will
be entitled to vote on each matter properly presented at the Bank Special
Meeting. On the Record Date, 45,772 Class A Common Shares and 37,228 Class B
Common Shares were issued and outstanding. Votes may be cast in person or by
proxy. Holders of Class A Common Shares will have one vote per share, and
holders of Class B Common Shares will have twenty votes per share, on the Merger
Proposal. Holders of Class A Common Shares and Class B Common Shares shall vote
together as one class on the Merger Proposal. Pursuant to the Bank Code of
Regulations, the presence of the holders of a majority of the voting power of
Bank Common Shares issued and outstanding, in person or by proxy, is required
for and shall constitute a quorum for the transaction of business at the Bank
Special Meeting. Abstentions and broker non-votes will be counted in
establishing the quorum. A majority of the Bank Common Shares present at the
Bank Special Meeting, in person or by proxy, whether or not constituting a
quorum, may vote to, or the Bank Board in its discretion may, adjourn the Bank
Special Meeting from time to time without further notice. Pursuant to Bank's
Articles of Incorporation, as amended, the affirmative vote of the holders of at
least a majority of the voting power of outstanding Bank Common Shares is
required to approve the Merger Proposal. An abstention and a broker non-vote
would thus have the same effect as a vote against the Merger 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, 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 Merger Proposal
without specific instructions from such customers. Given that the affirmative
vote of the holders of a majority of the voting power of outstanding Bank Common
Shares is required in order to approve the Merger Proposal, the failure of such
customers to provide specific instructions with respect to their Bank Common
Shares to their broker will have the effect of a vote against the approval of
the Merger Proposal. Failure to return a properly executed proxy card or to vote
at the Bank Special Meeting will have the same effect as a vote against the
Merger Proposal.
Proxies in the accompanying form that are properly executed and returned to
Bank will be voted at the Bank Special Meeting in accordance with the
shareholders' instructions contained in such proxies and, at the discretion of
the Proxies, 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 Merger 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 Bank Special Meeting and
advising the Secretary of the shareholder's intent to vote the shares or by
sending a written, signed and dated revocation that clearly identifies the proxy
being revoked to Gary L. Cole, Secretary of Bank at 236 South Main Street,
Findlay, Ohio 45840. 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
34
<PAGE> 44
whose Bank 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 Bank 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 Bank 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.
Banks, brokerage houses and other custodians, nominees and fiduciaries will
be requested to forward the solicitation materials to the beneficial owners of
Bank Common Shares, which they hold of record, and Bank will reimburse them for
their reasonable out-of-pocket expenses.
The expenses related to the proxy solicitation for the Bank Special Meeting
will be borne by Bank, except that the cost of preparing and mailing this Proxy
Statement/Prospectus will be borne by Bank and Sky Financial.
The directors and executive officers of Bank and their affiliates owned, as
of the Record Date, an aggregate of 55,341 Bank Common Shares (66.7% of the
total number of outstanding shares of Bank Common Shares at such date)
representing 72.2% of the voting power of all outstanding shares. Certain
directors and executive officers of Bank who collectively own Class A Common
Shares and Class B Common Shares representing a majority of the voting power
have agreed to vote such shares in favor of the Merger Proposal.
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.
BANK BACKGROUND AND REASONS FOR THE MERGER
As a result of increasing competitive pressures, consolidation, and
regulatory and other changes in the banking and financial services industry, the
family that holds the controlling interest in Bank had been discussing for
several years the strategic alternatives available to Bank, particularly
relative to liquidity and maintaining shareholder value. In September 1997, Mr.
Richard R. Hollington, Jr., Chairman of Bank, was introduced to Mr. Marty E.
Adams, President and Chief Executive Officer of Bancshares, and over the course
of the next several months Bank and Bancshares exchanged financial information.
Moreover, in the latter part of 1997, Danielson Associates, Inc. ("Danielson
Associates") was asked to review Bank's position and alternatives, and in
January 1998, Danielson Associates presented its findings to the Board of
Directors of Bank. Based on these findings, a decision was made to explore the
possibility of selling Bank, and Danielson Associates was hired as financial
adviser to assist in this process.
With Danielson Associates' assistance, three financial institutions,
including Bancshares, were identified as being likely to be interested in
acquiring Bank. In April 1998, after obtaining confidentiality agreements,
Danielson Associates provided these institutions with an information memorandum
that described, among other things, the financial condition, market position,
asset and deposit mix and loan quality of Bank. Each of these institutions was
asked to submit its best offer for the acquisition of Bank. Discussions of
operating philosophies and possible synergies were held by representatives of
Bank with representatives of these institutions at various times.
During this process, in May 1998, Bancshares agreed to a merger of equals
with Mid Am. Danielson Associates and Bank believed at that time the "merger of
equals" could remove Bancshares from the bidding process. This raised questions
as to whether a possible reduction in the number of potential acquirors would
impact the ability to obtain the best value possible for Bank's shareholders. To
alleviate this concern, two other financial institutions were contacted in May
1998, and each was provided with an information memorandum and asked to submit
an offer to acquire Bank. Furthermore, representatives of Bank, Bancshares and
Mid Am had discussions with respect to the structure of a possible transaction
in light of the "merger of equals" transaction.
During June 1998, representatives of Bank and Bancshares continued their
discussions. Bancshares outlined financial and other aspects of a possible
business combination in non-binding indications of interest delivered to Bank
around the middle of June.
35
<PAGE> 45
In July 1998, offers were received from four of the five potential
acquirors. Danielson Associates analyzed the offers and then reviewed them with
members of the controlling family, including Bank's Chairman and other family
members who were directors or executive officers of Bank. The financial terms of
two of the offers were clearly superior to the others. One of these offers was
the Bancshares' offer. After careful consideration, it was decided to pursue
final negotiations with Bancshares because the Bancshares' offer was financially
equal to or better than the other three offers and Bancshares' offer provided
for certain important nonfinancial considerations that would benefit employees,
customers and the communities served by Bank.
Accordingly, in July 1998, representatives of Bank and Bancshares and their
respective financial advisors met to finalize negotiations regarding the terms
of a possible merger involving Bancshares and Bank. On July 7, 1998, Bancshares
and Bank reached preliminary agreement on a proposed exchange ratio of 63.25
shares of Bancshares Common Shares for each Bank Common Share. Following that
and other discussions, the parties prepared a definitive merger agreement
substantially on the terms discussed, including pricing, termination provisions,
standard representations, warranties and covenants and customary closing
conditions.
On July 22, 1998, a special meeting of the Bank Board was held to consider
the terms of the potential merger with Bancshares. Danielson Associates made a
presentation on the financial aspects of the Merger and rendered its oral
opinion, subsequently confirmed in writing, that, as of such date, the Exchange
Ratio was fair to the shareholders of Bank from a financial point of view.
After extensive discussion, the Bank Board unanimously determined, based
upon consideration of the various factors discussed below, that the proposed
merger involving Bancshares and Bank was in the best interest of Bank and its
shareholders. The Bank Board unanimously approved the Merger Proposal and the
related transactions contemplated therein.
On July 22, 1998, the Merger Agreement was executed by the parties thereto,
and Bancshares, Bank and Mid Am issued a joint press release announcing the
Merger.
The Board of Directors believes that the Merger offers Bank and its
shareholders an attractive opportunity to participate in a company with enhanced
financial strength that should be able to compete more effectively in Ohio. The
Board of Directors also believes that this enhanced financial strength will
increase opportunities for growth as a combined company, and will offer greater
flexibility in meeting the challenges affecting the banking and financial
services industries.
RECOMMENDATION OF THE BANK BOARD OF DIRECTORS
IN VIEW OF ALL THE CONSIDERATIONS DESCRIBED ABOVE, THE BOARD OF DIRECTORS
OF BANK UNANIMOUSLY CONCLUDED THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF BANK AND THE BANK SHAREHOLDERS AND RECOMMENDS THAT BANK
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
OPINION OF BANK'S FINANCIAL ADVISOR
Bank retained Danielson Associates to advise the Bank Board of Directors as
to the Bank's "fair" sale value and the fairness to its shareholders of the
financial terms of the offer to acquire Bank. Danielson Associates is regularly
engaged in the valuation of banks, bank holding companies, and thrifts in
connection with mergers, acquisitions, and other securities transactions, and
has knowledge of, and experience with, the Ohio banking markets and banking
organizations operating in those markets. Bank selected Danielson Associates
because of its prior experience with such firm and such firm's reputation in the
financial services industry.
In such capacity, Danielson Associates reviewed the Merger Agreement with
respect to the pricing and other terms and conditions of the Merger, but the
decision to accept the offer of Bancshares was ultimately made by the Board of
Directors of Bank. Danielson Associates rendered its oral opinion to the Bank
Board of Directors, which it subsequently confirmed in writing, that as of the
date of such opinion, the financial terms of the Bancshares offer were "fair" to
Bank and its shareholders. No limitations were imposed by the Bank Board of
Directors upon Danielson Associates with respect to the investigation made or
procedures followed by it in arriving at its opinion.
36
<PAGE> 46
In arriving at its opinion, Danielson Associates (a) reviewed certain
business and financial information relating to Bank and Bancshares, including
annual reports for the fiscal year ended December 31, 1997 and call report data
from 1989 to 1997 including quarterly reports for 1998; (b) discussed the past
and current operations, financial condition and prospects of Bank with its
senior executives; (c) analyzed the pro forma impact of the merger on
Bancshares' earnings per share, capitalization, and financial ratios; (d)
reviewed the reported prices and trading activity for Bancshares Common Shares
and compared them to similar bank holding companies; (e) reviewed and compared
the financial terms, to the extent publicly available, with comparable
transactions; (f) reviewed the Merger Agreement and certain related documents;
and (g) considered such other factors as were deemed appropriate.
Danielson Associates did not obtain any independent appraisal of assets or
liabilities of Bank or Bancshares or their respective subsidiaries. Further,
Danielson Associates did not independently verify the information provided by
Bank or Bancshares and assumed the accuracy and completeness of all such
information.
In arriving at its opinion, Danielson Associates performed a variety of
financial analyses. Danielson Associates believes that its analyses must be
considered as a whole and that consideration of portions of such analyses and
the factors considered therein, without considering all the factors and
analyses, could create an incomplete view of the analyses and the process
underlying Danielson Associates' opinion. The preparation of a fairness opinion
is a complex process involving subjective judgments and is not necessarily
susceptible to partial analysis and summary description.
In its analyses, Danielson Associates made certain assumptions with respect
to industry performance, business and economic conditions, and other matters,
many of which were beyond Bank's or Bancshares' control. Any estimates contained
by Danielson Associates' analyses are not necessarily indicative of the future
results or value, which may be significantly more or less favorable than such
estimates. Estimates of values of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities may
actually be sold.
The following is a summary of selected analyses considered by Danielson
Associates in connection with its opinion letter.
PRO FORMA MERGER ANALYSES
Danielson Associates analyzed the changes in the amount of earnings and
book value represented by the receipt of about $191 million at the time of the
Merger Agreement for all of the outstanding Bank Common Shares. The analysis
evaluated, among other things, possible dilution in earnings and capital per
Bancshares Common Share.
COMPARABLE COMPANIES
Danielson Associates compared Bank's (a) tangible capital of 7.87% of
assets as of April 30, 1998, (b) .44% of assets nonperforming as of April 30,
1998, and (c) net operating income of 1.78% of average assets for the trailing
twelve month period ending March 31, 1998, with the medians for selected Ohio
banks, which Danielson Associates deemed comparable. The banks included Capital
Holdings, Inc., CoBancorp, Inc., Farmers and Merchants Bancorp, Inc.,
Intercounty Bancshares, Inc., LNB Bancorp, Inc., Mahoning National Bancorp,
Inc., Peoples Bancorp, Inc., Rurban Financial Corp., Second Bancorp, Inc.,
Security Banc Corporation, UNB Corporation and Wayne Bancorp, Inc. Their medians
were (a) tangible capital of 9.22% of assets, (b) .33% of assets nonperforming,
and (c) net operating income of 2.09% of average assets.
Danielson Associates also compared Bancshares' (a) stock price as of July
20, 1998 of 23.5 times adjusted earnings and 414% of book, (b) dividend yield
based on trailing four quarters as of March 31, 1998 and stock price as of July
20, 1998 of 1.78%, (c) tangible capital as of March 31, 1998 of 8.42% of assets,
(d) non-performing assets as of March 31, 1998 equal to .12% of total assets,
(e) return on average assets during the trailing four quarters ended March 31,
1998 of 1.39% and (f) return on average equity during the same period of 15.11%,
with the medians for selected banks and bank holding companies that Danielson
Associates deemed to be comparable to Bancshares. The selected institutions
included BancFirst Ohio Corporation, First Financial Bancorp and Park National
Corporation in Ohio; Area Bancshares Corporation, Community Trust Bancorp, Inc.,
First Financial Corporation, First Merchants Corporation and National City
Bancshares, Inc. in Indiana. The comparable medians were (a) stock price of 22.7
times earnings and 290% of book, (b) dividend yield of 1.81%, (c) tangible
capital of 8.68% of assets, (d) .36% of assets non-performing, (e) return on
average assets of 1.27% and (f) return on average equity of 12.75%. Danielson
Associates
37
<PAGE> 47
also compared other income, expense, and balance sheet information of such
companies with similar information about Bancshares.
COMPARABLE TRANSACTION ANALYSIS
Danielson Associates compared the consideration to be paid in the merger to
the latest twelve months earnings and equity capital of Bank with earnings and
capital multiples paid in acquisitions of banks in Kentucky, Maryland, Ohio,
Pennsylvania and West Virginia through the opinion date. Of these, the most
applicable recent transactions included Bancshares/Century, National City/Fort
Wayne National, Star/Trans Financial and First Commonwealth/Southwest. At the
time Danielson Associates made its analysis, the consideration to be paid in the
merger was 377% of Bank's March 31, 1998 book value and 28.7 times Bank's
adjusted earnings for the trailing four quarters as of March 31, 1998. This
compares to the median multiples of 270% of book value and 26.4 times earnings
for the comparable acquisitions.
OTHER ANALYSIS
In addition to performing the analyses summarized above, Danielson
Associates also considered the general market for bank and thrift mergers, the
historical financial performance of Bank and Bancshares, the deposit market
shares of both banks, and the general economic conditions and prospects of those
banks.
No company or transaction used in this composite analysis is identical to
Bank or Bancshares. Accordingly, an analysis of the results of the foregoing is
not mathematical; rather it involves complex consideration and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading values of the
company or companies to which they are being compared.
The summary set forth above does not purport to be a complete description
of the analyses and procedures performed by Danielson Associates in the course
of arriving at its opinions. In payment for its services as financial adviser to
Bank, Danielson Associates is to be paid upon the closing of the transaction a
fee equal to .35% of the market value of Bancshares Common Shares issued to Bank
shareholders in the Merger.
The full text of the opinion of Danielson Associates, which sets forth
assumptions made and matters considered, is attached hereto as Exhibit C to this
Proxy Statement/Prospectus. Bank shareholders are urged to read this opinion in
its entirety. Danielson Associates' opinion is directed only to the
consideration to be received by Bank shareholders in the Merger and does not
constitute a recommendation to any Bank shareholder as to how much such
shareholder should vote at the Bank Special Meeting.
SKY FINANCIAL BACKGROUND AND REASONS FOR THE MERGER
In late 1996, as part of its ongoing review of acquisition candidates,
Bancshares identified Bank and obtained publicly available financial data for
its review. Subsequently, in September, 1997, Mr. Marty E. Adams, President and
Chief Executive Officer of Bancshares was introduced to Mr. Richard R.
Hollington, Jr., Chairman of Bank. They discussed the philosophies and
strategies of their respective financial institutions and, over the course of
the next several months, exchanged financial information with each other. In the
first part of 1998, Bancshares received a confidential information memorandum
about Bank from Danielson Associates, Bank's financial adviser. Bank
representatives then met with Bancshares' representatives at Bancshares' offices
to discuss operating philosophies and explore mutual strategies and possible
synergies between the two companies. On May 20, 1998, the Bancshares Board of
Directors held a meeting at which Bancshares' financial adviser, Mr. William F.
Hickey of Sandler O'Neill, made an initial presentation with respect to Bank. In
light of the May 21, 1998 announcement of a "merger of equals" transaction
between Bancshares and Mid Am, Mr. Adams, along with Mr. David R. Francisco,
President and Chief Operating Officer of Mid Am, met with Bank representatives
to discuss the structure of a possible transaction involving Bank. Subsequently,
Mr. Adams met several times with Danielson Associates. By letter dated June 19,
1998, Bancshares forwarded a non-binding indication of interest to Bank
outlining the financial and other aspects of a possible strategic business
combination, which was supplemented by a letter dated June 22, 1998. Thereafter
discussions continued, and on July 7, 1998, preliminary agreement was reached on
the Exchange Ratio, and on July 20, 1998, the Merger Agreement was finalized by
the parties. Thereafter, Bancshares sought and received the written consent of
Mid Am to the proposed transactions with Bank, as required by the merger
agreement between Bancshares and Mid Am. On July 20, 1998, the Bancshares' Board
of Directors approved the Merger Agreement and the transactions contemplated
38
<PAGE> 48
thereby and received an oral opinion of its financial adviser, Sandler O'Neill
that the Merger would be fair to Bancshares' shareholders from a financial point
of view. On July 23, 1998 Bancshares and Bank entered into a Stock Option
Agreement. See "PROPOSED MERGER -- Stock Option Agreement."
Sky Financial's Board of Directors has concluded that the Merger would be
in the best interests of Sky Financial's shareholders and the depositors, other
customers and employees of its subsidiary banks. The Merger is consistent with
Sky Financial's overall strategic acquisition program and, in particular, its
interest in expanding Sky Financial's facilities and services in the Ohio
counties of Hancock, Seneca, Putnam, Franklin and Cuyahoga. Sky Financial's
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 it and its banking subsidiaries serves are
consistent with Bank's management philosophies and its long-standing reputation
of service to its customers. In addition, the current products and services
offered by Bank are similar to, and in many respects, complement the products
and services provided by Sky Financial and its banking subsidiaries. Sky
Financial anticipates that the additional products and services that will become
available to Bank customers as a result of the Merger will provide opportunities
for expanded and new customer relationships. Sky Financial also believes that
the Merger can be accomplished with little or no resulting dilution in the per
share earnings of Sky Financial Common Shares.
DESCRIPTION OF THE MERGER
Upon consummation of the transactions contemplated under the Merger
Agreement, an interim bank subsidiary formed and owned by Sky Financial will be
merged with and into Bank. Bank will be the surviving corporation (the
"Surviving Corporation") after the Merger and the Articles of Incorporation and
Code of Regulations of the interim bank existing immediately prior to the Merger
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.
CONSIDERATION FOR BANK COMMON SHARES
Upon consummation of the Merger, each shareholder of Bank who does not
dissent will have the right to receive 63.25 Sky Financial Common Shares for
each of his or her Bank Common Shares held, plus cash in lieu of the issuance of
fractional shares.
PAYMENT OF CASH IN LIEU OF FRACTIONAL SHARES
No fractional Sky Financial Common Shares will be issued in connection with
the Merger. Each Bank shareholder who would otherwise have been entitled to
receive a fraction of a Sky Financial Common Share will receive, in lieu
thereof, cash therefor, without interest, at an amount equal to such fractional
part of a Sky Financial Common Share multiplied by the last reported sale price
per share of Sky Financial Common Shares on the trading day most recently
preceding the Effective Time as reported on the Nasdaq National Market (as
reported in the Wall Street Journal or, if not therein, in another authoritative
source).
OTHER PROVISIONS OF THE MERGER AGREEMENT
Representations and Warranties
The Merger Agreement contains representations and warranties by the parties
regarding, among other things, due organization, authority to enter into the
Merger Agreement, capitalization, properties, loans and investments, 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 Sky Financial's and
Bank's representations and warranties, none of which are deemed material to this
transaction.
Conditions to the Merger
The obligations of Bank and Sky Financial to consummate the Merger are
subject to, but not limited to the following conditions: (1) the accuracy of
Bank's and Sky Financial's representations and warranties and compliance with
covenants on and as of the closing date of the Merger; (2) no material adverse
change in the financial condition,
39
<PAGE> 49
results of operations, business or assets of Bank and Sky Financial; (3) the
granting of all necessary regulatory approvals, including but not limited to the
Board of Governors of the Federal Reserve System, the Securities and Exchange
Commission and the Ohio Department of Commerce, Division of Financial
Institutions; (4) the issuance by Sky Financial's general counsel and Bank's
counsel of opinions covering certain matters with respect to Sky Financial and
Bank, (5) neither the consummation nor performance of the transactions under the
Merger Agreement will conflict with, or result in a material violation of, or
cause Sky Financial or Bank or their respective affiliates to suffer any
material adverse consequences under any law or order applicable to, or proposed
to be applicable to them; (6) no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger shall be in effect, nor shall any proceeding seeking any of the
foregoing be pending; (7) no action shall have been taken or threatened by any
governmental entity which makes consummation of the Merger illegal; (8) the
registration statement with the Securities and Exchange Commission registering
the exchange of the Sky Financial Common Shares for Bank 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; (9) the receipt by Sky
Financial 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; and (10) the Merger shall have been
approved by the affirmative vote of the holders of a majority of the outstanding
Bank Common Shares.
Sky Financial's obligations under the Merger Agreement are also conditioned
on, among other conditions: (1) the holders of no more than (10%) of the Bank
Common Shares having asserted dissenters' rights; (2) Bank conducting business
in the ordinary and usual course; (3) there having been no event constituting an
event of default under any material indenture, agreement, note, mortgage or
guaranty that materially adversely affects Bank's financial condition; (4) the
receipt by Sky Financial of a fairness opinion from Sandler O'Neill & Partners,
L.P. dated as of the date of this Proxy Statement/Prospectus stating that the
Merger is fair from a financial point of view to the Sky Financial shareholders;
(5) the receipt by Sky Financial of an Affiliate Certificate from each Affiliate
of Bank in the form specified in Section 7.2 of the Merger Agreement; and (6)
the receipt by Sky Financial from Bank of the Officers' Certificates regarding
registration required pursuant to Section 7.4(a) of the Merger Agreement.
Bank's obligations under the Merger Agreement are also subject to, among
other conditions: (1) the receipt of a fairness opinion from Danielson
Associates, Inc. dated as of the date of this Proxy Statement/Prospectus stating
that the Merger is fair from a financial point of view to Bank shareholders; (2)
the receipt of an opinion of Bank's counsel, reasonably satisfactory in form and
substance to Bank, to the effect that the Merger will constitute a tax-free
reorganization within the meaning of Section 368(a)(1)(A) of the IRC, no gain or
loss will be recognized by Bank as a consequence of the Merger, and no gain or
loss will be recognized by the shareholders of Bank pursuant to the terms of the
Merger (except for the effect of any cash received pursuant to dissenters'
rights or paid in lieu of the issuance of fractional shares); and (3) the
receipt by Bank from Sky Financial of the officers' certificates regarding
registration required pursuant to Section 7.4(a) of the Merger Agreement.
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 mutual consent of the parties; (ii) by Bank if
the Average NMS Closing Price (as that term is defined in the Merger Agreement,
NMS Closing Price shall mean the price per share of the last sale of Sky
Financial Common Shares reported on the NASDAQ National Market System at the
close of the trading day by the National Association of Securities Dealers, Inc.
and Average NMS Closing Price shall mean the arithmetic mean of the NMS Closing
Prices for the ten (10) trading days immediately preceding the fifth (5th)
trading day prior to the consummation of the Merger) is less than $26.00; (iii)
by Bank pursuant to Section 9.1(e) of the Merger Agreement; (iv) by either party
if the transactions contemplated by the Merger Agreement are not consummated by
March 31, 1999, or (vi) by either party in the event of a material breach by the
other party.
40
<PAGE> 50
Prior to exercise by Bank of its right of termination in the event that the
Average NMS Closing Price is less than $26.00, Sky Financial may offer to
distribute to Bank shareholders under the Merger Agreement an additional number
of Sky Financial Common Shares sufficient to offset the amount by which the
Average NMS Closing Price is below $26.00 plus some additional number of Sky
Financial Common Shares. Bank shall have the opportunity to accept or reject any
such offer. If Bank rejects such offer, Bank may then terminate the Merger
Agreement.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger is structured to qualify as a tax free reorganization under
Section 368 of the Internal Revenue Code of 1986, as amended, such that it is
anticipated that no gain or loss will be recognized by Bank or Sky Financial as
a result of the Merger. Nor is it expected that shareholders of Bank will
recognize gain or loss upon the exchange of their Bank Common Shares for newly
issued Sky Financial Common Shares, except for cash received in exchange for
fractional interests. Assuming the Merger is treated as a tax-free
reorganization, the federal income tax basis of the Sky Financial Common Shares
received by the shareholders of Bank will be the same as the federal income tax
basis of the Bank Common Shares surrendered in exchange therefor and the holding
period of the Sky Financial Common Shares received by the shareholders of Bank
will include the holding period of the Bank Common Shares surrendered in
exchange therefor, provided that the Bank Common Shares were held as a capital
asset on the date of the exchange.
Shareholders who exercise their dissenters' rights of appraisal and receive
cash for their Bank Common Shares will be treated as having received a
distribution in redemption of their shares, which will result in such
shareholders realizing income for federal income tax purposes. Furthermore,
shareholders of Bank who receive cash in lieu of fractional interests in Sky
Financial Common Shares as a result of the exchange will also be treated as
having received a distribution in redemption of their proportionate interest in
Bank, which will result in such shareholders realizing income for federal income
tax purposes. The amount of such income and the tax treatment thereof will
depend on a number of factual considerations particular to the individual
shareholder.
The discussion of federal income taxes is included herein for general
information only. EACH BANK SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PROPOSED
MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER
TAX LAWS.
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 forma financial information
appearing elsewhere in this Proxy Statement/Prospectus. See "UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS."
As noted above, it is a condition to the obligation of Sky Financial and
Bank to consummate the Merger that Sky Financial 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. Under the pooling-of-interests method of accounting, the
historical basis of the assets and liabilities of Sky Financial and Bank will be
combined at the effective date of the Merger and carried forward at their
previously recorded amounts and the shareholders' equity accounts of Sky
Financial and Bank will be combined on Sky Financial's consolidated balance
sheet. Income and other financial statements of Sky Financial issued after
consummation of the Merger will be restated retroactively to reflect the
consolidated operations of Sky Financial and Bank as if the Merger had taken
place prior to the periods covered by such financial statements. In order for
the Merger to qualify for pooling-of-interests accounting treatment,
substantially all (90% or more) of the outstanding Bank Common Shares must be
exchanged for Sky Financial Common Shares with substantially similar terms.
Other criteria must also be satisfied in order for the Merger to qualify as a
pooling of interests, some of which criteria cannot be satisfied until after the
effective time of the Merger. Furthermore, in order to qualify for pooling of
interests accounting treatment, no affiliate of either Sky Financial or Bank may
reduce his or her risk relative to the Sky Financial 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. In the event such
conditions are not met, the Merger would not be consummated unless the condition
was waived by Sky Financial and Bank.
41
<PAGE> 51
SKY FINANCIAL BOARD OF DIRECTORS; INTEREST OF BANK MANAGEMENT IN THE MERGER
Upon consummation of the Merger, the size of the Sky Financial Board of
Directors will expand to twenty-five (25) members and three (3) members of the
Bank's Board of Directors to be recommended by Bank and selected by Sky
Financial will be appointed to serve on the Sky Financial Board of Directors
(collectively, the "New Directors"). One of the New Directors will be designated
by Sky Financial for membership on the Executive Committee of the Sky Financial
Board of Directors, if any such committee is formed. In addition, a member of
the Bank's management team will be selected by Sky Financial to serve on the
Management Executive Committee of Sky Financial.
For their services, the New Directors will be compensated as directors of
Sky Financial. Compensation for Sky Financial directors has not yet been set;
however, Bancshares has previously paid an annual retainer of $9,800 to its
directors. In addition, directors of Bancshares previously received a fee of
$450 for each Board meeting and $150 for each committee meeting they attended.
At the Effective Time of the Merger, the composition of the Bank Board of
Directors will be changed, such that certain of the current Bank directors shall
continue to serve as directors of the Bank, along with current members of the
Boards of Directors of the various banks which will be merged with and into the
Bank after the consummation of the Merger. See "PROPOSED MERGER -- Operations of
Bank After the Merger."
Furthermore, Sky Financial shall have entered into an employment agreement
with Jack W. Donaldson, President and Chief Executive Officer of Bank and
severance agreements with certain other Bank officers, to take effect at the
effective time of the Merger, all as mutually agreed upon by Sky Financial and
such officers.
EXPENSES OF THE MERGER
Sky Financial and Bank shall each bear its respective expenses incurred in
connection with the Merger and the transactions contemplated thereby, including
without limitation, all fees of its respective legal counsel, financial advisors
and accountants. Sky Financial shall be responsible for all expenses incident to
obtaining requisite regulatory approvals.
REGULATORY APPROVALS
Sky Financial has filed the applications necessary to obtain the approval
for the Merger from the Federal Reserve Board, the FDIC and the Ohio Department
of Commerce (Division of Financial Institutions, Office of Banks and Savings &
Loans). 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. Sky
Financial has no reason to believe the Merger will be challenged on antitrust
grounds.
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 Agreement and Plan
of Merger together with a certificate of approval from the Ohio Department of
Commerce, Division of Financial Institutions, Office of Banks and Savings and
Loans in accordance with Section 1121.06 of the Ohio Revised Code.
OPERATIONS OF BANK AFTER THE MERGER
Pursuant to the terms of the Merger Agreement, an interim banking
subsidiary of Bank will be merged with and into Bank and Bank shall be the
Surviving Corporation as of the Effective Time and will be a wholly-owned
subsidiary of Sky Financial. The Articles of Incorporation and Code of
Regulations of the interim bank existing immediately prior to the Merger 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. As soon as reasonably practicable after the Merger and
following the receipt of all necessary regulatory approvals, two of Mid Am's
banking affiliates, specifically, American Community Bank, N.A. and Amerifirst
Bank, N.A. will be merged with and into Bank. In addition two other banking
affiliates, specifically, First National Bank Northwest Ohio and Mid American
National Bank & Trust Company will merge with one another, with Mid American
National Bank & Trust Company as the resulting bank.
42
<PAGE> 52
BUSINESS PENDING THE MERGER
From the date of the Merger Agreement to the Effective Time of the Merger,
Bank shall carry on its business in substantially the same manner as heretofore
and without the written consent of Sky Financial, Bank shall not (a) do any of
the things which they represent and warrant in the Merger Agreement have not
been done since December 31, 1997 or the date of the Merger Agreement, as the
case may be, except as necessary to carry out the Merger Agreement on the part
of Bank; (b) engage in any transaction which would be inconsistent with any
other representation or warranty of Bank set forth in the Merger Agreement or
which would cause a breach of any such representation of warranty if made at or
immediately following such transaction; or (c) engage in any lending activities
other than in the ordinary course of business consistent with past practice.
Bank shall send to Sky Financial via facsimile transmission a copy of all loan
presentations made to Bank's Board Loan Committee at the same time as such
presentations are transmitted to said committee, to enable one of Sky
Financial's senior loan committee members to review, comment and make reasonable
recommendations to the loan committee with respect to such loan presentations.
Bank shall consult with Sky Financial prior to hiring any full-time employees at
an annual salary in excess of $25,000, other than replacement employees for
positions then existing. Bank will use its reasonable best efforts to keep its
business organizations intact, to keep available the services of present
employees, and to preserve the goodwill of customers, suppliers, and others
having business relations with them.
STOCK OPTION AGREEMENT
On July 23, 1998, Sky Financial entered into a Stock Option Agreement with
Bank that grants Sky Financial a binding option to purchase up to 5.42% of the
outstanding Bank Common Shares at an exercise price of $400.00 per share in
certain circumstances.
Sky Financial may exercise the binding option at any time or upon the
occurrence of any of the following events: (i) Bank enters into an agreement
with any person to merge, consolidate or acquire all or substantially all of the
assets of Bank or for the purchase or acquisition of securities representing 20%
or more of the voting power of Bank; (ii) any person (other than Sky Financial)
acquires beneficial ownership or the right to acquire beneficial ownership of
20% or more of the outstanding Bank Common Shares after the date of the Stock
Option Agreement; (iii) any person makes a bona fide takeover proposal to Bank
by public announcement or written communication that is or becomes the subject
of public disclosure, and, following such bona fide takeover proposal, the Bank
shareholders vote not to approve the Merger between Sky Financial and Bank; (iv)
Bank breaches the Stock Option Agreement in any material respect, which breach
shall not have been cured within 15 days after notice; or (v) Bank breaches the
Merger Agreement between Sky Financial and Bank following a bona fide takeover
proposal.
Sky Financial's binding option may be terminated in any of the following
manners: (i) by mutual consent of Sky Financial and Bank; (ii) by either Sky
Financial or Bank if the Federal Reserve Board issues an order denying approval
of the Merger of Sky Financial and Bank or if any other governmental entity
issues a final permanent order enjoining or otherwise prohibiting consummation
of the Merger; (iii) by either Sky Financial or Bank if the Merger has not been
consummated on or before March 31, 1999; or (iv) by either Sky Financial or Bank
if no Purchase Event (as defined in the Stock Option Agreement) has occurred and
Bank's shareholders fail to approve the Merger.
A copy of the Stock Option Agreement is attached to this Proxy
Statement/Prospectus as Appendix D and is incorporated herein by reference.
SURRENDER OF CERTIFICATES
After the Effective Time, each holder of an outstanding certificate or
certificates for Bank Common Shares converted into Sky Financial Common Shares
will be entitled to receive a certificate or certificates representing the
number of whole Sky Financial Common Shares into which such holder's Bank Common
Shares were converted and, if applicable, a cash payment in lieu of any
fractional share. Each holder of Bank Common Shares will surrender the
outstanding certificate(s) to Sky Financial's designated exchange agent, the
Bank of New York (the "Exchange Agent").
Promptly after the effective time of the Merger, the Exchange Agent will
send a letter of transmittal for use by Bank shareholders in surrendering their
Bank Common Share certificates to the Exchange Agent. Upon surrender of the
43
<PAGE> 53
Bank Common Share certificate(s) for cancellation to the Exchange Agent,
together with a completed letter of transmittal and any other documents
reasonably requested, the holder of the Bank Common Share certificate(s) will be
entitled to receive that number of whole Sky Financial Common Shares that such
holder has the right to receive under the Merger Agreement and the surrendered
Bank Common Share certificate(s) will be canceled. Bank shareholders should not
surrender their certificates for exchange until they receive the letter of
transmittal and instructions which will be sent as soon as reasonably
practicable after the consummation of the Merger.
In the event of a lost certificate, the Bank shareholder shall provide, in
lieu of the lost certificate, (i) a request for a replacement certificate, (ii)
an indemnity agreement and (iii) other reasonable items (including an affidavit
and a surety bond) requested by Bank in accordance with Article VI, Section 3 of
Bank's Code of Regulations.
In the event of a transfer of ownership of Bank Common Shares that are not
registered in the transfer records of Bank, a certificate representing the
proper number of Sky Financial Common Shares may be issued to a transferee if
the certificate representing such Bank Common Shares is presented to the
Exchange Agent, accompanied by all documents required by Sky Financial to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
After the consummation of the Merger, there will be no transfers on the
stock transfer books of Bank of any Bank Common Shares. If, after the
consummation of the Merger, certificates and letters of transmittal for Bank
Common Shares are properly presented to the Exchange Agent, such certificates
will be canceled and exchanged for the consideration specified in the Merger
Agreement, subject to applicable law and to the extent that Sky Financial has
not paid such consideration to a public official pursuant to applicable
abandoned property laws.
RESALE OF SKY FINANCIAL COMMON SHARES
No restrictions on the sale or other transfer of the Sky Financial 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 Bank
shareholder who may be deemed to be an "affiliate" of Bank for purposes of Rule
145 under the 1933 Act. Generally, "affiliates" of Bank would include officers,
directors and significant shareholders of Bank. The Merger Agreement requires
Bank to cause persons who could be considered to be "affiliates" to enter into
an agreement with Sky Financial to the effect that the Sky Financial 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 Sky Financial Common Shares by
affiliates of Sky Financial are subject to similar transfer restrictions.
Sky Financial Common Shares issued to Bank 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 number of shares that such affiliates, and
others with whom they might act in concert, may sell within any three month
period.
RIGHTS OF DISSENTING BANK SHAREHOLDERS
Shareholders of Bank are entitled to certain dissenters' rights pursuant to
Section 1701.85 of the ORC. Section 1701.85 generally provides that shareholders
of Bank 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 Bank shareholder who is
a record holder of Bank 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 Bank Common Shares after the Effective Time. To be entitled to
such payment, a shareholder must deliver a written demand for payment therefor
to Bank on or before the tenth day following the Bank 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
Bank Common Shares. See the text of Section 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.
44
<PAGE> 54
If Bank so requests, dissenting shareholders must submit their share
certificates to Bank within fifteen days of such request, for endorsement
thereon by Bank 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 Bank.
If Bank and any dissenting shareholder cannot agree upon the "fair cash value"
of the Bank Common Shares, either may, within three months after service of
demand by the shareholder, file a petition in the Court of Common Pleas of
Hancock County, Ohio (the "Court") for a determination of the "fair cash value"
of said Bank 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.
45
<PAGE> 55
DESCRIPTION OF SKY FINANCIAL CAPITAL SHARES
GENERAL
Sky Financial has authorized 150,000,000 Common Shares, without par value,
of which 35,733,515 shares are issued and outstanding and 9,571 are held in
treasury. Each outstanding Sky Financial Common Share is duly authorized,
validly issued, fully paid and nonassessable. The holders of Sky Financial
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, one of which is elected annually. On liquidation or dissolution of Sky
Financial, the holders of Sky Financial Common Shares are entitled to share
ratably in such assets as remain after creditors have been paid.
In addition, Sky Financial has authorized 10,000,000 shares of serial
preferred stock ("Serial Shares"), none of which are currently outstanding. The
terms of the Serial Shares are to be established by Sky Financial's Board of
Directors; therefore, if Sky Financial were to issue Serial Shares in the
future, holders thereof might have preference over the holders of Sky Financial
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 Sky
Financial Common Shares. Serial Shares have a par value of $10.00 per share. Sky
Financial Common Shares have no par value. Holders of Sky Financial Common
Shares have no preemptive rights, subscription rights or conversion rights.
Sky Financial's 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 Sky Financial's 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 SKY FINANCIAL."
The Bank of New York is the transfer agent and registrar for Sky Financial
Common Shares and will be the Exchange Agent for the Merger.
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF
COMMON SHARES OF SKY FINANCIAL AND BANK
INTRODUCTION
As a consequence of the Merger, shareholders of Bank will become
shareholders of Sky Financial. The following is a summary of certain
similarities and all material differences between the rights of holders of Bank
Common Shares and the rights of holders of Sky Financial Common Shares. As Bank
is a bank and Sky Financial is a corporation, organized under the Ohio General
Corporation Law (the "OGCL"), these differences arise from various provisions of
the Articles of Incorporation and Code of Regulations of each of Bank and Sky
Financial.
THE FOLLOWING SUMMARY IS NECESSARILY GENERAL AND DOES NOT PURPORT TO BE A
COMPLETE DISCUSSION OF, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE
OGCL AND THE EXISTING ARTICLES OF INCORPORATION AND CODE OF REGULATIONS OF BANK
AND SKY FINANCIAL.
AUTHORIZED SHARES
Sky Financial. The Sky Financial Articles of Incorporation provide for
150,000,000 shares of Sky Financial common shares, without par value, and
10,000,000 shares of Sky Financial preferred shares, par value $10.00 per share.
No serial preferred shares are currently outstanding. If Sky Financial serial
preferred shares were to be issued, the rights of holders of Sky Financial
common shares would be subordinated in certain respects to the rights of the
holders of Sky Financial serial preferred shares.
Bank. The Bank Articles of Incorporation provide for the maximum number of
shares which Bank is authorized to have outstanding to be 88,000 shares, of
which 50,411 shares shall be Class A Common Shares, $50 par value, and 37,589
shares shall be Class B Common Shares, $50 par value.
46
<PAGE> 56
AMENDMENTS TO ARTICLES OF INCORPORATION OR CODE OF REGULATIONS
Sky Financial. Except for specific provisions relating to an amendment with
respect to Sky Financial serial preferred shares, an amendment to Sky Financial
Articles of Incorporation requires the approval of a majority vote of the
outstanding shares of Sky Financial voting as a class. Notwithstanding the
foregoing, any amendment or addition to the Sky Financial Articles of
Incorporation which is inconsistent with or would have the effect of amending
certain sections of the Sky Financial Code of Regulations, including provisions
governing the number, classification, election or term of office of directors or
removal of directors, requires the same affirmative vote of shareholders as
would be required if such provision were being amended or revised under the Sky
Financial Code of Regulations.
The Sky Financial Code of Regulations provides for amendments thereto upon
the affirmative vote of the holders of a majority of the shares entitled to
vote; provided, however, that any amendment with respect to the number,
classification, election or term of office of directors or the removal of
directors requires the affirmative vote of at least 75% of the shares entitled
to vote, unless such amendment has been recommended by at least two-thirds of
the Sky Financial board of directors.
Bank. The Bank's Articles of Incorporation can be amended upon the
affirmative vote of the holders of a majority of the shares entitled to vote.
The Code of Regulations of Bank provides for amendments thereto upon the
affirmative vote of the holders of a majority of the shares entitled to vote.
SPECIAL MEETINGS OF SHAREHOLDERS
Sky Financial. The Sky Financial Code of Regulations provides that a
special meeting of the shareholders of Sky Financial may be called by any of the
Chairman, Chief Executive Officer, the President, the Chief Operating Officer,
any Executive Vice President and the majority of directors. In addition, holders
representing at least 50% of the outstanding shares entitled to vote at the
special meeting have the authority to call such meeting.
The Sky Financial Code of Regulations requires a shareholder to notify Sky
Financial of any proposal at least sixty (60) days prior to the shareholders
meeting. Such notice must include a brief description of the proposal, an
explanation for why it is being proposed, and the name, share ownership and
material interest of the shareholder in the proposal, if any.
Bank. A special meeting of the Bank shareholders can be called by the Bank
board of directors or by the Chairman or President of Bank. A special meeting
may also be called at the written request of holders of record of not less than
a majority of the Bank Class A Common Shares and Bank Class B Common Shares.
The Bank Code of Regulations contains no provisions for shareholder
proposals.
NUMBER OF DIRECTORS; CLASSIFIED BOARD OF DIRECTORS
Sky Financial. The Sky Financial Code of Regulations currently provides
that the number of directors shall not be less than five (5) nor more than
thirty-five (35), with the exact number of directors to be determined from time
to time by an 80% majority vote of the directors then in office. The Sky
Financial Code of Regulations provides for a classified board of directors, such
that approximately one-third of the members of the Sky Financial board of
directors are elected each year; consequently, two annual meetings are
effectively required for Sky Financial's shareholders to change a majority of
the members of the Sky Financial board of directors.
The Sky Financial Code of Regulations further provides that for a period of
three years after the effective time of the Mid Am Merger, in the event that a
Mid Am Director or a Bancshares Director or a director otherwise elected or
nominated pursuant to the Mid Am Merger Agreement resigns, is no longer able to
serve or does not stand for reelection, (i) if such director is a Mid Am
Director or a nominee of the Mid Am Directors, then the Mid Am Directors and
nominees of the Mid Am Directors serving as directors will have the exclusive
right to select an individual to fill such vacancy and (ii) if such director is
a Bancshares Director or a nominee of the Bancshares Directors, then the
Bancshares Directors and nominees of the Bancshares Directors serving as
directors will have the exclusive right to nominate an individual to fill such
vacancy and the entire board of directors of Sky Financial will either elect
such person as a director or nominate such person for election as a director.
47
<PAGE> 57
Any amendment or repeal of the foregoing provisions of the Sky Financial
Code of Regulations requires the affirmative vote of at least 75% of the
outstanding shares eligible to vote for the election of directors unless such
amendment or repeal has been recommended by the affirmative vote of at least
two-thirds of the entire Sky Financial board of directors, in which case only a
majority vote of the outstanding shares eligible to vote will be required.
Bank. The Bank Code of Regulations provides that the number of the
directors of Bank shall be seventeen (17), all of the same class.
REMOVAL OF DIRECTORS
Sky Financial. The Sky Financial Code of Regulations provides that a
director may be removed only for cause and only by the affirmative vote of 80%
of the entire Sky Financial board of directors. Amendment or repeal of the
foregoing provision requires the vote of holders representing at least 75% of
the outstanding capital shares entitled to vote for the election of directors,
unless such amendment has been recommended by at least two-thirds of the Sky
Financial board of directors then in office, in which case only a majority vote
of the outstanding shares eligible to vote is required.
Bank. The Bank's Code of Regulations provides that a director may be
removed from office without cause by the affirmative vote of holders of shares
entitling them to exercise a majority of the voting power of Bank (and without
regard to what might be the case if cumulative voting were permitted).
ADVANCE NOTICE OF DIRECTOR NOMINATIONS
Sky Financial. The Sky Financial Code of Regulations provides that
nominations for election to the Sky Financial board of directors may be made by
the Sky Financial board of directors or by any holders of shares of the capital
shares of Sky Financial entitled to vote for the election of directors.
Nominations other than those made by or on behalf of the Sky Financial board of
directors must be made in writing delivered to or mailed and received at the
principal executive offices of Sky Financial no less than 60 days nor more than
90 days prior to the meeting of shareholders at which directors are to be
elected. However, if notice of the meeting is mailed or public disclosure is
made to shareholders less than 75 days before the meeting date, the nomination
must be received no later than the close of business on the 15th day following
the day on which notice of the meeting was mailed or public disclosure made.
Such notice must be accompanied by the written consent of each proposed nominee
to serve as a director of Sky Financial, if elected.
Bank. The Bank's Code of Regulations does not contain any provisions
relating to advance notice of director nominations.
CUMULATIVE VOTING
Sky Financial. The Sky Financial Articles of Incorporation provide that no
shareholder of Sky Financial may cumulate his or her voting power in the
election of directors.
Bank. Ohio banking law provides that shareholders do not have the right to
vote cumulatively for the election of directors, unless the articles of
incorporation so provide. Since the articles of incorporation of Bank do not so
provide, Bank shareholders do not have cumulative voting rights.
CONTROL SHARE ACQUISITIONS
Sky Financial. The State of Ohio has passed a control share acquisition
statute (the "Control Share Acquisition Statute") designed to make the
non-negotiated acquisition of control of an Ohio corporation through a tender
offer more difficult. The Sky Financial Articles of Incorporation specify that
the Control Share Acquisition Statute is not applicable to Sky Financial.
Bank. The Control Share Acquisition Statute is applicable to Bank.
BUSINESS COMBINATION PROVISIONS
Sky Financial. Under Section 1704 of the OGCL, which is applicable to Sky
Financial, a corporation is prohibited from entering into a "Chapter 1704
transaction" (as defined herein) with the direct or indirect beneficial
48
<PAGE> 58
owner of 10% or more of the shares of the corporation (a "10% shareholder") for
at least three years after the shareholder attains his 10% ownership unless the
board of directors of the corporation approves, before the shareholder attains
his 10% ownership, either the transaction or the purchase of shares resulting in
his 10% ownership. A "Chapter 1704 transaction" is broadly defined to include,
among other things, a merger or consolidation involving the corporation and the
10% shareholder, a sale or purchase of substantial assets between the
corporation and the 10% shareholder, a reclassification, recapitalization, or
other transaction proposed by the 10% shareholder that results in an increase in
the proportion of shares beneficially owned by the 10% shareholder, and the
receipt by the 10% shareholder of a loan, guarantee, other financial assistance,
or tax benefit not received proportionately by all shareholders. Even after the
three-year period, Ohio law restricts these transactions between the corporation
and the 10% shareholder. At that time, such a transaction may proceed only if
(a) the board of directors of the corporation had approved the purchase of
shares that gave the shareholder his 10% ownership, (b) the transaction is
approved by the holders of shares of the corporation with at least two-thirds of
the voting power of the corporation (or a different proportion set forth in the
articles of incorporation), including at least a majority of the outstanding
shares after excluding shares held or controlled by the 10% shareholder, or (c)
the business combination results in shareholders, other than the 10%
shareholder, receiving a prescribed fair price plus interest for their shares.
Bank. Bank is currently subject to Section 1704 of the OGCL.
VOTE REQUIRED TO APPROVE A MERGER, A CONSOLIDATION, OR A SALE OF SUBSTANTIALLY
ALL ASSETS
Sky Financial. Except as otherwise provided by the Sky Financial Articles
of Incorporation or the Sky Financial Code of Regulations, and subject to
Section 1704 of the OGCL, the Sky Financial Articles of Incorporation provide
that notwithstanding any provision of the OGCL which requires a two-thirds vote,
or any other proportion of the voting power of Sky Financial, any amendments to
the Sky Financial Articles of Incorporation may be made from time to time, and
any proposal or proposition requiring the action of shareholders, including the
merger, consolidation of Sky Financial with another corporation, or sale of
substantially all of the assets of Sky Financial, may be authorized from time to
time by the affirmative vote of the holders of shares entitling them to exercise
a majority of the voting power of Sky Financial.
Bank. Holders of Bank Class A Common Shares are entitled to one vote per
share. Holders of Bank Class B Common Shares are entitled to twenty votes per
share. Pursuant to the Bank Code of Regulations, however, holders of Bank Class
A Common Shares and Bank Class B Common Shares are not entitled to cumulative
voting for directors. Moreover, pursuant to the Bank Code of Regulations, the
affirmative vote of the holders of record of a majority of the issued and
outstanding Bank Class A Common Shares and Bank Class B Common Shares in
attendance or represented at any meeting at which a quorum is present is
required for mergers, consolidations and the disposition of all or substantially
all of Bank's assets, and all other Bank shareholder acts.
INDEMNIFICATION
Sky Financial. The Sky Financial Code of Regulations provides that Sky
Financial shall indemnify any director or officer and any former director or
officer and any such director or officer who is or has served at the request of
Sky Financial 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. Such indemnification is not to be deemed to
restrict the power of Sky Financial (i) to indemnify 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 Sky Financial, or any person who is or
was serving at the request of Sky Financial 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.
49
<PAGE> 59
In addition, Sky Financial has indemnification agreements with each of its
directors and executive officers which expand such indemnitees' rights in the
event that the OGCL and the Sky Financial Code of Regulations are changed.
Pursuant to the agreements, indemnitees receive the highest available of the
following: (i) the benefits provided by the Sky Financial Code of Regulations as
of the date of the agreement; (ii) the benefits provided by the Sky Financial
Code of Regulations in effect at the time that indemnification expenses are
incurred; (iii) the benefits allowable under the OGCL which is in effect on the
date of the agreement; (iv) the benefits allowable under the law of the
jurisdiction under which Sky Financial exists at the time indemnifiable expenses
are incurred; (v) the benefits available under liability insurance obtained by
Sky Financial; (vi) the benefits which would have been available to the
indemnitees under a Bancshares insurance policy which was in effect prior to and
expired on May 8, 1986; or (vii) such other benefits which are or may be
otherwise available to the indemnitees. 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, Sky Financial.
Bank. Under the Bank's Code of Regulations, mandatory indemnification is
available only to Bank directors.
SHAREHOLDER RIGHTS PLAN
Sky Financial. Sky Financial has a shareholder rights plan (the "Rights
Plan"). The Rights Plan was adopted on July 21, 1998. The Rights Plan may make
it more difficult for a potential acquiror to effect a non-negotiated business
combination with Sky Financial.
Bank. Bank does not have a shareholder rights plan.
PREEMPTIVE RIGHTS
Sky Financial. Sky Financial does not grant preemptive rights to its
shareholders.
Bank. The Bank Articles of Incorporation have eliminated preemptive rights
for holders of Bank Class A Common Shares. Holders of Bank Class B Common Shares
have preemptive rights to purchase Bank Class B Common Shares to be issued by
Bank.
50
<PAGE> 60
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet as of
June 30, 1998 and the pro forma condensed combined income statements for the
six-month periods ended June 30, 1998 and 1997 and for each of the three years
in the period ended December 31, 1997, give effect to the Merger, to be
accounted for as a pooling of interests. The pro forma information is based on
the supplemental consolidated financial statements of Sky Financial and the
historical financial statements of Bank under the assumptions and adjustments
set forth in the accompanying notes to the pro forma condensed combined
financial statements. The pro forma condensed combined financial statements have
been prepared by the managements of Sky Financial and Bank based on their
respective consolidated financial statements. Pro forma per share amounts are
based on the conversion rate of 63.25 shares of Sky Financial Common Shares for
each Bank Common Share (including Class A Common Shares and Class B Common
Shares) in the Merger.
The pro forma condensed combined financial statements include results of
operations as if the Merger had been consummated as of the beginning of the
earliest period presented. The pro forma condensed combined balance sheet
reflects preliminary estimates by Sky Financial and Bank of merger-related
charges to be incurred in connection with the consummation of the Merger;
however, the pro forma condensed combined income statements do not reflect these
charges nor the cost savings anticipated to result from the Merger. The current
estimate of merger-related charges is considered preliminary based on the due
diligence that has been performed to date by management in connection with the
Merger and is subject to change. The actual charges incurred may be higher or
lower than what is currently estimated. Merger-related charges are contingent
upon consummation of the Merger and would be recognized in the period in which
the Merger closes.
The pro forma condensed combined financial statements should be read in
conjunction with the historical consolidated financial statements and notes
thereto of Bancshares, Mid Am and Bank and the supplemental consolidated
financial statements and notes thereto of Sky Financial, incorporated by
reference herein. Pro forma financial statements are presented for informational
purposes only and are not necessarily indicative of the results of operations or
combined financial position that would have resulted had the Merger been
consummated as of the beginning of the earliest period indicated, nor are they
necessarily indicative of future results of operations or combined financial
position.
51
<PAGE> 61
SKY FINANCIAL GROUP, INC.
THE OHIO BANK
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
SKY FINANCIAL PRO FORMA PRO FORMA
SKY FINANCIAL ADJUSTMENTS ADJUSTED OHIO BANK ADJUSTMENTS COMBINED
------------- ----------- ------------- --------- ----------- -------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks....... $ 156,753 $ 156,753 $ 15,312 $ 172,065
Federal funds sold and
interest-bearing deposits... 48,466 48,466 2,200 50,666
Securities.................... 944,128 944,128 143,369 1,087,497
Loans, net.................... 2,756,521 2,756,521 420,155 3,176,676
Premises and equipment........ 83,117 83,117 8,479 91,596
Accrued interest receivable
and other assets............ 97,475 $ 7,000(1) 104,475 10,033 $ 1,400(2) 115,908
------------- -------- ---------- -------- ------- ----------
Total assets................ $ 4,086,460 $ 7,000 $4,093,460 $599,548 $ 1,400 $4,694,408
============= ======== ========== ======== ======= ==========
LIABILITIES
Deposits...................... $ 3,211,921 $3,211,921 $530,975 $3,742,896
Federal funds purchased and
repurchase agreements....... 186,281 186,281 -- 186,281
Other debt and Federal Home
Loan Bank advances.......... 331,268 331,268 11,317 342,585
Accrued interest payable and
other liabilities........... 34,769 $ 25,000(1) 59,769 4,705 $ 5,000(2) 69,474
------------- -------- ---------- -------- ------- ----------
Total liabilities........... 3,764,239 25,000 3,789,239 546,997 5,000 4,341,236
SHAREHOLDERS' EQUITY.......... 322,221 (18,000)(1) 304,221 52,551 (3,600)(2) 353,172
------------- -------- ---------- -------- ------- ----------
Total liabilities and
shareholders' equity...... $ 4,086,460 $ 7,000 $4,093,460 $599,548 $ 1,400 $4,694,408
============= ======== ========== ======== ======= ==========
</TABLE>
- ---------------
(1) Preliminary estimates of charges related to the merger of Bancshares and Mid
Am to form Sky Financial. As a result, an estimated $7 million current and
deferred tax asset is included herein.
(2) Preliminary estimates of charges related to the Merger of Sky Financial and
Bank. As a result, an estimated $1.4 million current and deferred tax asset
is included herein.
52
<PAGE> 62
SKY FINANCIAL GROUP, INC.
THE OHIO BANK
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
SKY PRO FORMA
FINANCIAL OHIO BANK COMBINED
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees....................................... $127,229 $19,034 $146,263
Securities and other........................................ 29,836 4,341 34,177
-------- ------- --------
Total interest income.................................. 157,065 23,375 180,440
INTEREST EXPENSE
Deposits.................................................... 61,813 11,281 73,094
Borrowings.................................................. 14,264 144 14,408
-------- ------- --------
Total interest expense................................. 76,077 11,425 87,502
-------- ------- --------
NET INTEREST INCOME......................................... 80,988 11,950 92,938
PROVISION FOR LOAN LOSSES................................... 5,859 528 6,387
-------- ------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......... 75,129 11,422 86,551
OTHER INCOME................................................ 45,344 2,630 47,974
OTHER EXPENSES.............................................. 84,322 8,874 93,196
-------- ------- --------
INCOME BEFORE INCOME TAXES.................................. 36,151 5,178 41,329
INCOME TAXES................................................ 11,083 1,625 12,708
-------- ------- --------
NET INCOME.................................................. $ 25,068 $ 3,553 $ 28,621
======== ======= ========
EARNINGS PER COMMON SHARE
Basic....................................................... $ 0.70 $ 44.63 $ 0.70
======== ======= ========
Basic -- Class B............................................ $ 40.57(1)
=======
Diluted..................................................... $ 0.69 $ 44.63 $ 0.69
======== ======= ========
Diluted -- Class B.......................................... $ 40.57(1)
=======
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic....................................................... 35,848 46 41,098
======== ======= ========
Basic -- Class B............................................ 37(1)
=======
Diluted..................................................... 36,391 46 41,641
======== ======= ========
Diluted -- Class B.......................................... 37
=======
</TABLE>
- ---------------
(1) The Ohio Bank has two classes of stock with no potentially dilutive
securities. Only one class of common stock, without par, will be issued in
the merger.
53
<PAGE> 63
SKY FINANCIAL GROUP, INC.
THE OHIO BANK
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
SKY PRO FORMA
FINANCIAL OHIO BANK COMBINED
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees.................................... $118,961 $ 17,690 $136,651
Securities and other..................................... 28,362 4,096 32,458
-------- -------- --------
Total interest income............................... 147,323 21,786 169,109
INTEREST EXPENSE
Deposits................................................. 58,692 10,514 69,206
Borrowings............................................... 10,653 176 10,829
-------- -------- --------
Total interest expense.............................. 69,345 10,690 80,035
-------- -------- --------
NET INTEREST INCOME...................................... 77,978 11,096 89,074
PROVISION FOR LOAN LOSSES................................ 3,974 528 4,502
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES...... 74,004 10,568 84,572
OTHER INCOME............................................. 38,835 2,112 40,947
OTHER EXPENSES........................................... 70,000 8,626 78,626
-------- -------- --------
INCOME BEFORE INCOME TAXES............................... 42,839 4,054 46,893
INCOME TAXES............................................. 13,977 1,242 15,219
-------- -------- --------
NET INCOME............................................... $ 28,862 $ 2,812 $ 31,674
======== ======== ========
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS.............. $ 28,257 $ 2,812 $ 31,069
======== ======== ========
EARNINGS PER COMMON SHARE
Basic.................................................... $ 0.79 $ 35.33 $ 0.76
======== ======== ========
Basic -- Class B......................................... $ 32.12(1)
========
Diluted.................................................. $ 0.77 $ 35.33 $ 0.74
======== ======== ========
Diluted -- Class B....................................... $ 32.12(1)
========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic.................................................... 35,602 45 40,852
======== ======== ========
Basic -- Class B......................................... 38(1)
========
Diluted.................................................. 37,558 45 42,808
======== ======== ========
Diluted -- Class B....................................... 38(1)
========
</TABLE>
- ---------------
(1) The Ohio Bank has two classes of stock with no potentially dilutive
securities. Only one class of common stock, without par, will be issued in
the merger.
54
<PAGE> 64
SKY FINANCIAL GROUP, INC.
THE OHIO BANK
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SKY PRO FORMA
FINANCIAL OHIO BANK COMBINED
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees....................................... $245,453 $36,449 $281,902
Securities and other........................................ 57,416 8,213 65,629
-------- ------- --------
Total interest income.................................. 302,869 44,662 347,531
INTEREST EXPENSE
Deposits.................................................... 120,554 21,662 142,216
Borrowings.................................................. 24,331 370 24,701
-------- ------- --------
Total interest expense................................. 144,885 22,032 166,917
-------- ------- --------
NET INTEREST INCOME......................................... 157,984 22,630 180,614
PROVISION FOR LOAN LOSSES................................... 9,862 1,066 10,928
-------- ------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......... 148,122 21,564 169,686
OTHER INCOME................................................ 77,560 4,607 82,167
OTHER EXPENSES.............................................. 147,280 17,503 164,783
-------- ------- --------
INCOME BEFORE INCOME TAXES.................................. 78,402 8,668 87,070
INCOME TAXES................................................ 25,101 2,649 27,750
-------- ------- --------
NET INCOME.................................................. $ 53,301 $ 6,019 $ 59,320
======== ======= ========
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS................. $ 52,696 $ 6,019 $ 58,715
======== ======= ========
EARNINGS PER COMMON SHARE
Basic....................................................... $ 1.46 $ 75.62 $ 1.42
======== ======= ========
Basic -- Class B............................................ $ 68.74(1)
=======
Diluted..................................................... $ 1.43 $ 75.62 $ 1.40
======== ======= ========
Diluted -- Class B.......................................... $ 68.74(1)
=======
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic....................................................... 36,025 46 41,275
======== ======= ========
Basic -- Class B............................................ 37(1)
=======
Diluted..................................................... 37,203 46 42,453
======== ======= ========
Diluted -- Class B.......................................... 37(1)
=======
</TABLE>
- ---------------
(1) The Ohio Bank has two classes of stock with no potentially dilutive
securities. Only one class of common stock, without par, will be issued in
the merger.
55
<PAGE> 65
SKY FINANCIAL GROUP, INC.
THE OHIO BANK
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
SKY FINANCIAL OHIO BANK COMBINED
------------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees....................................... $225,377 $31,978 $257,355
Securities and other........................................ 57,588 8,107 65,695
-------- ------- --------
Total interest income.................................. 282,965 40,085 323,050
INTEREST EXPENSE
Deposits.................................................... 118,286 19,002 137,288
Borrowings.................................................. 13,200 448 13,648
-------- ------- --------
Total interest expense................................. 131,486 19,450 150,936
-------- ------- --------
NET INTEREST INCOME......................................... 151,479 20,635 172,114
PROVISION FOR LOAN LOSSES................................... 6,816 897 7,713
-------- ------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......... 144,663 19,738 164,401
OTHER INCOME................................................ 58,236 4,008 62,244
OTHER EXPENSES.............................................. 133,156 15,975 149,131
-------- ------- --------
INCOME BEFORE INCOME TAXES.................................. 69,743 7,771 77,514
INCOME TAXES................................................ 22,021 2,343 24,364
-------- ------- --------
NET INCOME ................................................. $ 47,722 $ 5,428 $ 53,150
======== ======= ========
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS................. $ 45,315 $ 5,428 $ 50,743
======== ======= ========
EARNINGS PER COMMON SHARE
Basic....................................................... $ 1.29 $ 68.20 $ 1.25
======== ======= ========
Basic -- Class B............................................ $ 62.00(1)
=======
Diluted..................................................... $ 1.25 $ 68.20 $ 1.22
======== ======= ========
Diluted -- Class B.......................................... $ 62.00(1)
=======
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic....................................................... 35,213 45 40,463
======== ======= ========
Basic -- Class B............................................ 38(1)
=======
Diluted..................................................... 38,215 45 43,465
======== ======= ========
Diluted -- Class B.......................................... 38(1)
=======
</TABLE>
- ---------------
(1) The Ohio Bank has two classes of stock with no potentially dilutive
securities. Only one class of common stock, without par, will be issued in
the merger.
56
<PAGE> 66
SKY FINANCIAL GROUP, INC.
THE OHIO BANK
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA
SKY FINANCIAL OHIO BANK COMBINED
------------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees....................................... $213,427 $ 28,757 $242,184
Securities and other........................................ 59,907 5,757 65,664
-------- -------- --------
Total interest income............................. 273,334 34,514 307,848
INTEREST EXPENSE
Deposits.................................................... 114,940 15,408 130,348
Borrowings.................................................. 13,999 173 14,172
-------- -------- --------
Total interest expense............................ 128,939 15,581 144,520
-------- -------- --------
NET INTEREST INCOME......................................... 144,395 18,933 163,328
PROVISION FOR LOAN LOSSES................................... 5,506 966 6,472
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......... 138,889 17,967 156,856
OTHER INCOME................................................ 43,486 3,126 46,612
OTHER EXPENSES.............................................. 118,588 13,465 132,053
-------- -------- --------
INCOME BEFORE INCOME TAXES.................................. 63,787 7,628 71,415
INCOME TAXES................................................ 20,026 2,322 22,348
-------- -------- --------
NET INCOME.................................................. $ 43,761 $ 5,306 $ 49,067
======== ======== ========
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS................. $ 41,010 $ 5,306 $ 46,316
======== ======== ========
EARNINGS PER COMMON SHARE
Basic....................................................... $ 1.15 $ 66.67 $ 1.14
======== ======== ========
Basic -- Class B............................................ $ 60.61(1)
========
Diluted..................................................... $ 1.13 $ 66.67 $ 1.11
======== ======== ========
Diluted -- Class B.......................................... $ 60.61(1)
========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic....................................................... 35,547 45 40,797
======== ======== ========
Basic -- Class B............................................ 38(1)
========
Diluted..................................................... 38,782 45 44,032
======== ======== ========
Diluted -- Class B.......................................... 38(1)
========
</TABLE>
- ---------------
(1) The Ohio Bank has two classes of stock with no potentially dilutive
securities. Only one class of common stock, without par, will be issued in
the merger.
57
<PAGE> 67
EXPERTS
The consolidated financial statements and supplemental consolidated
financial statements of Bancshares (now renamed "Sky Financial Group, Inc.") as
of December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996
and 1995, incorporated by reference in this Proxy Statement/Prospectus have been
audited by Crowe, Chizek and Company LLP, as set forth in its report thereon and
incorporated by reference herein. The financial statements audited by Crowe,
Chizek and Company LLP have been incorporated by reference herein in reliance
upon such report given upon their authority as experts in accounting and
auditing.
The financial statements of Bank as of December 31, 1997 and 1996 and for
the years ended December 31, 1997, 1996 and 1995, included in this Proxy
Statement/Prospectus have been audited by Crowe, Chizek and Company LLP, as set
forth in its report thereon and included herein. Such financial statements
audited by Crowe, Chizek and Company LLP are included herein in reliance upon
such report given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Century incorporated in this Proxy
Statement/Prospectus by reference to Century's Annual Report on Form 10-K for
the year ended December 31, 1997, included in Bancshares Form 8-K/A, have been
so incorporated in reliance on the report of S.R. Snodgrass, A.C., given upon
the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Mid Am incorporated in this Proxy
Statement/Prospectus by reference to Mid Am's Annual Report on Form 10-K for the
year ended December 31, 1997, have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
LEGAL OPINIONS
A legal opinion has been rendered by Squire, Sanders & Dempsey L.L.P. to
the effect that the issuance of the shares of Sky Financial Common Shares
offered hereby has been duly authorized by Sky Financial and that the Shares,
when issued in accordance with the Merger Agreement, will be duly issued and
outstanding and fully paid and non-assessable.
INDEMNIFICATION
The Code of Regulations of Sky Financial provides that Sky Financial will
indemnify any director or officer of Sky Financial or any person who is or has
served at the request of Sky Financial 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.
In addition, Sky Financial 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 Sky Financial's Code of Regulations are
further changed. 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, Sky Financial.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling Sky Financial
pursuant to the foregoing provisions, Sky Financial 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.
58
<PAGE> 68
PROPOSALS FOR 1999 ANNUAL MEETINGS
The Sky Financial 1999 Annual Meeting of Shareholders is scheduled to be
held on March 25, 1999. Any proposals of shareholders of Sky Financial intended
to be presented at that meeting must have been received by October 28, 1998, for
inclusion in Sky Financial's proxy statement and form of proxy relating to the
Sky Financial 1999 Annual Meeting of Shareholders.
59
<PAGE> 69
THE OHIO BANK
FINANCIAL STATEMENTS
<PAGE> 70
INDEX TO FINANCIAL INFORMATION
<TABLE>
<S> <C>
INTERIM FINANCIAL STATEMENTS -- June 30, 1998
BALANCE SHEETS (UNAUDITED) -- June 30, 1998 and December
31, 1997............................................... F-3
STATEMENTS OF INCOME (UNAUDITED) -- Six Months ended June
30, 1998 and 1997...................................... F-4
STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) -- Six
Months ended June 30, 1998 and 1997.................... F-5
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY -- Six
Months ended June 30, 1998 and 1997.................... F-6
STATEMENTS OF CASH FLOWS (UNAUDITED) -- Six Months ended
June 30, 1998 and 1997................................. F-7
NOTES TO FINANCIAL STATEMENTS -- June 30, 1998............ F-8
FINANCIAL STATEMENTS -- December 31, 1997
REPORT OF INDEPENDENT AUDITORS............................ F-15
BALANCE SHEETS -- 1997 and 1996........................... F-16
STATEMENTS OF INCOME -- 1997, 1996 and 1995............... F-17
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY -- 1997, 1996
and 1995............................................... F-18
STATEMENTS OF CASH FLOWS -- 1997, 1996 and 1995........... F-19
NOTES TO FINANCIAL STATEMENTS -- 1997, 1996 and 1995...... F-20
</TABLE>
F-1
<PAGE> 71
THE OHIO BANK
INTERIM FINANCIAL STATEMENTS
JUNE 30, 1998
F-2
<PAGE> 72
THE OHIO BANK
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- -----------------
(DOLLARS IN THOUSANDS)
EXCEPT SHARE AMOUNTS
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 15,312 $ 15,893
Federal funds sold.......................................... 2,200 3,200
Securities available for sale, at fair value................ 143,369 142,932
Loans
Total loans............................................... 425,052 404,636
Allowance for loan losses................................. (4,897) (4,475)
-------- --------
Loans, net............................................. 420,155 400,161
Premises and equipment, net................................. 8,479 7,985
Accrued interest receivable and other assets................ 10,033 9,234
-------- --------
Total assets...................................... $599,548 $579,405
======== ========
LIABILITIES
Noninterest-bearing demand deposits......................... $ 60,596 $ 59,851
Interest-bearing demand deposits............................ 125,851 103,359
Savings deposits............................................ 74,706 77,291
Time deposits less than $100,000............................ 198,468 206,686
Time deposits, $100,000 and over............................ 71,354 75,129
-------- --------
Total deposits.................................... 530,975 522,316
Other borrowings............................................ 11,317 2,326
Accrued interest, taxes and other expenses.................. 4,705 4,912
-------- --------
Total liabilities................................. 546,997 529,554
-------- --------
SHAREHOLDERS' EQUITY
Class A common stock: $50 par value, 50,411 and 45,772
shares authorized and outstanding, respectively........... 2,289 2,289
Class B common stock: $50 par value, convertible to Class A
shares, 37,228 shares authorized and outstanding.......... 1,861 1,861
Surplus..................................................... 7,417 7,417
Undivided profits........................................... 40,044 37,315
Unrealized gain on securities available for sale, net of
tax....................................................... 940 969
-------- --------
Total shareholder's equity........................ 52,551 49,851
-------- --------
Total liabilities and shareholders' equity........ $599,548 $579,405
======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 73
THE OHIO BANK
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees.................................. $ 9,614 $ 9,085 $19,034 $17,690
Securities
Taxable............................................. 1,814 1,700 3,615 3,436
Tax-exempt.......................................... 313 299 624 592
Federal funds sold..................................... 43 32 102 68
------- ------- ------- -------
Total interest income.......................... 11,784 11,116 23,375 21,786
------- ------- ------- -------
INTEREST EXPENSE
Deposits............................................... 5,643 5,337 11,281 10,514
Borrowed funds......................................... 91 127 144 176
------- ------- ------- -------
Total interest expense......................... 5,734 5,464 11,425 10,690
------- ------- ------- -------
NET INTEREST INCOME...................................... 6,050 5,652 11,950 11,096
Provision for loan losses................................ 264 264 528 528
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES...... 5,786 5,388 11,422 10,568
------- ------- ------- -------
NONINTEREST INCOME
Trust income........................................... 365 297 685 603
Service charges on deposit accounts.................... 394 375 728 720
Gain on sale of loans.................................. 275 141 574 256
Other income........................................... 311 243 643 533
------- ------- ------- -------
Total noninterest income....................... 1,345 1,056 2,630 2,112
------- ------- ------- -------
NONINTEREST EXPENSE
Salaries and employee benefits......................... 2,392 2,288 4,840 4,488
Occupancy, fixtures and equipment expense.............. 735 715 1,458 1,434
FDIC insurance......................................... 17 15 32 30
Data processing........................................ 272 224 557 449
State franchise taxes.................................. 184 166 368 331
Core deposit amortization.............................. 68 149 136 297
Other.................................................. 735 779 1,483 1,597
------- ------- ------- -------
Total noninterest expense...................... 4,403 4,336 8,874 8,626
------- ------- ------- -------
INCOME BEFORE INCOME TAXES............................... 2,728 2,108 5,178 4,054
Provision for income taxes............................... 880 642 1,625 1,242
------- ------- ------- -------
$ 1,848 $1, 466 $ 3,553 $ 2,812
======= ======= ======= =======
NET INCOME
EARNINGS PER COMMON SHARE:
CLASS A................................................ $ 23.21 $ 18.43 $ 44.63 $ 35.33
======= ======= ======= =======
CLASS B................................................ $ 21.10 $ 16.75 $ 40.57 $ 32.12
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 74
THE OHIO BANK
STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1998 1997 1998 1997
------- ------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET INCOME.................................................. $1,848 $1,466 $3,553 $2,812
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized gains/(losses) on securities available for sale
arising during the period.............................. 78 827 (29) (162)
Reclassification adjustment for amounts realized on
securities sales included in net income................... -- 1 -- 1
------ ------ ------ ------
COMPREHENSIVE INCOME........................................ $1,926 $2,294 $3,524 $2,651
====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 75
THE OHIO BANK
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
UNREALIZED
GAIN/(LOSS)
COMMON COMMON ON SECURITIES
STOCK STOCK UNDIVIDED AVAILABLE FOR
CLASS A CLASS B SURPLUS PROFITS SALE TOTAL
------- ------- ------- --------- ------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1997........ $2,271 $1,879 $7,417 $32,504 $459 $44,530
Conversion of 361 shares of Class B
common stock to Class A common
stock............................ 18 (18)
Net income......................... 2,812 2,812
Cash dividends -- $7.04 per share
of Class A and $6.40 per share of
Class B.......................... (560) (560)
Change in fair value of securities
available for sale, net of tax... (161) (161)
------ ------ ------ ------- ---- -------
BALANCES AT JUNE 30, 1997.......... $2,289 $1,861 $7,417 $34,756 $298 $46,621
====== ====== ====== ======= ==== =======
BALANCES AT JANUARY 1, 1998........ $2,289 $1,861 $7,417 $37,315 $969 $49,851
Net income......................... 3,553 3,553
Cash dividends -- $10.34 per share
of Class A and $9.40 per share of
Class B.......................... (824) (824)
Change in fair value of securities
available for sale, net of tax... (29) (29)
------ ------ ------ ------- ---- -------
BALANCES AT JUNE 30, 1998.......... $2,289 $1,861 $7,417 $40,044 $940 $52,551
====== ====== ====== ======= ==== =======
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 76
THE OHIO BANK
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 3,553 $ 2,812
Adjustments to reconcile net income to net cash from
operating activities Depreciation and amortization..... 829 995
Realized security gains, net........................... 0 (2)
Federal Home Loan Bank stock dividends................. (101) (91)
Gain on sale of loans.................................. (574) (256)
Loans originated for sale.............................. (53,034) (18,153)
Proceeds from sale of loans originated for sale........ 50,616 17,107
Provision for loan losses.............................. 528 528
Loss on sale of other real estate...................... 0 44
Provision for deferred income taxes.................... 16 (257)
Net amortization on securities......................... 83 83
Changes in Interest receivable and other assets........ (935) (1,827)
Interest payable and other liabilities............... (203) 1,226
-------- --------
Net cash from operating activities..................... 778 2,209
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale Proceeds from sales......... 0 3,000
Proceeds from maturities and repayments................ 25,821 7,356
Purchases.............................................. (26,289) (6,106)
Net change in federal funds sold.......................... 1,000 (3,200)
Net increase in loans..................................... (17,761) (33,275)
Proceeds from loan sales.................................. 231 527
Proceeds from sale of other real estate................... 0 250
Premises and equipment expenditures....................... (1,187) (678)
-------- --------
Net cash from investing activities..................... (18,185) (32,126)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts.......................... 8,659 19,546
Net change in short-term borrowings....................... 6,000 8,421
Proceeds from long-term Federal Home Loan Bank advances... 3,000 0
Principal payments on long-term Federal Home Loan Bank
advances............................................... (9) (10)
Dividends paid............................................ (824) (560)
-------- --------
Net cash from financing activities..................... 16,826 27,397
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... (581) (2,520)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 15,893 20,569
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 15,312 $ 18,049
======== ========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 77
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
The Ohio Bank.
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 Ohio Bank (the "Bank") at June 30, 1998,
and its results of operations and cash flows for the periods presented. All such
adjustments are normal and recurring in nature. The accompanying financial
statements do not purport to contain all necessary financial disclosures
required by generally accepted accounting principles that might otherwise be
necessary in the circumstances, and should be read in conjunction with financial
statements, and notes thereto, of the Bank for the year ended December 31, 1997,
included in its 1997 annual report. Refer to the accounting policies of the Bank
described in the notes to financial statements contained in the Bank's 1997
annual report.
The Bank's revenues, operating income, and assets are primarily from the
banking industry. The Bank operates seventeen offices in Hancock, Putnam,
Franklin, Seneca, Wyandot and Cuyahoga Counties. Loan customers include a wide
range of individuals, businesses, and other organizations. A major portion of
loans are secured by various forms of collateral including real estate, business
assets, consumer property, and other items, although borrower cash flow may also
be a primary source of repayment. The Bank also operates a trust department and
engages in mortgage banking operations.
To prepare financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions based on
available information. These estimates and assumptions affect amounts reported
in the financial statements and the disclosures provided; future results could
differ. The collectibility of loans, fair values of financial instruments, and
status of contingencies are particularly subject to change.
Cash and cash equivalents are defined as cash on hand and demand deposits
with other financial institutions. Net cash flows are reported for customer loan
and deposit transactions, federal funds sold, interest-bearing deposits with
other banks and short-term borrowing transactions.
For the six months ended June 30, 1998 and 1997, the Bank paid interest of
$11,296,000 and $10,400,000 and income taxes of $1,629,000 and $1,583,000.
Significant noncash transactions included transfers from loans to other
real estate owned of $144,000 and $175,000 during the six months ended June 30,
1998 and 1997.
Income tax expense is the sum of current-year income tax due or refundable
and change in deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax consequences of temporary differences
between carrying amounts and tax bases of assets and liabilities computed using
enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets
to the amount expected to be realized.
Under a new accounting standard adopted on January 1, 1998, Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," comprehensive income is reported for all periods. Comprehensive income
includes both net income and the change in unrealized gains and losses on
securities available for sale.
Earnings per common share is computed under the provisions of SFAS No. 128,
"Earnings per Share," which was adopted retroactively by the Bank on December
31, 1997. Adoption of SFAS 128 did not change the earnings per share amounts
previously reported by the Bank. Earnings per share computations are based on
the weighted average number of shares of common stock outstanding during the
period. See Note 7 for an explanation of the calculation of earnings per common
share.
F-8
<PAGE> 78
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 2 -- SECURITIES
The amortized cost and estimated fair values of securities are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasury and U.S Government agencies.......... $ 70,123 $ 261 $ (32) $ 70,352
Obligations of states and political subdivisions... 22,936 1,019 (5) 23,950
Other securities................................... 3,258 0 0 3,258
Mortgage-backed securities......................... 45,628 360 (179) 45,809
-------- ------ ----- --------
Total securities available for sale........ $141,945 $1,640 $(216) $143,369
======== ====== ===== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasury and U.S Government agencies.......... $ 80,530 $ 184 $(110) $ 80,604
Obligations of states and political subdivisions... 22,953 1,137 (2) 24,088
Other securities................................... 3,157 0 0 3,157
Mortgage-backed securities......................... 34,818 338 (73) 35,083
-------- ------ ----- --------
Total securities available for sale........ $141,458 $1,659 $(185) $142,932
======== ====== ===== ========
</TABLE>
Substantially all mortgage-backed securities are backed by pools of
mortgages that are issued or guaranteed by the Federal National Mortgage
Association ("FNMA"), the Government National Mortgage Association ("GNMA") and
the Federal Home Loan Mortgage Corporation ("FHLMC").
The amortized cost and estimated fair value of securities at June 30, 1998,
by contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Securities not due at
a single maturity date, primarily mortgage-backed securities and other
securities, are shown separately.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SECURITIES AVAILABLE FOR SALE
Due in one year or less................................... $ 23,512 $ 23,537
Due after one year through five years..................... 46,107 46,382
Due after five years through ten years.................... 17,972 18,804
Due after ten years....................................... 5,468 5,579
-------- --------
Total............................................. 93,059 94,302
Other securities.......................................... 3,258 3,258
Mortgage-backed securities................................ 45,628 45,809
-------- --------
Total securities available for sale............... $141,945 $143,369
======== ========
</TABLE>
F-9
<PAGE> 79
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
No securities were sold during the six months ended June 30, 1998. Proceeds
from the sale of securities during the six months ended June 30, 1997 were
$3,000,000 with gross gains of $2,000 and gross losses of $0 included in
earnings.
Securities with a carrying value of $54,759,000 and $51,400,000 at June
30,1998 and December 31, 1997, were pledged to secure public funds, repurchase
agreements or for other purposes.
NOTE 3 -- LOANS
Loans, net of deferred fees and costs, were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural...................... $240,105 $220,010
Real estate construction.................................... 45,449 46,327
Real estate mortgage loans held for sale.................... 4,153 1,603
Residential real estate mortgage and home equity............ 102,750 104,109
Consumer.................................................... 32,595 32,587
-------- --------
Total loans....................................... $425,052 $404,636
======== ========
</TABLE>
NOTE 4 -- ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses for the three
and six months ended June 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1998 1997 1998 1997
------- ------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Beginning balance................................... $4,669 $4,367 $4,475 $4,100
Provision for loan losses........................... 264 264 528 528
Loans charged-off................................... (50) (154) (150) (202)
Recoveries of previous charge-offs.................. 14 43 44 94
------ ------ ------ ------
Ending balance............................ $4,897 $4,520 $4,897 $4,520
====== ====== ====== ======
</TABLE>
Impaired loans were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Impaired loans with no allowance for loan losses
allocated................................................. $ 0 $ 0
Impaired loans with allowance for loan losses allocated..... 1,193 1,619
Amount of the allowance allocated........................... 404 522
</TABLE>
F-10
<PAGE> 80
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------
1998 1997
------ ------
<S> <C> <C>
Average of impaired loans during the period................. $1,322 $ 912
Interest income recognized during impairment................ 7 6
Cash-basis interest income recognized....................... 7 6
</TABLE>
NOTE 5 -- OTHER BORROWINGS
The Bank has a cash management advance line of credit with the Federal Home
Loan Bank ("FHLB") whereby the Bank can borrow up to $25,000,000. The line of
credit must be renewed on an annual basis. Advances are collateralized by FHLB
stock and a blanket pledge of the residential mortgage loan portfolio.
Variable-rate advances with original maturities of less than 90 days totaling
$6,000,000 were outstanding under the line at June 30, 1998. The borrowing rate
was 6.02%. There were no amounts outstanding as of December 31, 1997.
The Bank has a fixed-rate, mortgage-matched advance from the FHLB which
totaled $317,000 and $327,000 at June 30, 1998 and December 31, 1997. This
mortgage-matched advance is used to fund specific fixed-rate loans with certain
prepayment of principal permitted without penalty. The interest rate on the FHLB
advance is 6.00%. During 1998, the Bank borrowed $3,000,000 through the FHLB's
convertible fixed-rate advance offering. The advance carries a fixed-rate of
5.15% for ten years with interest payable monthly. Principal is due upon
maturity and is subject to penalties for early repayment. After the first year,
the FHLB has the option to convert the interest rate on the advance to a
variable, three-month LIBOR rate. If the advance is converted to LIBOR, the Bank
may prepay the advance without a penalty.
At June 30, 1998, scheduled principal reductions on FHLB advances were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------- (DOLLARS IN THOUSANDS)
<S> <C>
1999................................................... $6,022
2000................................................... 23
2001................................................... 25
2002................................................... 26
2003................................................... 28
Thereafter............................................. 3,193
------
Total............................................. $9,317
======
</TABLE>
Other borrowings also consist of an open-end Treasury, Tax and Loan note.
The note, which has a $2,000,000 maximum borrowing, requires monthly interest
payments. Borrowings under this agreement totaled $2,000,000 at June 30, 1998
and $1,999,000 at December 31, 1997. The interest rate on this note was 5.68%
and 5.25% at June 30, 1998 and December 31, 1997.
NOTE 6 -- COMMITMENTS, OFF BALANCE SHEET RISK, AND CONTINGENCIES
There are various contingent liabilities that are not reflected in the
financial statements, including claims and legal actions arising in the ordinary
course of business. In the opinion of management, after consultation with legal
counsel, the ultimate disposition of these matters is not expected to have a
material effect on financial condition or results of operations.
F-11
<PAGE> 81
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
Some financial instruments are used in the normal course of business to
meet the financing needs of customers. These financial instruments include
commitments to extend credit, standby letters of credit and financial
guarantees. These involve, to varying degrees, credit and interest-rate risk in
excess of the amount reported in the financial statements.
Exposure to credit loss if the other party does not perform is represented
by the contractual amount for commitments to extend credit, standby letters of
credit, and financial guarantees written. The same credit policies are used for
commitments and conditional obligations as are used for loans. The amount of
collateral, if deemed necessary, upon extension of credit is based on
management's credit evaluation. Collateral varies but may include accounts
receivable, inventory, property, equipment, income-producing commercial
properties, residential real estate and consumer assets.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the commitment.
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 used, the total commitments does not necessarily represent
future cash requirements. Standby letters of credit and financial guarantees
written are conditional commitments to guarantee a customer's performance to a
third party.
As of June 30, 1998 and December 31, 1997, commitments to extend credit
amounted to approximately $126,991,000 and $122,328,000. Of this amount,
$114,894,000 and $111,513,000 represent unused amounts on commercial lines of
credit, home equity lines of credit and credit cards as of June 30, 1998 and
December 31, 1997. Fixed-rate commitments represented $27,903,000 and
$21,474,000 of the respective commitment totals. The range of interest rates for
the fixed-rate commitments was 5.25% to 18.5% at June 30, 1998 and at December
31, 1997. Commitments under outstanding standby letters of credit amounted to
$12,097,000 and $10,815,000 at June 30, 1998 and December 31, 1997.
At June 30, 1998 and December 1997, regulatory required cash reserves
totaled $500,000. These reserves do not earn interest.
NOTE 7 -- STOCK TRANSACTIONS AND EARNINGS PER SHARE
The shares of Class A common and Class B common vote as a single class on
all matters. Each share of Class A common is entitled to one vote, and each
share of Class B common is entitled to twenty votes. Owners of Class A common
are entitled to receive such cash dividends as may be declared by the Board of
Directors out of funds legally available for that purpose. No cash dividend may
be declared and paid on shares of Class B common unless, simultaneously
therewith, there is declared and paid a cash dividend on each share of Class A
common stock of at least 110% of the cash dividend payable on each Class B
common share.
Each share of Class B common stock is convertible into one share of Class A
common stock at such times as there are authorized shares of Class A common
stock available for issuance. Class A shares are not convertible into Class B
common stock. During 1997, 5,000 additional shares of Class A common stock were
authorized. Subsequently, 361 Class B shares were converted to Class A shares.
Earnings per share computations are based on the weighted average number of
shares outstanding during the period. The weighted average number of shares
outstanding was 45,772 Class A and 37,228 Class B for the three and six months
ended June 30, 1998 and 45,411 Class A and 37,589 Class B for the three and six
months ended June 30, 1997.
F-12
<PAGE> 82
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
The equation for computing earnings per common share is as follows:
Net income = [Class A (110% X EPS)] + [Class B (EPS)]
<TABLE>
<S> <C> <C>
Assumptions:
Earnings per common share -- Class B = EPS
Earnings per common share -- Class A = 110% X EPS
Weighted average number of shares -- Class B = Class B
Weighted average number of shares -- Class A = Class A
</TABLE>
NOTE 8 -- PENDING MERGER
On July 22, 1998, the Bank signed a definitive agreement calling for the
Bank to affiliate with Citizens Bancshares, Inc. ("Bancshares"). The agreement
specifies that shareholders of the Bank will receive 63.25 Bancshares Common
Shares for each Bank Common Share owned. The merger is expected to be completed
during the fourth quarter of 1998 following approval by bank regulators and the
shareholders of both the Bank and Bancshares.
In connection with the pending merger, the Bank granted Bancshares a
binding option to purchase up to 5.42% of the outstanding shares of the Bank at
an exercise price of $400.00 per share. The options are exercisable in certain
circumstances upon the occurrence of specific purchase events defined in the
stock option agreement.
F-13
<PAGE> 83
THE OHIO BANK
FINANCIAL STATEMENTS
DECEMBER 31, 1997
F-14
<PAGE> 84
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
The Ohio Bank
Findlay, Ohio
We have audited the accompanying balance sheets of The Ohio Bank as of
December 31, 1997 and 1996, and the related statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Ohio Bank as of December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Bank changed its
method of accounting for mortgage servicing rights in 1996 to comply with new
accounting guidance.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Columbus, Ohio
February 19, 1998
F-15
<PAGE> 85
THE OHIO BANK
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------- --------
(DOLLARS IN THOUSANDS)
EXCEPT SHARE AMOUNTS
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 15,893 $ 20,569
Federal funds sold.......................................... 3,200 600
Securities available for sale, at fair value................ 142,932 134,825
Loans
Total loans............................................... 404,636 371,130
Allowance for loan losses................................. (4,475) (4,100)
-------- --------
Loans, net............................................. 400,161 367,030
Premises and equipment, net................................. 7,985 7,905
Accrued interest receivable and other assets................ 9,234 8,102
-------- --------
Total assets...................................... $579,405 $539,031
======== ========
LIABILITIES
Noninterest-bearing demand deposits......................... $ 59,851 $ 49,755
Interest-bearing demand deposits............................ 103,359 85,502
Savings deposits............................................ 77,291 78,644
Time deposits less than $100,000............................ 206,686 208,372
Time deposits, $100,000 and over............................ 75,129 64,200
-------- --------
Total deposits.................................... 522,316 486,473
Other borrowings............................................ 2,326 3,927
Accrued interest, taxes and other expenses.................. 4,912 4,101
-------- --------
Total liabilities................................. 529,554 494,501
-------- --------
SHAREHOLDERS' EQUITY
Class A common stock: $50 par value, 50,411 and 45,411
shares authorized in 1997 and 1996, 45,772 and 45,411
shares outstanding in 1997 and 1996....................... 2,289 2,271
Class B common stock: $50 par value, convertible to Class A
shares, 37,228 and 37,589 shares authorized and
outstanding in 1997 and 1996.............................. 1,861 1,879
Surplus..................................................... 7,417 7,417
Undivided profits........................................... 37,315 32,504
Unrealized gain on securities available for sale, net of
tax....................................................... 969 459
-------- --------
Total shareholders' equity........................ 49,851 44,530
-------- --------
Total liabilities and shareholders' equity... $579,405 $539,031
======== ========
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE> 86
THE OHIO BANK
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees..................................... $36,449 $31,978 $28,757
Securities
Taxable................................................ 6,776 6,804 4,112
Tax-exempt............................................. 1,223 1,120 1,017
Federal funds sold........................................ 214 183 628
------- ------- -------
Total interest income............................. 44,662 40,085 34,514
------- ------- -------
INTEREST EXPENSE
Deposits.................................................. 21,662 19,002 15,408
Borrowed funds............................................ 370 448 173
------- ------- -------
Total interest expense............................ 22,032 19,450 15,581
------- ------- -------
NET INTEREST INCOME......................................... 22,630 20,635 18,933
Provision for loan losses................................... 1,066 897 966
------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......... 21,564 19,738 17,967
------- ------- -------
NON-INTEREST INCOME
Trust income.............................................. 1,245 900 755
Service charges on deposit accounts....................... 1,494 1,399 1,207
Gain on sale of loans..................................... 718 608 241
Other income.............................................. 1,150 1,101 923
------- ------- -------
Total noninterest income.......................... 4,607 4,008 3,126
------- ------- -------
NON-INTEREST EXPENSE
Salaries and employee benefits............................ 9,038 8,152 6,712
Occupancy, fixtures and equipment expense................. 2,883 2,678 2,247
FDIC insurance............................................ 62 2 410
Data processing........................................... 983 927 824
State franchise taxes..................................... 658 584 517
Core deposit amortization................................. 594 500 38
Other..................................................... 3,285 3,132 2,717
------- ------- -------
Total noninterest expense......................... 17,503 15,975 13,465
------- ------- -------
INCOME BEFORE INCOME TAXES.................................. 8,668 7,771 7,628
Provision for income taxes.................................. 2,649 2,343 2,322
------- ------- -------
NET INCOME.................................................. $ 6,019 $ 5,428 $ 5,306
======= ======= =======
EARNINGS PER COMMON SHARE:
CLASS A................................................... $ 75.62 $ 68.20 $ 66.67
======= ======= =======
CLASS B................................................... $ 68.74 $ 62.00 $ 60.61
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE> 87
THE OHIO BANK
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
UNREALIZED
GAIN/LOSS
ON
COMMON COMMON SECURITIES
STOCK STOCK UNDIVIDED AVAILABLE
CLASS A CLASS B SURPLUS PROFITS FOR SALE TOTAL
------- ------- ------- --------- ------------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1995.................... $2,271 $1,879 $7,417 $23,662 $(733) $34,496
Net income..................................... 5,306 5,306
Cash dividends -- $10.78 per Class A and $9.80
per share of Class B......................... (859) (859)
Change in fair value of securities available
for sale, net of tax......................... 1,747 1,747
------ ------ ------ ------- ----- -------
BALANCES AT DECEMBER 31, 1995.................. 2,271 1,879 7,417 28,109 1,014 40,690
Net income..................................... 5,428 5,428
Cash dividends -- $12.98 per share of Class A
and $11.80 per share of Class B.............. (1,033) (1,033)
Change in fair value of securities available
for sale, net of tax......................... (555) (555)
------ ------ ------ ------- ----- -------
BALANCES AT DECEMBER 31, 1996.................. 2,271 1,879 7,417 32,504 459 44,530
Conversion of 361 shares of Class B Common
Stock to Class A Common Stock................ 18 (18)
Net income..................................... 6,019 6,019
Cash dividends -- $15.18 per share of Class A
and $13.80 per share of Class B.............. (1,208) (1,208)
Change in fair value of securities available
for sale, net of tax......................... 510 510
------ ------ ------ ------- ----- -------
BALANCES AT DECEMBER 31, 1997.................. $2,289 $1,861 $7,417 $37,315 $ 969 $49,851
====== ====== ====== ======= ===== =======
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE> 88
THE OHIO BANK
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 6,019 $ 5,428 $ 5,306
Adjustments to reconcile net income to net cash from
operating activities
Depreciation and amortization.......................... 2,121 1,756 1,046
Realized security gains, net........................... (4) 0 0
Federal Home Loan Bank stock dividends................. (190) (135) (111)
Gain on sale of loans.................................. (718) (608) (241)
Loans originated for sale.............................. (45,751) (43,281) (34,115)
Proceeds from sale of loans originated for sale........ 53,184 38,354 31,153
Provision for loan losses.............................. 1,066 897 966
Loss on sale of other real estate...................... 44 28 12
Provision for deferred income taxes.................... (188) (64) (282)
Net amortization on securities......................... 166 257 274
Changes in
Interest receivable and other assets................. (1,440) 602 136
Interest payable and other liabilities............... 732 920 909
-------- -------- --------
Net cash from operating activities..................... 15,041 4,154 5,053
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale Proceeds from sales......... 5,110 0 0
Proceeds from maturities and repayments................ 23,109 21,022 9,479
Purchases.............................................. (35,521) (44,281) (41,918)
Securities held to maturity
Proceeds from maturities and repayments................ 0 0 4,744
Purchases.............................................. 0 0 (250)
Net change in federal funds sold.......................... (2,600) 5,100 (4,600)
Net increase in loans..................................... (42,967) (62,762) (6,575)
Proceeds from loan sales.................................. 1,361 1,462 2,851
Proceeds from sale of other real estate................... 250 180 135
Premises and equipment expenditures....................... (1,493) (1,343) (1,445)
-------- -------- --------
Net cash from investing activities................... (52,751) (80,622) (37,579)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts.......................... 35,843 27,627 49,675
Net change in short-term borrowings....................... (1,580) 3,191 (16,612)
Principal payments on long-term Federal Home Loan Bank
advances............................................... (21) (19) (18)
Dividends paid............................................ (1,208) (1,033) (859)
Cash received from branch purchases....................... 0 51,116 0
-------- -------- --------
Net cash from financing activities..................... 33,034 80,882 32,186
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... (4,676) 4,414 (340)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 20,569 16,155 16,495
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 15,893 $ 20,569 $ 16,155
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE> 89
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
The Ohio Bank.
NATURE OF OPERATIONS: The Bank's revenues, operating income, and assets are
primarily from the banking industry. The Bank operates seventeen offices in
Hancock, Putnam, Franklin, Seneca, Wyandot and Cuyahoga Counties. Loan customers
include a wide range of individuals, businesses, and other organizations. A
major portion of loans are secured by various forms of collateral including real
estate, business assets, consumer property, and other items, although borrower
cash flow may also be a primary source of repayment. The Bank also operates a
trust department and engages in mortgage banking operations.
USE OF ESTIMATES: To prepare financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions based on available information. These estimates and assumptions
affect the amounts reported in the financial statements and the disclosures
provided, and future results could differ. The collectibility of loans, fair
values of financial instruments, and status of contingencies are particularly
subject to change.
CASH FLOW REPORTING: Cash and cash equivalents are defined as cash on hand
and demand deposits with other financial institutions. Net cash flows are
reported for customer loan and deposit transactions, federal funds sold,
interest bearing deposits with other banks and short-term borrowing
transactions.
For the years ended December 31, 1997, 1996, and 1995, the Bank paid
interest of $21,611,000, $19,260,000, and $14,993,000 and income taxes of
$2,920,000, $2,315,000, and $2,331,000.
Significant noncash transactions included transfers from loans to other
real estate owned of $175,000, $150,000, and $343,000 in 1997 and 1996 and 1995.
SECURITIES: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported separately in shareholders'
equity, net of tax. Securities are classified as trading when held for
short-term periods in anticipation of market gains, and are carried at fair
value. Securities are written down to fair value when a decline in fair value is
not temporary. At December 31, 1997 and 1996, all securities were classified as
available for sale.
Realized gains and losses are determined based on the amortized cost of the
specific security sold. Interest and dividend income, adjusted by amortization
of purchase premium or discount, is included in earnings.
LOANS HELD FOR SALE: Certain residential mortgage loans are originated for
sale in the secondary mortgage loan market. These loans are included in real
estate mortgage loans and are carried at the lower of cost or estimated fair
value in the aggregate. Net unrealized losses are recognized through a valuation
allowance by charges to income. To mitigate the interest rate risk, fixed
commitments may be obtained at the time loans are originated or identified for
sale. Loans originated and held for sale were $1,603,000 and $8,877,000 as of
December 31, 1997 and 1996.
LOANS RECEIVABLE: Loans are reported at the principal balance outstanding,
net of deferred loan fees and costs, the allowance for loan losses, and
charge-offs. Interest income is reported on the interest method and includes
amortization of net deferred loan fees and costs over the loan term.
Interest income is not reported when management believes the collection of
interest is doubtful, typically when payments are past due over 90 days.
Payments received on such loans are reported as principal reductions.
F-20
<PAGE> 90
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
CONCENTRATIONS OF CREDIT RISK: The Bank grants commercial, real estate and
installment loans to clients primarily in Hancock, Putnam, Franklin, Seneca,
Wyandot, Cuyahoga and surrounding counties.
Although the Bank has a diversified loan portfolio, a substantial portion
of the debtors' ability to honor their contracts is dependent upon the local and
State of Ohio economic conditions. Substantially all loans are secured by
specific items of collateral including business assets, consumer assets,
commercial real estate and residential real estate.
Commercial loans made up approximately 68% of the loan portfolio at
December 31, 1997 and 64% at December 31, 1996 and are secured primarily by
commercial and multi-family real estate and business assets. Real estate
mortgage loans account for approximately 20% of the loan portfolio at December
31, 1997 and 23% at December 31, 1996 and are secured primarily by single-family
residential real estate. Consumer loans comprise approximately 12% of the loan
portfolio at December 31, 1997 and 13% at December 31, 1996 and are secured by
consumer assets including automobiles which account for 77% and 74%,
respectively, of the consumer loan portfolio.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss experience, known and inherent risks in the portfolio,
information about specific borrower situations and estimated collateral values,
economic conditions, and other factors. Allocations of the allowance may be made
for specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage, consumer and credit card loans and on an
individual loan basis for other loans. In addition, loans held for sale are
excluded from consideration of impairment. If a loan is impaired, a portion of
the allowance is allocated so that the loan is reported, net, at the present
value of estimated future cash flows using the loan's existing rate or at the
fair value of collateral if repayment is expected solely from the collateral.
Loans are evaluated for impairment when payments are delayed, typically 60 days
or more, or when it is probable that all principal and interest amounts will not
be collected according to the original terms of the loan.
PREMISES AND EQUIPMENT: Asset cost is reported net of accumulated
depreciation. Depreciation expense is calculated on the straight-line method
over the estimated useful lives of the assets. These assets are reviewed for
impairment when events indicate the carrying amount may not be recoverable.
OTHER REAL ESTATE: Real estate acquired in settlement of loans is initially
reported at estimated fair value at acquisition. After acquisition, a valuation
allowance reduces the reported amount to the lower of the initial amount or fair
value less costs to sell. Expenses, gains and losses on disposition, and changes
in the valuation allowance are reported in net gain or loss on other real
estate. Other real estate totaled $238,000 and $294,000 at December 31, 1997 and
1996 and is included in other assets.
LOAN SERVICING: The Bank has sold various loans to the Federal Home Loan
Mortgage Corporation (FHLMC) while retaining the servicing rights. Gains and
losses on loan sales are recorded at the time of the sale.
Under a new accounting standard adopted in 1996, mortgage servicing rights
are recorded as assets when the related loan is sold. These assets are amortized
in proportion to, and over the period of, estimated net servicing income and are
evaluated periodically for impairment. Impairment is evaluated based on the fair
value of the rights using groupings of underlying loans with similar
characteristics. Any impairment of a grouping is reported as a valuation
allowance. Mortgage servicing rights totaled $728,000 and $323,000 at December
31, 1997 and 1996, and are included in other assets.
F-21
<PAGE> 91
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
IDENTIFIED INTANGIBLES: Identified intangibles represent the value of
depositor relationships purchased and are expensed on accelerated methods over
their estimated lives of up to 15 years. Identified intangibles are assessed for
impairment based on estimated undiscounted cash flows, and written down if
necessary. The amortization charged to expense in 1997, 1996 and 1995 was
$594,000, $500,000, and $38,000.
INCOME TAXES: Income tax expense is the sum of the current year income tax
due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
EARNINGS PER SHARE: Earnings per common share is computed under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share," which was retroactively adopted by the Bank on December
31, 1997. Adoption of SFAS 128 did not change the earnings per share amounts
previously reported by the Bank. Earnings per share computations are based on
the weighted average number of shares outstanding during the year. See Note 10
for an explanation of the calculation of earnings per common share.
FAIR VALUES OF FINANCIAL INSTRUMENTS: Fair values of financial instruments
are estimated using relevant market information and other assumptions, as more
fully disclosed separately. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates. The fair value estimates of existing on- and
off-balance sheet financial instruments do not include the value of anticipated
future business or the values of assets and liabilities not considered financial
instruments.
RECLASSIFICATIONS: Certain reclassifications have been made to prior
financial statements to be comparable to the 1997 presentation.
NOTE 2 -- BRANCH ACQUISITION
On March 11, 1996, the Bank acquired from Society National Bank of
Cleveland, Ohio, certain assets including cash, various loans, and premises and
equipment and assumed certain deposit and other liabilities of five branch
banking offices. Four of the offices are located in Putnam County and the fifth
is in Wyandot County. The transaction was accounted for as a purchase, and
accordingly, the acquired assets and liabilities have been recorded based on
their respective market values at the date of acquisition. Concurrent with the
acquisition, the Bank sold two of the offices located in Putnam County, along
with the related assets and liabilities, to other financial institutions. A
summary of the assets acquired and liabilities assumed, net of the assets and
liabilities sold, is as follows:
F-22
<PAGE> 92
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
ASSETS
Cash and cash equivalents................................. $51,116
Loans..................................................... 5,320
Premises and equipment.................................... 837
Identified intangible assets.............................. 4,138
-------
Total assets........................................... $61,411
=======
LIABILITIES
Noninterest-bearing deposits.............................. $12,691
Interest-bearing deposits................................. 48,706
-------
Total deposits......................................... 61,397
Other liabilities......................................... 14
-------
Total liabilities...................................... $61,411
=======
</TABLE>
The intangible assets from the acquisition and the previous acquisitions of
other branch banking facilities are included in other assets in the accompanying
balance sheets and are summarized as follows, net of accumulated amortization:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Core deposit premium........................................ $3,145 $3,713
Other intangible assets..................................... 146 172
------ ------
Total intangibles...................................... $3,291 $3,885
====== ======
</TABLE>
NOTE 3 -- SECURITIES
The amortized cost and estimated fair values of securities are as follows:
<TABLE>
<CAPTION>
1997
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasury and U.S. Government agencies........... $ 80,530 $ 184 $(110) $ 80,604
Obligations of states and political subdivisions..... 22,953 1,137 (2) 24,088
Other securities..................................... 3,157 0 0 3,157
Mortgage-backed securities........................... 34,818 338 (73) 35,083
-------- ------ ----- --------
Total securities available for sale............. $141,458 $1,659 $(185) $142,932
======== ====== ===== ========
</TABLE>
F-23
<PAGE> 93
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1996
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasury and U.S Government agencies............ $ 77,231 $ 150 $(301) $ 77,080
Obligations of states and political subdivisions..... 21,458 780 (5) 22,233
Other securities..................................... 2,967 0 0 2,967
Mortgage-backed securities........................... 32,474 253 (182) 32,545
-------- ------ ----- --------
Total securities available for sale............. $134,130 $1,183 $(488) $134,825
======== ====== ===== ========
</TABLE>
Substantially all mortgage-backed securities are backed by pools of
mortgages that are issued or guaranteed by the Federal National Mortgage
Association ("FNMA"), the Government National Mortgage Association ("GNMA") and
the Federal Home Loan Mortgage Corporation ("FHLMC").
The amortized cost and estimated fair value of securities at December 31,
1997, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties. Securities not
due at a single maturity date, primarily mortgage-backed securities and other
securities, are shown separately.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SECURITIES AVAILABLE FOR SALE
Due in one year or less..................................... $ 27,453 $ 27,434
Due after one year through five years....................... 51,565 51,782
Due after five years through ten years...................... 18,548 19,369
Due after ten years......................................... 5,917 6,107
-------- --------
Total.................................................. 103,483 104,692
Other securities............................................ 3,157 3,157
Mortgage-backed securities.................................. 34,818 35,083
-------- --------
Total securities available for sale.................... $141,458 $142,932
======== ========
</TABLE>
Proceeds from sales of securities during 1997 were $5,110,000 with gross
gains of $6,000 and gross losses of $2,000 recognized in earnings. There were no
sales of securities during 1996 or 1995.
Securities with a carrying value of $51,410,000 and $44,986,000 at December
31, 1997 and 1996, were pledged to secure public funds, repurchase agreements or
for other purposes.
During 1995, $47,792,000 of securities were reclassified from held to
maturity to available for sale, based on new interpretations issued for SFAS No.
115. The unrealized gain at the time the securities were transferred was
approximately $744,000.
F-24
<PAGE> 94
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 4 -- LOANS
Loans, net of deferred fees and costs, were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural...................... $220,010 $196,764
Real estate construction.................................... 46,327 35,472
Residential real estate mortgage and home equity............ 104,109 95,040
Real estate mortgage loans held for sale.................... 1,603 8,877
Consumer.................................................... 32,587 34,977
-------- --------
Total loans............................................ $404,636 $371,130
======== ========
</TABLE>
NOTE 5 -- ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance........................................... $4,100 $3,600 $3,275
Provision for loan losses................................... 1,066 897 966
Loans charged-off........................................... (833) (552) (868)
Recoveries of previous charge-offs.......................... 142 155 227
------ ------ ------
Ending balance............................................ $4,475 $4,100 $3,600
====== ====== ======
</TABLE>
Impaired loans were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Year-end impaired loans with no allowance for loan losses
allocated................................................. $ 0 $ 0 $ 0
Year-end impaired loans with allowance for loan losses
allocated................................................. 1,619 1,034 1,582
Amount of the allowance allocated........................... 522 314 473
Average of impaired loans during the year................... 1,263 1,080 1,072
Interest income recognized during impairment................ 24 69 61
Cash-basis interest income recognized....................... 24 69 61
</TABLE>
NOTE 6 -- LOAN SERVICING
Mortgage loans serviced for others are not reported as assets. These loans
totaled $183,840,000 and $160,575,000 at year-end 1997 and 1996. Related escrow
deposit balances were $737,000 and $627,000 at year-end 1997 and 1996.
F-25
<PAGE> 95
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
Activity for capitalized mortgage servicing rights was as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Beginning of year........................................... $323 $ 0
Additions................................................... 519 378
Amortized to expense........................................ (114) (55)
---- ----
End of year................................................. $728 $323
==== ====
</TABLE>
At December 31, 1997 and 1996 no valuation allowance for mortgage servicing
rights was considered necessary.
NOTE 7 -- PREMISES AND EQUIPMENT, NET
Year-end premises and equipment were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 994 $ 994
Buildings and improvements.................................. 7,814 7,588
Furniture and equipment..................................... 8,129 7,307
------- -------
Totals................................................. 16,937 15,889
Accumulated depreciation.................................... (8,952) (7,984)
------- -------
Total premises and equipment, net...................... $ 7,985 $ 7,905
======= =======
</TABLE>
Total depreciation expense was $1,413,000, $1,256,000, and $1,008,000 for
the years ending December 31, 1997, 1996 and 1995.
The Bank leases certain equipment and space under operating leases. The
leases have original terms ranging from 3 to 25 years. All leases have renewal
options for an additional five years, except one building lease, which has a
renewal option for 25 years. Rental expense for the years ending December 31,
1997, 1996 and 1995 was $372,000, $348,000, and $310,000.
Rental commitments under noncancelable operating leases are:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
1998................................................... $ 373
1999................................................... 266
2000................................................... 173
2001................................................... 107
2002................................................... 90
Thereafter............................................. 270
------
Total............................................. $1,279
======
</TABLE>
NOTE 8 -- DEPOSITS
At year-end 1997 scheduled maturities of time deposits were as follows:
F-26
<PAGE> 96
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
1998................................................... $191,132
1999................................................... 60,601
2000................................................... 21,327
2001................................................... 4,216
2002................................................... 2,554
Thereafter............................................. 1,985
--------
Total............................................. $281,815
========
</TABLE>
NOTE 9 -- OTHER BORROWINGS
The Bank has a cash management advance line of credit with the Federal Home
Loan Bank whereby the Bank can borrow up to $25,000,000. The line of credit must
be renewed on an annual basis. Federal Home Loan Bank advances are
collateralized by Federal Home Loan Bank stock and a blanket pledge of the
residential mortgage loan portfolio. There were no amounts outstanding as of
December 31, 1997. A $2,000,000 variable rate advance with an original maturity
of less than 90 days was outstanding under the line at December 31, 1996. The
borrowing rate was 7.15%.
At December 31, 1997 and 1996, the Bank had a fixed-rate, mortgage-matched
advance from the Federal Home Loan Bank. This mortgage-matched advance is used
to fund specific fixed-rate loans with certain prepayment of principal permitted
without penalty. At December 31, 1997 and 1996, the interest rate on the FHLB
advance was 6.00%. At year-end 1997, scheduled principal reductions were as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
1998................................................... $ 21
1999................................................... 23
2000................................................... 24
2001................................................... 26
2002................................................... 27
Thereafter............................................. 206
----
Total............................................. $327
====
</TABLE>
At year-end 1996, borrowings under this agreement totaled $347,000.
Other borrowings also consist of an open-end Treasury, Tax and Loan note.
The note, which has a $2,000,000 maximum borrowing, requires monthly interest
payments. Borrowings under this agreement totaled $1,999,000 and $1,580,000 at
December 31, 1997 and 1996. The interest rate on this note was 5.25% and 5.15%
at December 31, 1997 and 1996.
NOTE 10 -- STOCK TRANSACTIONS AND EARNINGS PER SHARE
The shares of Class A common and Class B common vote as a single class on
all matters. Each share of Class A common is entitled to one vote, and each
share of Class B common is entitled to twenty votes. Owners of Class A common
are entitled to receive such cash dividends as may be declared by the Board of
Directors out of funds legally available for that purpose. No cash dividend may
be declared and paid on shares of Class B common unless, simultaneously
therewith, there is declared and paid a cash dividend on each share of Class A
common stock of at least 110% of the cash dividend payable on each Class B
common share.
Each share of Class B common stock is convertible into one share of Class A
common stock at such times as there are authorized shares of Class A common
stock available for issuance. Class A shares are not convertible
F-27
<PAGE> 97
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
into Class B common stock. During 1997, 5,000 additional shares of Class A
common stock were authorized. Subsequently, 361 Class B shares were converted to
Class A shares.
Earnings per share computations are based on the weighted average number of
shares outstanding during the year. The weighted average number of shares
outstanding was 45,579 Class A and 37,421 Class B for 1997 and 45,411 Class A
and 37,589 Class B for 1996 and 1995.
The equation for computing earnings per common share is as follows:
Net Income = [Class A (1.10 X EPS)] + [Class B (EPS)]
<TABLE>
<S> <C> <C>
Assumptions:
Earnings per common share -- Class B = EPS
Earnings per common share -- Class A = 1.10 X EPS
Weighted average number of shares -- Class B = Class B
Weighted average number of shares -- Class A = Class A
</TABLE>
NOTE 11 -- RETIREMENT PLAN
The Bank provides a profit-sharing plan (the Plan) which covers
substantially all employees. Eligible employees may contribute up to 15% of
their compensation subject to a maximum statutory limitation.
The Bank provides a matching contribution on behalf of participants who
make elective compensation deferrals, at the rate of 50% of the elective
deferral not to exceed 6% of the participant's compensation.
In addition, the Bank may make an additional discretionary contribution
allocated to all eligible participants on the basis of compensation. Employee
contributions are always 100% vested. Employer matching and discretionary
contributions become 100% vested after the participant completes three years of
service. Contributions by the Bank were $460,000, $383,000, and $372,000 for the
years ended December 31, 1997, 1996 and 1995.
NOTE 12 -- RELATED PARTIES
Certain officers, directors and principal shareholders of the Bank,
including their immediate families and companies with which they are affiliated,
have borrowed funds from the Bank. A summary of activity on these borrower
relationships is as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Beginning Balance........................................... $5,420 $6,835
New loans and advances...................................... 3,787 2,133
Repayments.................................................. (2,395) (3,548)
------ ------
Ending Balance.............................................. $6,812 $5,420
====== ======
</TABLE>
In addition, certain directors and their related companies provide
professional services and lease office space to the Bank. Payments for these
services totaled $347,000, $329,000, and $294,000, in 1997, 1996 and 1995.
F-28
<PAGE> 98
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 13 -- INCOME TAXES
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current expense............................................. $2,837 $2,407 $2,604
Deferred (benefit)/expense.................................. (188) (64) (282)
------ ------ ------
Total provision for income taxes....................... $2,649 $2,343 $2,322
====== ====== ======
</TABLE>
The sources of gross deferred tax assets and gross deferred tax liabilities
for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS:........................................ $1,237 $1,028
Allowance for loan losses in excess of tax reserve........ 153 47
Core deposit amortization................................. 83 68
Nonaccrual loan interest income........................... -- 1
Deferred loan fees and costs.............................. 9 38
------ ------
Other..................................................... 1,482 1,182
DEFERRED TAX LIABILITIES:
Unrealized gain on securities available for sale.......... (504) (237)
Depreciation.............................................. (217) (196)
Deferred loan fees and costs.............................. (56) --
Federal Home Loan Bank stock dividends.................... (186) (119)
Section 475 mark to market adjustment..................... -- (169)
Mortgage servicing rights................................. ( 247) (110)
------ ------
(1,210) (831)
------ ------
Net deferred tax asset.................................... $ 272 $ 351
====== ======
</TABLE>
The difference between the financial statement tax provision and amounts
computed by applying the statutory federal income tax rate of 34% to income
before taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income taxes computed at the statutory federal income tax
rate...................................................... $2,948 $2,642 $2,593
Tax exempt income........................................... (417) (382) (352)
Non-deductible expenses, net................................ 102 101 86
Other....................................................... 16 (18) (5)
------ ------ ------
Total provision for income taxes....................... $2,649 $2,343 $2,322
====== ====== ======
</TABLE>
NOTE 14 -- COMMITMENTS, OFF BALANCE SHEET RISK, AND CONTINGENCIES
There are various contingent liabilities that are not reflected in the
financial statements, including claims and legal actions arising in the ordinary
course of business. In the opinion of management, after consultation with
F-29
<PAGE> 99
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
legal counsel, the ultimate disposition of these matters is not expected to have
a material effect on financial condition or results of operations.
Some financial instruments are used in the normal course of business to
meet the financing needs of customers. These financial instruments include
commitments to extend credit, standby letters of credit and financial
guarantees. These involve, to varying degrees, credit and interest-rate risk in
excess of the amount reported in the financial statements.
Exposure to credit loss if the other party does not perform is represented
by the contractual amount for commitments to extend credit, standby letters of
credit, and financial guarantees written. The same credit policies are used for
commitments and conditional obligations as are used for loans. The amount of
collateral, if deemed necessary, upon extension of credit is based on
management's credit evaluation. Collateral varies but may include accounts
receivable, inventory, property, equipment, income-producing commercial
properties, residential real estate and consumer assets.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the commitment.
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 used, the total commitments does not necessarily represent
future cash requirements. Standby letters of credit and financial guarantees
written are conditional commitments to guarantee a customer's performance to a
third party.
As of December 31, 1997 and 1996, commitments to extend credit amounted to
approximately $122,328,000 and $93,526,000. Of this amount, $111,513,000 and
$88,301,000 represent unused amounts on commercial lines of credit, home equity
lines of credit and credit cards as of December 31, 1997 and 1996. Fixed-rate
commitments represented $21,474,000 and $22,767,000 of the respective commitment
totals. The range of interest rates for the fixed-rate commitments was 5.25% to
18.5% at December 31, 1997 and 6.25% to 21% at December 31, 1996. Commitments
under outstanding standby letters of credit amounted to $10,815,000 and
$5,225,000 for the same period.
At year-end 1997 and 1996, regulatory required cash reserves totaled
$500,000 and $6,101,000, respectively. These reserves do not earn interest.
NOTE 15 -- REGULATORY MATTERS
The Bank is subject to regulatory capital requirements administered by
federal banking agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative
judgments by regulators about components, risk weightings, and other factors,
and the regulators can lower classifications in certain cases. Failure to meet
various capital requirements can initiate regulatory action that could have a
direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
F-30
<PAGE> 100
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
The minimum requirements are:
<TABLE>
<CAPTION>
CAPITAL TO RISK-
WEIGHTED ASSETS
----------------- TIER 1 CAPITAL
TOTAL TIER 1 TO AVERAGE ASSETS
------ ------- -----------------
<S> <C> <C> <C>
Well capitalized.......................................... 10% 6% 5%
Adequately capitalized.................................... 8% 4% 4%
Undercapitalized.......................................... 6% 3% 3%
</TABLE>
At year-end, actual capital levels and minimum required levels were:
<TABLE>
<CAPTION>
ADEQUATELY WELL
CAPITALIZED CAPITALIZED
ACTUAL REQUIREMENT REQUIREMENT
---------------- ---------------- ----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1997
Total capital (to risk weighted assets)..... $50,066 11.8% $33,853 8.0% $42,316 10.0%
Tier 1 capital (to risk weighted assets).... 45,591 10.8% 16,926 4.0% 25,390 6.0%
Tier 1 capital (to average assets).......... 45,591 8.1% 22,419 4.0% 28,024 5.0%
1996
Total capital (to risk weighted assets)..... $44,286 11.8% $30,138 8.0% $37,672 10.0%
Tier 1 capital (to risk weighted assets).... 40,186 10.7% 15,069 4.0% 22,603 6.0%
Tier 1 capital (to average assets).......... 40,186 7.9% 20,240 4.0% 25,300 5.0%
</TABLE>
The Bank at year-end 1997 and 1996 was categorized as well capitalized.
Management is not aware of any matters subsequent to December 31, 1997 that
would cause the Bank's capital category to change.
Under current banking regulations, the Bank is limited in the amount of
undivided profits available to be paid to shareholders. These restrictions
generally limit dividends to the current and prior two years earnings without
prior approval of the Ohio Division of Financial Institutions In addition to
these restrictions, as a practical matter, dividend payments cannot reduce
regulatory capital levels below minimum established guidelines. These
restrictions would not currently limit the Bank from paying normal dividends.
The amount of the Bank's retained earnings available for dividends without
approval from the Ohio Division of Financial Institutions was $13,653,000 at
December 31, 1997.
NOTE 16 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value approximates carrying value for all financial
instruments except those described as follows:
Securities: For securities available for sale and held to maturity, fair
value equals quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
instruments.
Loans: Loans are grouped in homogeneous categories, such as commercial
loans, residential mortgages, credit card receivables, and other consumer loans.
The fair value of loans is estimated by discounting future cash flows using the
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities and categories.
F-31
<PAGE> 101
THE OHIO BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
Deposits: The fair value of deposit liabilities with defined maturities is
estimated by discounting future cash flows using the rates currently offered for
deposits of similar remaining maturities.
Other Borrowings: The fair value of fixed-maturity FHLB advances is
estimated by discounting future cash flows using the rates currently offered for
borrowings of similar remaining maturities.
Commitments to Extend Credit, Standby Letters of Credit and Financial
Guarantees Written: The fair values of these items are not material and are
therefore not included on the following schedule.
The estimated year-end fair values of financial instruments were as
follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents....................... $ 15,893 $ 15,893 $ 20,569 $ 20,569
Federal funds sold.............................. 3,200 3,200 600 600
Securities available for sale................... 142,932 142,932 134,825 134,825
Loans, net...................................... 400,161 406,441 367,030 370,652
Mortgage servicing rights....................... 728 728 323 323
Accrued interest receivable..................... 4,400 4,400 3,880 3,880
FINANCIAL LIABILITIES
Deposits........................................ (522,316) (536,089) (486,473) (502,195)
Other borrowings................................ (2,326) (2,330) (3,927) (3,913)
Accrued interest payable........................ (2,501) (2,501) (2,080) (2,080)
</TABLE>
While these estimates of fair value are based on management's judgment of
the most appropriate factors, no assurance can be given that, were the Bank to
have disposed of such items at year-end 1997 or 1996, the estimated fair values
would necessarily have been achieved since market values may differ depending on
various circumstances. The estimated fair values at year-end 1997, and 1996,
should not necessarily be considered to apply at subsequent dates.
Nonfinancial instruments, such as property and equipment, may have value
but are not included in the above disclosures. Also, nonfinancial instruments
typically not recognized in these financial statements nevertheless may have
value, but are not included in the above disclosures. These include, among other
items, the estimated earnings power of core deposit accounts, the value of a
trained work force, customer goodwill and similar items.
F-32
<PAGE> 102
APPENDIX A
AGREEMENT AND PLAN OF MERGER
A-1
<PAGE> 103
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is entered into as of the
22nd day of July, 1998, by and among CITIZENS BANCSHARES, INC. ("Bancshares"), a
corporation organized and existing under the laws of the State of Ohio and
registered as a bank holding company under the Bank Holding Company Act of 1956,
as amended (the "BHCA"), The Ohio Bank ("Bank"), a state banking association
organized and existing under the banking laws of the State of Ohio and an
interim bank to be formed by Bancshares as a state banking association under the
banking laws of the State of Ohio in connection with the transactions
contemplated by this Agreement ("Interim Bank"). NOW THEREFORE, in consideration
of the premises and mutual covenants herein contained, the parties hereto agree
as follows:
PLAN OF AFFILIATION
Pursuant to this Agreement, Bancshares, Bank and Interim Bank have agreed
to a plan of affiliation intended to result in a tax-free plan of reorganization
pursuant to Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). Upon consummation of the transactions contemplated by this Agreement at
the Effective Time (as hereinafter defined), Interim Bank will be merged with
and into the Bank (the "Merger"), pursuant to the terms and conditions set forth
herein and in the Agreement of Merger substantially in the form attached as
Exhibit A hereto (the "Merger" and the "Agreement of Merger", respectively).
Upon consummation of the Merger, the separate existence of Interim Bank shall
cease and Bank shall continue as the Resulting Bank (as hereinafter described).
In addition, assuming the consummation of the merger of equals transaction
between Mid Am, Inc. and Bancshares previously disclosed to Bank (the "Mid Am
Transaction") and as soon as reasonably practicable after receipt of all
required regulatory approvals (i) certain banking affiliates of Bancshares,
specifically American Community Bank, N.A. and Amerifirst Bank, N.A., will be
merged with and into Bank and (ii) two (2) banking affiliates of Bancshares,
specifically, First National Bank of Northwest Ohio and Mid American National
Bank will be merged with one another, with Mid American National Bank as the
resulting bank.
ARTICLE I
THE MERGER; STATUS AND CONVERSION OF SECURITIES;
EXCHANGE OF CERTIFICATES
Section 1.1. EFFECTIVE TIME. As soon as practicable after each of the
conditions set forth in Article VIII of this Agreement and in the Agreement of
Merger have been satisfied or waived, Bancshares will file or cause to be filed
(i) a certificate of merger with the Secretary of State of the State of Ohio and
(ii) a certificate of merger with the Superintendent of the Division of
Financial Institutions (the "Division"), which shall in each case be in the form
required by and executed in accordance with applicable laws and regulations. The
Merger shall become effective at the time the certificate of merger, together
with a certificate of approval from the Division, shall be filed with the
Secretary of the State of Ohio (the "Effective Time").
Section 1.2. CONVERSION OF BANK COMMON SHARES INTO BANCSHARES COMMON
SHARES.
(a) At the Effective Time, each issued and outstanding share of Bank
common stock, consisting of Class A common shares par value $50 per share
and Class B common shares, par value $50 per share (collectively, "Bank
Common Shares"), other than treasury shares and Bank Common Shares as to
which dissenters' rights have been exercised (collectively, "Excluded
Stock"), thereupon and without further action shall be converted into 63.25
Bancshares common shares, without par value ("Bancshares Common Shares").
The foregoing conversion of Bank Common Shares into Bancshares Common
Shares shall hereinafter be referred to as the "Share Exchange".
(b) No certificates or scrip representing fractional Bancshares Common
Shares shall be issued upon the surrender for exchange of Bank
certificates, and such fractional share interests will not entitle the
owner thereof to vote or to any rights of a shareholder of Bancshares.
Notwithstanding any other provision of this
A-2
<PAGE> 104
Agreement, each holder of Bank Common Shares converted into Bancshares
Common Shares in the Merger who would otherwise be entitled to receive a
fraction of a Bancshares Common Share (after taking into account all Bank
certificates delivered for exchange by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to such fractional part
of a Bancshares Common Share multiplied by the last reported sale price per
share of Bancshares Common Shares on the trading day most recently
preceding the Effective Time as reported on the Nasdaq National Market
System (the "Nasdaq") (as published in The Wall Street Journal or, if not
therein, in another authoritative source). Such purchases of fractional
interests are merely intended as a mechanism for "rounding off" fractional
shares and do not constitute separately bargained for consideration in
connection with the transactions contemplated by this Agreement.
(c) If after the date hereof and prior to the Effective Time,
Bancshares or Bank shall declare a stock dividend or make distributions
upon or subdivide, split-up, reclassify, or combine its common stock or
preferred stock or declare a dividend or make a distribution on its common
stock or preferred stock in any security convertible into or exchangeable
for its common stock or preferred stock, then the Exchange Ratio shall be
appropriately adjusted. Nothing contained in this Section 1.2(c) shall be
deemed to permit any action which is otherwise prohibited by this
Agreement.
Section 1.3. EXCHANGE OF CERTIFICATES. After the Effective Time, each
holder of an outstanding certificate or certificates for Bank Common Shares
converted to Bancshares Common Shares shall be entitled to receive a certificate
or certificates representing the number of whole Bancshares Common Shares into
which such holder's Bank Common Shares shall have been converted and, if
applicable, a cash payment in lieu of any fractional share determined in
accordance with this Agreement. In order to effect such surrender and exchange,
each such holder of Bank Common Shares shall surrender the outstanding
certificate(s) therefor to Bancshares' designated exchange agent (the "Exchange
Agent"). In connection with the proxy solicitation of Bank shareholders,
Bancshares shall mail, or cause to be mailed, to each holder of record of Bank
Common Shares (i) instructions for effecting the surrender of their Bank
certificates in exchange for certificates representing Bancshares common shares
and (ii) a letter of transmittal which may be used to surrender Bank
certificates to the Exchange Agent. Upon surrender of a Bank certificate(s) for
cancellation to the Exchange Agent, together with a properly completed and duly
executed letter of transmittal and such other documents as may reasonably be
requested, the holder of such Bank certificate shall be entitled to receive, and
the Exchange Agent shall promptly deliver as soon as reasonably practicable
after the consummation of the Merger, in exchange therefor a certificate
representing that number of whole Bancshares Common Shares which such holder has
the right to receive in respect of the Bank certificate(s) surrendered pursuant
hereto (after taking into account all Bank Common Shares then held by such
holder), and the Bank certificate(s) so surrendered shall forthwith be canceled.
In the event of a lost certificate, the Bank shareholder shall provide, in lieu
of the lost certificate, (i) a request for a replacement certificate(s); (ii) an
indemnity agreement and (iii) an affidavit requested by Bank in accordance with
Article VI, Section 3 of the Bank's Code of Regulations. Pending such surrender
and exchange, such holder's certificate(s) for Bank Common Shares shall be
deemed, for all corporate purposes (other than as set forth in Section 1.4 of
this Agreement), to evidence the number of whole Bancshares Common Shares into
which such Bank Common Shares shall have been converted pursuant to the Merger.
The Exchange Agent shall, upon receipt of the duly endorsed Bank certificate or
certificate with a duly endorsed separate assignment, issue the Bancshares'
Common Shares certificate to the surrendering Bank certificate holder, together
with any cash payment in lieu of fractional shares, as applicable. In the event
of a transfer of ownership of Bank Common Shares that is not registered in the
transfer records of Bank, a certificate representing the proper number of
Bancshares Common Shares may be issued to a transferee if the Bank certificate
representing such Bank Common Shares is presented to the Exchange Agent,
accompanied by all documents required by Bancshares to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been
paid.
Section 1.4. PAYMENT OF DIVIDENDS. Unless and until any such outstanding
certificate(s) for Bank Common Shares shall be so surrendered, no dividend (cash
or stock) payable to holders of record of Bancshares Common Shares as of any
date subsequent to the Effective Time shall be paid to the holder of such
outstanding certificate(s). Upon the surrender of the Bank Common Share
certificate(s), Bancshares shall pay to the record
A-3
<PAGE> 105
holder of Bancshares Common Shares issued in exchange therefor, the amount of
dividends, if any, but without interest, that have theretofore become payable to
such record holder.
Section 1.5. EFFECTS OF THE MERGER. At the Effective Time:
(a) The Interim Bank shall be merged with and into Bank and the
separate existence of the Interim Bank shall cease and Bank shall be the
"Resulting Bank";
(b) the Articles of Incorporation of Interim Bank, as in effect
immediately prior to the Effective Time shall be the Articles of
Incorporation of the Resulting Bank; and
(c) the Code of Regulations of Interim Bank, as in effect immediately
prior to the Effective Time shall be the Code of Regulations of the
Resulting Bank.
ARTICLE II
REPRESENTATIONS AND WARRANTIES BY BANCSHARES
Bancshares hereby represents and warrants to Bank that, with respect to
Bancshares and its banking subsidiaries, as such banking subsidiaries exist as
of the date hereof and as of the Closing Date (collectively, the "Bank
Subsidiaries"), as applicable, except to the extent set forth in the Disclosure
Schedules delivered to Bank at the signing of this Agreement, which are attached
hereto and made a part hereof, the following are true and correct on the date of
this Agreement and shall be true and correct on the Closing Date (as hereinafter
defined):
Section 2.1. DUE ORGANIZATION AND GOOD STANDING. Bancshares is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Ohio and is registered as a bank holding company under the
BHCA and has full corporate authority and power to carry on its business as it
is now being conducted. Citizens is a corporation duly organized, validly
existing, and in good standing as a state banking association under the banking
laws of the State of Ohio and is duly authorized to conduct the banking business
in which it is engaged. Century is a corporation duly organized, validly
existing and in good standing as a national banking association under the
banking laws of the United States and is duly authorized to conduct the banking
business in which it is engaged.
Section 2.2. AUTHORITY FOR TRANSACTION. The execution and performance of
this Agreement by Bancshares and its delivery to Bank have been duly authorized
by all requisite corporate action, other than approval by Bancshares'
shareholders (if such approval becomes necessary). This Agreement is valid and
binding upon Bancshares and enforceable against it in accordance with its terms.
The execution and performance of this Agreement by Interim Bank shall have been
duly authorized by all requisite corporate action and this Agreement, upon its
execution by Interim Bank, shall be valid and binding upon Interim Bank and
enforceable against it in accordance with its terms.
Section 2.3. BANCSHARES COMMON SHARES TO BE ISSUED. The Bancshares Common
Shares to be issued to Bank shareholders pursuant to this Agreement, have been
duly authorized and, when issued, will be validly issued by Bancshares and will
be fully paid and nonassessable.
Section 2.4. BANCSHARES COMMON SHARES OUTSTANDING.
(a) STOCK. The authorized capital stock of Bancshares consists of (i)
36,000,000 Bancshares Common Shares, without par value, of which, as of the date
of this Agreement 17,748,688 shares are issued and outstanding and 9,571 shares
are held in the treasury and (ii) 200,000 serial preferred shares, par value
$10.00 per share, none of which are issued and outstanding and none of which are
held in the treasury. Each outstanding Bancshares Common Share is duly
authorized, validly issued, fully paid and nonassessable. In connection with the
Mid Am Transaction, (i) Bancshares will be increasing the number of its
authorized shares of capital stock to 160,000,000 shares, consisting of
150,000,000 common shares and 10,000,000 preferred shares and (ii) Bancshares
will be issuing up to 17,987,138 Bancshares common shares to the shareholders of
Mid Am, Inc.
A-4
<PAGE> 106
(b) OPTIONS AND OTHER SECURITIES. Except as set forth in Schedule
2.4(b) hereto, no options, warrants or other rights to purchase, agreements
or other obligations to issue, or other rights to convert any obligation
into any shares of Bancshares Common Shares have been authorized, granted
or entered into by Bancshares. Other than as set forth in Section 2.4(a),
there are no Bancshares debt or equity securities authorized or
outstanding.
Section 2.5. BOOKS AND RECORDS. The books of account, minute books, stock
record books, and other records of Bancshares, all of which have been made
available to Bank, are complete and correct in all material respects and have
been maintained in accordance with sound business practices and the requirements
of Section 13(b)(2) of the Securities Exchange Act of 1934, as amended,
including the maintenance of an adequate system of internal controls. The minute
books of Bancshares contain accurate and complete records of all meetings held
of, and corporate action taken by, the shareholders, the Board of Directors, and
committees of the Board of Directors of Bancshares, and no meeting of any such
shareholders, Board of Directors, or committee has been held for which minutes
have not been prepared and are not contained in such minute books, except for
minutes of the Bancshares Board of Directors meeting held on July 21, 1998 to
approve this Agreement, which minutes have not yet been prepared.
Section 2.6. FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. Bancshares
has furnished or will furnish to Bank (a) consolidated balance sheets of
Bancshares and its subsidiaries as of December 31, 1993, 1994, 1995, 1996 and
1997, respectively, and consolidated statements of income, consolidated
statements of cash flows and consolidated statements of changes in shareholders'
equity for the years ended December 31, 1993, 1994, 1995, 1996 and 1997,
respectively, all as certified by Crowe, Chizek and Company LLP, Bancshares'
independent auditors, and (b) unaudited consolidated balance sheets and income
statements of Bancshares and its subsidiaries for the periods ended March 31,
1998 and June 30, 1998. The aforesaid financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis and present fairly the consolidated financial position of Bancshares as of
the dates thereof and for the periods covered thereby, except in the case of the
interim financial statements, normal year-end adjustments and the absence of
notes thereto. Since the date of the 1997 consolidated balance sheet (the
"Bancshares Balance Sheet"), there has not been any material adverse change in
the financial condition, results of operations, assets, or business of
Bancshares and its subsidiaries taken as a whole.
2.7. TITLE TO PROPERTIES; ENCUMBRANCES. A complete and accurate list of
all real property, leaseholds, or other interests therein other than as a
mortgagee or secured party owned by Bancshares and any of the Bank Subsidiaries
has been or will be made available to Bank. Bancshares has made or will make
available to Bank copies of the deeds and other instruments (as recorded) by
which Bancshares and the Bank Subsidiaries acquired such real property and
interests, and copies of all title insurance policies, opinions, abstracts, and
surveys in the possession of Bancshares and the Bank Subsidiaries and relating
to such property or interests. Bancshares and each of the Bank Subsidiaries own
(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 Bancshares, or one
of the Bank Subsidiaries (as the case may be), or reflected as owned in the
books and records of Bancshares, or one of the Bank Subsidiaries, including all
of the properties and assets reflected in the Bancshares Balance Sheet (except
for assets held under capitalized leases disclosed or not required to be
disclosed and personal property sold since the Bancshares 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 Bancshares, and each of the Bank
Subsidiaries since the date of the Bancshares Balance Sheet. Each property and
asset reflected on the Bancshares Balance Sheet having a fair market value of at
least $100,000 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 Bancshares 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
A-5
<PAGE> 107
current taxes not yet due, and (d) with respect to real property, (i) minor
imperfections of title, if any, none of which is substantial in amount,
materially detracts from the value or impairs the use of the property subject
thereto, or impairs the operations of Bancshares or the Bank Subsidiaries, (ii)
rights of way, easements, building use restrictions, exceptions, variances,
reservations and limitations that are a matter of public record; and (iii)
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
Bancshares and each of the Bank Subsidiaries lie wholly within the boundaries of
the real property owned by Bancshares, or one of the Bank Subsidiaries (as the
case may be), and do not encroach upon the property of, or otherwise conflict
with the property rights of, any other third party.
Section 2.8. LOANS AND INVESTMENTS. All loans and leases made or purchased
by Bancshares and the Bank Subsidiaries that are reflected on the Bancshares
Balance Sheet or on the accounting records of Bancshares, or any of the Bank
Subsidiaries as of the Closing Date (collectively, the "Loans") represent or
will represent valid obligations arising from loans actually made or purchased
by Bancshares and the Bank Subsidiaries in the ordinary course of business and,
to Bancshares' Knowledge, no loan with a principal balance in excess of $50,000
is subject to any defense or counterclaim. Unless paid prior to the Closing
Date, the Loans, on an aggregate basis, are and will be collectible net of the
aggregate reserves shown on the Bancshares Balance Sheet as of its date and on
such accounting records as of the Closing Date, as applicable (which reserves
are and will be 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 is, or together with other such Loans, is, in the
aggregate, material to the business or financial condition of Bancshares. Except
as set forth in Schedule 2.8, there are no loans of Bancshares, or any of the
Bank Subsidiaries, the present principal balance of which is in excess of
$50,000, 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, 1997. Except for pledges to secure public and trust
deposits, none of the investments reflected in the Bancshares Balance Sheet
under the heading "Investment Securities," and none of the investments made by
Bancshares and the Bank Subsidiaries since December 31, 1997, is subject to any
restriction, whether contractual or statutory, which impairs the ability of
Bancshares, or any of the Bank Subsidiaries (as applicable), freely to dispose
of such investment at any time. Except as set forth on Schedule 2.8, Bancshares
and the Bank Subsidiaries are not parties to any repurchase agreement. Schedule
2.8 contains a list of all securities held by Bancshares and the Bank
Subsidiaries (as applicable), delineating whether they are held in the
"available for sale" category, "held to maturity" category or in a trading
account.
Section 2.9. NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule
2.9, neither Bancshares nor any of the Bank Subsidiaries has any material
liability or obligation 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 date
thereof.
Section 2.10. ABSENCE OF CONFLICTS. To the best of Bancshares' Knowledge,
neither the execution, performance or delivery of this Agreement by Bancshares
nor the consummation of the transactions contemplated hereby will result in a
violation or breach of, or permit any third party to modify or rescind any term
or provision of, or constitute a default under, any indenture, mortgage, deed of
trust, promissory note or other contract, license or agreement to which
Bancshares, or any of the Bank Subsidiaries is a party or to which any of its
respective properties is subject or will result in a breach of Bancshares'
Articles of Incorporation or Regulations, which violation, breach, modification,
rescission or default would reasonably be expected to have a material adverse
effect on Bancshares and its subsidiaries taken as a whole. Except for the Board
of Governors of the Federal Reserve System, and, if applicable, the FDIC, the
Securities and Exchange Commission, the Ohio Secretary of State, the necessary
state Blue Sky approvals (collectively the "Approvals"), the consent of Mid Am,
Inc. (which has been obtained and delivered to Bank) and, if required, the
approval of this Agreement, the Agreement of Merger and the Merger by
Bancshares' shareholders, Bancshares is not and will not be required to make any
filings with, give any notice or obtain any consent from any third party in
connection with the execution and delivery of this Agreement or the consummation
of the Merger.
A-6
<PAGE> 108
Section 2.11 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth
on Schedule 2.11, since the date of the Bancshares Balance Sheet, Bancshares
(including its Bank Subsidiaries), 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; grant of
any stock option or right to purchase shares of capital stock of
Bancshares; issuance of any security convertible into such capital stock;
grant of any registration rights; purchase, redemption, retirement, or
other acquisition by Bancshares 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 such capital stock;
(b) amendment to Bancshares' Articles of Incorporation or
Regulations;
(c) payment or increase by Bancshares, or by any of its Bank
Subsidiaries of any bonuses, salaries, or other compensation to any
shareholder, director, or (except in the ordinary course of business)
officer or 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 Bancshares or any of the Bank Subsidiaries;
(e) damage to or destruction or loss of any asset or property of
Bancshares or any of the Bank Subsidiaries, whether or not covered by
insurance involving a loss in excess of $25,000;
(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 Bancshares or any of the
Bank Subsidiaries of at least $100,000;
(g) sale, lease, or other disposition of any material asset or
property of Bancshares, or any of the Bank Subsidiaries or mortgage,
pledge, or imposition of any lien or other encumbrance on any material
asset or property of Bancshares, or any of the Bank Subsidiaries, other
than in the ordinary course of business;
(h) cancellation or waiver of any claims or rights with a value to
Bancshares or any of the Bank Subsidiaries in excess of $100,000;
(i) material change in the accounting methods used by Bancshares; or
(j) agreement, whether oral or written, by Bancshares or any of the
Bank Subsidiaries to do any of the foregoing. It is understood and agreed
that nothing in this Section 2.11 or any other section of this Agreement
shall be deemed to restrict the issuance of Bancshares common shares in
connection with any acquisition of any entity between the date hereof and
the Effective Time.
Section 2.12. COMPLIANCE WITH LAWS; LICENSES. Except as set forth in
Schedule 2.12 hereof, Bancshares and the Bank Subsidiaries are not engaged in or
a party to, (as a defendant), nor do they have any reasonable basis to
anticipate, any legal action, investigation, arbitration, or other proceeding
before any court, administrative agency, arbitrator or other forum, which either
individually or in the aggregate would have or could be reasonably expected to
have a material adverse effect on Bancshares and its subsidiaries taken as a
whole. None of Bancshares or any of the Bank Subsidiaries has been charged with
nor to its Knowledge is it under investigation with respect to, and none of
Bancshares or any of the Bank Subsidiaries has any basis to anticipate any
charge or investigation with respect to, any violation of any provision of
federal, state, or other applicable law or administrative regulation (including,
without limitation, the Bank Secrecy Act, the Community Reinvestment Act and
applicable consumer protection and disclosure laws, rules and regulations) which
may materially adversely affect the financial condition, results of operations,
assets, or business of Bancshares or any of the Bank Subsidiaries. There is no
litigation, proceeding, or governmental investigation pending or to Bancshares'
Knowledge, threatened (or which Bancshares, or any of the Bank Subsidiaries has
any reasonable basis to anticipate) which relates to any of the transactions
contemplated by this Agreement. Bancshares and the Bank Subsidiaries have
responded to and satisfied all exceptions, if any, arising out of any federal,
state or other
A-7
<PAGE> 109
regulatory examination. Bancshares and the Bank Subsidiaries possess all
material 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 Bancshares', or any of the
Bank Subsidiaries' banking business without material interference or
interruption.
Section 2.13. BROKERAGE AND FINDER'S FEES. Except for fees payable to its
financial advisor, Sandler O'Neill & Partners, L.P. ("Sandler O'Neill"),
Bancshares has not employed any broker, finder, or agent, or agreed to pay or
incurred any brokerage fee, finder's fee, commission or other similar form of
compensation in connection with this Agreement or the transactions contemplated
hereby.
Section 2.14. ACCOUNTING MATTERS. Neither Bancshares nor, to its best
Knowledge, any of its affiliates, has through the date of this Agreement taken
or agreed to take any action that would prevent Bancshares from accounting for
the business combination contemplated by this Agreement as a "pooling of
interests".
Section 2.15. COMPLIANCE WITH SECURITIES LAWS. To the best of 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 transactions contemplated by this Agreement. All information provided in
such filings is accurate and complete, in all material respects, to the extent
required by such laws and regulations.
Section 2.16. OWNERSHIP OF BANK COMMON SHARES. Except for Bancshares'
right to acquire shares of Bank common stock pursuant to that certain Stock
Option Agreement to be entered into on July 23, 1998, neither Bancshares, nor
any of its affiliates or associates beneficially owns, directly or indirectly,
more than 4.9% of the outstanding Bank Common Shares.
Section 2.17. INSURANCE OF DEPOSITS. The deposits of the Bank Subsidiaries
are insured by the Federal Deposit Insurance Corporation in accordance with the
Federal Deposit Insurance Act ("FDIA"). The Bank Subsidiaries have paid all
assessments and filed all reports required under the FDIA and are in compliance
with all regulatory requirements imposed in connection with the insurance of
their deposits.
Section 2.18. AUTHORIZATION FOR THIS AGREEMENT. Other than as contemplated
in Articles VI and VII hereof, no authorization, approval or consent of any
governmental department, bureau or agency, or other public board or authority is
required for the consummation by Bancshares of the transactions contemplated by
this Agreement.
Section 2.19. BOARD APPROVAL; SUBMISSION TO SHAREHOLDERS. The Board of
Directors of Bancshares has unanimously approved this Agreement, and, if
necessary, will direct that this Agreement be submitted to a vote of Bancshares
shareholders at a special meeting of the shareholders to be called for that
purpose, all in accordance with and as required by law and in accordance with
the Articles of Incorporation and Regulations of Bancshares.
Section 2.20. MATERIAL MISSTATEMENTS OR OMISSIONS. No representation or
warranty by Bancshares in this Agreement or any document, statement,
certificate, schedule or exhibit furnished or to be furnished to Bank by or on
behalf of Bancshares or the Bank Subsidiaries pursuant hereto contains, or will
when furnished contain, any untrue statement of material fact, or omits or will
then omit to state, a material fact necessary to make the statement(s) of facts
contained therein (in light of the circumstances under which they were made) not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES BY BANK
Bank hereby represents and warrants to Bancshares that, except to the
extent set forth in the Disclosure Schedules delivered to and accepted by
Bancshares pursuant to Section 5.13 of this Agreement (which, upon
A-8
<PAGE> 110
acceptance will be attached hereto and made a part hereof), the following are
true and correct on the date of this Agreement and shall be true and correct on
the Closing Date:
Section 3.1. OUTSTANDING SECURITIES OF BANK.
(a) STOCK. The authorized capital stock of Bank consists solely of
(i) 50,411 Class A common shares, par value $50 per share, of which 45,772
shares are issued and outstanding and none are held in the treasury as of
the date of this Agreement and (ii) 37,228 Class B common shares, par value
$50 per share, of which 37,228 shares are issued and outstanding and none
are held in the treasury as of the date of this Agreement. Each outstanding
Bank Common Share is duly authorized, validly issued, fully paid, and
nonassessable.
(b) OPTIONS AND OTHER SECURITIES. Except as set forth on Schedule
3.1(b) hereto, no options, warrants or other rights to purchase, agreements
or other obligations to issue, or other rights to convert any obligation
into any shares of Bank Common Shares have been authorized, granted or
entered into by Bank. Other than as set forth in Section 3.1(a), there are
no Bank debt or equity securities authorized or outstanding. Except as set
forth on Schedule 3.1(b), Bank does not have, nor will it have at any time
from the execution of this Agreement through the time of Closing (as
hereinafter defined), any obligations or commitments related to the Common
Shares that may require Bank to issue or change the number of its issued or
authorized Common Shares.
Section 3.2. DUE ORGANIZATION AND GOOD STANDING. Bank is a corporation
duly organized, validly existing, and in good standing under the banking laws of
the State of Ohio and is duly authorized to conduct the banking business in
which it is engaged. Except as set forth on Schedule 3.2, Bank does not have any
subsidiaries or affiliates (as such term is defined under Rule 405 of the
Securities Act of 1933, as amended).
Section 3.3. AUTHORITY FOR TRANSACTION. The execution of this Agreement
and its delivery to Bancshares have been authorized by all requisite corporate
action, other than approval by Bank shareholders. This Agreement is valid and
binding upon Bank, and enforceable against Bank in accordance with its terms.
Section 3.4. BOOKS AND RECORDS. The books of account, minute books, stock
record books, and other records of Bank, all of which have been or will be made
available to Bancshares, are complete and correct in all material respects and
have been maintained in accordance with sound business practices and , in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the issuer, including the maintenance of an
adequate system of internal controls that is sufficient to provide reasonable
assurances that transactions are executed in accordance with management's
authorization, that transactions are recorded as necessary, that access to
assets is permitted only in accordance with management's authorization, and that
the recorded accountability for assets is compared at reasonable intervals and
appropriate action is taken with respect to any differences. The minute books of
Bank contain accurate and complete records of all meetings held of, and
corporate action taken by, the shareholders, the Board of Directors, and
committees of the Board of Directors of Bank, and no meeting of any such
shareholders, Board of Directors, or committee has been held for which minutes
have not been prepared and are not contained in such minute books, except for
the minutes of the meeting of Bank's Board of Directors held on July 22, 1998 to
approve this Agreement, which minutes have not yet been prepared.
Section 3.5. ABSENCE OF CONFLICTS. To the best of Bank's Knowledge, except
as set forth on Schedule 3.5 hereto, neither the execution, delivery or
performance of this Agreement by Bank, nor the consummation of the transactions
contemplated hereby will result in a violation or breach of, or permit any third
party to modify or rescind any term or provision of, or constitute a default
under, any indenture, mortgage, deed of trust, promissory note or other
contract, license or other agreement to which Bank is a party or to which any of
its properties is subject or will result in a breach of Bank's Articles of
Incorporation or Code of Regulations, which violation, breach, modification,
rescission or default would reasonably be expected to have a material adverse
effect on Bank. Except for the Approvals and the approval of this Agreement, the
Agreement of Merger and the Merger by the Bank shareholders, Bank is not or will
not be required to give any notice or to obtain any consent from any third party
in connection with the execution and delivery of this Agreement, the Agreement
of Merger or the consummation of the Merger.
A-9
<PAGE> 111
Section 3.6. FINANCIAL STATEMENTS. Bank has delivered or will deliver to
Bancshares (a) financial statements for each of the fiscal years ended December
31, 1993, 1994, 1995, 1996 and 1997, respectively, consisting of balance sheets
and the related statements of income and retained earnings and cash flows for
the fiscal years ended on such date, all as certified by Crowe, Chizek, L.L.P.,
Bank's independent auditors, and (b) unaudited consolidated financial statements
for the interim periods ended March 31, 1998 and June 30, 1998 consisting of
balance sheets and the related statements of income. The aforesaid financial
statements, as of the dates thereof and for the periods covered thereby, have
been prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods indicated, and fairly present the
financial position of Bank as of the dates thereof and the results of operations
and cash flows for the periods indicated, except in the case of the interim
financial statements, normal year-end adjustments and the absence of notes
thereto. Since the date of the 1997 Balance Sheet (the "Bank Balance Sheet"),
there has not been any material adverse change in the financial condition,
results of operations, assets or business of Bank.
Section 3.7. TITLE TO PROPERTIES; ENCUMBRANCES. Bank has previously
delivered a complete and accurate list, contained in the Information Memorandum
and Supplemental Appendices dated May, 1998 and prepared by Danielson
Associates, Inc. (the "Danielson Information Memorandum"), of all real property,
leaseholds, or other interests therein other than as a mortgagee or secured
party owned by Bank. Bank has made or will make available to Bancshares copies
of the deeds and other instruments (as recorded) by which Bank acquired such
real property and interests, and copies of all title insurance policies,
opinions, abstracts, and surveys in the possession of Bank and relating to such
property or interests. Bank 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 it purports to own, located in the facilities owned
or operated by Bank or reflected as owned in the books and records of Bank,
including all of the properties and assets reflected in the Bank Balance Sheet
(except for assets held under capitalized leases disclosed in the Danielson
Information Memorandum and personal property sold since the Bank 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 Bank since the date of
the Bank Balance Sheet. Each property and asset reflected on the Bank Balance
Sheet having a fair market value of at least $50,000 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 Bank 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 which is
substantial in amount, materially detracts from the value or impairs the use of
the property subject thereto, or impairs the operations of Bank, (ii) rights of
way, easements, building use restrictions, exceptions, variances, reservations
and limitations that are a matter of public record, and (iii) 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 Bank lie wholly within the
boundaries of the real property owned by Bank and do not encroach upon the
property of, or otherwise conflict with the property rights of, any third party.
Section 3.8. CONTRACTS.
(a) Schedule 3.8(a) contains a complete and accurate list, and Bank has
delivered or will deliver to Bancshares true and complete copies, of:
(i) each contract (other than Loans (as defined in Section 3.10)
entered into by Bank in the ordinary course of business) that involves
performance of services by Bank of an amount or value in excess of $25,000;
(ii) each contract (other than Loans (as defined in Section 3.10)
entered into by Bank in the ordinary course of business) that involves
performance of services or delivery of goods or materials to Bank of an
amount or value in excess of $25,000;
A-10
<PAGE> 112
(iii) each contract that was not entered into in the ordinary course
of business and that involves expenditures or receipts of Bank in excess of
$25,000;
(iv) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other 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 contract (however
named) involving a sharing of profits, losses, costs, or liabilities by
Bank with any other person, third party or entity;
(vi) each contract containing covenants that in any way purport to
restrict the business activity of Bank or any affiliate of Bank or limit
the freedom of Bank or any affiliate of Bank to engage in any line of
business or to compete with any person, third party or entity;
(vii) each power of attorney that is currently effective and
outstanding;
(viii) each contract entered into other than in the ordinary course of
business that contains or provides for an express undertaking by Bank to be
responsible for consequential damages;
(ix) each 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 Bank 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.
(b) Except as set forth on 3.8(b), to Bank's Knowledge, no officer,
director, agent, employee, consultant, or contractor of Bank 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 Bank.
(c) Except as set forth on Schedule 3.8(c), each contract identified or
required to be identified on Schedule 3.8(a) is in full force and effect and is
valid and enforceable in accordance with its terms.
(d) Except with respect to Loans (as defined in Section 3.10) and leases in
the ordinary course of business and except as set forth on Schedule 3.8(d):
(i) Bank is, and at all times since December 31, 1993 has been, in
full compliance with all applicable terms and requirements of each contract
under which Bank has or had any obligation or liability or by which Bank or
any of the assets owned or used by Bank are or were bound and the breach of
which would reasonably be expected to have a material adverse effect on
Bank;
(ii) to Bank's Knowledge, each other person, third party or entity
that has or had any obligation or liability under any such contract under
which Bank has or had any rights is, and at all times since December 31,
1993 has been, in full compliance with all applicable terms and
requirements of such contract;
(iii) to Bank's Knowledge, 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 Bank or any
other person, third party or entity 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 such contract; and
(iv) Bank has not given to or received from any other person, third
party or entity, at any time since December 31, 1993, any notice or other
communication (whether oral or written) regarding any actual, alleged,
possible, or potential violation or breach of, or default under, any such
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 Bank,
as
A-11
<PAGE> 113
applicable, under current or completed contracts with any person, third party or
entity and, to the Knowledge of Bank, no such person, third party or entity has
made written demand for such renegotiation.
(f) The contracts relating to the provision of services by Bank 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,
third party or entity, or any consideration having been paid or promised, that
is or would be in violation of any applicable federal, state or local law, rule,
regulation or statute.
Section 3.9. INSURANCE OF DEPOSITS. The deposits of Bank are insured by
the Federal Deposit Insurance Corporation in accordance with the FDIA. Bank has
paid all assessments and filed all reports required under the FDIA and is in
compliance with all regulatory requirements imposed in connection with the
insurance of its deposits.
Section 3.10. LOANS AND INVESTMENTS. All loans and leases made or
purchased by Bank that are reflected on the Bank Balance Sheet or on the
accounting records of Bank as of the Closing Date (collectively, the "Loans")
represent or will represent valid obligations arising from loans actually made
or purchased by Bank that are or will be collectible in the ordinary course of
business (net of the applicable reserve for loan and lease losses described in
this Section 3.10), and, to Bank's Knowledge, except as set forth on Schedule
3.10 hereto, no loan with a principal balance in excess of $25,000 is subject to
any defense or counterclaim. The reserve for possible loan and lease losses
shown on the statement of Bank as of June 30, 1998 is, and the reserves for
possible loan and lease losses on the balance sheets of Bank as of quarter ends
subsequent to the date of this Agreement will be, adequate in all material
respects under the requirements of generally accepted accounting principles to
provide for losses relating to the loan and lease portfolios of Bank, net of
recoveries relating to loans previously charged off, as of the respective dates
of such balance sheets. 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 Bank. Except as set forth in Schedule
3.10, there are no loans of Bank, the present principal balance of which is in
excess of $25,000, that have been classified orally or in writing by internal
loan review personnel as "Other Loans Specifically Mentioned," "Substandard,"
"Doubtful," or "Loss," as of June 30, 1998. Except for pledges to secure public
and trust deposits, none of the investments reflected in the Bank Balance Sheet
under the heading "Investment Securities," and none of the investments made by
Bank since December 31, 1997, is subject to any restriction, whether contractual
or statutory, which impairs the ability of Bank freely to dispose of such
investment at any time. Except as set forth on Schedule 3.10, Bank is not a
party to any repurchase agreement. Schedule 3.10 contains a list of all
securities held by Bank as of June 30, 1998 (to be updated at Closing),
delineating whether they are held in the "available for sale" category, "held to
maturity" category or in a trading account.
Section 3.11. INSURANCE POLICIES. All premiums due on all insurance
policies (copies of which have been or will be delivered to Bancshares), have
been paid, and such policies will continue to remain in force through the
Effective Time. Schedule 3.11 also contains a description of all claims in
excess of $25,000 currently pending under such insurance policies, together with
a list of all other claims in excess of $25,000 which have been filed during the
last three (3) years and a description of the disposition thereof.
Section 3.12. EMPLOYMENT CONTRACTS AND EMPLOYEE BENEFIT PLANS. Schedule
3.12 contains a complete list (as of July 1, 1998) of all employees of Bank,
their respective dates of hire, current monthly cash compensation, the value of
any allocation of benefits each has accrued or received under the Company Plans
(as defined in Section 3.13 hereof) for the plan years most recently ended, and
the amount of any indebtedness to Bank has been or will be delivered to
Bancshares. On or before the Closing Date, Bank shall fully accrue for (in
accordance with generally accepted accounting principles) all amounts payable
under any of the Plans. Bank will also deliver to Bancshares a list of all
employees as of July 1, 1998 who are currently entitled to perquisites
(including, but not limited to, automobiles and club memberships) as well as a
brief description of each such perquisite. Since July 1, 1998, no employment
contract or Plan has been instituted, agreed to, or changed by Bank, nor has
there been any increase in the compensation payable or to become payable by Bank
to any employee, whose total compensation for services rendered currently
exceeds $15,000 annually.
Section 3.13. COMPLIANCE OF EMPLOYEE BENEFIT PLANS WITH ERISA AND INTERNAL
REVENUE CODE.
A-12
<PAGE> 114
(a) As used in this Section 3.13, the following terms have the meanings set
forth below.
"Company Other Benefit Obligation" means an Other Benefit Obligation owed,
adopted, or followed by Bank or an ERISA Affiliate of Bank.
"Company Plan" means all Plans of which Bank or an ERISA Affiliate of Bank
is or was a Plan Sponsor, or to which Bank or an ERISA Affiliate of Bank
otherwise contributes or has contributed, or in which Bank or an ERISA Affiliate
of Bank otherwise participates or has participated. All references to Plans are
to Company Plans unless the context requires otherwise.
"Company VEBA" means a VEBA whose members include employees of Bank or any
ERISA Affiliate of Bank.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and regulations and rules revised pursuant to such Act.
"ERISA Affiliate" means, with respect to Bank, any trade or business
(whether or not incorporated) that is part of the same controlled group, or
under common control with, or part of an affiliated service group that includes,
Bank within the meaning of IRC sec. 414 and or IRC sec. 4001(a)(14).
"Multiemployer Plan" has the meaning given in ERISA sec.sec. 3(37)(A) and
4001(a)(3).
"Other Benefit Obligations" means all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide benefits,
other than salary, as compensation for services rendered, to present or former
officers, directors, employees, or agents, other than obligations, arrangements,
and practices that are Plans. Other Benefit Obligations include consulting
agreements under which the compensation paid does not depend upon the amount of
service rendered, sabbatical policies, severance payment policies, and fringe
benefits within the meaning of IRC sec. 132.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Pension Plan" has the meaning given in ERISA sec. 3(2)(A).
"Plan" has the meaning given in ERISA sec. 3(3).
"Plan Sponsor" has the meaning given in ERISA sec. 3(16)(B).
"Qualified Plan" means any Plan that meets or purports to meet the
requirements of IRC sec. 401(a).
"Title IV Plans" means all Plans that are subject to Title IV of ERISA, 29
U.S.C. sec. 1301 et seq., other than Multiemployer Plans.
"VEBA" means a voluntary employees' beneficiary association under IRC sec.
501(c)(9).
"Welfare Plan" has the meaning given in ERISA sec. 3(1).
(b) (i) Schedule 3.13(b)(i) contains a complete and accurate list of all
Company Plans, Company Other Benefit Obligations, and Company VEBAs existing on
the date of this Agreement, and identifies as such all Company Plans that are
(A) Qualified Plans, (B) Title IV Plans, or (C) Multiemployer Plans.
(ii) Schedule 3.13(b)(ii) contains a complete and accurate list of (A) all
ERISA Affiliates of Bank, (B) all Plans, other than Qualified Plans, of which
any such ERISA Affiliate is or, within the past five years, was a Plan Sponsor,
in which any such ERISA Affiliate participates or, within the past five years,
has participated, or to which any such ERISA Affiliate contributes or, within
the past five years, has contributed, and (C) all Qualified Plans of which any
such ERISA Affiliate is or was a Plan Sponsor, in which any ERISA Affiliate
participates or has participated, or to which any such ERISA Affiliate
contributes or has contributed.
A-13
<PAGE> 115
(iii) Schedule 3.13(b)(iii) sets forth, for each Multiemployer Plan, as of
its last valuation date, the amount of potential withdrawal liability of Bank
and the Bank's ERISA Affiliates, as of said valuation date.
(iv) Schedule 3.13(b)(iv) sets forth a calculation of the liability of Bank
for post-retirement benefits other than pensions, made in accordance with
Financial Accounting Statement 106 of the Financial Accounting Standards Board,
regardless of whether Bank is required by said Statement to disclose such
information.
(v) Schedule 3.13(b)(v) sets forth the annual cost for the immediately
preceding two (2) year period of all obligations owed under any Company Plan or
Company Other Benefit Obligation that is not subject to the disclosure and
reporting requirements of ERISA.
(c) Bank 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 current terms of each Company
Plan, Company Other Benefit Obligation, or Company VEBA and of any related
trust, including (A) all plan descriptions and summary plan descriptions of
Company Plans for which Bank or any ERISA Affiliate of Bank is required to
prepare, file, and distribute, and (B) all summaries and descriptions
furnished to participants and beneficiaries regarding Company Plans,
Company Other Benefit Obligations, and Company VEBAs for which a plan
description or summary plan description is not required;
(ii) all personnel, payroll, and employment manuals and policies in
effect at any time after December 31, 1996;
(iii) all collective bargaining agreements pursuant to which
contributions have been made or obligations incurred (including both
pension and welfare benefits) by Bank and the ERISA Affiliates of Bank, and
all collective bargaining agreements pursuant to which contributions are
being made or obligations are owed by such entities;
(iv) a written description of any Company Plan or Company Other
Benefit Obligation that otherwise is not in writing;
(v) all insurance policies purchased by, or to provide benefits
under, any Company Plan and any Company Other Benefit Obligation;
(vi) all contracts with third party administrators, actuaries,
investment managers, consultants, and other independent contractors to
provide benefits or services under any Company Plan, Company Other Benefit
Obligation, or Company VEBA;
(vii) 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, Company Other Benefit Obligation, or Company VEBA;
(viii) copies of all forms of notifications currently being provided
to employees of their rights under ERISA sec. 601 et seq. and IRC sec.
4980B;
(ix) the Form 5500 filed in each of the six plan years preceding the
date of this Agreement with respect to each Company Plan and Company Other
Benefit Obligation, including all schedules thereto and the opinions of
independent accountants;
(x) copies of all forms of non-individual specific notices that were
given by Bank or any ERISA Affiliate of Bank or any Company Plan to the
IRS, the U.S. Department of Labor, the PBGC, or any participant or
beneficiary, pursuant to statute, regulation or otherwise within the four
years preceding the date of this Agreement, including notices that are
expressly mentioned elsewhere in this Section 3.13;
(xi) copies of all forms of notices that were given by the IRS, the
PBGC, or the U.S. Department of Labor to Bank, any ERISA Affiliate of Bank,
or any Company Plan within the four years preceding the date of this
Agreement;
A-14
<PAGE> 116
(xii) with respect to Qualified Plans and VEBAs, the most recent
determination letter for each Plan of Bank that is a Qualified Plan and
most recent exemption in response to the filing of IRS Form 1024 for each
Company VEBA; and
(xiii) with respect to Title IV Plans, the Form PBGC-1 filed for each
of the three most recent plan years.
(d) Except as set forth in Schedule 3.13(d):
(i) Bank and Bank's ERISA Affiliates has performed all of their
respective obligations under all Company Plans, Company Other Benefit
Obligations, and Company VEBAs. Bank has made appropriate entries in its
financial records and statements for all obligations and liabilities under
such Company Plans, Company VEBAs, and Company Other Benefit Obligations
that have been accrued but are not due.
(ii) To the best knowledge of Bank as of the date of this Agreement,
no statement, either written or oral, has been made by Bank to any Person
with regard to any Company Plan or Company Other Benefit Obligation that
was not in accordance with the Company Plan or Company Other Benefit
Obligation and that could have an adverse economic consequence to Bank.
(iii) Bank, with respect to all Company Plans, Company Other Benefits
Obligations, and Company VEBAs, is, and each Company Plan, Company Other
Benefit Obligation, and Company VEBA is, in substantial compliance with
ERISA, the IRC, and other applicable Laws including the provisions of such
Laws expressly mentioned in this Section 3.13, and with any applicable
collective bargaining agreements.
(A) To the best knowledge of Bank as of the date of this Agreement,
no transactions prohibited by ERISA sec. 406 and no "prohibited
transaction" under IRC sec. 4975(c) have occurred with respect to any
Company Plan.
(B) To the best knowledge of Bank as of the date of this Agreement,
Bank has no liability to, and no ERISA Affiliate of Bank has any
liability to, the IRS with respect to any Plan, including any liability
imposed by Chapter 43 of the IRC.
(C) Bank has no liability to, and no ERISA Affiliate of Bank has
any liability to, the PBGC with respect to any Plan or has any liability
under ERISA sec. 502 or sec. 4071.
(D) All filings required by ERISA and the IRC as to each Company
Plan, Company VEBA, and Company Other Benefit Obligation have been
timely filed as of the date of this Agreement (taking into account any
applicable extensions) and all notices and disclosures to participants
required by either ERISA or the IRC have been timely provided, except
where the failure to file or provide would not have a material adverse
effect on Bank.
(E) All contributions and payments made or accrued with respect to
all Company Plans, Company Other Benefit Obligations, and Company VEBAs
are deductible under IRC sec. 162 or sec. 404. No amount, or any asset
of any Company Plan or Company VEBA, is subject to tax as unrelated
business taxable income.
(iv) Each Company Plan and Company Other Benefit Obligation 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 or Company Other Benefit Obligation except
as expressly required by applicable law.
(v) Since December 31, 1996, there has been no establishment or
amendment of any Company Plan, Company VEBA, or Company Other Benefit
Obligation.
(vi) To the best knowledge of Bank as of the date of this Agreement,
no event has occurred or circumstance exists that could result in a
material increase in premium costs of Company Plans and Company Other
Benefit Obligations that are insured, or a material increase in benefit
costs of such Company Plans and Company Other Benefit Obligations that are
self-insured.
A-15
<PAGE> 117
(vii) Other than claims for benefits submitted by participants or
beneficiaries, no claim against, or legal proceeding involving, any Company
Plan, Company Other Benefit Obligation, or Company VEBA is pending or, to
Bank's Knowledge, is Threatened.
(viii) Each Company Plan that is a Qualified Plan of Bank is
qualified in form and operation under IRC sec. 401(a); each trust for each
such Qualified Plan is exempt from federal income tax under IRC sec.
501(a). Each Company VEBA is exempt from federal income tax and qualifies
under IRC sec. 501(c)(9). No event has occurred or circumstance exists that
can be expected to result in disqualification or loss of tax-exempt status
of any such Qualified Plan or trust or Company VEBA.
(ix) With respect to each Company Plan that is a Qualified Plan,
Bank and each ERISA Affiliate of Bank has met the minimum funding standard,
and has made all contributions required, under ERISA sec. 302 and IRC sec.
412.
(x) Bank has paid all amounts due to the PBGC pursuant to ERISA
sec. 4007.
(xi) Neither Bank nor any ERISA Affiliate of Bank has ceased
operations at any facility or has withdrawn from any Title IV Plan or has
engaged in a transaction in a manner that would subject to any entity or
the [Surviving Corporation/Resulting Bank] to liability under ERISA sec.
4062(e), sec. 4063, or sec. 4065.
(xii) Except with respect to Bank's terminated Title IV Plan, neither
Bank nor any ERISA Affiliate of Bank has filed a notice of intent to
terminate any Plan or has adopted any amendment to terminate a Plan. The
PBGC has not instituted proceedings to terminate any Company Plan. No event
has occurred or circumstance exists that may constitute grounds under ERISA
sec. 4042 for the termination of, or the appointment of a trustee to
administer, any Company Plan.
(xiii) 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 sec. 307 or IRC sec. 401(a)(29).
(xiv) 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 Company Plan.
(xv) The actuarial report for each Company Plan that is a Title IV
Plan of Bank and each ERISA Affiliate of Bank fairly presents the financial
condition and the results of operations of each such Title IV Plan in
accordance with GAAP.
(xvi) Since the last valuation date for each Company Plan that is a
Title IV Plan of Bank and each ERISA Affiliate of Bank, 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 sec. 4001) to decrease, or the
amount by which benefit liabilities exceed assets to increase.
(xvii) No reportable event (as defined in ERISA sec. 4043 and in
regulations issued thereunder) has occurred.
(xviii) Bank has no Knowledge of any facts or circumstances that may
give rise to any liability of Bank, any ERISA Affiliate of Bank or the
Surviving Corporation to the PBGC under Title IV of ERISA.
(xix) Neither Bank nor any ERISA Affiliate of Bank has ever
established, maintained, or contributed to or otherwise participated in, or
had an obligation to maintain, contribute to, or otherwise participate in,
any Multiemployer Plan or, since the termination of Bank's Title IV Plan,
any Title IV Plans.
(xx) Neither Bank nor any ERISA Affiliate of Bank has withdrawn from
any Multiemployer Plan with respect to which there is any outstanding
liability as of the date of this Agreement. No event has occurred or
circumstance exists that presents a risk of the occurrence of any
withdrawal from, or the participation, termination, reorganization, or
insolvency of, any Multiemployer Plan that could result in any liability of
either Bank or the Resulting Bank to a Multiemployer Plan.
(xxi) Neither Bank nor any ERISA Affiliate of Bank has received
notice from any Multiemployer Plan that it is in reorganization or is
insolvent, that increased contributions may be required to avoid a
reduction
A-16
<PAGE> 118
in plan benefits or the imposition of any excise tax, or that such
Multiemployer Plan intends to terminate or has terminated.
(xxii) No Multiemployer Plan to which Bank or any ERISA Affiliate of
Bank contributes or has contributed is a party to any pending merger or
asset or liability transfer or is subject to any proceeding brought by the
PBGC.
(xxiii) Except to the extent required under ERISA sec. 601 et seq. and
IRC sec. 4980B, Bank provides no health or welfare benefits for any retired
or former employee, officer, director, or any other person, or is obligated
to provide health or welfare benefits to any active employee, officer,
director, or any other person, following such employee's retirement or
other termination of service.
(xxiv) Bank has the right to modify and terminate benefits to
retirees under the Company Plans and Company Other Benefit Obligations with
respect to both retired and active employees.
(xxv) Bank has complied with the provision of ERISA sec. 601 et seq.
and IRC sec. 4980B.
(xxvi) No payment is owed or may become due to any director, officer,
employee, or agent of Bank subject to tax under IRC sec. 280G or sec. 4999;
nor will Bank be required to "gross up" or otherwise compensate any such
person because of the imposition of any excise tax on a payment to such
person.
(xxvii) The consummation of the Merger will not result in the payment,
vesting, or acceleration of any benefit under any Company Plan or Company
Other Benefit Obligation.
Section 3.14. NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule
3.14, Bank has no material liability or obligation 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 Bank Balance
Sheet and current liabilities incurred in the ordinary course of business since
the date thereof.
Section 3.15. ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth
on Schedule 3.15, since the date of the Bank Balance Sheet, the Bank has
conducted its business only in the ordinary course of business and there has not
been any:
(a) change in Bank's authorized or issued capital stock; grant of any
stock option or right to purchase shares of capital stock of Bank; issuance
of any security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other acquisition
by Bank 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 Articles of Incorporation or Code of Regulations
of Bank;
(c) any increase in the salary or bonus paid to employees of Bank,
other than increases which, in the aggregate, were consistent with the
increases awarded in prior years and which, individually, were consistent
with management's reasonable evaluation of an individual's performance and
management's determination of the market level of compensation for the
individual's services; provided, however, that (i) the aggregate salary
increases shall not exceed five percent (5%) of the aggregate payroll of
Bank and (ii) aggregate bonuses shall be calculated based upon increases in
core pre-tax net income consistent with past practices of the Bank.
(d) adoption of, or increase in the contributions to any profit
sharing, deferred compensation, savings, insurance, pension, retirement, or
other employee benefit plan for or with any employees of Bank;
(e) damage to or destruction or loss of any asset or property of Bank,
whether or not covered by insurance, involving a loss in excess of $25,000;
(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
(other than Loans entered into by Bank in the ordinary course of business)
involving a total remaining commitment by or to Bank of at least $25,000;
A-17
<PAGE> 119
(g) sale, lease, or other disposition of any asset or property (other
than OREO properties) of Bank or mortgage, pledge, or imposition of any
lien or other encumbrance on any material asset or property of Bank, other
than in the ordinary course of business;
(h) cancellation or waiver of any claims or rights with a value to
Bank in excess of $25,000;
(i) material change in the accounting methods used by Bank; or
(j) agreement, whether oral or written, by Bank to do any of the
foregoing.
Section 3.16. TAXES.
(a) Bank has filed or caused to be filed (on a timely basis since
1993) all tax returns that are or were required to be filed by it (either
separately or as a member of a group of corporations), pursuant to
applicable federal, state and local laws. Bank (either separately or as a
member of a group of corporations) has made or will make available to
Bancshares copies of all such tax returns relating to income or franchise
taxes filed since 1993. Bank 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 Bank, except such
taxes if any, as are listed on Schedule 3.16 and are being contested in
good faith and as to which adequate reserves (determined in accordance with
GAAP) have been provided in the Bank Balance Sheet.
(b) The United States federal and state franchise tax returns of Bank
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. Schedule 3.16 contains a complete and accurate list of all
audits since 1992 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 on Schedule 3.16, are being contested in good
faith by appropriate proceedings. Schedule 3.16 describes all adjustments
to the United States federal income tax returns filed by Bank for all
taxable years since 1993, and the resulting deficiencies proposed by the
IRS in excess of $5,000. Except as described on Schedule 3.16, Bank 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 third party) of any
statute of limitations relating to the payment of taxes of Bank or for
which Bank may be liable.
(c) The charges, accruals, and reserves with respect to taxes on the
books of Bank are adequate (determined in accordance with GAAP) and are at
least equal to Bank's liability for taxes. There exists no proposed tax
assessment against Bank except as disclosed in the Bank's Balance Sheet or
on Schedule 3.16. All taxes that Bank is or was required by applicable
federal, state or local law to withhold or collect have been duly withheld
or collected and, to the extent required, have been paid to the proper
federal, state or local governmental authority.
(d) All tax returns filed by Bank are true, correct, and complete, in
all material respects.
Section 3.17. COMPLIANCE WITH LAWS; LICENSES. Except as set forth on
Schedule 3.17, Bank is not engaged in or a party to (as a defendant), nor does
it have any reasonable basis to anticipate, any legal action, investigation,
arbitration, or other proceeding before any court, administrative agency,
arbitrator or other forum, which individually or in the aggregate would
reasonably be expected to have a material adverse effect on Bank. Bank has not
been charged with nor to its Knowledge is it under investigation with respect
to, and Bank has no basis to anticipate any charge or investigation with respect
to, any violation of any provision of federal, state, or other applicable law or
administrative regulation (including, without limitation, the Bank Secrecy Act,
the Community Reinvestment Act and applicable consumer protection and disclosure
laws, rules and regulations) which may materially adversely affect the financial
condition, results of operations, assets, or business of Bank. There is no
litigation, proceeding, or governmental investigation pending or, to Bank's
Knowledge, threatened (or which Bank has any reasonable basis to anticipate)
which relates to any of the transactions contemplated by this Agreement or the
Agreement of Merger. Bank has responded to and satisfied all exceptions, if any,
arising out of any federal, state or other regulatory examination. Bank
possesses all material licenses, franchises, permits and other governmental
authorizations and all material patents, trademarks, service marks, trade names,
copyrights or
A-18
<PAGE> 120
rights thereto necessary for the continued conduct of Bank's banking business
without material interference or interruption.
Section 3.18. NO BROKERAGE AND FINDER'S FEES. Except for the fees payable
to its financial advisor, Danielson & Associates, Inc. ("Danielson"), Bank has
not employed any broker, finder, or agent, or agreed to pay or incurred any
brokerage fee, finder's fee, commission or other similar form of compensation in
connection with this Agreement or the transactions contemplated hereby.
Section 3.19. AUTHORIZATION FOR THIS AGREEMENT. Other than as contemplated
in Articles VI and VII hereof, no authorization, approval, or consent of any
governmental department, bureau or agency, or other public board or authority is
required for the consummation by Bank of the transactions contemplated by this
Agreement.
Section 3.20. BOARD APPROVAL; SUBMISSION TO SHAREHOLDERS. The Board of
Directors of Bank has unanimously approved this Agreement, and will direct that
this Agreement be submitted to a vote of Bank's shareholders at a special
meeting of shareholders to be called for that purpose, all in accordance with
and as required by law and in accordance with the Articles of Incorporation and
Code of Regulations of Bank.
Section 3.21. CERTAIN TRANSACTIONS. Except as set forth in Schedule 3.21
or described in the Bank's financial statements, Bank has no business
relationships or business transactions (other than indebtedness incurred in the
ordinary course of business on credit and other terms generally available to
Bank customers which indebtedness is not "past due"), with or to any of its
Related Persons, its officers or directors, or any of such officers' or
directors' Related Persons. For the purposes of this Section 3.21, "Related
Person" shall mean, 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, "Related Person" shall mean (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
the definition of "Related Person," (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, (B) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934,
as amended) 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, and (C) "Person" means any individual,
corporation, general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union or other entity
or governmental entity.
Section 3.22. NO VIOLATION OF ENVIRONMENTAL LAWS. The business as
currently being conducted by Bank and all real property in which Bank has an
interest, comply in all material respects with any applicable law or regulation
relating to air, water, or noise pollution or the production, storage,
treatment, labeling, transportation, or disposition of wastes or hazardous or
toxic substances or waste materials.
Section 3.23. ACCOUNTING MATTERS. Neither Bank nor, to its best Knowledge,
any of Bank's affiliates, have through the date of this Agreement taken or
agreed to take any action that would prevent Bancshares from accounting for the
business combination contemplated by this Agreement as a "pooling of interests".
Section 3.24. COMPLIANCE WITH SECURITIES LAWS. To the best of its
Knowledge, Bank 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
transactions contemplated by
A-19
<PAGE> 121
this Agreement. All information provided in such filings is accurate and
complete, in all material respects, to the extent required by such laws and
regulations.
Section 3.25. MATERIAL MISSTATEMENTS OR OMISSIONS. No representation or
warranty by Bank in this Agreement or any document, statement, certificate,
schedule, or exhibit furnished or to be furnished to Bancshares by or on behalf
of Bank pursuant hereto contains, or will when furnished contain, any untrue
statement of a material fact, or omits, or will then omit to state, a material
fact necessary to make the statement(s) of facts contained therein (in light of
the circumstances under which they were made), not misleading.
ARTICLE IV
COVENANTS OF BANCSHARES
Bancshares covenants and agrees with Bank, as follows:
Section 4.1. NO BREACHES OF REPRESENTATIONS AND WARRANTIES. Between the
date of this Agreement and the Effective Time, without the written consent of
Bank, Bancshares will not do any act or suffer any omission of any nature
whatsoever which would cause any of the representations or warranties made in
Article II of this Agreement to become untrue or incorrect in any material
respect.
Section 4.2. INFORMATION REGARDING BANCSHARES. Bancshares shall furnish to
Bank all information concerning Bancshares and its subsidiaries required by
applicable securities or corporation laws to be set forth in the proxy materials
required to be delivered by Bank to its shareholders in connection with this
Agreement and the transactions contemplated hereby.
Section 4.3. CORRECTION OF INFORMATION. Bancshares shall promptly correct
and supplement any information furnished under this Agreement to Bank so that
such information shall be correct and complete in all material respects at all
times, and shall include all facts necessary to make such information correct
and complete in all material respects at all times.
Section 4.4. CONSENTS. Bancshares shall use its best efforts to obtain any
required consents to the transactions contemplated by this Agreement.
Section 4.5. ACCESS TO INFORMATION. Between the date of this Agreement and
the Closing Date, to the extent reasonable under the circumstances, the officers
of Bancshares will confer with the representatives of Bank and will furnish to
Bank either orally or by means of such records, documents, and memoranda as are
reasonably available or capable of preparation (all of which Bank will be
permitted to make copies of) and such information as Bank may reasonably
request. Bancshares will confer with representatives of Danielson, will
cooperate to the fullest extent reasonably possible with Danielson, and will
furnish such records, documents, memoranda and all such other information as
Danielson may reasonably request in order for Danielson to prepare and provide a
fairness opinion.
Section 4.6. ACCOUNTING AND TAX TREATMENT. Bancshares 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 Bank or the shareholders of Bank to characterize the
Merger as a tax-free reorganization under Section 368(a) of the IRC, and
Bancshares agrees 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 a
"pooling-of-interests" for accounting purposes or for the Merger to be
characterized as a tax-free reorganization under Section 368(a) of the IRC.
Section 4.7. NASDAQ LISTING. Bancshares will file a listing application,
or a NASDAQ Notification Form for Change in the Number of Shares Outstanding, as
required by NASDAQ, at the time prescribed by applicable rules and regulations.
In addition, Bancshares will use its best efforts to maintain its listing on the
NASDAQ National Stock Market.
Section 4.8. SHAREHOLDER APPROVAL. If approval by Bancshares shareholders
is required, Bancshares shall take all action necessary in accordance with
applicable law and its Articles of Incorporation and Regulations to duly call
and hold a meeting of its shareholders, to be held as promptly as practicable
after the Registration
A-20
<PAGE> 122
Statement is declared effective by the SEC, to consider and vote on the adoption
and approval of the Merger. The Board of Directors of Bancshares 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 required by the applicable
fiduciary duties of the directors of Bancshares as determined by such Board of
Directors in good faith after consultation with and based upon advice of
independent legal counsel.
Section 4.9. POST-AFFILIATION BANCSHARES BOARD STRUCTURE; DIRECTOR
NOMINEES.
(a) Bancshares shall cause the Nominating Committee of its Board of
Directors to nominate for election to Bancshares' Board of Directors three
(3) members of Bank's Board of Directors (or in the event the Mid Am
Transaction is not consummated, four (4) members of Bank's Board of
Directors) to be recommended by Bank and to be selected by Bancshares
(collectively, the "New Directors"). At the Effective Time, the New
Directors will be elected/designated to fill vacancies and one of them
shall have been designated by Bancshares for membership on the Executive
Committee of the Board of Directors, if any such committee has been or is
formed by the Board of Directors. In addition, a member of the Bank's
management team shall be selected by Bancshares to serve on the Management
Executive Committee to be formed following consummation of the Mid Am
transaction.
(b) At least two (2) of the New Directors shall have been nominated to
serve on Bancshares' Board of Directors for terms of three (3) years.
Section 4.10. BANK BOARD OF DIRECTORS. At the Effective Time of the
Merger, the number of members of the Bank Board of Directors will be reduced and
certain of the current members shall continue to serve as directors of the Bank
and the Bank Board of Directors will be expanded to include members of the Board
of Directors of the Merged Banks, all as mutually agreed by Bancshares and Bank.
Section 4.11. DESIGNATION OF CERTAIN BANK OFFICERS. It is contemplated
that at and after the Effective Time, Jack Donaldson would remain as the
President and Chief Executive Officer of the Bank and that James Burwell will
serve as the Bank's Chief Operating Officer. It is further contemplated that Mr.
Burwell will become the Chief Executive Officer of the Bank upon Mr. Donaldson's
retirement.
Section 4.12. BANK NAME. Following the Closing Date, Bancshares would
anticipate, given the notable recognition associated with the "The Ohio Bank'
name, that it would continue to be featured in all Bank signage and literature.
Section 4.13. OPPORTUNITY OF EMPLOYMENT; EMPLOYEE BENEFITS. Bancshares
shall offer the existing employees of the Bank the opportunity to continue as
employees of Bank, on the Closing Date, for a minimum period of six (6) months;
subject, however, to the right to terminate any such employees for "cause". It
is understood and agreed that nothing in this Section 4.13 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 applicable law
and said employees shall not be deemed to be third-party beneficiaries of this
provision; provided, that employees shall have the right to enforce the first
sentence of Section 4.13 through the six (6) month anniversary of the Effective
Time. From and after the Effective Time, Bank employees shall continue to
participate in the Company Plans in effect on the Effective Time unless and
until Bancshares, in its sole discretion, shall determine that Bank employees
shall, subject to applicable eligibility requirements, participate in employee
benefit plans of Bancshares (including, without limitation, employee benefit
plans established by Bancshares after its merger with Mid Am, Inc.).
ARTICLE V
COVENANTS OF BANK
Bank hereby covenants and agrees with Bancshares as follows:
Section 5.1. NO BREACHES OF REPRESENTATIONS AND WARRANTIES. Between the
date of this Agreement and the Effective Time, without the written consent of
Bancshares, Bank will not do any act or suffer any omission of
A-21
<PAGE> 123
any nature whatsoever which would cause any of the representations or warranties
made in Article III of this Agreement to become untrue or incorrect in any
material respect.
Section 5.2. CARRY ON BUSINESS IN NORMAL MANNER. From the date of this
Agreement to the Closing Date, Bank shall carry on its business in substantially
the same manner as heretofore and, without the written consent of Bancshares,
Bank shall not (a) do any of the things which they represent and warrant herein
have not been done since December 31, 1997 or the date hereof, as the case may
be, except as necessary to carry out this Agreement on the part of Bank; (b)
engage in any transaction which would be inconsistent with any other
representation or warranty of Bank set forth herein or which would cause a
breach of any such representation or warranty if made at or immediately
following such transaction; or (c) engage in any lending activities other than
in the ordinary course of business consistent with past practice. Bank shall
send to Bancshares via facsimile transmission a copy of all loan presentations
made to Bank's Board Loan Committee at the same time as such presentations are
transmitted to said committee, to enable one of Bancshares' senior loan
committee members to review, comment and make reasonable recommendations to the
loan committee with respect to such loan presentations. Bank shall consult with
Bancshares prior to hiring any full-time employees at an annual salary in excess
of $25,000, other than replacement employees for positions then existing. Bank
will use its reasonable best efforts to keep its business organizations intact,
to keep available the services of present employees, and to preserve the
goodwill of customers, suppliers, and others having business relations with
them.
Section 5.3. ACCESS TO INFORMATION. Between the date of this Agreement and
the Closing Date, to the extent reasonable under the circumstances, the officers
of Bank will confer with the representatives of Bancshares and will furnish to
Bancshares either orally or by means of such records, documents, and memoranda
as are reasonably available or capable of preparation (all of which Bancshares
will be permitted to make copies of) such information as Bancshares may
reasonably request. Bank will confer with the representatives of Sandler,
O'Neill, will cooperate to the fullest extent reasonably possible with Sandler
O'Neill and will furnish such records, documents, memoranda and all such other
information as Sandler O'Neill may reasonably request in order for Sandler,
O'Neill to prepare and provide a fairness opinion.
Section 5.4. CONSENTS. Bank shall use its best efforts to obtain any
required consents to the transactions contemplated by this Agreement.
Section 5.5. INSURANCE COVERAGE. Bank shall cause the policies of
insurance listed in the Disclosure Schedule to remain in effect between the date
of this Agreement and the Closing Date.
Section 5.6. COMPLIANCE WITH SECURITIES LAWS. Bank shall cooperate with
Bancshares in doing all things necessary to comply with the state and federal
securities laws applicable to the transactions contemplated by this Agreement.
Section 5.7. SHAREHOLDER APPROVAL. Bank shall take all action necessary in
accordance with applicable law and its Articles of Incorporation and Code of
Regulations 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 Bank 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 Bank as determined by such Board of Directors in good faith after
consultation with and based upon advice of independent legal counsel.
Section 5.8. CORRECTION OF INFORMATION. Bank shall promptly correct and
supplement any information furnished under this Agreement to Bancshares so that
such information shall be correct and complete in all material respects at all
times, and shall include all facts necessary to make such information correct
and complete in all material respects at all times.
Section 5.9. OTHER OFFERS. On and after the date hereof, except with the
written consent of Bancshares, Bank shall not directly or indirectly solicit or
encourage (nor shall Bank permit any of its officers, directors, employees or
agents directly or indirectly to solicit or encourage), including by way of
furnishing information, any inquiries or proposals for a merger, consolidation,
share exchange or similar transaction involving Bank or
A-22
<PAGE> 124
for the acquisition of the shares or all or substantially all of the assets or
business of Bank, or discuss with or enter into conversations with any person,
other than Bank shareholders or employees, concerning any such merger,
consolidation, share exchange, acquisition or other transaction, other than the
share exchange with Bancshares', provided, that to the extent the Board of
Directors of Bank determines in good faith, after consultations with independent
legal counsel that it is required by its fiduciary duties to do so, Bank may
furnish to a third party, upon written request, the Danielson Information
Memorandum. Bank will promptly notify Bancshares orally (to be confirmed in
writing as soon as practicable thereafter) of all of the relevant details
relating to any inquiries or proposals that it may receive relating to any such
matters, including actions it intends to take with respect to such matters.
Section 5.10. DIVIDENDS. On and after the date hereof, Bank 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 its capital stock other than regular semi-annual cash dividends each
in an amount not to exceed the semi-annual cash dividend of 10.34 per Class A
common share and 9.30 per Class B common share declared on July 22, 1998;
provided, however, that in the event the transactions contemplated by this
Agreement are not consummated by the time of the next scheduled semi-annual
dividend in January, 1999, said Bank dividend may be in an amount equal to what
would have been received by Bank shareholders as a dividend from Bancshares with
respect to the period ending December 31, 1998. It is agreed by the parties
hereto that they will cooperate to assure that as a result of the Merger, during
any applicable period, there shall not be a payment of both a Bancshares and
Bank dividend. The parties further agree that if the Closing Date is at the end
of a fiscal six (6) month period, then they will cooperate to assure that the
Bank shareholders receive the dividend, if any, declared by Bank rather than the
dividend for that period, if any, declared by Bancshares.
Section 5.11. ACCOUNTING AND TAX TREATMENT. Bank agrees not to take any
actions subsequent to the date of this Agreement that would adversely affect the
ability of Bank to treat the Merger as a "pooling-of-interests" in accordance
with GAAP or of Bank or the shareholders of Bank to characterize the Merger as a
tax-free reorganization under Section 368(a) of the IRC, and Bank agrees 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 Bank to treat the Merger as a "pooling-of-interests" for accounting
purposes or for the Merger to be characterized as a tax-free reorganization
under Section 368(a) of the IRC.
Section 5.12. LARGE DEPOSITS. Prior to the Closing, Bank will have
provided Bancshares with a list of (i) all certificates of deposit, checking,
savings or other deposits in excess of $100,000; and (ii) all customers with
aggregate deposits in excess of $500,000.
Section 5.13. DELIVERY OF DISCLOSURE SCHEDULES. Bank shall deliver to
Bancshares, within fifteen (15) days of execution of this Agreement, its
Disclosure Schedules pursuant to Article III hereof (the "Bank Schedules").
Thereafter, Bancshares will have fifteen (15) days to review the Bank Schedules
and advise Bank of its acceptance thereof, in whole or in part, all in
accordance with the procedures and standards set forth in Section 9.1(d) of this
Agreement. Upon receipt of notice of acceptance by Bancshares, the Bank
Schedules shall be attached to this Agreement and shall be deemed to be part of
this Agreement as of the date of execution hereof.
ARTICLE VI
JOINT COVENANTS OF BANK AND BANCSHARES
Section 6.1. CONFIDENTIALITY. Except for the use of information in
connection with the Registration Statement described in Section 7.1 hereof and
any other governmental filings required in order to complete the transactions
contemplated by this Agreement, all information (collectively, the
"Information") received by each of Bank and Bancshares (which for purposes
hereof shall include Mid Am, Inc.), pursuant to the terms of this Agreement
shall be kept in strictest confidence; provided that, subsequent to the filing
of the Registration Statement with the Securities and Exchange Commission, this
Section 6.1 shall not apply to information included in the Registration
Statement or to be included in the official proxy/prospectus to be sent to the
shareholders of Bank and, if applicable, Bancshares under Section 7.1
(individually, a "Prospectus/Proxy Statement" and
A-23
<PAGE> 125
collectively, the "Prospectus/Proxy Statements"). Bank and Bancshares agree that
the Information will be used only for the purpose of completing the transactions
contemplated by this Agreement and the Agreement of Merger. Bank and Bancshares
agree to hold the Information in strictest confidence and shall not use, and
shall not disclose directly or indirectly any of such Information except when,
after and to the extent such Information (i) is or becomes generally available
to the public other than through the failure of Bank or Bancshares to fulfill
its obligations hereunder, (ii) was already known to the party receiving the
Information on a nonconfidential basis prior to the disclosure or (iii) is
subsequently disclosed to the party receiving the Information on a
nonconfidential basis by a third party having no obligation of confidentiality
to the party disclosing the Information. It is agreed and understood that the
obligations of Bank and Bancshares contained in this Section 6.1 shall survive
the Closing. In the event the transactions contemplated by this Agreement are
not consummated, Bank and Bancshares agree to return all copies of the
Information provided to the other promptly.
Section 6.2. REGULATORY APPROVALS. As promptly as practicable after the
date hereof, each of Bancshares and Bank shall use its respective best efforts,
separately and jointly with the other party, in good faith to take or cause to
be taken all such steps as shall be necessary or advisable to obtain all
consents and approvals of governmental authorities as are required by law or
otherwise to effect the Merger, including without limitation the Approvals and
shall do any and all acts and things reasonably necessary or advisable in order
to cause the Merger to be completed on the terms provided in this Agreement as
soon as reasonably practicable thereafter. In furtherance of the foregoing
covenant, Bancshares and Bank agree to use their respective best efforts,
separately and jointly and in good faith to make all regulatory filings needed
to obtain the Approvals by October 1,1998. In addition, as promptly as
practicable after the consummation of the Mid Am Transaction, each of Bancshares
and Bank (as applicable), shall use its respective best efforts, separately and
jointly with the other party, in good faith to take or cause to be taken all
such steps as shall be necessary or advisable to obtain all consents and
approvals of governmental authorities as are required by law to effect the
various transactions described in items (i) and (ii) under "Plan of Affiliation"
on pages 1 and 2 of this Agreement.
Section 6.3. ANNOUNCEMENTS. Except as may be required by law or as
otherwise contemplated herein, no party shall make any public announcements or
filing or disclosure to third parties of the transaction contemplated herein or
the other party's involvement therein without the prior written approval of the
other party. The restrictions contained in this Section shall not apply to
disclosures made by either party to its shareholders, employees, suppliers or
customers to the extent appropriate to consummate the transactions contemplated
by this Agreement. Each party shall endeavor to give the other at least one (1)
business day's prior notice of announcements to the public, which notice shall
be accompanied by a copy of the text of the proposed disclosure.
ARTICLE VII
REGISTRATION OF BANCSHARES COMMON SHARES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
Section 7.1. REGISTRATION STATEMENT. Bancshares and Bank acknowledge that
the transactions contemplated hereby are subject to the provisions of the
Securities Act of 1933, as amended (the "Act") and Rule 145 thereunder.
Bancshares agrees to prepare and file, as soon as practicable after the
execution of this Agreement, a registration statement on Form S-4 (the
"Registration Statement") under and pursuant to the provisions of the Act for
the purposes of (i) filing the Prospectus/Proxy Statements to be used by Bank
(and if necessary Bancshares) to obtain the approval of their respective
shareholders of the transactions contemplated by this Agreement and (ii)
registering the Bancshares Common Shares to be issued in connection with the
transactions contemplated hereby. Bank agrees to provide promptly to Bancshares,
information concerning the business and financial condition and affairs of Bank
as may be required or appropriate for inclusion in the Registration Statement
and to cause its counsel and auditors to cooperate with Bancshares' counsel and
auditors in the preparation of such Registration Statement. Bancshares agrees to
use its best efforts to have such Registration Statement declared effective
under the Act as soon as may be practicable and Bancshares (if applicable), and
Bank agree to distribute its respective Prospectus/Proxy Statement contained in
such Registration Statement to its respective shareholders not less than twenty
(20) business days prior to the scheduled meeting of its shareholders that will
be held to consider approval of this Agreement. Except to the extent permitted
by Rule 145(b) under the
A-24
<PAGE> 126
Act, Bancshares and Bank agree not to publish any communication other than the
Prospectus/Proxy Statement(s) in respect of this Agreement or the transactions
contemplated hereby. Any communication by either party under Rule 145(b) will be
made only upon the written approval of the other. Bancshares and Bank agree
that, between the date the Registration Statement becomes effective and the
Closing Date, they will keep each other advised on a current basis of material
developments concerning their respective businesses, including any event which
would cause their respective Prospectus/Proxy Statement to contain an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading. Bancshares shall not be required to
maintain the effectiveness of the Registration Statement for the purpose of
resale of Bancshares Common Shares by Bank shareholders who may be deemed to be
affiliates of Bank, as such term is defined in Rule 145 promulgated under the
Act (individually, an "Affiliate" and collectively, the "Affiliates").
Section 7.2. AFFILIATES' CERTIFICATES. Each Affiliate of Bank shall furnish
to Bancshares a letter representing that such Affiliate will not sell, assign,
or transfer any of the Bancshares Common Shares received by such Affiliate as a
result of the transactions contemplated by this Agreement, except pursuant to
(a) registration under the Act or (b) a transaction permitted by Rule 145 under
the Act, or (c) a transaction in which, in the opinion of Squire, Sanders &
Dempsey L.L.P., Baker & Hostetler, LLP or other counsel satisfactory to
Bancshares, or in accordance with a "no action" letter from the staff of the
Securities and Exchange Commission, the Bancshares Common Shares are not
required to be registered under the Act; and in the event of sale or other
disposition pursuant to Rule 145 such Affiliate will supply reasonably
satisfactory evidence of compliance with such Rule to Bancshares. With respect
to such representations, each Affiliate shall agree to hold harmless and
indemnify Bancshares and Bancshares' officers and directors from and against any
losses, claims, damages, expenses (including reasonable attorneys' fees), or
liabilities to which Bancshares or any officer or director of Bancshares may
become subject under the Act or otherwise as a result of the untruth, breach, or
failure of such representations. Each Affiliate shall further agree that the
certificate or certificates representing the Bancshares Common Shares issued to
such Affiliate upon the consummation of the Share Exchange may bear the
following restrictive legend:
The shares represented by this certificate have been issued or
transferred to the registered holder as a result of a transaction to which
Rule 145 under the Securities Act of 1933, as amended (the "Act"), applies.
The shares represented by this certificate may not be sold, transferred or
assigned, and the issuer shall not be required to give effect to any
attempted sale, transfer or assignment, except pursuant to (i) an effective
registration statement under the Act, (ii) a transaction permitted by Rule
145 and as to which the issuer has received reasonable and satisfactory
evidence of compliance with the provisions of Rule 145, or (iii) a
transaction in which, in the opinion of Squire, Sanders & Dempsey L.L.P. or
other counsel satisfactory to the issuer or in accordance with a "no
action" letter from the staff of the Securities and Exchange Commission,
such shares are not required to be registered under the Act.
Bancshares covenants and agrees to remove the foregoing restrictive legend
from the certificate or certificates representing the Bancshares Common Shares
issued to an Affiliate and to cancel any stop order instructions with respect
thereto upon receipt of advice from its counsel that such actions are
appropriate under the then-existing circumstances. In addition, Bancshares
covenants and agrees to publish in a Form 8-K or otherwise, the combined
financial results of operation of Bank and Bancshares for the initial 30-day
period following consummation of the Merger as promptly as practicable after
such results are available.
Section 7.3. BLUE SKY REGISTRATION. Bancshares shall, to the extent
required by applicable state securities or "blue sky" laws, as promptly as
practicable after the furnishing by Bank of all information regarding Bank
required or desirable to be reflected therein, file with applicable state
securities or blue sky administrators, and use its best efforts to cause to
become effective or be approved, all registration statements or applications
required to be so filed with respect to the issuance of the Bancshares Common
Shares in connection with the Agreement of Merger.
Section 7.4. SUPPLEMENTAL ASSURANCES.
(a) On the date the Registration Statement becomes effective and on
the Closing Date, Bank shall deliver to Bancshares a certificate signed by
its principal executive officer and its principal financial officer to the
effect, to such officers' Knowledge, that the information contained in the
Registration Statement
A-25
<PAGE> 127
relating to the business and financial condition and affairs of Bank, does
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading.
(b) On the date the Registration Statement becomes effective and on
the Closing Date, Bancshares shall deliver to Bank a certificate signed by
the chief executive officer and by the chief financial officer of
Bancshares to the effect, to such officers' Knowledge, that the
Registration Statement (other than the information contained therein
relating to the business and financial condition and affairs of Bank) does
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading.
ARTICLE VIII
CONDITIONS
Section 8.1. CONDITIONS TO BANCSHARES' OBLIGATIONS. The obligation of
Bancshares to consummate the transactions contemplated by this Agreement shall
be subject to the following conditions, except as Bancshares may waive the same
in writing:
(a) NO MATERIAL ADVERSE CHANGE. From December 31, 1997, to the
Closing Date, there shall have been no material adverse change in the
financial condition, results of operations, business, or assets of Bank,
and there shall have been no occurrence or circumstances which would
reasonably be expected to result in any such material adverse change.
(b) CONDUCT OF BUSINESS IN ORDINARY COURSE. From December 31, 1997,
to the Closing Date, Bank will have conducted business only in the ordinary
and usual course except for matters expressly referred to in this Agreement
or the Disclosure Schedule, matters incident to carrying out this Agreement
and such further matters as may be consented to in writing by Bancshares.
(c) OPINION OF BANK'S COUNSEL. Bank's counsel, Baker & Hostetler,
LLP, shall have delivered to Bancshares its opinion, dated the Closing
Date, to the effect that (i) Bank is a state banking association duly
organized under the laws of the State of Ohio and is in good standing under
the laws of the State of Ohio, (ii) each of this Agreement and the
Agreement of Merger has been duly executed by Bank and constitutes a
binding obligation of Bank, enforceable in accordance with its terms
against Bank, (iii) the Bank Common Shares have been duly authorized,
validly issued and are fully paid, (iv) assuming that the Merger is duly
authorized by Bancshares, and, if required, approved by its shareholders
and that Bancshares has taken all action required to be taken by it prior
to the Effective Time, upon the filing of the Certificate of Merger with
the Secretary of State of Ohio (accompanied by a certificate of approval
from the Division), in accordance with Section 1.1., the Merger will become
effective under Ohio law.
(d) ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
COVENANTS ON CLOSING DATE. The representations and warranties made herein
by Bank in Article III hereof shall be correct in all material respects on
and as of the Closing Date, with the same force and effect as though such
representations and warranties were being made on and as of the Closing
Date (except for representations and warranties made as of an earlier date,
which representations and warranties shall have been correct in all
material respects as of such earlier date), and Bank shall have fully
complied with all the terms and conditions hereof, and Bank shall have
delivered to Bancshares a certificate to that effect, which certificate
shall be signed by the President of Bank and shall be in a form reasonably
satisfactory to Bancshares.
(e) AFFILIATES' CERTIFICATES. Bancshares shall have received from
each Affiliate a certificate in the form specified in Section 7.2 hereof.
(f) OFFICERS' CERTIFICATES REGARDING REGISTRATION
STATEMENT. Bancshares shall have received from Bank the officers'
certificates required pursuant to Section 7.4(a) hereof.
(g) FAIRNESS OPINION. The receipt of a fairness opinion from Sandler
O'Neill dated as of a date reasonably proximate to the Effective Date of
the Registration Statement stating that as of the date of such
A-26
<PAGE> 128
opinion, the transactions contemplated by this Agreement fair to the
Bancshares shareholders from a financial point of view.
(h) DISSENTERS' RIGHTS. Bank Common Shares, the holders of which
shall have taken such actions as are required by Ohio Revised Code Section
1701.85 to assert dissenters' rights, combined with fractional shares for
which cash is paid and any shares that are deemed to be in contemplation of
the combination when determining whether the pooling-of-interests method of
accounting is appropriate under GAAP, may not exceed ten percent (10%) of
the issued and outstanding Bank Common Shares.
(i) NO DEFAULT. There shall have occurred no event constituting a
default under any material indenture, agreement, note, mortgage, guaranty
or other writing which evidences or relates to any loan of money to, or
indebtedness for money borrowed by Bank which materially adversely affects
Bank's financial condition.
(j) ACCOUNTING TREATMENT. Bancshares shall have received from Crowe,
Chizek and Company LLP, a letter dated the Closing Date, in substance
reasonably acceptable to Bancshares, stating its opinion that based upon
the information furnished that 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.
(k) OFFICER AGREEMENTS. Bancshares shall have entered into employment
or severance agreements to take effect at the Effective Time with certain
currenet officers of the Bank, all as mutually agreed upon by Bancshares
and said officers (collectively, the "Officer Agreements").
Section 8.2. CONDITIONS TO BANK'S OBLIGATIONS. The obligation of Bank to
consummate the transactions contemplated by this Agreement shall be subject to
the following conditions, except as Bank may waive the same in writing:
(a) NO MATERIAL ADVERSE CHANGE. From December 31, 1997, through the
Closing Date, there shall have been no material adverse change in the
financial condition, results of operation, business or assets of Bancshares
and there shall have been no occurrence or circumstance (whether arising
heretofore or hereafter) which might reasonably be expected to result in
any such material adverse change.
(b) OPINION OF BANCSHARES' COUNSEL. Bancshares' counsel, Squire,
Sanders & Dempsey L.L.P., shall have delivered to Bank an opinion dated the
Closing Date to the effect that (i) Bancshares is a corporation duly
organized and in good standing under the State of Ohio, (ii) this Agreement
and the Agreement of Merger have been duly executed by Bancshares and
constitute the binding obligation of Bancshares, enforceable in accordance
with their terms against Bancshares, (iii) the Bancshares Common Shares,
when issued, shall be duly authorized, validly issued, fully paid and
nonassessable, (iv) assuming that the Merger is duly authorized by Bank and
its shareholders and that Bank has taken all action required to be taken by
it prior to the Effective Time, upon the filing of the Certificate of
Merger with the Secretary of State of the State of Ohio, accompanied by a
certificate of approval from the Division in accordance with Section 1.1,
the Merger will become effective and each Bank Common Share outstanding
will be converted into Bancshares Common Shares in accordance with Section
1.2 hereof.
(c) ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
COVENANTS ON CLOSING DATE. The representations and warranties made herein
by Bancshares shall be correct in all material respects on and as of the
Closing Date, with the same force and effect as though such representations
and warranties were being made on and as of the Closing Date (provided,
however, that nothing herein contained shall be construed to place any
limitations upon the issuance of additional shares or other securities of
Bancshares) and Bancshares shall have fully complied with all the terms and
conditions hereof, and Bancshares and Citizens shall have delivered to Bank
a certificate to that effect, which certificate shall be signed by the
President of Bancshares and shall be in a form reasonably satisfactory to
Bank.
(d) OFFICERS' CERTIFICATES REGARDING REGISTRATION
STATEMENT. Bancshares shall have furnished to Bank the officers'
certificates required pursuant to Section 7.4(b) hereof.
A-27
<PAGE> 129
(e) FAIRNESS OPINION. The receipt of a fairness opinion from
Danielson 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
transaction contemplated by this Agreement is fair to the Bank shareholders
from a financial point of view.
(f) TAX OPINION. Bank shall have obtained an opinion of its counsel,
Baker & Hostetler, LLP, reasonably satisfactory in form and substance to it
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) of the IRC,
(ii) no gain or loss will be recognized by Bank as a consequence of the
Merger, and (iii) no gain or loss will be recognized by the shareholders of
Bank pursuant to the terms of the Merger (except for the effect of any cash
received pursuant to dissenters' rights or paid in lieu of the issuance of
fractional shares.)
(g) ACCOUNTING TREATMENT. Bancshares shall have received from Crowe,
Chizek and Company LLP, a letter dated the Closing Date, in substance
reasonably acceptable to Bancshares, stating its opinion that based upon
the information furnished that 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.
(h) OFFICER AGREEMENTS. Bancshares and certain Bank officers shall
have entered into the Officer Agreements.
Section 8.3. CONDITIONS TO THE OBLIGATIONS OF ALL PARTIES. The respective
obligations of Bancshares and Bank to consummate the transactions contemplated
by this Agreement and the Agreement of Merger shall be subject to the following
conditions, except as any of them may waive the same in writing:
(a) ORDERS, INJUNCTIONS, ETC. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect, nor shall any proceeding
seeking any of the foregoing be pending.
(b) NO ADVERSE GOVERNMENTAL ACTION. On or before the Closing Date, no
action shall have been taken or threatened by any governmental entity which
makes consummation of the Merger illegal.
(c) COMMON SHARE REGISTRATION. The Bancshares Common Shares into
which the Bank Common Shares are to be converted pursuant to this Agreement
shall have been registered with the Securities and Exchange Commission and
no stop order shall be threatened or in effect with respect thereto.
(d) BLUE SKY LAWS. Pursuant to Section 7.3 hereof, Bancshares shall
have filed such registration statements or applications as may be required
under applicable blue sky laws and such registration statements or
applications shall have become effective or approved and no stop order
shall be threatened or in effect with respect thereto.
(e) SHAREHOLDER ACTION. Prior to the Closing Date, this Agreement
shall have been approved by the affirmative vote of the holders of Bank
Common Shares representing a majority of the voting power and, if required,
the affirmative vote of 66 % of the outstanding Bancshares Common Shares
(or such lesser percentage as the Bancshares Articles of Incorporation, as
then in effect, require).
(f) REGULATORY APPROVALS. All Approvals necessary for the
consummation of the transactions contemplated by this Agreement shall have
been obtained and be in force and all statutory waiting periods in respect
thereof shall have expired and no such Approvals shall contain any
conditions, restrictions or requirements which either the Bank or the
Bancshares Board of Directors reasonably determines would, following the
Effective Time, have a Material Adverse Effect (as such term is defined in
Article IX hereof) on Bancshares and its subsidiaries taken as a whole.
Section 8.4. CLOSING DATE. The closing ("Closing") of the transactions
contemplated by this Agreement shall occur on a date mutually agreed to by
Bancshares and Bank as soon as reasonably practicable after satisfaction of all
the conditions set forth in Sections 8.l, 8.2 and 8.3 hereof and the expiration
of all waiting periods imposed by any and all regulatory authorities (the
"Closing Date").
A-28
<PAGE> 130
ARTICLE IX
TERMINATION AND ABANDONMENT
For purposes of this Article IX, the term "Material Adverse Effect" means
an effect which (A) is materially adverse to the business, properties, financial
condition or results of operations of Bank or Bancshares, as the context may
dictate, and its subsidiaries taken as a whole, (B) materially impairs the
ability of Bank or Bancshares, as the context may dictate to consummate the
Merger or (C) enables any Person to prevent the consummation of Bank or
Bancshares of the Merger; provided, however, that in determining whether a
Material Adverse Effect has occurred there shall be excluded any effect the
proximate cause of which is (i) any change in banking and similar laws of
general applicability or interpretations thereof by courts or governmental
authorities and (ii) any change in generally accepted accounting principles or
regulatory accounting requirements applicable to banks and bank holding
companies generally.
Section 9.1. RIGHT TO TERMINATION. This Agreement may be terminated and
the Merger abandoned prior to the Closing Date in the following manner:
(a) MUTUAL CONSENT. By mutual consent of Bank and Bancshares,
authorized by their respective Boards of Directors; or
(b) BY BANK. If the Average NMS Closing Price (as defined below) of
Bancshares Common Shares is less than $26.00, then Bank may, at its option,
terminate this Agreement; provided however, that prior to Bank exercising
any right of termination hereunder, Bancshares may, at its option, for a
period of ten (10) business days, offer to distribute to Bank shareholders,
in connection with the Share Exchange, an additional number of Bancshares
Common Shares to (i) offset the amount by which the Average NMS Closing
Price is below $26.00 plus (ii) some additional number of Bancshares Common
Shares (the "Bancshares Offer). Thereafter, for a period of ten (10)
business days, the Bank shall have the opportunity to accept or reject the
Bancshares Offer. If the Bank rejects the Bancshares Offer, the Bank may
terminate this Agreement in accordance with the provisions hereof. For
purposes of this Section 9.1(b), the term "NMS Closing Price" shall mean
the price per share of the last sale of Bancshares Common Shares reported
on the NASDAQ National Market System at the close of the trading day by the
National Association of Securities Dealers, Inc. The term "Average NMS
Closing Price" shall mean the arithmetic mean of the NMS Closing Prices for
the ten (10) trading days immediately preceding the fifth (5th) trading day
prior to the consummation of the Merger.
(c) BY BANCSHARES OR BANK. By either Bancshares or Bank (i) in the
event the transactions contemplated by this Agreement are not consummated
on or before March 31, 1999 or (ii) in the event of a material breach by
the other party (provided, however, that the terminating party is not in
material breach of this Agreement), which breach is not cured after thirty
(30) days written notice hereof to the breaching party.
(d) BY BANCSHARES. If Bancshares does not accept the Bank Schedules
delivered pursuant to Section 5.13 hereof, then Bancshares, at its option,
may terminate this Agreement in accordance with the standards set forth in
this subsection (d). In addition, this Agreement may be terminated and the
Merger may be abandoned by action of the Board of Directors of Bancshares
as follows: (i) It is intended that Bancshares will continue its due
diligence review of Bank for up to 30 days after the date hereof. In the
event that Bancshares' due diligence investigation of Bank and its
subsidiaries discloses one or more matters which either (i) Bancshares in
good faith believes in the reasonable judgment of the Board of Directors of
Bancshares to be inconsistent with any of the representations and
warranties of Bank and which constitute or have had or are reasonably
likely to have a Material Adverse Effect (as defined above) on Bank or (ii)
in the reasonable judgment of the Board of Directors of Bancshares either
(A) is of such significance as to constitute or have or be reasonably
likely to have a Material Adverse Effect on Bank and its subsidiaries,
taken as a whole, or (B) deviates materially and adversely from the
financial statements for the year ended December 31, 1997, or the three
months or six months ended March 31, 1998 or June 30, 1998, respectively,
of Bank, the Board of Directors of Bancshares may elect to terminate this
Plan by giving notice of termination to Bank within or at the end of the 30
day period following the date hereof; or
A-29
<PAGE> 131
(e) BY BANK. This Agreement may be terminated and the Merger may be
abandoned by action of the Board of Directors of Bank as follows: (i) it is
intended that Bank will continue its due diligence review of Bancshares for
up to 30 days after the date hereof. In the event that Bank's due diligence
investigation of Bancshares and its subsidiaries discloses one or more
matters which either (A) Bank in good faith believes in the reasonable
judgment of the Board of Directors of Bank to be inconsistent with any of
the representations and warranties of Bancshares and which constitute or
have had or are reasonably likely to have a Material Adverse Effect on
Bancshares or (B) in the reasonable judgment of the Board of Directors of
Bank either (1) is of such significance as to constitute or have or be
reasonably likely to have a Material Adverse Effect on Bank and its
subsidiaries, taken as a whole, or (2) deviates materially and adversely
from the financial statements for the year ended December 31, 1997 or the
three months or six months ended March 31, 1998 or June 30, 1998,
respectively, of Bancshares, the Board of Directors of Bank may elect to
terminate this Plan by giving notice of termination to Bancshares within or
at the end of the 30 day period following the date hereof.
Section 9.2. EFFECT OF TERMINATION. If for any reason this Agreement and
the Agreement of Merger shall be terminated and the Merger abandoned as provided
in Section 9.1, this Agreement shall become null and void, without any further
action by the shareholders of either of the parties. In the event of any such
termination, the Directors of Bancshares and Bank shall each direct their
officers not to file this Agreement or a certificate of merger, in the offices
of the Secretary of State of the State of Ohio notwithstanding favorable action
by the shareholders of Bank and, if required, the shareholders of Bancshares. In
the event of any such termination, neither party hereto nor any of its
respective shareholders, directors, or officers shall have any obligation to the
other in damages or for costs, expenses, or otherwise in connection with this
Agreement or the transactions contemplated herein, other than (i) the return to
Bank, by Bancshares, of all such copies of Bank's records as may have been
provided to Bancshares, under Section 5.2 or other Sections of this Agreement,
and the return to Bancshares, by Bank, of all such copies of Bancshares' records
as may have been provided to Bank, under Section 5.2 or other Sections of this
Agreement or (ii) with respect to any liabilities or damages incurred or
suffered by a party as the result of a material breach by the other party of
this Agreement pursuant to Section 9.1(c)(ii) hereof.
ARTICLE X
MISCELLANEOUS
Section 10.1. NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in this Agreement and in any
certificate delivered hereunder, other than those contained in Section 2.3
hereof, shall expire on the Closing Date and thereafter neither Bancshares nor
Bank shall have any further liability or obligation with respect thereto.
Section 10.2. REPRESENTATIONS TO THE KNOWLEDGE OF A PARTY. Whenever a
representation or warranty is made herein as being "to the knowledge of" a party
hereto or the officers or directors thereof, it is understood that an officer
has made or caused to be made by personnel or representatives competent to
determine the accuracy thereof (and the results thereof reported to him) an
investigation which is appropriate to determine the accuracy of such
representation or warranty.
A-30
<PAGE> 132
Section 10.3. NOTICES. Any notice required or permitted to be given under
this Agreement shall be in writing and mailed, first class postage prepaid and
addressed as follows:
(a) If to Bank:
Richard R. Hollington, Jr.
Chairman of The Ohio Bank
Baker & Hostetler, LLP
National City Center
1900 E. 9th Street, Suite 3200
Cleveland, Ohio 44114
With copies to:
William Appleton, Esq.
Baker & Hostetler, LLP
312 Walnut Street
Cincinnati, Ohio 45202-4038
(b) If to Bancshares or Citizens:
Citizens Bancshares, Inc.
10 East Main Street
Salineville, Ohio 43945
Attention: Marty E. Adams
With copies to:
M. Patricia Oliver, Esq.
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
or at such other address or addresses as the party addressed may from time to
time designate in writing. Any such notice shall be deemed given when received.
Section 10.4. ENTIRE AGREEMENT AND MODIFICATIONS. This Agreement and all
exhibits and schedules attached thereto, together with that certain Stock Option
Agreement which Bancshares and Bank covenant and agree to enter into on July 23,
1998 (the "Option Agreement") and that certain voting agreement by and among
some of the Bank shareholders, an executed copy of which has been delivered to
Bancshares prior to the execution of this Agreement, constitute the entire
agreement among Bancshares, Bank, and when executed, Interim Bank with respect
to the subject matter hereof, and supersede any prior oral or written agreement
and any other written or oral representations, including but not limited to the
confidentiality agreement previously entered into between Bancshares and Bank.
Each of Bank and Bancshares shall have the right, with the prior consent of the
other, from time to time prior to the Closing Date, to supplement its respective
Disclosure Schedules with respect to any matter hereafter arising that, if
existing or known as of the date of this Agreement, would have been required to
be set forth or described in the Disclosure Schedules. This Agreement may be
amended only by instrument in writing executed by the parties hereto and thereto
and authorized as provided herein or therein. Except as provided in Section
10.5, nothing expressed or implied in this Agreement is intended, or shall be
construed, to confer upon or give any person, firm, or corporation other than
the parties hereto and their respective shareholders any rights or remedies
under or by reason of this Agreement. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement.
Section 10.5. DIRECTORS' AND OFFICERS' INSURANCE. After the Effective
Time, Bancshares shall and shall cause the Resulting Bank to indemnify, defend
and hold harmless the present and former officers, directors, employees and
agents of Bank (each, an "Indemnified Party") after the Effective Time against
all losses,
A-31
<PAGE> 133
expenses, claims damages or liabilities arising out of actions or omissions
occurring on or prior to the Effective Time (including, without limitation, the
transactions contemplated by this Agreement) to the full extent then permitted
under Ohio law and by Bank's Articles of Incorporation and Code of Regulations
as in effect on the date hereof, including provisions relating to advances of
expenses incurred in the defense of any action or suit. In addition, Bancshares
shall maintain Bank's existing directors' and officers' liability insurance (the
"D&O Insurance") covering persons who are currently covered by Bank's D&O
Insurance for a period of three (3) years after the Effective Time on terms no
less favorable than those in effect on the date hereof; provided, however, that
Bancshares may substitute therefor policies providing at least comparable
coverage containing terms and conditions no less favorable than those in effect
on the date hereof.
Section 10.6. EXECUTION OF COUNTERPARTS; EXECUTION BY INTERIM BANK. For
the convenience of the parties and to facilitate any required filing, this
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original but all of which together shall constitute one and the same
document. It is understood and agreed that upon its formation by Bancshares,
Interim Bank shall become a party to this Agreement and one or more of its
incorporators or authorized officers (as the case may be) shall execute this
Agreement and the Agreement of Merger without any further act required on the
part of Bancshares or Bank.
Section 10.7. EXPENSES. Except as otherwise provided in the Option
Agreement, the parties hereto each shall bear their own expenses incurred in
connection with this Agreement, including, without limitation, all fees of their
respective legal counsel, financial advisers and accountants.
Section 10.8. CONSTRUCTION. This Agreement shall be construed and enforced
in accordance with the laws of the State of Ohio.
Section 10.9. EXCHANGE AGENT. Citizens Bancshares, Inc., 10 East Main
Street, Salineville, Ohio, as transfer agent for the Bancshares Common Shares
(or such other bank or trust company as Bancshares selects) shall act as
Exchange Agent in respect of the conversion of Bank Common Shares into
Bancshares Common Shares.
Section 10.10. SUCCESSORS AND ASSIGNS. This Agreement shall not be
assignable by any party without the written consent of the other party (ies).
This Agreement shall inure to the benefit of the successors and permitted
assigns of the parties hereto. If Bancshares or any of its successors or assigns
shall consolidate with or merge into any other entity and shall not be the
continuing or surviving entity of such consolidation or merger or shall transfer
all or substantially all of its assets to any entity, then and in each case,
proper provision shall be made so that the successors and assigns of Bancshares
shall assume the obligations of Bancshares set forth in this Agreement and the
Agreement of Merger.
A-32
<PAGE> 134
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunder duly authorized, all as of the date
first above written.
<TABLE>
<S> <C>
Attest: CITIZENS BANCSHARES, INC.
By: /s/ TRACEY L. REEDER By: /s/ MARTY E. ADAMS
------------------------------------------------- -------------------------------------------------
Tracey L. Reeder Marty E. Adams
Assistant Secretary President and
Chief Executive Officer
Attest: THE OHIO BANK
By: /s/ GARY L. COLE By: /s/ RICHARD R. HOLLINGTON, JR.
------------------------------------------------- -------------------------------------------------
Gary L. Cole Richard R. Hollington, Jr.
Secretary Chairman
Executed as of this 22nd day of July, 1998
Attest: "INTERIM BANK"
By: By:
------------------------------------------------- -------------------------------------------------
Tracey L. Reeder Marty E. Adams
Assistant Secretary President and Chief Executive Officer
</TABLE>
A-33
<PAGE> 135
(EXHIBIT A)
AGREEMENT OF MERGER
AGREEMENT OF MERGER ("Merger Agreement") dated as of October , 1998, by
and between CITIZENS BANCSHARES INTERIM BANK, an Ohio bank having its principal
office at 50 East Main Street, Salineville, Ohio 43945 ("Interim Bank"), and THE
OHIO BANK, an Ohio bank having its principal office at 221 South Church Street,
Bowling Green, Ohio 43402 ("Bank") and joined in by SKY FINANCIAL GROUP, INC.,
an Ohio corporation and registered bank holding company having its principal
office at 221 South Church Street, Bowling Green, Ohio 43402 ("Sky Financial"),
which is the sole shareholder of Interim Bank. Interim Bank and Bank are
hereinafter sometimes referred to as the "Constituent Banks."
The respective Boards of Directors of Interim Bank and Sky Financial have
determined that it is advisable and in the best interests of each of the
respective Constituent Banks that Interim Bank merge with and into Bank upon the
terms and subject to the conditions herein provided and the Board of Directors
of Bank has determined that such action is fair to, and in the best interests
of, the Bank shareholders.
The respective Boards of Directors of Interim Bank and Bank have, by
resolutions duly adopted, (i) authorized this Merger Agreement as part of the
plan of affiliation and merger set forth in an Agreement and Plan of Merger
dated as of July 22, 1998 (the "Agreement") (collectively, the "Plan"), and (ii)
authorized that it be executed by the undersigned officers.
The transactions contemplated by the Plan and this Merger Agreement have
been submitted to, and adopted and approved by, the shareholders of Bank.
In consideration of the mutual agreements herein contained, the parties
agree that Interim Bank shall be merged with and into Bank and that the terms
and conditions of the merger, the mode of carrying the merger into effect, the
manner of converting the common shares of the Constituent Banks and certain
other provisions relating thereto shall be as hereinafter set forth.
ARTICLE I
Bank and Interim Bank shall be the constituent banking corporations with
respect to the Merger.
ARTICLE II
THE MERGER
2.01 RESULTING BANK. Subject to the terms and provisions of this Merger
Agreement, and in accordance with Chapters 1101, 1115 and 1701 of the Ohio
Revised Code, at the Effective Time (as defined in Section 2.07 hereof) Interim
Bank shall be merged with and into Bank (the "Merger"). Bank shall be the
resulting bank (hereinafter called the "Resulting Bank") of the Merger and shall
continue its existence as a bank under the laws of the State of Ohio under the
name "The Ohio Bank". At the Effective Time, the separate existence of Interim
Bank shall cease. The principal place of business of the Resulting Bank shall be
221 South Church Street, Bowling Green, Ohio 43402, Hancock County, Ohio.
2.02 EFFECT OF THE MERGER. At the Effective Time, the Merger shall have
the effects provided for herein and in Sections 1115.11 and 1701.82 of the Ohio
Revised Code.
2.03 ARTICLES OF INCORPORATION. As of the Effective Time, the Articles of
Incorporation of Interim Bank, as in effect immediately prior to the Effective
Time, shall become the Articles of Incorporation of the Resulting Bank until
thereafter duly altered, amended, or repealed in accordance with the provisions
thereof and applicable law.
2.04 CODE OF REGULATIONS. As of the Effective Time, the Code of
Regulations of Interim Bank, as in effect immediately prior to the Effective
Time, shall become the Code of Regulations of the Resulting Bank until
A-34
<PAGE> 136
thereafter duly altered, amended or repealed in accordance with the provisions
thereof, the Articles of Incorporation of the Resulting Bank and applicable law.
2.05 DIRECTORS OF THE RESULTING BANK. At the Effective Time, [SPECIFICS
REGARDING BANK BOARD -- TO BE PROVIDED.] The names and address of the directors
of the Resulting Bank are as follows: [TO BE PROVIDED.]
2.06 OFFICERS OF THE RESULTING BANK. At the Effective Time, each person
who is an officer of Bank immediately prior to the Effective Time shall remain
an officer of the Resulting Bank and hold the same office as he or she held
immediately prior to the Effective Time [CHECK AND UPDATE AS NEEDED]. At the
Effective Time, the officers of Interim Bank will resign.
2.07 EFFECTIVE TIME. The Merger shall become effective in accordance with
the provisions of Sections 1115.11 and 1701.81 of the Ohio Revised Code, upon
the filing of a certificate of merger, [together with a certificate of approval
from the Superintendent of the Division of Financial Institutions], with the
Secretary of State of the State of Ohio. The date and time when the Merger shall
become effective is herein referred to as the "Effective Time."
2.08 ADDITIONAL ACTIONS. If, at any time after the Effective Time, the
Resulting Bank shall consider or be advised that any further assignments or
assurances in law or any other acts are necessary or desirable to carry out the
purposes of this Merger Agreement, Interim Bank and its proper officers and
directors shall be deemed to have granted hereby to the Resulting Bank an
irrevocable power of attorney to execute and deliver any and all assignments and
assurances in law and to do all acts necessary or proper to carry out the
purposes of this Merger Agreement; and the proper officers and directors of the
Resulting Bank are hereby fully authorized in the name of Interim Bank or
otherwise to take any and all such action.
ARTICLE III
CONVERSION AND EXCHANGE OF BANK COMMON SHARES;
FRACTIONAL SHARE INTERESTS
3.01 CONVERSION AND EXCHANGE. At the Effective Time:
(a) Other than Bank common shares as to which dissenters' rights have
been exercised, all common shares of Bank that shall be issued and
outstanding at the Effective Time (the "Bank Common Shares") shall
thereupon and without further action be converted into and become 63.25
Bancshares common shares having the same rights and privileges as all other
Sky Financial Common Shares (individually hereinafter referred to as a "Sky
Financial Common Share" and collectively, as the "Sky Financial Common
Shares").
(b) The Bank Common Shares issued and outstanding immediately prior to
the time the Merger shall become effective shall continue to be issued and
outstanding shares of the Resulting Bank.
(c) The shares of Interim Bank issued and outstanding immediately
prior to the Effective Time of the Merger and held by Sky Financial shall
be deemed cancelled.
(d) Other than as provided for in Sections 3.01(a) and (b) hereof, at
the Effective Time, all authorized but unissued shares of Bank Common
Shares shall be canceled and no stock, cash or other property shall be
delivered in exchange therefor.
(e) No fractional Sky Financial Common Share or certificate or scrip
therefor shall be issued as a result of the conversion of Bank Common
Shares into Sky Financial Common Shares. To the extent an outstanding Bank
Common Share would otherwise have become a fractional Sky Financial Common
Share, the holder thereof shall receive, in lieu thereof, an amount of
cash, without interest, (rounded to the nearest whole-cent) equal to such
fractional part of a Sky Financial Common Share multiplied by the last
reported sale price per share of Sky Financial Common Shares on the trading
day most recently preceding the effective time of the Merger on the Nasdaq
National Market (as reported in the Wall Street Journal or, if not therein,
in another authoritative source). Such purchases of fractional interests
are merely intended as a mechanism
A-35
<PAGE> 137
for "rounding off" fractional shares and do not constitute separately
bargained for consideration in connection with the transactions
contemplated by the Plan and by this Merger Agreement.
(f) At the Effective Time, the share transfer books of Bank shall be
closed and no transfer of Bank Common Shares shall thereafter be made or
recognized. Notwithstanding any other provision of this Merger Agreement,
neither Sky Financial or its agent nor any party hereto shall be liable to
a holder of Bank Common Shares for any amount properly delivered in good
faith to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(g) No conversion under subsection (b) of this Section 2.01 shall be
made in respect of any Bank Common Share as to which a Bank shareholder has
elected to exercise dissenters' rights under applicable Ohio law, if any,
until such time as such rights have been lost or extinguished.
ARTICLE IV
MISCELLANEOUS
4.01 AMENDMENT. Subject to applicable law, this Merger Agreement may be
amended, modified, or supplemented by written agreement of the Constituent Banks
and Sky Financial at any time prior to the Effective Time.
4.02 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and the same
agreement.
A-36
<PAGE> 138
IN WITNESS WHEREOF, Interim Bank, Bank and Bancshares have caused this
Merger Agreement to be signed by their respective duly authorized officers as of
the date first above written.
<TABLE>
<C> <S>
Attest: CITIZENS BANCSHARES INTERIM BANK,
an Ohio bank
By By
------------------------------------------------- ----------------------------------------------
Tracey L. Reeder, Marty E. Adams,
Assistant Secretary President
Attest: THE OHIO BANK,
an Ohio bank
By By
------------------------------------------------- ----------------------------------------------
Gary L. Cole, Jack W. Donaldson,
Secretary President
Attest: SKY FINANCIAL GROUP, INC.,
an Ohio corporation
By By
-------------------------------------------------- ----------------------------------------------
W. Granger Souder, Marty E. Adams,
Corporate Secretary President and Chief Operating Officer
</TABLE>
A-37
<PAGE> 139
APPENDIX B
DISSENTERS' RIGHTS UNDER SECTION 1701.85 OF THE OHIO REVISED CODE
B-1
<PAGE> 140
DISSENTERS' RIGHTS UNDER SECTION 1701.85 OF THE OHIO REVISED CODE
1701.85 DISSENTING SHAREHOLDER'S DEMAND FOR FAIR CASH VALUE OF SHARES
(A) (1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 [1701.80.1] of the Revised Code shall be a
record holder of the shares of the corporation as to which he seeks relief as of
the date on which the agreement of merger was adopted by the directors of that
corporation. Within twenty days after he has been sent the notice provided in
section 1701.80 or 1701.801 [1701.80.1] of the Revised Code, the dissenting
shareholder shall deliver to the corporation a written demand for payment with
the same information as that provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each new certificate
issued for them shall bear a similar legend, together with the name of the
original dissenting holder of such shares. Upon receiving a demand for payment
from a dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of the demand for
payment in its shareholder records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities as provided in
this paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A 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
B-2
<PAGE> 141
submitted to the shareholders, was approved by the directors. Other dissenting
shareholders, within that three-month period, may join as plaintiffs or may be
joined as defendants in any such proceeding, and any two or more such
proceedings may be consolidated. The complaint shall contain a brief statement
of the facts, including the vote and the facts entitling the dissenting
shareholder to the relief demanded. No answer to such a complaint is required.
Upon the filing of such a complaint, the court, on motion of the petitioner,
shall enter an order fixing a date for a hearing on the complaint and requiring
that a copy of the complaint and a notice of the filing and of the date for
hearing be given to the respondent or defendant in the manner in which summons
is required to be served or substituted service is required to be made in other
cases. On the day fixed for the hearing on the complaint or any adjournment of
it, the court shall determine from the complaint and from such evidence as is
submitted by either party whether the dissenting shareholder is entitled to be
paid the fair cash value of any shares and, if so, the number and class of such
shares. If the court finds that the dissenting shareholder is so entitled, the
court may appoint one or more persons as appraisers to receive evidence and to
recommend a decision on the amount of the fair cash value. The appraisers have
such power and authority as is specified in the order of their appointment. The
court thereupon shall make a finding as to the fair cash value of a share and
shall render judgment against the corporation for the payment of it, with
interest at such rate and from such date as the court considers equitable. The
costs of the proceeding, including reasonable compensation to the appraisers to
be fixed by the court, shall be assessed or apportioned as the court considers
equitable. The proceeding is a special proceeding and final orders in it may be
vacated, modified, or reversed on appeal pursuant to the Rules of Appellate
Procedure and, to the extent not in conflict with those rules, Chapter 2505 of
the Revised Code. If, during the pendency of any proceeding instituted under
this section, a suit or proceeding is or has been instituted to enjoin or
otherwise to prevent the carrying out of the action as to which the shareholder
has dissented, the proceeding instituted under this section shall be stayed
until the final determination of the other suit or proceeding. Unless any
provision in division (D) of this section is applicable, the fair cash value of
the shares that is agreed upon by the parties or fixed under this section shall
be paid within thirty days after the date of final determination of such value
under this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of The certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken and, in
the case of a merger pursuant to section 1701.80 or 1701.801 [1701.80.1] of the
Revised Code, fair cash value as to shareholders of a constituent subsidiary
corporation shall be determined as of the day before the adoption of the
agreement of merger by the directors of the particular subsidiary corporation.
The fair cash value of a share for the purposes of this section is the amount
that a willing seller who is under no compulsion to sell would be willing to
accept and that a willing buyer who is under no compulsion to purchase would be
willing to pay, but in no event shall the fair cash value of a share exceed the
amount specified in the demand of the particular shareholder. In computing such
fair cash value, any appreciation or depreciation in market value resulting from
the proposal submitted to the directors or to the shareholders shall be
excluded.
(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;
B-3
<PAGE> 142
(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.
B-4
<PAGE> 143
APPENDIX C
OPINION OF DANIELSON ASSOCIATES, INC.
C-1
<PAGE> 144
DANIELSON ASSOCIATES INC.
8110 EXECUTIVE BOULEVARD
SUITE 504
ROCKVILLE, MARYLAND 20652-3908
TEL: (301) 466-4884
FAX: (301) 466-0013
PITTSBURGH OFFICE
TEL: (412) 262-3207
July 21, 1998
Board of Directors
The Ohio Bank
236 South Main Street
Findlay, Ohio 45840
Dear Members of the Board:
Set forth herein is Danielson Associates Inc.'s ("Danielson Associates")
independent opinion as to the "fairness" of the offer by Citizens Bancshares,
Inc. ("Citizens") of Salineville, Ohio to acquire all of the outstanding common
stock of The Ohio Bank ("Ohio Bank" or the "Bank") of Findlay, Ohio through an
exchange of stock with a value at the time of the offer of about $191 million.
The "fair" sale value is defined as the price at which all of the shares of Ohio
Bank's common stock would change hands between a willing seller and a willing
buyer, each having reasonable knowledge of the relevant facts. In opining to the
"fairness" of the offer, it also had to be determined if the Citizens common
stock to be exchanged for Ohio Bank common stock was "fairly" valued.
In preparing the opinion, the markets served by Ohio Bank have been
analyzed; its business and future prospects have been reviewed; its financial
performance has been compared with banks in the region; and the acquisition
prices of comparable banks have been analyzed. In addition, any unique
characteristics have been considered.
This opinion is based on data supplied by Ohio Bank, and relies on some
public information, all of which is believed to be reliable, but the accuracy or
the completeness of such information cannot be guaranteed. The opinion assumes
that there are no significant loan problems beyond what was stated in recent
reports to regulatory agencies.
In determining the "fair" sale value of Ohio Bank, the emphasis has been on
prices paid for banks and bank holding companies with similar financial,
structural and market characteristics. These sale prices were then related to
earnings, and equity capital, also referred to as "book."
In determining the "fairness" of the offer, we compared the common stock to
be exchanged by Citizens for Ohio Bank common stock with the common stock of
other, similar bank holding companies. In so doing, we also compared Citizens'
financial performance with these comparable financial institutions.
Based on the foregoing, we are of the opinion on the date hereof that the
offer made by Citizens to acquire all of the common stock of Ohio Bank pursuant
to the merger agreement is "fair" from a financial point of view to Ohio Bank
and its shareholders.
Respectfully submitted,
/s/ ARNOLD G. DANIELSON
Arnold G. Danielson
Chairman
Danielson Associates Inc.
C-2
<PAGE> 145
DANIELSON ASSOCIATES INC.
8110 EXECUTIVE BOULEVARD
SUITE 504
ROCKVILLE, MARYLAND 20652-3908
TEL: (301) 466-4884
FAX: (301) 466-0013
PITTSBURGH OFFICE
TEL: (412) 262-3207
October 12, 1998
Board of Directors
Ohio Bank
236 South Main Street
Findlay, Ohio 45840
Dear Members of the Board:
Set forth herein is the updated opinion of Danielson Associates Inc.
("Danielson Associates") as to the "fairness" of the offer by Sky Financial
Group, Inc. ("Sky") of Salineville, Ohio to acquire all of the common stock of
Ohio Bank of Findlay, Ohio. The "fair" sale is defined as the price at which all
of the shares of Ohio Bank's common stock would change hands between a willing
seller and a willing buyer, each having a reasonable knowledge of the relevant
facts. In opining as to the "fairness" of the offer, it also must be determined
if the Sky common stock that is to be exchanged for Ohio Bank stock is "fairly"
valued.
In preparing the original opinion, Ohio Bank's market was analyzed and its
business and prospects were reviewed. We also conducted such other financial
analyses as we deemed appropriate such as comparable company analyses,
comparable transactions and pro forma dilution. Any unique characteristics also
were considered.
This opinion was based partly on data supplied to Danielson Associates by
Ohio Bank, but it relied on some public information all of which was believed to
be reliable, but neither the completeness nor accuracy of such information could
be guaranteed. In particular, the opinion assumed, based on its management's
representation, that there were no significant asset quality problems beyond
what was stated in recent reports to regulatory agencies and in the monthly
report to the directors.
In determining the "fair" sale value of Ohio Bank, the primary emphasis was
on prices paid for banks and bank holding companies that had similar financial,
structural and market characteristics. These prices were then related to
earnings and equity capital, also referred to as "book."
The "fair" market value of Sky's common stock to be exchanged for Ohio Bank
stock was determined by a comparison with other similar bank holding companies
and included no in person due diligence of Sky. This comparison showed Sky stock
to be valued consistent with the comparable banks.
In the original opinion, based on the analysis of Ohio Bank's recent
performance and its future potential, comparisons with similar transactions and
unique characteristics, it was determined that its "fair" sale value was between
$166 and $180 million, or $2,000 to $2,169 per share. Thus, Sky's offer of $191
million, or $2,301 per share, was a "fair" offer from a financial point of view
for Ohio Bank and its shareholders.
Since the original opinion, there has been no significant change in Sky's
financial performance. Its returns on average assets and average equity for the
twelve months ending on June 30, 1998 excluding merger related charges were
1.42% and 17.24%, respectively. The corresponding numbers for the twelve months
ending December 31, 1997 were 1.49% and 17.20%.
C-3
<PAGE> 146
Board of Directors
October 12, 1998
Page 2
There, however, has been a substantial shift in the value of Sky's stock,
but the change is consistent with industry trends. As of July 20, 1998, the Sky
common stock was trading at a price of $36.38, or 23.5 times earnings and 414%
of book. Approximately three months later on October 9, 1998, the closing price
was $29.25, or 19.9 times adjusted earnings and 327% of book. During this same
period, the median for the comparable banks fell from 22.7 to 18.2 times
earnings.
It is our opinion that since there has been no change in the financial
performance of Sky and that the decline in its stock price is consistent with
the change in prices of comparable banks, the Sky offer to acquire all of the
shares of Ohio Bank's common stock is still "fair" from a financial point of
view to Ohio Bank and its shareholders.
Respectfully submitted,
/s/ ARNOLD G. DANIELSON
Arnold G. Danielson
Chairman
Danielson Associates Inc.
C-4
<PAGE> 147
APPENDIX D
STOCK OPTION AGREEMENT
D-1
<PAGE> 148
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT ("Agreement"), effective as of this 23rd day of
July, 1998, by and between Citizens Bancshares, Inc. of Salineville, Ohio, an
Ohio corporation ("Grantee"); and The Ohio Bank, an Ohio bank ("Grantor");
WITNESSETH:
A. Grantor and Grantee have entered into an Agreement and Plan of Merger
dated of even date herewith (the "Merger Agreement"), providing for their
affiliation with one another.
B. As further inducement for the parties to consummate the transactions
contemplated by the Merger Agreement, Grantor wishes to grant Grantee the Option
described herein.
C. The Board of Directors of Grantor has approved the grant of the Option
and the Merger Agreement prior to the date hereof.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS.
"Applicable Price" shall mean the higher of (i) the highest price per share
of Grantor Common Stock paid for any such share by the person or groups
described in the definition of a Repurchase Event, or (ii) the price per share
of Grantor Common Stock received by holders of Grantor Common Stock in
connection with any merger or other business combination transaction which is a
Purchase Event. If the consideration to be offered, paid or received pursuant to
either of the foregoing clauses (i) or (ii) shall be other than in cash, the
value of such consideration shall be determined in good faith by an independent
nationally recognized investment banking firm selected by Grantee and reasonably
acceptable to Grantor, which determination shall be conclusive for all purposes
of this Agreement.
"Burdensome Condition" shall mean, in connection with the grant of a
requisite regulatory approval or otherwise, imposition by a governmental entity
of any condition or restriction upon the party or one of its Subsidiaries (as
defined herein) which would reasonably be expected to either (i) have a material
adverse effect after the effective time of the Merger Agreement on the present
or prospective consolidated financial condition, business or operating results
of the party, or (ii) prevent the parties from realizing the major portion of
the economic benefits of the transactions contemplated by the Merger Agreement
that they currently anticipate obtaining.
"Commission" shall mean the Securities and Exchange Commission.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Grantee" shall mean Citizens Bancshares, Inc.
"Grantor" shall mean The Ohio Bank.
"Grantor Common Stock" shall mean Class A Common Shares, $50 par value per
share.
"Merger Agreement" shall mean the definitive agreement executed by Citizens
Bancshares, Inc. and The Ohio Bank on July 22, 1998, pursuant to which the
parties hereto intend to affiliate.
"Option" shall mean the option granted by Grantor to Grantee under this
Agreement.
"Person" shall have the meanings specified in Sections 3(a)(9) and 13(d)(3)
of the Exchange Act.
"Purchase Event" shall mean any of the following events or transactions
occurring after the date of this Agreement with respect to the Grantor:
(i) the Grantor or any of its Subsidiaries (as defined in Rule 1-02
of Regulation S-X promulgated by the Securities and Exchange Commission
(the "SEC") (each hereinafter individually referred to as a "Subsidiary"
and collectively, as the "Subsidiaries")), without having received the
Grantee's prior written
D-2
<PAGE> 149
consent, shall have entered into an agreement with, or the Board of
Directors of Grantor shall have recommended that the shareholders of
Grantor approve or accept a transaction with, any person (x) to merge or
consolidate, or enter into any similar transaction, except as contemplated
by the Merger Agreement, (y) to purchase, lease or otherwise acquire all or
substantially all of the assets of the Grantor or any of its Subsidiaries,
or (z) to purchase or otherwise acquire (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing 20% or more of the voting power of such Grantor or any of its
Subsidiaries (other than pursuant to this Agreement);
(ii) any person (other than the Grantor in a fiduciary capacity, or
Grantee or one of its subsidiaries in a fiduciary capacity) shall have
acquired beneficial ownership or the right to acquire beneficial ownership
of securities representing 20% or more of the voting power of Grantor after
the date of this Agreement (the term "beneficial ownership" for purposes of
this Agreement having the meaning assigned thereto in Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder);
(iii) Grantor shall have breached this Agreement in any material
respect, which breach shall not have been cured within fifteen (15) days
after notice thereof is given by Grantee to Grantor;
(iv) any person other than Grantee shall have made a bona fide
Takeover Proposal to the Grantor by public announcement or written
communication that is or becomes the subject of public disclosure, and
following such bona fide Takeover Proposal, the shareholders of the Grantor
vote not to adopt the Merger Agreement;
(v) Grantor shall have breached the Merger Agreement following a bona
fide Takeover Proposal to such Grantor or any of its Subsidiaries, which
breach would entitle Grantee to terminate the Merger Agreement and such
breach shall not have been cured prior to the Notice Date (as defined
below);
(vi) the shareholders of Grantor shall have voted and failed to
approve the Merger Agreement and the Merger at a meeting which has been
held for that purpose or any adjournment or postponement thereof, or such
meeting shall not have been held in violation of the Merger Agreement or
shall have been canceled prior to termination of the Merger Agreement if,
prior to such meeting (or if such meeting shall not have been held or shall
have been canceled, prior to such termination), it shall have been publicly
announced that any person (other than Grantee or any of its Subsidiaries)
shall have made, or disclosed an intention to make, a Takeover Proposal; or
(vii) the Grantor Board of Directors shall have withdrawn or modified
(or publicly announced its intention to withdraw or modify) in any manner
adverse in any respect to Grantee, its recommendation that the shareholders
of Grantor approve the transactions contemplated by the Merger Agreement,
or Grantor or any Grantor Subsidiary or group of Grantor Subsidiaries that
is, or would on an aggregate basis constitute, a Significant Subsidiary
shall have authorized, recommended, proposed (or publicly announced its
intention to authorize, recommend or propose) an agreement to engage in a
Takeover Proposal with any person other than Grantee or a Grantee
Subsidiary.
If more than one of the transactions giving rise to a Purchase Event under
this Agreement is undertaken or effected, then all such transactions shall be
deemed to give rise only to one Purchase Event with respect to the Option, which
Purchase Event shall be deemed continuing for all purposes hereunder until all
such transactions are abandoned.
"Repurchase Event" shall mean if (i) any person (other than the Grantee or
any Subsidiary of the Grantee) shall have acquired actual ownership or control,
or any "group" (as such term is defined under the Exchange Act) shall have been
formed which shall have acquired actual ownership or control, of securities
representing 35% or more of the voting power of Grantor, or (ii) any Acquisition
Proposal shall be consummated.
"Takeover Proposal" shall mean any tender or exchange offer, proposal for a
merger, consolidation or other business combination involving Grantor or any of
its Subsidiaries or any proposal or offer to acquire securities representing 20%
or more of the voting power of Grantor or 15% or more of the assets of Grantor,
other than the transactions contemplated by the Merger Agreement. If Grantor
receives an unsolicited Takeover Proposal, it
D-3
<PAGE> 150
shall notify Grantee promptly of the receipt of such Takeover Proposal, it being
understood, however, that the giving of such notice by Grantor shall not be a
condition to the right of Grantee to exercise the Option.
2. GRANT OF OPTION.
Subject to the terms and conditions set forth herein, Grantor hereby grants
to Grantee an unconditional, irrevocable Option to purchase up to 5.42% (i.e.,
4500) shares as of the date of this Agreement) of Grantor Common Stock at an
exercise price of $400 per share payable in cash as provided in Section 4. In
the event the Grantor issues or agrees to issue any shares of Grantor Common
Stock (other than as permitted under the Merger Agreement) at a price less than
the exercise price per share set forth in this section (as adjusted pursuant to
Section 6), the exercise price of the Option shall be such lesser price.
3. EXERCISE OF OPTION.
(a) Unless the Grantee shall have breached in any material respect any
material covenant, representation or warranty contained in this Agreement
or the Merger Agreement and such breach shall not have been cured, the
Grantee may exercise the Option, in whole or part, at any time or from time
to time if a Purchase Event shall have occurred with respect to the Grantor
and be continuing; provided that to the extent the Option shall not have
been exercised, it shall terminate and be of no further force and effect
(i) on the effective date of the transaction contemplated by the Merger
Agreement, or (ii) upon termination of the Merger Agreement in accordance
with the provisions thereof (other than a termination resulting from a
willful breach by the Grantor of the Merger Agreement or, following the
occurrence of a Purchase Event, failure of the Grantor's shareholders to
approve the Merger Agreement by the vote required under applicable law or
under the Grantor's articles), or (iii) 12 months after termination of the
Merger Agreement due to a willful breach by the Grantor of the Merger
Agreement or, following the occurrence of a Purchase Event, failure of the
Grantor's shareholders to approve the Merger Agreement by the vote required
under applicable law or under the Grantor's articles. Any exercise of the
Option shall be subject to compliance with applicable provisions of law.
(b) In the event the Grantee wishes to exercise the Option, it shall
send to the Grantor a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares
it will purchase pursuant to such exercise, and (ii) a place and date not
earlier than three (3) business days nor later than 60 business days after
the Notice Date for the closing of such purchase ("Closing Date"). If prior
notification to or approval of any federal or state regulatory agency is
required in connection with such purchase, the Grantee shall promptly file
the required notice or application for approval and shall expeditiously
process the same and the period of time that otherwise would run pursuant
to this section shall run instead from the date on which any required
notification period has expired or been terminated or any requisite
approval has been obtained and any requisite waiting period shall have
passed.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) At the closing referred to in Section 3, the Grantee shall pay to
the Grantor the aggregate purchase price for the shares of Grantor Common
Stock purchased pursuant to the exercise of the Option in immediately
available funds by a wire transfer to a bank account designated by the
Grantor. Grantor shall pay all expenses, and any and all United States
federal, state and local taxes and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates
under this Section 4 in the name of the Grantee or its assignee, transferee
or designee.
(b) At such closing, simultaneously with the delivery of funds as
provided in Section 4(a), the Grantor shall deliver to the Grantee a
certificate or certificates representing the number of shares of Grantor
Common Stock purchased by the Grantee, and the Grantee shall deliver to the
Grantor a letter agreeing that Grantee will not offer to sell or otherwise
dispose of such shares in violation of applicable law or the provisions of
this Agreement.
D-4
<PAGE> 151
(c) Certificates for Grantor Common Stock delivered at a closing
hereunder shall be endorsed with a restrictive legend which shall read
substantially as follows:
The transfer of the shares represented by this certificate is subject
to certain provisions of a Stock Option Agreement dated , 1998,
between the registered holder hereof and [Grantor] (a copy of which
agreement is on file at the principal office of [Grantor]). A copy of
such agreement will be provided to the holder hereof without charge
within five days after receipt by [Grantor] of a written request
therefor. The shares evidenced by this certificate have not been
registered under the Securities Act of 1933 and may not be sold,
pledged, transferred, or hypothecated except pursuant to an opinion of
counsel satisfactory to the corporation that such transfer is lawful.
The above legend shall be removed or modified as appropriate by delivery of
substitute certificate(s) without such legend if the Grantee shall have
delivered to the Grantor a copy of a letter from the staff of the Commission, or
an opinion of counsel, in form and substance satisfactory to Grantor, to the
effect that such legend is not required for purposes of the Securities Act of
1933, as amended.
5. REPRESENTATIONS.
The Grantor represents, warrants and covenants to the Grantee as follows:
(a) Grantor agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock;
(ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other
voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations or conditions to be observed or performed
hereunder by Grantor; (iii) promptly to take all action as may from time to
time be required (including (x) complying with all applicable premerger
notification, reporting and waiting period requirements specified in 15
U.S.C. Section 18a and regulations promulgated thereunder and (y) in the
event, under the Bank Holding Company Act of 1956, as amended (the "BHCA"),
or the Change in Bank Control Act of 1978, as amended, or any state or
other federal banking law, prior approval of or notice of the Federal
Reserve Board or to any state or other federal regulatory authority is
necessary before the Option may be exercised, cooperating fully with the
Grantee in preparing such applications or notices and providing such
information to the Federal Reserve Board or such state or other federal
regulatory authority as they may require) in order to permit the Grantee to
exercise the Option and Grantor duly and effectively to issue shares of
Grantor Common Stock pursuant thereto; and (iv) promptly to take all action
provided herein to protect the rights of the Grantee against dilution.
(b) The shares to be issued upon due exercise, in whole or in part, of
the Option, when paid for as provided herein, will be duly authorized,
validly issued and fully paid.
(c) Grantor has full corporate power and authority to execute, deliver
and perform this Agreement and all corporate action necessary for
execution, delivery and performance of this Agreement has been duly taken
by it.
(d) Neither the execution and delivery of this Agreement nor
consummation of the transactions contemplated hereby (assuming all
appropriate shareholder and regulatory approvals) will violate or result in
any violation of or be in conflict with or constitute a default under any
term of the articles, regulations or by-laws of Grantor or any agreement,
instrument, judgment, decree, statute, rule or order applicable to Grantor.
6. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
The Grantor agrees that, in the event of any change in its Grantor Common
Stock by reason of stock dividends, split-ups, mergers, recapitalizations,
combinations, exchanges of shares or the like, the type and number of shares
subject to the Option, and the purchase price per share, as the case may be,
shall be adjusted appropriately. The Grantor agrees that, in the event that any
additional shares of its Grantor Common Stock are issued or otherwise become
outstanding after the date of this Agreement (other than pursuant to this
Agreement), the number of shares of its Grantor Common Stock subject to the
Option shall be adjusted so that, after such
D-5
<PAGE> 152
issuance, it equals the same percentage (as that on the date of this Agreement)
of the number of shares of Grantor Common Stock then issued and outstanding
without giving effect to any shares subject to or issued pursuant to the Option.
Nothing contained in this Section 6 shall be deemed to authorize the Grantor to
breach any provision of the Merger Agreement.
7. TERMINATION.
This Agreement may be terminated at any time prior to the effective date of
the transaction set forth in the Merger Agreement, by action taken or authorized
by the Board of Directors of the terminating party or parties, whether before or
after approval by the stockholders of the matters presented in connection with
the Merger Agreement:
(a) by mutual consent of Grantee and Grantor;
(b) by either Grantee or Grantor if the Federal Reserve Board shall
have issued an order denying approval of the transaction set forth in the
Merger Agreement or if any governmental entity of competent jurisdiction
shall have issued a final permanent order enjoining or otherwise
prohibiting the consummation of the transactions contemplated by this
Agreement or the Merger Agreement, or imposing a Burdensome Condition, and
in any such case the time for appeal or petition for reconsideration of
such order shall have expired without such appeal or petition being
granted;
(c) by either Grantee or Grantor if the transactions contemplated by
the Merger Agreement shall not have been consummated on or before March 31,
1999, unless such date is extended by mutual consent of the parties hereto;
(d) by either Grantee or Grantor if no Purchase Event has occurred and
if any approval of their shareholders required for the consummation of the
transactions set forth in the Merger Agreement shall not have been obtained
by reason of the failure to obtain the required vote at a duly called and
held meeting of shareholders or at any adjournment thereof.
(e) by Grantor, if, on or prior to August , 1998, Grantor terminates
the Merger Agreement pursuant to the provisions of Section 9.1(e) thereof;
or
(f) by Grantor, if, on or prior to August , 1998, Grantee terminates
the Merger Agreement pursuant to the provisions of Section 9.1(d) thereof.
8. EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by any party as
provided in Section 7, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party or their
respective officers or directors except (i) Sections 9 and 10 of this
Agreement shall survive the termination and (ii) with respect to any
liabilities or damages incurred or suffered by a party as a result of the
breach by another party of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
(b) If a Purchase Event occurs with respect to the Grantor, then in
such event Grantor shall pay to the Grantee, within five business days
after a termination of this Agreement following such an event, the
reasonable expenses of Grantee incurred in connection with this Agreement
and the transactions set forth in the Merger Agreement, but not more than
$75,000.
9. CONFIDENTIALITY.
Except as and to the extent required by law, no party will disclose or use,
and will direct its representatives not to disclose or use, any Confidential
Information (as defined below) with respect to the other parties furnished or to
be furnished by such other parties, or their respective representatives to the
party or its representatives at any time or in any manner other than in
connection with its evaluation of the transaction proposed in this Agreement.
For purposes of this section, "Confidential Information' means any information
about the Merger Agreement and this Agreement as well as any information about a
party stamped "confidential" or identified in writing as such promptly following
its disclosure, unless (i) such information is already known to the party or its
representatives or to others not bound by a duty of confidentiality or such
information becomes publicly available through no
D-6
<PAGE> 153
fault of the party or its representatives, (b) the use of such information is
necessary in making any filing or obtaining any consent or approval required for
the consummation of the transactions set forth in the Merger Agreement, or (c)
the furnishing or use of such information is required by or necessary in
connection with legal proceedings. Upon the written request of a party, each of
the other parties will promptly return or destroy any Confidential Information
in its possession and certify in writing to the disclosing party that it has
done so.
10. COSTS.
Except as otherwise expressly agreed, each party will be responsible for
and bear all of its own costs and expenses (including any broker's or finder's
fees and the expenses of its representatives) incurred at any time in connection
with this Agreement and in pursuing or consummating the Merger Agreement.
11. SEVERABILITY.
If any term, provision, covenant or restriction contained in this Agreement
is held by a court or a federal or state regulatory agency of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions contained in this Agreement shall remain
in full force and effect, and shall in no way be affected, impaired or
invalidated. If for any reason such court or regulatory agency determines that
applicable law will not permit the Grantee to acquire the full number of shares
of Grantor Common Stock provided in Section 2 (as adjusted pursuant to Section
6), it is the express intention of the Grantor to allow the Grantee to acquire
such lesser number of shares as may be permissible, without any amendment or
modification hereof.
12. MISCELLANEOUS.
(a) Third Parties. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective permitted successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
(b) Entire Agreement. Except as otherwise expressly provided herein,
this Agreement contains the entire agreement among the parties with respect
to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral. The
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective permitted successors
and assigns.
(c) Assignment. Neither of the parties hereto may assign any of its
rights or obligations under this Agreement or the Option created hereunder
to any other person, without the express written consent of the other
party, except that in the event a Purchase Event shall have occurred and be
continuing, the Grantee may assign in whole or in part its rights and
obligations hereunder; provided, however, that Grantee may not assign its
rights under the Option except in (i) a widely dispersed public
distribution, (ii) a private placement in which no one party acquires the
right to purchase in excess of 2% of the Grantor Common Stock, (iii) an
assignment to a single party (e.g., a broker or investment banker) for the
purpose of conducting a widely dispersed public distribution on the
Grantee's behalf, or (iv) any other manner approved by applicable
regulatory authorities.
(d) Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered by
registered or certified mail, postage prepaid, express service, personal
delivery, telecopy or telefacsimile to the following addresses:
If to Bancshares, to:
10 East Main Street
P.O. Box 247
Salineville, Ohio 43940
Attn: Marty E. Adams, President & CEO
D-7
<PAGE> 154
If to Ohio Bank, to:
Richard R. Hollington, Jr., Esq.
Baker & Hostetler, LLP
National City Center
1900 E. 9th Street, Suite 3200
Cleveland, Ohio 44114
Attn: Richard R. Hollington, Jr., Chairman
(e) Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f) Specific Performance. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Agreement by any
party hereto and that this Agreement may be enforced by a party hereto
through injunctive or other equitable relief.
(g) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of Ohio applicable to agreements made and
entirely to be performed within such state and such federal laws as may be
applicable.
13. REPURCHASE AT THE OPTION OF GRANTEE.
(a) At the request of the Grantee at any time commencing upon the
first occurrence of a Repurchase Event and ending 12 months immediately
thereafter, Grantor shall repurchase from Grantee (i) the Option and (ii)
all shares of Grantor Common Stock purchased by Grantee pursuant hereto
with respect to which Grantee then has beneficial ownership. The date on
which Grantee exercises its rights under this Section 17 is referred to as
the "Request Date." Such repurchase shall be at an aggregate price (the
"Repurchase Consideration") equal to the sum of:
(i) the aggregate purchase price paid by Grantee for any shares of
Grantor Common Stock acquired pursuant to the Option with respect to
which Grantee then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price for each
share of Grantor Common Stock over (y) the exercise price (subject to
adjustment pursuant to Section 6 hereof), multiplied by the number of
shares of Grantor Common Stock with respect to which the Option has not
been exercised; and
(iii) the excess, if any, of the Applicable Price over the purchase
price (subject to adjustment pursuant to Section 6 hereof) paid (or, in
the case of Option Shares with respect to which the Option has been
exercised but the Closing Date has not occurred, payable) by Grantee for
each share of Grantor Common Stock with respect to which the Option has
been exercised and with respect to which Grantee then has beneficial
ownership, multiplied by the number of such shares.
(b) If Grantee exercises its rights under this section, Grantor shall,
within 10 business days after the Request Date, pay the Grantor Repurchase
Consideration to Grantee in immediately available funds, and
contemporaneously with such payment Grantee shall surrender to Grantor the
Option and the certificates evidencing the shares of Grantor Common Stock
purchased thereunder with respect to which Grantee then has beneficial
ownership, and Grantee shall warrant that it has sole record and beneficial
ownership of such shares and the Option and that the same are then free and
clear of all liens, claims, charges and encumbrances of any kind
whatsoever. Notwithstanding the foregoing, to the extent that prior
notification to or approval of the Federal Reserve Board or other
regulatory authority is required in connection with the repayment of all or
any portion of the Repurchase Consideration Grantee shall have the ongoing
option to revoke its request for repurchase pursuant to this section, in
whole or in part, or to require that Grantor deliver from time to time that
portion of the Repurchase Consideration that it is not then so prohibited
from paying and promptly file the required notice or application for
approval and expeditiously process the same (and each party shall cooperate
with the other in the filing of any such notice or application and the
obtaining of any such approval). If the Federal Reserve Board or any other
regulatory authority disapproves of any part of Grantor's proposed
repurchase pursuant to the section, Grantor shall promptly give notice of
D-8
<PAGE> 155
such fact to Grantee. If the Federal Reserve Board or other agency
prohibits the repurchase in part but not in whole, then Grantee shall have
the right (i) to revoke the repurchase request, or (ii) to the extent
permitted by the Federal Reserve Board or other agency, determine whether
the purchase should apply to the Option and or Option shares and to what
extent to each, and Grantee shall thereupon have the right to exercise the
Option as to the number of Option shares for which the Option was
exercisable at the Request Date less the sum of the number of shares
covered by the Option in respect of which payment has been made pursuant to
this section and the number of shares covered by the portion of the Option
(if any) that has been repurchased. Grantee shall notify Grantor of its
determination under the preceding sentence within five (5) business days of
receipt of notice of disapproval of the purchase.
Notwithstanding anything herein to the contrary, all of Grantee's rights
under this section shall terminate on the date of termination of this Option.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
to be effective as of the day and year set forth in the first paragraph above.
CITIZENS BANCSHARES, INC.
By: /s/ MARTY E. ADAMS
---------------------------------------
Marty E. Adams, President & CEO
THE OHIO BANK
By: /s/ RICHARD R. HOLLINGTON, JR.
---------------------------------------
Richard R. Hollington, Jr., Chairman
D-9
<PAGE> 156
APPENDIX E
VOTING AGREEMENT
E-1
<PAGE> 157
VOTING AGREEMENT
This Voting Agreement is entered into on July 22, 1998 (this "Agreement")
by and among Citizens Bancshares, Inc. ("Bancshares") and Mary H. Chandler,
Annett H. Guglielmi, Marcia H. Kehres, Richard R. Hollington, Jr., Richard R.
Hollington, III, Lorie H. Smith, and EKH Company, a general partnership formed
under the laws of Ohio (collectively, the "Control Shareholders").
WHEREAS, the Control Shareholders own 17,784 Class A Common Shares, par
value $50 per share (the "Class A Shares"), and 19,288 Class B Common Shares,
par value $50 per share (the "Class B Shares") of The Ohio Bank, a state banking
association organized and existing under the banking laws of the State of Ohio
(the "Bank") (all shares of such stock now owned and which may hereafter be
acquired by the Control Shareholders prior to the termination of this Agreement
shall be referred to herein as the "Control Shares");
WHEREAS, Bancshares and Bank propose to enter into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement"), which provides,
among other things, that an interim bank )which will be a wholly-owned
subsidiary of Bancshares) will merge with and into Bank pursuant to the Merger
(this and other capitalized terms used and not defined herein shall have the
meanings given to such terms in the Merger Agreement);
WHEREAS, it is a condition to the willingness of Bancshares to enter into
the Merger Agreement that the Control Shareholders agree, and in order to induce
Bancshares to enter into the Merger Agreement, the Control Shareholders have
agreed, to enter into this Agreement; and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereby agree as follows:
ARTICLE 1
VOTING OF CONTROL SHARES
1.1 VOTING AGREEMENT. The Control Shareholders hereby agree that during
the time this Agreement is in effect, any meeting of the shareholders of Bank,
however called, and in any action by consent of the shareholders of Bank, they
shall vote their Control Shares: (i) in favor of the Merger and the Merger
Agreement (as amended from time to time) and (ii) against any proposal for any
recapitalization, merger, sale of assets or other business combination between
Bank and any person or entity other than Bancshares, or any other action or
agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of Bank under the Merger Agreement
or that would result in any of the conditions to the obligations of Bank under
the Merger Agreement not being fulfilled.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
The Control Shareholders hereby represent and warrant to Bancshares as
follows:
2.1 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of them has all necessary
power and authority or capacity, as the case may be, to execute and deliver this
Agreement, to perform his, her or its obligations hereunder and to consummate
the transaction contemplated hereby. The general partners of EKH are Mary H.
Chandler, Annett H. Guglielmi, Marcia H. Kehres, and Richard R. Hollington, Jr.
This Agreement has been duly and validly executed and delivered by the Control
Shareholders and constitutes a legal, valid and binding obligation of them,
enforceable against them in accordance with its terms. Richard R. Hollington,
Jr., as a general partner of EKH, is hereby authorized to sign this Agreement on
behalf of EKH.
2.2 MAJORITY VOTING POWER. The Control Shares collectively represent a
majority of the voting power of the outstanding shares of all classes of capital
stock of the Bank. Class A Shares have one vote per share, and Class B Shares
have 20 votes per share, pursuant to the Articles of Incorporation of the Bank.
E-2
<PAGE> 158
2.3 NO CONFLICT.
(a) The execution and delivery of this Agreement by the Control
Shareholders do not, and the performance of this Agreement by them will not
(i) conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to them or by which the Control Shares are bound, or (ii)
result in any breach of or constitute a default (or event that with notice
or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on any of the Control
Shares pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which any such Control Shareholder is a party or by which any
such Control Shareholder or any Control Shares are bound, except, in the
case of clauses (i) and (ii), for any such conflicts, violations, breaches,
defaults or other occurrences which would not prevent or delay the
performance by any Control Shareholder of his, her or its obligations under
this Agreement.
(b) The execution and delivery of this Agreement by the Control
Shareholders do not, and the performance of this Agreement by them will
not, require any consent, approval, authorization or permit of, or filing
with or notification to, any federal, state, local or foreign regulatory
body.
2.4 TITLE TO THE CONTROL SHARES. Each Control Shareholder is the owner of
the number and class of Control Shares specified on Exhibit A hereto, free and
clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on voting rights, charges and other
encumbrances of any nature whatsoever. No Control Shareholder has appointed or
granted any proxy, which appointment or grant is still effective, with respect
to the Control Shares. Each Control Shareholder has sole voting power with
respect to his, her or its Control Shares.
ARTICLE 3
MISCELLANEOUS
3.1 TERMINATION. This Agreement shall terminate on the earlier to occur of
(i) the date of consummation of the Merger and (ii) the date of the termination
of the Merger Agreement.
3.2 SPECIFIC PERFORMANCE. The Control Shareholders agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that Bancshares shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
3.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings with
respect to the subject matter hereof.
3.4 AMENDMENT. This Agreement may not be amended except by an instrument
in writing signed by all the parties hereto.
3.5 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
3.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the law of the State of Ohio.
3.7 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which shall constitute on
and the same agreement.
3.8 ASSIGNMENTS. This Agreement shall not be assigned by operation of law
or otherwise.
E-3
<PAGE> 159
3.9 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any person any right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day first written above.
CITIZENS BANCSHARES, INC.
By: /s/ Mct E.R
Its: Pres CEO
<TABLE>
<S> <C>
MARY H. CHANDLER EKH COMPANY
/s/ Mary H. Chandler By: /s/ Richard R. Hollington, Jr.
Richard R. Hollington, Jr.
ANNETT H. GUGLIELMI General Partner
/s/ Annett H. Guglielmi
RICHARD R. HOLLINGTON, JR.
MARCIA H. KEHRES /s/ Richard R. Hollington, Jr.
/s/ Marcia H. Kehres
LORIE H. SMITH
RICHARD R. HOLLINGTON III /s/ Lorie H. Smith
/s/ Richard R. Hollington III
</TABLE>
E-4
<PAGE> 160
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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 contenders 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, 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 master 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:
II-1
<PAGE> 161
(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) or (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 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, employee, member, manager, 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
II-2
<PAGE> 162
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 Code of Regulations of Sky Financial Group, 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 serving 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, judgment 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 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, Sky Financial 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 Sky Financial's Code of Regulations are
further changed. Pursuant to the agreements, indemnitees receive the highest
available of the following: (i) the benefits provided by Sky Financial's Code of
Regulations as of the date of the agreement; (ii) the benefits provided by Sky
Financial's Code of 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 Sky Financial exists at the time indemnifiable
expenses are incurred; (v) the benefits available under liability insurance
obtained by Sky Financial; (vi) the benefits which would have been available to
the indemnitee under a Sky Financial insurance policy which was in effect prior
to and expired on May 8, 1986; or (vii) such other benefits 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, Sky Financial.
II-3
<PAGE> 163
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<C> <S>
2 Agreement and Plan of Merger, dated as of July 22, 1998,
between Citizens Bancshares, Inc., The Ohio Bank and Interim
Bank (included as Appendix A to the Proxy
Statement/Prospectus)
3.1 Registrant's Fifth Amended Articles of Incorporation
(incorporated by reference to Exhibit 3(1) of Form S-4
Registration Statement No. 333-60741)
3.2 Registrant's Code of Regulations, as amended (incorporated
by reference to Exhibit 3(2) of Form S-4 Registration
Statement No. 0-18209 of the Registrant)
3.3 Amendment to the Registrant's Fifth Amended and Restated
Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3(3) of Form S-4 Registration Statement
No. 333-60741)
3.4 Amendment to the Code of Regulations of the Registrant
(incorporated by reference to Exhibit 3(4) of Form S-4
Registration Statement No. 333-60741)
5 Opinion of Squire, Sanders & Dempsey L.L.P. regarding
legality
8 Form of Opinion of Baker & Hostetler LLP regarding tax
matters
9 Voting Agreement, dated as of July 22, 1998, by and among
Citizens Bancshares, Inc. and Mary H. Chandler, Annett H.
Guglielmi, Marcia H. Kehres, Richard R. Hollington, Jr.,
Richard R. Hollington III, Lorie H. Smith and EKH Company
(included as Appendix E to the Proxy Statement/Prospectus)
10 Stock Option Agreement, dated as of July 23, 1998, by and
between Citizens Bancshares, Inc. and the Ohio Bank
(included as Appendix D to the Proxy Statement/Prospectus)
23.1 Consent of Squire, Sanders & Dempsey L.L.P. (included in
Exhibit 5)
23.2 Consent of Baker & Hostetler LLP
23.3 Consent of Danielson Associates, Inc.
23.4 Consent of PricewaterhouseCoopers LLP
23.5 Consent of Crowe, Chizek and Company LLP
23.6 Consent of Crowe, Chizek and Company LLP
23.7 Consent of SR Snodgrass
24 Power of Attorney
99 Proxy card of The Ohio Bank
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
II-4
<PAGE> 164
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment will be deemed
to be a new registration statement relating tot he securities offered
therein, and the offering of such securities at that time will be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities which remain unsold at the termination of the
offering;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3; and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Securities and
Exchange Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(b) 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 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement will be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
will be deemed to be the initial bona fide offering thereof.
(c)(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned registrant hereby undertakes that every prospectus (i)
that is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act 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 will be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time will be deemed to be
the initial bona fide offering thereof.
(d) 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.
(e) The undersigned registrant hereby undertakes to respond to request for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(f) 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.
II-5
<PAGE> 165
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 Bowling Green, Ohio on October 13,
1998.
SKY FINANCIAL GROUP, INC.
By: /s/ MARTY E. ADAMS
------------------------------------
Marty E. Adams
President and Chief Operating
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 date
indicated.
<TABLE>
<S> <C>
/s/ MARTY E. ADAMS October 13, 1998
- ----------------------------------------------------- --------------------------------------------
Marty E. Adams Date
President, Chief Operating Officer and Director
/s/ DAVID R. FRANCISCO October 13, 1998
- ----------------------------------------------------- --------------------------------------------
David R. Francisco Date
Chairman of the Board, Chief Executive Officer,
Treasurer, Principal Executive Officer, Principal
Financial Officer and Director
/s/ EDWARD J. REITER October 13, 1998
- ----------------------------------------------------- --------------------------------------------
Edward J. Reiter Date
Senior Chairman of the Board of Directors and
Director
/s/ JAMES C. MCBANE October 13, 1998
- ----------------------------------------------------- --------------------------------------------
James C. McBane Date
Vice Chairman of the Board of Directors and Director
- ----------------------------------------------------- --------------------------------------------
Fred H. Johnson, III Date
Director
/s/ KEITH D. BURGETT October 13, 1998
- ----------------------------------------------------- --------------------------------------------
Keith D. Burgett Date
Director
/s/ WILLARD L. DAVIS October 13, 1998
- ----------------------------------------------------- --------------------------------------------
Willard L. Davis Date
Director
</TABLE>
II-6
<PAGE> 166
<TABLE>
<S> <C>
/s/ KENNETH E. MCCONNELL October 13, 1998
- ------------------------------------------------------ -------------------------------------------------------
Kenneth E. McConnell Date
Director
/s/ GLENN F. THORNE October 13, 1998
- ------------------------------------------------------ -------------------------------------------------------
Glenn F. Thorne Date
Director
/s/ GERARD P. MASTROIANNI October 13, 1998
- ------------------------------------------------------ -------------------------------------------------------
Gerard P. Mastroianni Date
Director
/s/ DEL E. GOEDEKER October 13, 1998
- ------------------------------------------------------ -------------------------------------------------------
Del E. Goedeker Date
Director
/s/ JOSEPH W. TOSH, II October 13, 1998
- ------------------------------------------------------ -------------------------------------------------------
Joseph W. Tosh, II Date
Director
/s/ H. LEE KINNEY October 13, 1998
- ------------------------------------------------------ -------------------------------------------------------
H. Lee Kinney Date
Director
/s/ GERALD D. ALLER October 13, 1998
- ------------------------------------------------------ -------------------------------------------------------
Gerald D. Aller Date
Director
- ------------------------------------------------------ -------------------------------------------------------
David A. Bryan Date
Director
- ------------------------------------------------------ -------------------------------------------------------
D. James Hillicker Date
Director
/s/ MARILYN O. MCALEAR October 13, 1998
- ------------------------------------------------------ -------------------------------------------------------
Marilyn O. McAlear Date
Director
- ------------------------------------------------------ -------------------------------------------------------
Thomas S. Noneman Date
Director
- ------------------------------------------------------ -------------------------------------------------------
Emerson J. Ross, Jr. Date
Director
</TABLE>
II-7
<PAGE> 167
<TABLE>
<S> <C>
/s/ DOUGLAS J. SHIERSON October 13, 1998
- ------------------------------------------------------ -------------------------------------------------------
Douglas J. Shierson Date
Director
- ------------------------------------------------------ -------------------------------------------------------
C. Gregory Spangler Date
Director
- ------------------------------------------------------ -------------------------------------------------------
Robert E. Stearns Date
Director
</TABLE>
* The undersigned attorney-in-fact, by signing his name below, does hereby sign
this Registration Statement on Form S-4 on behalf of the above-named officers
and directors pursuant to a power of attorney executed by such persons and
filed with the Securities and Exchange Commission contemporaneously herewith.
/s/ W. GRANGER SOUDER, JR.
-------------------------------------
W. Granger Souder, Jr.
Attorney-In-Fact
II-8
<PAGE> 168
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
<C> <S> <C>
2 Agreement and Plan of Merger, dated as of July 22, 1998,
between Citizens Bancshares, Inc., The Ohio Bank and Interim
Bank (included as Appendix A to the Proxy
Statement/Prospectus)
3.1 Registrant's Fifth Amended Articles of Incorporation
(incorporated by reference to Exhibit 3(1) of Form S-4
Registration Statement No. 333-60741)
3.2 Registrant's Code of Regulations, as amended (incorporated
by reference to Exhibit 3(2) of Form S-4 Registration
Statement No. 0-18209 of the Registrant)
3.3 Amendment to the Registrant's Fifth Amended and Restated
Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3(3) of Form S-4 Registration Statement
No. 333-60741)
3.4 Amendment to the Code of Regulations of the Registrant
(incorporated by reference to Exhibit 3(4) of Form S-4
Registration Statement No. 333-60741)
5 Opinion of Squire, Sanders & Dempsey L.L.P. regarding
legality
8 Form of Opinion of Baker & Hostetler LLP regarding tax
matters
9 Voting Agreement, dated as of July 22, 1998, by and among
Citizens Bancshares, Inc. and Mary H. Chandler, Annett H.
Guglielmi, Marcia H. Kehres, Richard R. Hollington, Jr.,
Richard R. Hollington III, Lorie H. Smith and EKH Company
(included as Appendix E to the Proxy Statement/Prospectus)
10 Stock Option Agreement, dated as of July 23, 1998, by and
between Citizens Bancshares, Inc. and the Ohio Bank
(included as Appendix D to the Proxy Statement/Prospectus)
23.1 Consent of Squire, Sanders & Dempsey L.L.P. (included in
Exhibit 5)
23.2 Consent of Baker & Hostetler LLP
23.3 Consent of Danielson Associates, Inc.
23.4 Consent of PricewaterhouseCoopers LLP
23.5 Consent of Crowe, Chizek and Company LLP
23.6 Consent of Crowe, Chizek and Company LLP
23.7 Consent of SR Snodgrass
24 Power of Attorney
99 Proxy card of The Ohio Bank
</TABLE>
<PAGE> 1
EXHIBIT 5
[SQUIRE, SANDERS & DEMPSEY L.L.P. LETTERHEAD]
October 14, 1998
Citizens Bancshares, Inc.
(Renamed "Sky Financial Group, Inc.")
221 South Church Street
Bowling Green, Ohio 43402
Ladies and Gentlemen:
Reference is made to the Registration Statement on Form S-4
("Registration Statement") to be filed by Citizens Bancshares, Inc. (Renamed
"Sky Financial Group, Inc.") ("Sky Financial") in connection with the issuance
of up to 5,249,750 of its common shares, no par value (the "Sky Financial Common
Shares"), upon the terms and conditions set forth in the Agreement and Plan of
Merger, dated as of July 22, 1998, by and between Sky Financial and The Ohio
Bank, providing for the merger of an interim bank subsidiary of Sky Financial
with and into The Ohio Bank (the "Merger Agreement"). We have examined the
Merger Agreement, and such documents and matters of law as we have deemed
necessary or appropriate for the purpose of rendering this opinion.
Based upon the foregoing, we are of the opinion that the Sky Financial
Common Shares, when issued by Sky Financial as contemplated in the Merger
Agreement and the Registration Statement, will be legally issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference of our firm under the caption
"Legal Opinions" in the prospectus/proxy statement contained therein.
Respectfully submitted,
SQUIRE, SANDERS & DEMPSEY L.L.P.
<PAGE> 1
EXHIBIT 8
---------
[Date]
Board of Directors
The Ohio Bank
236 South Main Street
Findlay, OH 45840
Gentlemen:
This is in response to your request for our tax opinion on the
proposed transaction (the "Transaction"), involving the merger of an interim
bank ("Interim Bank"), a wholly-owned subsidiary of Sky Financial Group, Inc.,
formerly named Citizens Bancshares, Inc. ("Bancshares"), into The Ohio Bank
("Bank"). The conclusions presented herein are based on the facts and
representations in the Agreement and Plan of Merger by and among Bancshares,
Interim Bank and Bank entered into as of July 22, 1998 (the "Agreement"), the
Proxy Statement/Prospectus included as part of the Registration Statement on
Form S-4 filed by Bancshares with the Securities and Exchange Commission ("SEC")
on September 16, 1998 and the facts and representations set forth in letters in
the forms of Exhibits A and B dated _________, 1998, ("Representation Letters")
and the applicable tax law as it exists today. We have assumed with your consent
that the representations in such Representation Letters are true, correct and
complete and there have been no changes to any of the facts material to this
opinion between the date of the Agreement and the date of the Opinion.
FACTS
- -----
Bancshares is a bank holding company organized and existing
under the laws of the State of Ohio. Bancshares owns all of the stock of two
commercial banks, a courier company and a reinsurance company. In addition,
Bancshares has entered into an Agreement and Plan of Merger amended and restated
as of August 5, 1998 providing for the merger of Mid Am, Inc., a bank holding
company organized and existing under the laws of Ohio, with and into Bancshares.
Mid Am, Inc. is a bank holding company with five bank subsidiaries and seven
financial services subsidiaries.
The authorized capital stock of Bancshares is (i) 36,000,000
common shares, without par value, one vote per share ("Bancshares Common
Shares"), of which approximately 17,739,117 shares were outstanding as of
September 16, 1998, and (ii) 200,000 shares of serial preferred stock, par value
of $10.00 per share, none of which was outstanding as of September 16, 1998. In
connection with the merger of Mid-Am, Inc. on October 2, 1998, the name of
Bancshares was changed to Sky Financial Group, Inc. and the authorized capital
stock of Bancshares was increased to (i) 150,000,000 common shares, without par
value, one vote per share and (ii) 10,000,000 shares of serial preferred stock.
An additional 17,994,398 Bancshares Common Shares were issued. Bancshares Common
Shares are voting stock which are traded on the NASDAQ National Market.
<PAGE> 2
Board of Directors
Date
Page 2
Interim Bank, a wholly-owned subsidiary of Bancshares, is a
corporation organized under the laws of the State of Ohio for purposes of this
transaction. The authorized capital stock of Interim Bank consists of 500 shares
of voting common stock, $1.00 par value, all of which are issued and outstanding
and are owned by Bancshares.
Bank is a state banking association organized and existing
under the laws of the State of Ohio. Bank is engaged in the commercial and
consumer banking and trust business through eighteen branch offices.
The authorized capital stock of Bank consists of 50,411 Class
A common shares, par value $50.00 per share, one vote per share ("Bank Class A
Common Shares") of which 45,772 shares are issued and outstanding and 37,589
Class B common shares, par value $50.00 per share, twenty votes per share ("Bank
Class B Common Shares") of which 37,228 shares are issued and outstanding (Bank
Class A Common Shares and Bank Class B Common Shares, collectively "Bank Common
Shares").
THE TRANSACTION
- ---------------
Bancshares and Bank will combine their respective businesses
through the Transaction which is intended to be a tax-free reorganization so
that Bancshares may expand its banking facilities and services in Ohio and Bank
may enhance its financial strength to increase opportunities for growth and
flexibility in meeting the challenges affecting the banking and financial
services industries.
The Agreement provides for the acquisition of Bank by
Bancshares through the merger of Interim Bank with and into Bank, with Bank
being the surviving corporation (the "Merger"). As a result of the Merger, the
separate existence of Interim Bank shall cease, and all of its assets,
properties, obligations and liabilities shall become the assets, properties,
obligations and liabilities of Bank as the surviving corporation in the Merger.
The affirmative vote of a majority of the voting power of outstanding Bank Class
A Common Shares and Bank Class B Common Shares, voting as one class, is required
for approval of the Agreement.
At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, each share of Interim Bank issued and
outstanding at the Effective Time will be converted into and become one share of
common stock of Bank and each Bank Common Share outstanding at the Effective
Time shall be converted into and become 63.25 Bancshares Common Shares, plus
cash in lieu of fractional shares, except that Bank Common Shares which have not
been voted in favor of the approval of the Merger and with respect to which
dissenters' rights have been perfected in accordance with Section 1701.85 of the
Ohio Revised Code (the "Dissenting Shares") shall not be converted into
Bancshares Common Shares. Section 8.1(h) of the Agreement (Conditions to
Bancshares Obligations; Dissenters' Rights) provides that the Dissenting Shares
combined with fractional shares for which cash is paid may not exceed 10% of the
issued and outstanding Bank Common Shares.
<PAGE> 3
Board of Directors
Date
Page 3
At the Effective Time the holders of certificates representing
Bank Common Shares, including holders of Dissenting Shares, shall cease to have
any rights as shareholders of Bank.
No fractional Bancshares Common Shares will be issued in
exchange for Bank Common Shares. In lieu of such fractional share interest, any
holder of Bank Common Shares who would otherwise be entitled to a fractional
Bancshares Common Shares will, upon surrender of his, her or its certificate or
certificates representing Bank Common Shares, be paid the applicable cash value
of such fractional share interest.
REPRESENTATIONS
- ---------------
In order to determine the consequences of the Transaction for
federal income tax purposes, you have directed us to rely on the following
assumptions and representations:
(1) The fair market value of the Bancshares Common Shares received by
each shareholder of Bank will be approximately equal to the fair market
value of Bank Class A Common Shares and Bank Class B Common Shares
surrendered in the Transaction.
(2) There is no plan or intention by the shareholders of Bank who own 1
percent or more of the Bank Common Shares, and to the best of the
knowledge of management of Bank, there is no plan or intention by the
remaining shareholders of Bank to sell, exchange or otherwise transfer
ownership (including by derivative transactions such as an equity swap
which would have the economic effect of a transfer of ownership) to
Bancshares or any person related to Bancshares (within the meaning of
Treasury Regulation Section 1.368-1(e)(3)), directly or indirectly
(including through partnerships or through third parties in connection
with a plan to so transfer ownership) of a number of Bancshares Common
Shares received in the Transaction that would reduce the shareholders'
ownership of Bancshares Common Shares to a number of shares having a
value, as of the date of the Transaction, of less than 50 percent of
the value of all of the formerly outstanding Bank Common Shares as of
the same date. For purposes of this representation, Bank Common Shares
exchanged for cash or other property and Bank Common Shares exchanged
for cash in lieu of fractional Bancshares Common Shares will be treated
as outstanding Bank Common Shares at the date of the Transaction.
Moreover, Bank Common Shares and Bancshares Common Shares held by the
shareholders of Bank and otherwise sold, redeemed, or disposed of prior
or subsequent to the Transaction are considered in making this
representation.
(3) Following the Transaction, Bank will hold at least 90 percent of
the fair market value of its net assets and at least 70 percent of the
fair market value of its gross assets and at least 90 percent of the
fair market value of Interim Bank's net assets and at least 70 percent
of the fair market value of Interim Bank's gross assets held
immediately prior to the Transaction. For purposes of this
representation, amounts paid by Bank or Interim Bank to shareholders
who receive cash or other property, amounts used by Bank or Interim
Bank to pay reorganization expenses, and all redemptions and
distributions
<PAGE> 4
Board of Directors
Date
Page 4
(except for regular, normal dividends) made by Bank will be included as
assets of Bank or Interim Bank, respectively, immediately prior to the
Transaction.
(4) Prior to the Transaction, Bancshares will be in control of Interim
Bank within the meaning of Section 368(c) of the Internal Revenue Code
of 1986, as amended (the "Code"), which means ownership of stock
possessing at least 80 percent of the total combined voting power of
all classes of stock entitled to vote and at least 80 percent of the
total number of shares of each other class of stock of the corporation.
(5) Following the Transaction, Bank will not issue additional shares of
its stock that would result in Bancshares losing control of Bank within
the meaning of Section 368(c) of the Code.
(6) Bancshares has no plan or intention to reacquire any of the
Bancshares Common Shares issued in the Transaction; however, on October
1, 1998, in connection with the merger of Mid-Am, Inc., and Bancshares,
the Board of Directors of Bancshares adopted a resolution authorizing a
program to purchase on the open market or in privately negotiated
transactions up to 1,800,000 Bancshares Common Shares through October
1, 1999 (the "Program"), which Shares represent approximately 5% of
Bancshares Common Shares outstanding immediately before the
Transaction, approximately 4.4% of the Bancshares Common Shares
outstanding immediately after the Transaction, and approximately 34.3%
of the Bancshares Common Shares issued in the Transaction. The Program
was adopted as a continuation of a stock repurchase program of Mid-Am,
Inc., in effect since 1995 to repurchase shares and utilize such shares
for stock option exercises and future stock dividends. The Program was
not adopted either in connection with or in contemplation of the
Transaction. Bancshares' purposes in adopting the Program were to
provide continuity with the existing program of Mid-Am, Inc., and to
supply shares needed for stock option exercises and future stock
dividends. Bancshares has no plan or intention to make any open market
purchases under the Program from any shareholder of Bank and will
instruct its broker not to make any open market purchase if there is
any reason to believe that the seller in such transaction is a
shareholder of Bank. (To assist the broker in fulfilling this
instruction, Bancshares will provide the broker with a list of all
shareholders of Bank.) In addition, Bancshares will make no purchases
of Bancshares Common Shares issued in the Transaction from any
shareholder of Bank in a privately negotiated transaction. Bancshares
has no plan or intention to increase the maximum number of shares
authorized to be purchased under the Program. In addition, Bancshares
will cause all persons related to Bancshares (within the meaning of
Treasury Regulation Section 1.368-1(e)(3)) not to, redeem, purchase,
exchange or otherwise acquire (including by derivative transactions
such as an equity swap which would have the economic effect of an
acquisition), directly or indirectly (including through partnership or
through third parties in connection with a plan to so acquire), a
number of Bancshares Common Shares to be received by Bank shareholders
in connection with the Transaction that would reduce the Bank
shareholders' ownership of Bancshares Common Shares to a number of
shares having a value, as of the Effective Time, of less than 50% of
the total
<PAGE> 5
Board of Directors
Date
Page 5
value of Bank Common Shares immediately prior to the Effective Time.
Bank Common Shares that are redeemed or sold or otherwise transferred
to Bank, Bancshares, or any person related to Bank or Bancshares prior
to the Transaction and in contemplation or as part of the Transaction
will be taken into account for purposes of this representation.
(7) Bancshares has no plan or intention to liquidate Bank; to merge
Bank with or into another corporation (other than the mergers of two
affiliates of Bancshares, American Community Bank, N.A. and Amerifirst
Bank, N.A. into Bank); to sell or otherwise dispose of the stock of
Bank; or to cause Bank to sell or otherwise dispose of any of its
assets or any of the assets acquired from Interim Bank, except for
dispositions made in the ordinary course of business.
(8) Interim Bank will have no liabilities assumed by Bank and will not
transfer to Bank any assets subject to liabilities in the Transaction.
(9) Following the Transaction, Bank will continue its historic business
or use a significant portion of its historic business assets in a
business.
(10) Bancshares, Interim Bank, Bank and the shareholders of Bank will
pay their respective expenses, if any, incurred in connection with the
Transaction.
(11) There is no intercorporate indebtedness existing between
Bancshares and Bank or between Interim Bank and Bank that was issued,
acquired, or will be settled at a discount.
(12) In the Transaction, Bank Common Shares representing control of
Bank, as defined in Section 368(c) of the Code, will be exchanged
solely for voting stock of Bancshares. For purposes of this
representation, Bank Common Shares exchanged for cash or other property
originating with Bancshares will be treated as outstanding Bank Common
Shares on the date of the Transaction.
(13) At the time of the Transaction, Bank will not have outstanding any
warrants, options, convertible securities, or other type of right
pursuant to which any person could acquire stock in Bank that, if
exercised or converted, would affect Bancshares' acquisition or
retention of control of Bank, as defined in Section 368(c) of the Code.
(14) Neither Bancshares nor any person related to Bancshares (within
the meaning of Section 1.368-1(e)(3)) owns, directly or indirectly, nor
has it owned during the past five years, directly or indirectly, any
shares of the stock of Bank.
(15) Neither Bancshares, Interim Bank nor Bank is an "investment
company" i.e., a regulated investment company, a real estate investment
trust, or a corporation 50 percent or more of the value of whose total
assets are stock and securities and 80 percent or more of the value of
whose total assets are assets held for investment. In making the
50-percent and 80-percent determinations under the preceding sentence,
stock and securities in any subsidiary corporation are disregarded and
the parent corporation is deemed to
<PAGE> 6
Board of Directors
Date
Page 6
own its ratable share of the subsidiary's assets, and a corporation is
considered a subsidiary if the parent owns 50 percent or more of the
combined voting power of all classes of stock entitled to vote, or 50
percent or more of the total value of shares of all classes of stock
outstanding. In determining total assets, cash and cash items
(including receivables), Government securities, and assets acquired
(through incurring indebtedness or otherwise) for purposes ceasing to
be an investment company are excluded. For purposes of this
representation, a "regulated investment company" is a corporation which
is registered under the Investment Company Act of 1940, as amended, as
a management company or unit investment trust or which has in effect an
election under the Investment Company Act to be treated as a business
development company.
(16) On the date of the Transaction, the fair market value of the
assets of Bank will exceed the sum of its liabilities, plus the amount
of liabilities, if any, to which its assets are subject.
(17) Bank is not under the jurisdiction of a court in a case under
Title 11 (Bankruptcy) of the United States Code or a receivership,
foreclosure, or similar case in Federal or state court.
(18) The payment of cash in lieu of fractional Bancshares Common Shares
is solely for the purpose of avoiding the expense and inconvenience to
Bancshares of issuing fractional shares and does not represent
separately bargained-for consideration. The total cash consideration
that will be paid in the Transaction to the shareholders of Bank
instead of issuing fractional Bancshares Common Shares will not exceed
one percent of the total consideration that will be issued in the
Transaction to the shareholders of Bank in exchange for their Bank
Common Shares.
(19) None of the compensation to be received by any
shareholder-employees of Bank will be separate consideration for, or
allocable to, any of their Bank Common Shares; none of Bancshares
Common Shares received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(20) Bancshares, Interim Bank, and Bank will not take any position on
any Federal, state or local income tax return or franchise tax return,
or take any other action or reporting position, that is inconsistent
with the treatment of the Transaction as a reorganization with the
meaning of Section 368(a) of the Code or with the representations made
herein.
(21) Interim Bank is a corporation newly formed for the purpose of
participating in the Transaction and at no time prior to the
Transaction has had assets or business operations.
<PAGE> 7
Board of Directors
Date
Page 7
APPLICABLE LAW
- --------------
Section 368(a)(1)(A) of the Code provides that the term
"reorganization" means a statutory merger or consolidation. Under Section
1.368-2(b)(1) of the Treasury Regulations ("Regulations"), in order to qualify
as a reorganization under Section 368(a)(1)(A) of the Code, the transaction must
be a merger or consolidation effected pursuant to the corporation laws of the
United States or a State or Territory or the District of Columbia. Sections
8.1(c)(iv) and 8.2(b)(iv) of the Agreement provide as a condition to Bank's and
Bancshares' obligation to consummate the Transaction for the delivery of
opinions by Squire, Sanders & Dempsey L.L.P. and Baker & Hostetler L.L.P. to the
effect that "the Merger will become effective under Ohio law". Assuming that the
opinions required under Section 8.1(c)(iv) and 8.2(b)(iv) of the Agreement will
be delivered, the Merger should qualify as a reorganization within the meaning
of Section 368(a)(1)(A) of the Code.
Section 368(a)(2)(E) of the Code provides: "A transaction
otherwise qualifying under paragraph (1)(A) shall not be disqualified by reason
of the fact that stock of a corporation (referred to in this subparagraph as the
"controlling corporation") which before the merger was in control of the merged
corporation is used in the transaction, if -- (i) after the transaction, the
corporation surviving the merger holds substantially all of its properties and
of the properties of the merged corporation (other than stock of the controlling
corporation distributed in the transaction); and (ii) in the transaction, former
shareholders of the surviving corporation exchanged, for an amount of voting
stock of the controlling corporation, an amount of stock in the surviving
corporation which constitutes control of such corporation."
Section 368(c) of the Code provides that the term "control"
means the ownership of stock possessing at least 80 percent of the total
combined voting power of all classes of stock entitled to vote and at least 80
percent of the total number of shares of all other classes of stock of the
corporation. At the time of the Transaction, Bancshares will directly own 100%
of the issued and outstanding stock of Interim Bank; therefore, Bancshares will
be in control of Interim Bank within the meaning of Section 368(c) of the Code.
Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the
"substantially all" requirement of Section 368(a)(2)(E) is satisfied if the
corporation surviving the merger holds substantially all of its properties and
of the properties of the merged corporation, i.e., assets representing at least
90 percent of the fair market value of the net assets and at least 70 percent of
the fair market value of the gross assets held by such corporations immediately
prior to the merger. All payments to dissenters, all payments by the corporation
surviving the merger or the merged corporation to shareholders who receive cash
or other property, all payments by either corporation of reorganization
expenses, and all redemptions and distributions (except for regular and normal
distributions) made by the corporations immediately preceding the merger will be
considered as assets held by the corporation immediately prior to the merger. It
has been represented that immediately following the transaction Bank will hold
at least 90 percent of the fair market value of its net assets and at least 70
percent of the fair market value of its gross assets and at least 90 percent of
the fair market value of Interim Bank's net assets and at least 70
<PAGE> 8
Board of Directors
Date
Page 8
percent of the fair market value of Interim Bank's gross assets held immediately
prior to the Transaction.
In the Transaction, the shareholders of Bank will receive
Bancshares Common Shares, which is voting stock. It has been represented that in
the Transaction, Bank Common Shares representing control of Bank, as defined in
Section 368(c) of the Code, will be exchanged solely for voting stock of
Bancshares and that at the time of the Transaction, Bank will not have
outstanding any warrants, options, convertible securities, or other type of
right pursuant to which any person could acquire stock in Bank that, if
exercised or converted, would affect Bancshares' acquisition and retention of
control of Bank, as defined in Section 368(c) of the Code.
Based on the above representations, the Transaction satisfies
the requirements of Section 368(a)(2)(E) and, therefore, the Merger is not
disqualified by the fact that the Bancshares Common Shares are used in the
Transaction.
It has been represented that the payment of cash in lieu of
fractional Bancshares Common Shares is solely for the purpose of avoiding the
expense and inconvenience to Bancshares of issuing fractional shares and does
not represent separately bargained-for consideration. In Rev. Rul. 66-365,
1966-2 C.B. 116, the Internal Revenue Service held that the receipt of cash in
lieu of fractional shares under such circumstances will not violate the "solely
for voting stock" requirement of Section 368(a)(1)(C).
In addition to the definitional requirements set forth in the
statute, in order for a transaction to be a tax-free reorganization, certain
requirements set forth under Section 1.368-1(b) of the Regulations must be
satisfied. The Regulations provide that the purpose of the reorganization
provisions of the Code is to except from the general rule of taxability certain
specifically described exchanges incident to such readjustments of corporate
structures made in one of the particular ways specified in the Code, as are
required by business exigencies and which effect only a readjustment of
continuing interests in property under the modified corporate form. Requisite to
a reorganization under the Code are a continuity of the business enterprise
under the modified corporate form and a continuity of interest therein on the
part of those persons who, directly or indirectly, were the owners of the
enterprise prior to the reorganization.
To be treated as a reorganization, the transaction must be
planned and carried out for a genuine business purpose. The Transaction will
permit Bank to benefit from Bancshares' financial strength to meet the
challenges affecting the banking and financial services industry and will permit
Bancshares to benefit from Bank's eighteen branches to expand its banking
facilities and services in Ohio. This should satisfy the genuine business
purpose requirement.
Section 1.368-1(d) of the Regulations provides that continuity
of business enterprise requires that the acquiring corporation either (i)
continue the acquired corporation's historic business or (ii) use a significant
portion of the acquired corporation's historic assets in a business. It has been
represented that after the Transaction, Bancshares will cause Bank to continue
its historic business or use a significant portion of its historic business
assets in its
<PAGE> 9
Board of Directors
Date
Page 9
businesses. Accordingly, the Transaction should meet the continuity of business
enterprise requirement.
Under Section 1.368-1(b) of the Regulations, the continuity of
interest doctrine requires that in a reorganization there must be a continuing
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization. Rev. Proc. 77-37
(supra) provides that the continuity of interest requirement of Section
1.368-1(b) of the Regulations is satisfied if there is continuing interest
through the stock ownership in the acquiring or transferee corporation on the
part of the former shareholders of the acquired or transferor corporation which
is equal in value, as of the effective date of the reorganization, to at least
50 percent of the value of all of the formerly outstanding stock of the acquired
or transferor corporation as of the same date.
It is not necessary that each shareholder of the acquired or
transferor corporation receive in the exchange stock of the acquiring or
transferee corporation, or a corporation in "control" thereof, which is equal in
value to at least 50 percent of the value of his former stock interest in the
acquired or transferor corporation, so long as one or more shareholders of the
acquired or transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation or a corporation in
"control" thereof, which is, in the aggregate, equal in value to at least 50
percent of the value of all of the formerly outstanding stock of the acquired or
transferor corporation. Sales, redemptions, and other dispositions of stock
occurring prior to the exchange to persons related (within the meaning of
Section 1.368-1(e)(3) of the Regulations) to the target corporation or the
issuing corporation and sales, redemptions and other dispositions of stock
occurring subsequent to the exchange to persons related (within the meaning of
Section 1.368-1(e)(3) of the Regulations) to the issuing corporation will be
considered in determining whether there is a 50 percent continuing interest
through stock ownership as of the effective date of the reorganization.
It has been represented that there is no plan or intention by
the shareholders of Bank who own 1 percent or more of Bank Common Shares and to
the best knowledge of management of Bank, there is no plan or intention on the
remaining shareholders of Bank to sell, exchange, or otherwise transfer
ownership (including by derivative transactions such as an equity swap which
would have the economic effect of a transfer of ownership) to Bancshares or any
person related to Bancshares (within the meaning of Treasury Regulation Section
1.368-1(e)(3)), directly or indirectly (including through partnerships or
through third parties in connection with a plan to so transfer ownership), of a
number of Bancshares Common Shares received in the Transaction that would reduce
the shareholders' ownership of Bancshares Common Shares to a number of shares
having a value, as of the date of the Transaction, of less than 50 percent of
the value of all of the formerly outstanding Bank Common Shares as of the same
date. Further, although Bancshares has authorized a program to repurchase up to
1,800,000 Bancshares Common Shares, Bancshares has represented that it has no
plan or intention to reacquire any of the Bancshares Common Shares issued in the
Transaction and has made certain undertakings to preclude any such
reacquisitions. Accordingly, the Transaction should meet the continuity of
interest requirement.
<PAGE> 10
Board of Directors
Date
Page 10
The 50 percent continuity of interest standard set forth in
Rev. Proc. 77-37 is a guideline utilized by the Internal Revenue Service in
determining whether to issue an advance ruling, and does not represent how much
continuity of interest is needed in a reorganization as a matter of law. In
fact, in NELSON V. HELVERING, 296 U.S. 374 (1936), the Supreme Court held that
there is a valid reorganization when the continuity of interest was equal to 38
percent.
Based upon the analysis set forth above, the Transaction
should qualify as a reorganization as described under Sections 368(a) the Code.
Section 368(b)(2) of the Code provides that the term "a party
to a reorganization" includes both corporations, in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another corporation. In the case of a reorganization qualifying under Section
368(a)(1)(A) by reason of Section 368(a)(2)(E), the term "a party to a
reorganization" also includes the controlling corporation referred to in Section
368(a)(2)(E). Accordingly, Bancshares, Interim Bank and Bank will each be "a
party to a reorganization."
Section 354(a) provides that no gain or loss will be
recognized if stock in a corporation a party to a reorganization is, in
pursuance of the plan of reorganization, exchanged solely for stock in another
corporation a party to the reorganization. Section 356(a) provides that if
Section 354 would apply to an exchange but for the fact that the property
received in the exchange consists not only of property permitted to be received
without recognition of gain but also of other property or money, then gain, if
any, to the recipient shall be recognized, but in an amount not in excess of the
sum of such money and the fair market value of such other property. If such
exchange has the effect of a distribution of a dividend, then the gain
recognized, to the extent of the shareholder's ratable share of undistributed
earnings and profits, will be treated as a dividend. Since the shareholders of
Bank, a party to the reorganization will receive only Bancshares Common Shares,
except for money with respect to fractional share interests, no gain or loss
will be recognized by the shareholders of Bank except with respect to the
fractional share interests.
Section 358(a)(1) of the Code provides that, in the case of an
exchange to which Section 354 applies, the basis of the property permitted to be
received under Section 354 without the recognition of gain or loss shall be the
same as that of the property exchanged, decreased by (i) the fair market value
of any other property (except money) received by the taxpayer, (ii) the amount
of any money received by the taxpayer, and (iii) the amount of loss to the
taxpayer which was recognized on such exchange, and increased by (i) the amount
which was treated as a dividend, and (ii) the amount of gain to the taxpayer
which was recognized on such exchange (not including any portion of such gain
which was treated as a dividend).
Since the Transaction constitutes an exchange to which Section
354 of the Code applies, the basis of the Bancshares Common Shares (including
the fractional share interests that the shareholder would otherwise be entitled
to receive) in the hands of each Bank shareholder will be the same as the basis
of Bank Common Shares surrendered in the exchange, decreased by the amount of
money received by such shareholder and increased by the amount of gain
recognized on the exchange and the amount which is treated as a dividend.
<PAGE> 11
Board of Directors
Date
Page 11
Section 1223(1) of the Code provides that, in determining the
period for which the taxpayer has held property received in an exchange, there
shall be included the period for which the taxpayer held the property exchanged
if the property has, for the purpose of determining gain or loss from a sale or
exchange, the same basis (in whole or in part) in his hands as the property
exchanged, provided the property exchanged at the time of such exchange is a
capital asset as defined in Section 1221 or property described in Section 1231.
Since the basis of the Bancshares Common Shares held by a Bank shareholder will
have the same basis (in whole or in part) as the stock exchanged, the holding
period of the Bancshares Common Shares (including the fractional share interests
that he would otherwise be entitled to receive) will include the period for
which Bank Common Shares were held, provided that such shares were capital
assets on the date of the exchange.
Section 302(b)(3) of the Code provides that if a distribution
to a dissenting shareholder is in complete redemption of all of the stock of a
corporation owned by such shareholder actually or constructively, such
redemption shall be treated as a distribution in part or full payment in
exchange for such stock. Under Rev. Rul. 73-102, 1973-1 C.B. 186, because of the
operation of Section 302 of the Code, where cash is received by a Dissenting
Shareholder who will not receive actually or constructively any Bancshares
Common Shares in the transaction, such cash will be treated as received by the
Dissenting Shareholder as a distribution in redemption of his, her or its stock,
subject to the provisions and limitations of Section 302 of the Code.
OPINION
- -------
Based on the facts set forth above, in the Agreement, the
Proxy Statement/Prospectus and the representations as set forth in certificates
dated ________, 1998 from Bancshares and Bank and the applicable tax law as it
exists today, our opinion as to the federal income tax consequences of the
Transaction is as follows:
- - The Transaction will qualify as a reorganization under Section 368(a)
of the Code. Bancshares, Interim Bank and Bank will each be "a party to
a reorganization" within the meaning of Section 368(b) of the Code. No
gain or loss will be recognized by Bancshares, Interim Bank or Bank as
a consequence of the Transaction.
- - No gain or loss will be recognized by a Bank shareholder on the receipt
of Bancshares Common Shares solely in exchange for his Bank Common
Shares.
- - The basis of Bancshares Common Shares (including fractional share
interests to which such holder may be entitled) received by a Bank
shareholder in exchange for Bank Common Shares will be the same as the
basis of Bank Common Shares surrendered in exchange therefor.
- - The holding period of the Bancshares Common Shares (including
fractional share interests to which such holder may be entitled)
received by a Bank shareholder will include the holding period of Bank
Common Shares surrendered in exchange therefor,
<PAGE> 12
Board of Directors
Date
Page 11
provided that such Bank Common Shares were held as capital assets at
the Effective Time. Section 1223(1) of the Code.
- - Cash received by a Bank shareholder in lieu of a fractional Bancshares
Common Share will be treated as having been received as a distribution
in full payment in exchange for the fractional Bancshares Common Share
which such shareholder would otherwise be entitled to receive. This
receipt of cash will result in gain or loss measured by the difference
between the basis of such fractional share interest and the cash
received. Such gain or loss will be capital gain or loss to the Bank
shareholder, provided the Bank Common Shares surrendered in exchange
for cash were capital assets in such shareholder's hands and, as such,
will be subject to the provisions and limitations of Subchapter P of
Chapter 1 of the Code. Rev. Rul. 66-365, 1966-2 C.B. 116, and Rev.
Proc. 77-41, 1977-2 C.B. 574.
Our opinion is not the equivalent of a ruling from the
Internal Revenue Service and may upon audit be challenged by the Internal
Revenue Service. Our opinion is based on the understanding that the relevant
facts are, and will be at the Effective Time, as set forth in this letter. It is
also based on the Code, Regulations, case law and Internal Revenue Service
rulings as they now exist. These authorities are all subject to change and such
change may be made with retroactive effect. Were there to be such changes either
before or after the Effective Time, or should the relevant facts prove to be
other than as we have reviewed, our opinion could be affected.
We hereby consent to the inclusion of this opinion as an
exhibit to the Proxy Statement/Prospectus.
Very truly yours,
--------------------------
Baker & Hostetler LLP
<PAGE> 13
Exhibit A
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Sky Financial Group, Inc., formerly named Citizens Bancshares,
Inc. ("Bancshares") and The Ohio Bank ("Bank") have entered into an Agreement
and Plan of Merger dated as of July 22, 1998 (the "Agreement"). Pursuant to the
Agreement, an interim bank ("Interim Bank"), a wholly-owned subsidiary of
Bancshares, will merge with and into Bank. We are requesting your opinion (the
"Opinion") on certain federal income tax consequences of the Agreement with
respect to the overall plan of reorganization contemplated by such Agreement
(the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the Bancshares Common Shares received by
each shareholder of Bank will be approximately equal to the fair market
value of Bank Class A Common Shares and Bank Class B Common Shares
surrendered in the Transaction.
(2) There is no plan or intention by the shareholders of Bank who own 1
percent or more of the Bank Common Shares, and to the best of the
knowledge of management of Bank, there is no plan or intention by the
remaining shareholders of Bank to sell, exchange or otherwise transfer
ownership (including by derivative transactions such as an equity swap
which would have the economic effect of a transfer of ownership) to
Bancshares or any person related to Bancshares (within the meaning of
Treasury Regulation Section 1.368-1(e)(3)), directly or indirectly
(including through partnerships or through third parties in connection
with a plan to so transfer ownership), of a number of Bancshares Common
Shares received in the Transaction that would reduce the shareholders'
ownership of Bancshares Common Shares to a number of shares having a
value, as of the date of the Transaction, of less than 50 percent of
the value of all of the formerly outstanding Bank Common Shares as of
the same date. For purposes of this representation, Bank Common Shares
exchanged for cash or other property and Bank Common Shares exchanged
for cash in lieu of fractional Bancshares Common Shares will be treated
as outstanding Bank Common Shares at the date of the Transaction.
Moreover, Bank Common Shares and Bancshares Common Shares held by the
shareholders of Bank and otherwise sold, redeemed, or disposed of prior
or subsequent to the Transaction are considered in making this
representation.
(3) Following the Transaction, Bank will hold at least 90 percent of
the fair market value of its net assets and at least 70 percent of the
fair market value of its gross assets and at least 90 percent of the
fair market value of Interim Bank's net assets and at least 70 percent
of the fair market value of Interim Bank's gross assets held
immediately prior to the Transaction. For purposes of this
representation, amounts paid by Bank or Interim Bank to shareholders
who receive cash or other property, amounts used by Bank or Interim
Bank to pay reorganization
<PAGE> 14
expenses, and all redemptions and distributions (except for regular,
normal dividends) made by Bank will be included as assets of Bank or
Interim Bank, respectively, immediately prior to the Transaction.
(4) Bank and the shareholders of Bank will pay their respective
expenses, if any, incurred in connection with the Transaction.
(5) There is no intercorporate indebtedness existing between Bancshares
and Bank or between Interim Bank and Bank that was issued, acquired, or
will be settled at a discount.
(6) In the Transaction, Bank Common Shares representing control of
Bank, as defined in Section 368(c) of the Code, will be exchanged
solely for voting stock of Bancshares. For purposes of this
representation, Bank Common Shares exchanged for cash or other property
originating with Bancshares will be treated as outstanding Bank Common
Shares on the date of the Transaction.
(7) At the time of the Transaction, Bank will not have outstanding any
warrants, options, convertible securities, or other type of right
pursuant to which any person could acquire stock in Bank that, if
exercised or converted, would affect Bancshares' acquisition or
retention of control of Bank, as defined in Section 368(c) of the Code.
(8) Bank is not an "investment company," i.e., a regulated investment
company, a real estate investment trust, or a corporation 50 percent or
more of the value of whose total assets are stock and securities and 80
percent or more of the value of whose total assets are assets held for
investment. In making the 50-percent and 80-percent determinations
under the preceding sentence, stock and securities in any subsidiary
corporation are disregarded and the parent corporation is deemed to own
its ratable share of the subsidiary's assets, and a corporation is
considered a subsidiary if the parent owns 50 percent or more of the
combined voting power of all classes of stock entitled to vote, or 50
percent or more of the total value of shares of all classes of stock
outstanding. In determining total assets, cash and cash items
(including receivables), Government securities, and assets acquired
(through incurring indebtedness or otherwise) for purposes ceasing to
be an investment company are excluded. For purposes of this
representation, a "regulated investment company" is a corporation which
is registered under the Investment Company Act of 1940, as amended, as
a management company or unit investment trust or which has in effect an
election under the Investment Company Act to be treated as a business
development company.
(9) On the date of the Transaction, the fair market value of the assets
of Bank will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which its assets are subject.
(10) Bank is not under the jurisdiction of a court in a case under
Title 11 (Bankruptcy) of the United States Code or a receivership,
foreclosure or similar case in Federal or state court.
(11) The payment of cash in lieu of fractional Bancshares Common Shares
is solely for the purpose of avoiding the expense and inconvenience to
Bancshares of issuing fractional shares and does not represent
separately bargained-for consideration. The total cash consideration
that will be paid in the Transaction to the shareholders of Bank
instead of issuing fractional Bancshares Common Shares will not exceed
one percent of the total consideration that will be issued in the
Transaction to the shareholders of Bank in exchange for their Bank
Common Shares.
2
<PAGE> 15
(12) None of the compensation to be received by any
shareholder-employees of Bank will be separate consideration for, or
allocable to, any of their Bank Common Shares; and none of the
Bancshares Common Shares received by any shareholder-employees will be
separate consideration for, or allocable to, any employment agreement.
(13) Bancshares, Interim Bank, and Bank will not take any position on
any Federal, state or local income tax return or franchise tax return,
or take any other action or reporting position, that is inconsistent
with the treatment of the Transaction as a reorganization with the
meaning of Section 368(a) of the Code or with the representations made
herein.
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
The Ohio Bank
By:
-----------------------------
3
<PAGE> 16
Exhibit B
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Sky Financial Group, Inc., formerly named Citizens Bancshares,
Inc. ("Bancshares") and The Ohio Bank ("Bank") have entered into an Agreement
and Plan of Merger dated as of July 22, 1998 (the "Agreement"). Pursuant to the
Agreement, an interim bank ("Interim Bank"), a wholly-owned subsidiary of
Bancshares, will merge with and into Bank. We are requesting your opinion (the
"Opinion") on certain federal income tax consequences of the Agreement with
respect to the overall plan of reorganization contemplated by such Agreement
(the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the Bancshares Common Shares received by
each shareholder of Bank will be approximately equal to the fair market
value of Bank Class A Common Shares and Class B Common Shares
surrendered in the Transaction.
(2) Following the Transaction, Bank will hold at least 90 percent of
the fair market value of its net assets and at least 70 percent of the
fair market value of its gross assets and at least 90 percent of the
fair market value of Interim Bank's net assets and at least 70 percent
of the fair market value of Interim Bank's gross assets held
immediately prior to the Transaction. For purposes of this
representation, amounts paid by Bank or Interim Bank to shareholders
who receive cash or other property, amounts used by Bank or Interim
Bank to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by Bank will
be included as assets of Bank or Interim Bank, respectively,
immediately prior to the Transaction.
(3) Prior to the Transaction, Bancshares will be in control of Interim
Bank within the meaning of Section 368(c) of the Internal Revenue Code
of 1986, as amended (the "Code"), which means ownership of stock
possessing at least 80 percent of the total combined voting power of
all classes of stock entitled to vote and at least 80 percent of the
total number of shares of each other class of stock of the corporation.
(4) Following the Transaction, Bank will not issue additional shares of
its stock that would result in Bancshares losing control of Bank within
the meaning of Section 368(c) of the Code.
(5) Bancshares has no plan or intention to reacquire any of the
Bancshares Common Shares issued in the Transaction; however, on October
1, 1998, in connection with the merger of Mid-Am, Inc., and Bancshares,
the Board of Directors of Bancshares adopted a resolution authorizing
<PAGE> 17
a program to purchase on the open market or in privately negotiated
transactions up to 1,800,000 Bancshares Common Shares through October
1, 1999 (the "Program"), which Shares represent approximately 5% of
Bancshares Common Shares outstanding immediately before the
Transaction, approximately 4.4% of the Bancshares Common Shares
outstanding immediately after the Transaction, and approximately 34.3%
of the Bancshares Common Shares issued in the Transaction. The Program
was adopted as a continuation of a stock repurchase program of Mid-Am,
Inc., in effect since 1995 to repurchase shares and utilize such shares
for stock option exercises and future stock dividends. The Program was
not adopted either in connection with or in contemplation of the
Transaction. Bancshares' purposes in adopting the Program were to
provide continuity with the existing program of Mid-Am, Inc., and to
supply shares needed for stock option exercises and future stock
dividends. Bancshares has no plan or intention to make any open market
purchases under the Program from any shareholder of Bank and will
instruct its broker not to make any open market purchase if there is
any reason to believe that the seller in such transaction is a
shareholder of Bank. (To assist the broker in fulfilling this
instruction, Bancshares will provide the broker with a list of all
shareholders of Bank.) In addition, Bancshares will make no purchases
of Bancshares Common Shares issued in the Transaction from any
shareholder of Bank in a privately negotiated transaction. Bancshares
has no plan or intention to increase the maximum number of shares
authorized to be purchased under the Program. In addition, Bancshares
will cause all persons related to Bancshares (within the meaning of
Treasury Regulation Section 1.368-1(e)(3)) not to, redeem, purchase,
exchange or otherwise acquire (including by derivative transactions
such as an equity swap which would have the economic effect of an
acquisition), directly or indirectly (including through partnership or
through third parties in connection with a plan to so acquire), a
number of Bancshares Common Shares to be received by Bank shareholders
in connection with the Transaction that would reduce the Bank
shareholders' ownership of Bancshares Common Shares to a number of
shares having a value, as of the Effective Time, of less than 50% of
the total value of Bank Common Shares immediately prior to the
Effective Time. Shares of Bank Common Shares that are redeemed or sold
or otherwise transferred to Bank, Bancshares, or any person related to
Bank or Bancshares prior to the Transaction and in contemplation or as
part of the Transaction will be taken into account for purposes of this
representation.
(6) Bancshares has no plan or intention to liquidate Bank; to merge
Bank with or into another corporation (other than the mergers of two
affiliates of Bancshares, American Community Bank, N.A. and Amerifirst
Bank, N.A. into Bank); to sell or otherwise dispose of the stock of
Bank; or to cause Bank to sell or otherwise dispose of any of its
assets or any of the assets acquired from Interim Bank, except for
dispositions made in the ordinary course of business.
(7) Interim Bank will have no liabilities assumed by Bank and will not
transfer to Bank any assets subject to liabilities in the Transaction.
(8) Following the Transaction, Bank will continue its historic business
or use a significant portion of its historic business assets in a
business.
(9) Bancshares, Interim Bank, Bank and the shareholders of Bank will
pay their respective expenses, if any, incurred in connection with the
Transaction.
(10) There is no intercorporate indebtedness existing between
Bancshares and Bank or between Interim Bank and Bank that was issued,
acquired, or will be settled at a discount.
(11) In the Transaction, Bank Common Shares representing control of
Bank, as defined in Section 368(c) of the Code, will be exchanged
solely for voting stock of Bancshares. For
2
<PAGE> 18
purposes of this representation, Bank Common Shares exchanged for cash
or other property originating with Bancshares will be treated as
outstanding Bank Common Shares on the date of the Transaction.
(12) Neither Bancshares nor any person related to Bancshares (within
the meaning of Section 1.368-1(e)(3)) owns, directly or indirectly, nor
has it owned during the past five years, directly or indirectly, any
shares of Bank.
(13) Neither Bancshares nor Interim Bank is an "investment company"
i.e., a regulated investment company, a real estate investment trust,
or a corporation 50 percent or more of the value of whose total assets
are stock and securities and 80 percent or more of the value of whose
total assets are assets held for investment. In making the 50-percent
and 80-percent determinations under the preceding sentence, stock and
securities in any subsidiary corporation are disregarded and the parent
corporation is deemed to own its ratable share of the subsidiary's
assets, and a corporation is considered a subsidiary if the parent owns
50 percent or more of the combined voting power of all classes of stock
entitled to vote, or 50 percent or more of the total value of shares of
all classes of stock outstanding. In determining total assets, cash and
cash items (including receivables), Government securities, and assets
acquired (through incurring indebtedness or otherwise) for purposes
ceasing to be an investment company are excluded. For purposes of this
representation, a "regulated investment company" is a corporation which
is registered under the Investment Company Act of 1940, as amended, as
a management company or unit investment trust or which has in effect an
election under the Investment Company Act to be treated as a business
development company.
(14) The payment of cash in lieu of fractional Bancshares Common Shares
is solely for the purpose of avoiding the expense and inconvenience to
Bancshares of issuing fractional shares and does not represent
separately bargained-for consideration. The total cash consideration
that will be paid in the Transaction to the shareholders of Bank
instead of issuing fractional Bancshares Common Shares will not exceed
one percent of the total consideration that will be issued in the
Transaction to the shareholders of Bank in exchange for their Bank
Common Shares.
(15) None of the compensation to be received by any
shareholder-employees of Bank will be separate consideration for, or
allocable to, any of their Bank Common Shares; none of the Bancshares
Common Shares received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
(16) Bancshares, Interim Bank, and Bank will not take any position on
any Federal, state or local income tax return or franchise tax return,
or take any other action or reporting position, that is inconsistent
with the treatment of the Transaction as a reorganization with the
meaning of Section 368(a) of the Code or with the representations made
herein.
(17) Interim Bank is a corporation newly formed for the purpose of
participating in the Transaction and at no time prior to the
Transaction has had assets or business operations.
3
<PAGE> 19
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler LLP to form and issue the Opinion.
SKY FINANCIAL GROUP, INC.
By:
-------------------------------------
Marty E. Adams
President and Chief Operating Officer
4
<PAGE> 1
EXHIBIT 23.2
------------
CONSENT OF BAKER & HOSTETLER LLP
October 14, 1998
We hereby consent to the inclusion of our opinion letter to the Board
of Directors of The Ohio Bank (the "Company") as Exhibit 8 to the Registration
Statement on Form S-4 as filed with the Securities and Exchange Commission on
the date hereof. In giving such consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended (the "Act"), or the rules and regulations of the
Securities and Exchange Commission thereunder (the "Regulations"), nor do we
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Act or the
Regulations.
/s/ BAKER & HOSTETLER LLP
-------------------------
<PAGE> 1
Exhibit 23.3
[DANIELSON ASSOCIATES INC. LETTERHEAD]
Exhibit C
CONSENT OF DANIELSON ASSOCIATES INC.
We hereby consent to the inclusion in the Proxy Statement/Prospectus
forming a part of this Registration Statement of our opinion to the Board of
Directors of The Ohio Bank, attached as Annex C to such Proxy
Statement/Prospectus, and the references to such opinion contained therein. In
giving such consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "Securities
Act"), and we do not thereby admit that we are experts with respect to any part
of this Registration Statement within the meaning of the term "expert" as used
in the Securities Act.
DANIELSON ASSOCIATES INC.
By /s/ Arnold G. Danielson
-----------------------------
Arnold G. Danielson
Chairman
Rockville, Maryland
October 12, 1998
<PAGE> 1
EXHIBIT 23.4
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus constituting part of this Registration Statement on
Amendment No. 1 to Form S-4 of Sky Financial Group, Inc. (formerly Citizens
Bancshares, Inc.) of our report dated January 19, 1998, which appears on page
S-27 of Mid Am, Inc.'s 1997 Annual Report Supplement to Shareholders, which is
incorporated by reference in its Annual Report on Form 10-K for the year ended
December 31, 1997. We also consent to the reference to us under the heading
"Experts" in such Proxy Statement/Prospectus.
/s/ PricewaterhouseCoopers LLP
Memphis, Tennessee
October 14, 1998
<PAGE> 1
Exhibit 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation in the registration statement of Citizens
Bancshares, Inc. on Amendment No. 1 to Form S-4, of our report dated February
19, 1998 on the financial statements of The Ohio Bank as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997.
We also consent to the reference to our firm under the heading "Experts" in the
prospectus which is a part of the registration statement.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Columbus, Ohio
October 12, 1998
<PAGE> 1
Exhibit 23.6
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus constituting part of this Registration Statement on
Amendment No. 1 to Form S-4 of Sky Financial Group, Inc. (formerly known as
Citizens Bancshares, Inc.)("the Corporation") of our report dated January 16,
1998 on Citizens Bancshares, Inc.'s consolidated balance sheets of as of
December 31, 1997 and 1996 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997, which report is incorporated by reference in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1997,
and of our reports dated May 12, 1998 and October 9, 1998 on the Corporation's
supplemental consolidated balance sheets as of December 31, 1997 and 1996, and
the related supplemental consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997, which reports are included in the Corporation's Current
Reports on Form 8-K dated June 25, 1998 and to be dated October 15, 1998.
We also consent to the reference to us under the heading "Experts" in such Proxy
Statement/Prospectus.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Columbus, Ohio
October 14, 1998
<PAGE> 1
Exhibit 23.7
[SNODGRASS LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Joint Proxy
Statement/Prospectus which is part of this Pre-Effective Amendment No. 1 to
Registration Statement of Sky Financial Group, Inc. on Form S-4 (Registration
No. 333-63533) which incorporates by reference our report dated January 16,
1998 (relating to the consolidated financial statements of Century Financial
Corporation as of December 31, 1997 and 1996 and for each of the three years in
the period ended December 31, 1997) which is incorporated by reference in Form
8-K and Form 8-K/A filed by Sky Financial Group, Inc. dated June 25, 1998.
We also consent to the reference to us under the heading "Experts" in such Joint
Proxy Statement/Prospectus.
/s/ S.R. Snodgrass, A.C.
Wexford, PA
October 13, 1998
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
Know all persons by these presents, that each individual whose
signature appears below hereby constitutes and appoints David R. Francisco and
W. Granger Souder, Jr., and each and either of them, such individual's true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for such person and in such person's name, place and stead, in
any and all capacities, to sign this Amendment No. 1 to Form S-4 Registration
Statement, and any and all amendments thereto, and to file the same with the
Securities and Exchange Commission, with all exhibits thereto and other
documents in connection therewith, granting unto said attorneys-in-fact and
agents, and each and either of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as such person might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or either of them or any substitute therefor, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ David R. Francisco Chairman of the Board, Chief 10-13-98
- ------------------------------ Executive Officer, Treasurer and ------------------------------
DAVID R. FRANCISCO Director (Principal Executive
Officer and Principal Financial
Officer)
/s/ Marty E. Adams President, Chief Operating Officer 10-10-98
- ------------------------------ and Director ------------------------------
MARTY E. ADAMS
/s/ Edward J. Reiter Senior Chairman of the Board of 10-13-98
- ------------------------------ Directors and Director ------------------------------
EDWARD J. REITER
/s/ James C. McBane Vice Chairman of the Board of 10-10-98
- ------------------------------ Directors and Director ------------------------------
JAMES C. MCBANE
Director
- ------------------------------ ------------------------------
FRED H. JOHNSON, III
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Keith D. Burgett Director 10-10-98
- ------------------------------ ------------------------------
KEITH D. BURGETT
/s/ Willard L. Davis Director 10-10-98
- ------------------------------ ------------------------------
WILLARD L. DAVIS
/s/ H. Lee Kinney Director 10-10-98
- ------------------------------ ------------------------------
H. LEE KINNEY
/s/ Kenneth E. McConnell Director 10-10-98
- ------------------------------ ------------------------------
KENNETH E. McCONNELL
/s/ Glenn F. Thorne Director 10-10-98
- ------------------------------ ------------------------------
GLENN F. THORNE
/s/ Gerard P. Mastroianni Director 10-10-98
- ------------------------------ ------------------------------
GERARD P. MASTROIANNI
/s/ Del E. Goedeker Director 10-10-98
- ------------------------------ ------------------------------
DEL E. GOEDEKER
/s/ Joseph W. Tosh, II Director 10-10-98
- ------------------------------ ------------------------------
JOSEPH W. TOSH, II
/s/ Gerald D. Aller Director 10-12-98
- ------------------------------ ------------------------------
GERALD D. ALLER
Director
- ------------------------------ ------------------------------
DAVID A. BRYAN
Director
- ------------------------------ ------------------------------
D. JAMES HILLIKER
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
/s/ Marilyn O. McAlear Director 10-10-98
- ------------------------------ ------------------------------
MARILYN O. McALEAR
Director
- ------------------------------ ------------------------------
THOMAS S. NONEMAN
Director
- ------------------------------ ------------------------------
EMERSON J. ROSS, JR.
/s/ Douglas J. Shierson Director 10-11-98
- ------------------------------ ------------------------------
DOUGLAS J. SHIERSON
Director
- ------------------------------ ------------------------------
C. GREGORY SPANGLER
Director
- ------------------------------ ------------------------------
ROBERT E. STEARNS
</TABLE>
<PAGE> 1
Exhibit 99
THE OHIO BANK
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS CALLED FOR
NOVEMBER 18, 1998
The undersigned having received, together with the Proxy
Statement/Prospectus dated as of October 14, 1998, notice of the Special Meeting
of Shareholders of The Ohio Bank, Findlay, Ohio, to be held on November 18, 1998
at 5:30 p.m., hereby designates and appoints RICHARD R. HOLLINGTON, JR. and JACK
W. DONALDSON as proxies for 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, unless revoked, and at any adjournment or
postponement thereof, such proxies being directed to vote as specified below on
the following proposal:
MANAGEMENT RECOMMENDS A VOTE "FOR" PROPOSAL 1.
Proposal 1: To approve and adopt the Agreement and Plan of Merger by and among
Sky Financial Group, Inc., Citizens Bancshares, Inc., Interim Bank,
a wholly-owned subsidiary of Sky Financial Group, Inc., and The
Ohio Bank, providing for the merger of Citizens Bancshares Interim
Bank with and into The Ohio Bank.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal 2: To transact such other business as may properly come before the
Special Meeting, or any adjournment or postponements thereof in
order to allow the further solicitation of proxies.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR PROPOSAL 1 AND FOR PROPOSAL
2. ALL PROXIES PREVIOUSLY GIVEN ARE HEREBY REVOKED. RECEIPT OF THE ACCOMPANYING
PROXY STATEMENT AND PROSPECTUS IS HEREBY ACKNOWLEDGED.
(Continued on reverse side.)
(Continued from other side.)
The aforesaid proxies are hereby authorized to vote on any other matter that
may properly come before the meeting at their discretion. 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 Ohio Bank Special Meeting and advising
the Secretary of the shareholder's intent to vote the share(s) or by sending a
written, signed and dated revocation that clearly identifies the proxy being
revoked to the principal executive offices of The Ohio Bank at 236 South Main
Street, Findlay, Ohio, 45855, attention: Gary L. Cole, Secretary. A revocation
may be in any written form validly signed by the record holder so long as it
clearly states that the proxy previously given is no longer effective.
PLEASE DATE, SIGN AND MAIL THIS PROXY TO THE OHIO BANK, ATTENTION GARY L.
COLE, SECRETARY, 236 SOUTH MAIN STREET, FINDLAY, OHIO 45840. AN ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE.
Dated:
-----------------------------
-----------------------------
Signature
-----------------------------
Signature
Please sign exactly as your
name appears on your stock
certificate(s) and return
this proxy promptly in the
accompanying envelope. If the
share(s) 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.
Proxy Card
