<PAGE>
As filed with the Securities and Exchange Commission on January ____, 1998
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
TOWNE BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Ohio 34-1704637
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
P.O. Box 202
Perrysburg, Ohio 43551
(419) 874-2090
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
Jerome C. Bechstein
President and Chief Executive Officer
Towne Bancorp, Inc.
P.O. Box 202
Perrysburg, Ohio 43551
(419) 874-2090
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
Copies of Correspondence to:
H. Grant Stephenson, Esq.
Porter, Wright, Morris & Arthur
The Huntington Center
41 South High Street
Columbus, Ohio 43215
(614) 227-1975
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, 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. / / ___________________________
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
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. / / ________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE (1) FEE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, without
par value. . . . . . . . . . 370,761 $14.50 $5,376,035 $1,585.93
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(j) on the basis of the maximum price at which the Company sold
the Common Stock, which is the subject of the rescission offer represented
by this Registration Statement.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
LETTER TO SHAREHOLDERS
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Rescission Offer . . . . . . . . . . . . . . . . . . . . . . . . . . 2
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
THE RESCISSION OFFER . . . . . . . . . . . . . . . . . . . . . . . . . 5
Background and Purpose . . . . . . . . . . . . . . . . . . . . . . . 5
The Rescission Offer
Source of Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Conditions to the Rescission Offer . . . . . . . . . . . . . . . . . 6
State Securities Laws. . . . . . . . . . . . . . . . . . . . . . . . 7
Effect of Rescission Offer . . . . . . . . . . . . . . . . . . . . . 9
Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
MARKET FOR THE SHARES. . . . . . . . . . . . . . . . . . . . . . . . . 10
BUSINESS
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Effects of Government Monetary Policy. . . . . . . . . . . . . . . . 12
Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Director Compensation. . . . . . . . . . . . . . . . . . . . . . . . 14
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . 14
Certain Relationships and Related Transactions . . . . . . . . . . . 14
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
GOVERNMENT REGULATION. . . . . . . . . . . . . . . . . . . . . . . . . 17
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Federal Bank Holding Company Regulation. . . . . . . . . . . . . . . 17
State Bank Holding Company Regulation. . . . . . . . . . . . . . . . 18
Federal and State Regulation . . . . . . . . . . . . . . . . . . . . 18
Deposit Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Monetary Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Proposed Legislation and Future Regulatory Policies. . . . . . . . . 22
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . 22
ANTITAKEOVER MEASURES. . . . . . . . . . . . . . . . . . . . . . . . . 23
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 30
INDEX TO THE COMPANY'S FINANCIAL STATEMENTS . . . . . . . . . . . . . F-1
<PAGE>
To Shareholders of Towne Bancorp, Inc.
Towne Bancorp, Inc. (the "Company") has delivered to you a Prospectus,
dated December __, 1997 (the "Prospectus"). Under the Prospectus, the Company
has offered, subject to the satisfaction of certain conditions, to rescind the
Company's sale of common stock, without par value, of the Company (the "Shares")
to individuals who purchased the Shares directly from the Company between
_______, 1992 and _______, 1996 (the "Rescission Offer"). In connection with
the Rescission Offer, the Company has offered to pay to those shareholders who
accept the Rescission Offer, a price equal to the price paid for the Shares,
plus interest from the date of the purchase of the Shares by the shareholder
through the date of repayment by the Company (the "Rescission Price").
The Company is making the Rescission Offer described in the Prospectus
because the Company has been advised that the Company possibly violated the
provisions of the applicable federal and state securities laws in connection
with the offer and sale of the Shares to the undersigned. The Company is
making the Rescission Offer to reduce or eliminate any contingent liability
resulting from potential claims by shareholders arising as a result of the
possible violations of the Securities Act of 1933, as amended (the "Act"),
and state securities laws. This offer is open until 5:00 p.m., Perrysburg,
Ohio time on _______ __, 1998 (the "Expiration Date").
A shareholder accepting the Rescission Offer must sell the Shares to the
Company for the Rescission Price by following the procedures outlined below. A
shareholder may retain the Shares by completing the attached form indicating a
rejection of the Rescission Offer.
The federal securities laws and most state laws provide for rights of
redress (in the form of rescission, or damages if the security has been sold)
for purchasers of securities sold in violation of the applicable registration
provisions of such laws. In certain instances a rejection of, or failure to
accept or reject, the Rescission Offer as set forth below may not terminate
your rights of rescission, or damages (if you no longer own the security)
under applicable federal or state laws (See "The Rescission Offer" in the
Prospectus).
In addition, the Company is seeking ratification of all actions taken in
connection with the increase of its authorized common stock, without par
value, to 800,000 shares, which was effected by the filing of the Company's
Second Amended and Restated Articles of Incorporation on December 23, 1997.
A rejection of the Rescission Offer will also serve as your ratification of
the actions taken to increase the Company's authorized common stock, without
par value, to 800,000 shares.
PROCEDURE FOR ACCEPTING OR REJECTING THIS RESCISSION OFFER:
After you have reviewed the Prospectus, please review the attached form
which relates to your Shares. Please (a) fill in your name as it appears on
your stock certificate, (b) indicate your choice as to "rejection" or
"acceptance" of the Rescission Offer and (c) execute and return the executed
form to the Company prior to the Expiration Date, together with your stock
certificate duly endorsed designating it "For Rescission" on the back. You must
make sure that you endorse the certificate and have your signature guaranteed by
your bank.
If you return the form indicating your rejection of the Rescission Offer,
you keep your Shares and need to do nothing further. If the conditions to the
Rescission Offer are satisfied, shareholders who have properly accepted
Rescission Offer, will be paid the Rescission Price.
Notwithstanding the foregoing, if the Company does not have or otherwise
cannot obtain sufficient funds to repurchase the rescinded shares within _______
days of the date of the
<PAGE>
Prospectus, rescinded certificates will be returned to each rescinding
shareholder by the Company and each shall be instructed to hold such
certificates until the Company has the necessary cash for the repurchase of such
shares to be tendered. Those shareholders may have to wait an undetermined
period of time before receiving payment. In addition, offerees who accept
rescission will receive accumulated interest from the date of purchase to the
date of actual payment by the Company for the rescinded shares. The mandated
annual interest rate varies depending upon the respective state of residence of
each rescinding shareholder as follows: if you are an Ohio resident the interest
rate is __% per annum and if you are a Michigan resident the interest rate is
___% per annum.
By order of the Board of Directors,
TOWNE BANCORP, INC.
By: /s/
--------------------------------------
Jerome C. Bechstein, President and CEO
<PAGE>
NOTICE OF ACCEPTANCE OR REJECTION OF RESCISSION OFFER
TO BE FILLED IN BY TOWNE BANCORP, INC. SHAREHOLDERS
1. I (we), as shareholders of the Company, have been provided with a
Prospectus dated December __, 1997.
2. I (we),_____________________________________________
(joint ownership - please print both names)
_____________________________________________
_____________________________________________
(address)
(PLEASE INDICATE YOUR SELECTION OF ONE OF THE FOLLOWING OPTIONS)
________ REJECT THE RESCISSION OFFER AND WILL KEEP MY TOWNE BANCORP, INC.
SHARES. THE UNDERSIGNED HEREBY RATIFIES ALL ACTIONS TAKEN BY THE
SHAREHOLDERS, OFFICERS AND DIRECTORS OF THE COMPANY IN CONNECTION WITH
THE INCREASE IN THE NUMBER OF THE COMPANY'S AUTHORIZED COMMON SHARES,
WITHOUT PAR VALUE, TO 800,000 SHARES. THE UNDERSIGNED, FOR GOOD AND
VALUABLE CONSIDERATION, HEREBY RELEASES AND FULLY DISCHARGES THE
COMPANY, THE DIRECTORS AND OFFICERS OF THE COMPANY FROM ANY AND ALL
RIGHTS, CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, LOSSES,
AND EXPENSES OF ANY KIND ARISING IN CONNECTION WITH THE MATTERS
DESCRIBED IN THE PROSPECTUS.
________ ACCEPT THE RESCISSION OFFER AND HEREBY RE-SELL ALL OF THE TOWNE
BANCORP, INC. SHARES SOLD TO ME (US) DIRECTLY BY THE COMPANY DURING
THE PERIOD INDICATED IN THE PROSPECTUS. I HEREBY RETURN THE TOWNE
BANCORP, INC. SHARES, DULY COUNTERSIGNED WITH SIGNATURE GUARANTY FROM
MY BANK, AND MARKED "FOR RESCISSION" IN EXCHANGE FOR THE PAYMENT OF
THE PURCHASE PRICE TOGETHER WITH APPLICABLE INTEREST THEREON. THE
UNDERSIGNED, FOR GOOD AND VALUABLE CONSIDERATION, HEREBY RELEASES AND
FULLY DISCHARGES THE COMPANY, THE DIRECTORS AND OFFICERS OF THE
COMPANY FROM ANY AND ALL RIGHTS, CLAIMS, DEMANDS, ACTIONS, CAUSES OF
ACTION, DAMAGES, LOSSES, AND EXPENSES OF ANY KIND ARISING IN
CONNECTION WITH THE MATTERS DESCRIBED IN THE PROSPECTUS.
Signature(s): ____________________________ Date: _______________
____________________________
(print name)
_____________________________ Date: _______________
_____________________________
(print name)
<PAGE>
PROSPECTUS
TOWNE BANCORP, INC.
370,761 Shares of Common Stock
Towne Bancorp, Inc. (the "Company") hereby offers (the "Rescission Offer")
to purchase shares of the Company's common stock, without par value (the
"Shares") from those shareholders of the Company who purchased the Shares
directly from the Company from 1992 through 1996, subject to the terms and
conditions set forth herein. See "The Rescission Offer." The Company is
offering to repurchase the Shares for the initial price paid to the Company by
each shareholder, plus interest at a rate that varies based on a shareholder's
state of residence at the time when the Shares were purchased. The Company is
making the Rescission Offer to reduce or eliminate any contingent liability
resulting from potential claims by shareholders arising as a result of possible
violations of the Securities Act of 1933, as amended (the "Act"), and state
securities laws in connection with the initial sale of the Shares by the
Company. A shareholder accepting the Rescission Offer will sell his Shares back
to the Company, thereby eliminating any claim for damages against the Company.
It is the Company's position that a shareholder who either rejects or does not
accept the Rescission Offer can no longer assert a claim against the Company
relating to the original purchase of the Shares from the Company. See "The
Rescission Offer - Effect of Rescission Offer." Each shareholder has until 5:00
p.m., Perrysburg, Ohio time on January __, 1998 (the "Expiration Date") to
either accept or reject the Rescission Offer by marking, signing, and returning
to the Company the Notice Form enclosed with this Prospectus. The Rescission
Offer is subject to a number of conditions more fully described herein (the
"Conditions"), including the availability of sufficient funds to purchase all
Shares tendered. See "The Rescission Offer - Conditions of the Rescission
Offer." The Company intends to fund the purchase of any Shares tendered under
the Rescission Offer with the proceeds of a public offering of Shares to be
conducted in the 180 calendar days following the Expiration Date. See "The
Rescission Offer - Source of Funds."
SEE "RISK FACTORS" ON PAGE 2 FOR A DISCUSSION OF CERTAIN INFORMATION THAT
SHOULD BE CAREFULLY CONSIDERED IN DETERMINING WHETHER TO ACCEPT OR REJECT THE
RESCISSION OFFER.
----------------
THIS PROSPECTUS DESCRIBES THE TERMS OF THE RESCISSION OFFER TO SHAREHOLDERS OF
THE COMPANY. SHAREHOLDERS WHO DO NOT ACCEPT THE RESCISSION OFFER AND CHOOSE TO
KEEP THEIR SHARES MAY STILL HAVE RIGHTS AVAILABLE TO THEM UNDER FEDERAL LAW AND
MAY CONTINUE TO HAVE RIGHTS UNDER STATE LAW. SEE "THE RESCISSION OFFER - EFFECT
OF RESCISSION OFFER."
THE SHARES OF THE COMPANY OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC"),
OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _________ ____, 1997
<PAGE>
PROSPECTUS SUMMARY
The following is a brief summary of certain information contained in this
Prospectus, and is intended only as a guide and reference. It is not complete
nor should it be relied upon to disclose accurately all aspects of the
transaction described in this Prospectus. This summary is qualified in its
entirety by reference to the complete text of this Prospectus which should be
read thoroughly by shareholders.
THE COMPANY
The Company was incorporated under the laws of the State of Ohio on April
1, 1992, and is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended. The Company owns all of the voting shares of
Towne Bank (the "Bank"), an Ohio chartered bank incorporated in 1995. The Bank
is the only subsidiary of the Company, and substantially all of the Company's
operations are conducted through the Bank. The principal offices of both the
Company and the Bank are located at 610 E. South Boundary, Perrysburg, Ohio,
(419) 874-2090. The Bank opened the Perrysburg office on October 15, 1996 and
its second office in Sylvania, Ohio on January 13, 1997.
RESCISSION OFFER
The Company sold 370,761 Shares during a period from 1992 through 1996
at prices ranging from $12.50 to $14.50 per share. The Company may have a
contingent liability to its shareholders as a result of the sale of the
Shares arising from potential violations of applicable federal and state
securities laws. This Prospectus describes the Rescission Offer by the
Company to rescind the sale of all such Shares and to repay such purchasers
the amounts they paid to the Company for their Shares together with interest
thereon from the date of their respective purchases through the date of
repayment by the Company. The purpose of the Rescission Offer is to remove
or reduce to the extent possible any contingent liability that the Company
may have resulting from such potential violations of applicable federal and
state securities laws. See "The Rescission Offer." The Company is also
seeking the ratification of certain actions taken by the shareholders,
officers and directors of the Company in connection with the increase of its
authorized capital stock to 800,000 common shares, without par value.
As of September 30, 1997, the directors and officers of the Company
owned a total of 6,106 Shares and each has indicated that he or she will
reject the Rescission Offer. In addition, two directors, who are also
officers of the Company, have indicated their willingness to invest an
additional $200,000 of their personal funds to purchase additional Shares to
assist the Company in meeting the Financing Condition. See "The Rescission
Offer - Source of Funds."
RISK FACTORS
BEFORE REJECTING THE RESCISSION OFFER DESCRIBED HEREIN, SHAREHOLDERS SHOULD
CAREFULLY CONSIDER THE MATTERS PRESENTED IN THIS PROSPECTUS, INCLUDING THE
MATTERS SET FORTH BELOW.
RESCISSION OFFER AND POSSIBLE VIOLATIONS OF SECURITIES LAW. The Company
sold 370,761 Shares during a period from 1992 through 1996 at prices ranging
from $12.50 to $14.50 per Share. The Company may have a contingent liability to
its shareholders as a result of potential violations of applicable federal and
state securities laws in connection with the sale of the Shares. This
Prospectus relates to the Rescission Offer by the Company to repay shareholders
who accept the offer to rescind the amounts they paid to the Company for their
Shares together with interest thereon from the date of their respective
purchases through the date of repayment by the Company. The purpose of the
Rescission Offer is to remove or reduce to the extent possible any contingent
liabilities that the Company may have resulting from such potential federal and
state securities law violations. The Rescission Offer does not preclude any
individual shareholder from pursuing claims against the Company or its officers
or directors. In the event that a large number of shareholders accept the
Rescission Offer and the Company is unable to raise sufficient funds to
repurchase such Shares, the Company's financial position could be adversely
affected if a large number of shareholders elect to pursue claims against the
Company or its officers or directors. See "The Rescission Offer - Effect of
Rescission
2
<PAGE>
Offer." Furthermore, the Rescission Offer does not prevent any government
agency from asserting violations of the securities laws in a proceeding against
the Company or its officers or directors, and the Company's financial position
will also be adversely affected if any such claims are asserted and pursued.
SECURITIES AND EXCHANGE COMMISSION REQUEST FOR INFORMATION. The Company
has received an informal inquiry from the Securities and Exchange Commission,
Midwest Regional Office, Divsion of Enforcement (the "SEC") regarding the offer
and sale of the 370,761 common shares. In connection with the informal inquiry,
the SEC has asked the Company to furnish certain documents relating to the
offering. The Company intends to fully cooperate with the informal inquiry. In
the event the SEC determines that there is a basis for an enforcement action and
elects to pursue such an action against the Company, its officers or directors,
the defense costs associated with, and any resulting judgements from, any
enforcement action could have a material adverse affect on the Company.
HOLDING COMPANY STRUCTURE; GOVERNMENT REGULATION AND POLICIES. The Company
is a single-bank holding company, the profitability of which is entirely
dependent on the profitability of the Bank and the upstream payment of dividends
from the Bank to the Company. Under state and federal banking law, the payment
of dividends by the Company and the Bank is subject to capital adequacy
requirements. The inability of the Bank to generate profits and pay such
dividends to the Company, or regulatory restrictions on the payment of such
dividends to the Company even if earned, would have an adverse effect on the
financial condition and results of operations of the Company.
As a bank holding company, the Company is subject to regulation,
examination and supervision by the Board of Governors of the Federal Reserve
System. The Bank is an Ohio-chartered, federally-insured bank subject to both
state and federal regulations, including comprehensive regulation, examination
and supervision by the Ohio Division of Financial Institutions (the "Ohio
Division") and the FDIC. These regulations are primarily intended to protect
depositors and may impose limitations on the Company which may not be in the
best interests of its stockholders. Regulations now affecting the Company and
the Bank may be changed at any time, and the interpretation of those regulations
by examining authorities is also subject to change. Legislative proposals are
made from time to time which, if enacted, could adversely affect banking
corporations generally, including the Company. It is not possible to predict
whether any such initiatives will be successful, or what would be the precise
effect of such initiatives on the Company if enacted. There can be no assurance
that future changes in the regulations or in the interpretation thereof will not
adversely affect the business of the Company or the Bank. Changes in the
government's monetary, fiscal, housing finance or tax policies may also
adversely affect the business of the Company or the Bank.
RECENT ACTION BY THE OHIO DIVISION AND THE FEDERAL RESERVE BANK OF
CLEVELAND. As of November 14, 1997, the Bank executed a Memorandum of
Understanding which was also signed by the Ohio Division and the Federal
Reserve Bank of Cleveland (the "Federal Reserve Bank"). The memorandum
resulted from conditions noted in a prior joint examination of the Bank by
the Ohio Division and by the Federal Reserve Bank. In summary, the
memorandum required the following actions by the Bank: (a) within thirty
days retain outside assistance to develop attainable budget projections and a
capital plan; (b) within ninety days complete an independent assessment of
the management structure and board oversight of the Bank and within sixty
days after the completion of the assessment, prepare a specific management
plan to strengthen Bank management and improve the supervision of the Bank's
officers by its board of directors; (c) within sixty days hire an experienced
chief lending office; (d) within sixty days submit to the Federal Reserve
Bank and to the Ohio Division written loan procedures; (e) within sixty days
submit to the Federal Reserve Bank and to the Ohio Division written
procedures to monitor concentrations of credit within the Bank's loan
portfolio; (f) provide monthly balance sheet and income statements to the
Ohio Division and the Federal Reserve Bank; (g) within sixty days develop
internal control systems to ensure compliance with all banking laws and
regulations; (h) establish a Compliance Committee to monitor the Bank's
compliance with the memorandum; (i) begin holding twice monthly meetings of
the Board of Directors of the Bank; and (j) furnish quarterly written
progress reports detailing the form and manner of all actions taken to secure
compliance with the memorandum. The provisions of the memorandum continue in
force until modified by the Ohio Division or the Federal Reserve Bank. In
addition to the foregoing, the Ohio Division, following the completion of a
recent examination, notified the Company that it may have exceeded its loans to
one borrower limit in connection with a single loan transaction.
3
<PAGE>
FUNDING OF THE RESCISSION OFFER. If the Rescission Offer is accepted by
the beneficial owners of more than a small number of Shares, the Company will be
unable to make payment for the Shares without additional funds from the sale of
the Company's securities on a best-efforts basis pursuant to a subsequent public
offering or additional funds from other third party sources. See "The
Rescission Offer - Source of Funds, and - Conditions of the Rescission Offer."
Furthermore, in the event of non-payment by the Company, a shareholder may
choose to commence suit for the balance in order to receive payment and to
preserve his or her rights assuming that relevant statutes of limitation have
not expired. See "The Rescission Offer - Effect of Rescission Offer." The
cost to defend and/or settle any such claims could have a material adverse
effect on the financial position of the Company.
NO ASSURANCE OF PUBLIC MARKET. There is presently no public market for the
Shares. No assurance can be given that a public market will develop in the
future. Accordingly, shareholders may be required to the hold the Shares for an
indefinite period of time.
DEPENDENCE ON THE BANK. The financial health of the Company is directly
related to the financial health of its subsidiary bank. The financial health of
the subsidiary bank may be adversely affected by detrimental changes in federal
or state laws, the national monetary and fiscal policies and international,
national and/or local economic conditions. Such laws, policies or conditions
could have material and adverse effects upon the Bank.
LACK OF PROFITABLE OPERATIONS; CUMULATIVE LOSSES. The Company only
recently began operations through the Bank with the opening of the Perrysburg
branch on October 15, 1996 and the Sylvania branch on January 13, 1997. As
anticipated by management of the Company, the Bank has not attracted as of this
time sufficient deposits and made sufficient loans to achieve an operating
profit. The Company has incurred operating losses in the aggregate amount ot
$1,644,784 through September 30, 1997. The Company will continue to incur
operating losses until a sufficient level of assets has been achieved by the
Bank to support its fixed operating expenses. Management believes that such
level will be achieved in 1998, but there can be no assurance of reaching such
levels, or that, if achieved, the Company will be able to operate at a profit.
COMPETITION. Banking institutions operate in a highly competitive
environment. The Company competes with other commercial banks, credit unions,
savings institutions, finance companies, mortgage companies, mutual funds, and
other financial institutions, most of which have substantially greater financial
resources than the Company. Certain of these competitors offer products and
services that are not offered by the Company and certain competitors are not
subject to the same extensive laws and regulations as the Company.
DEPENDENCE ON MANAGEMENT. The success of the Company's operations is
highly dependent on the personal knowledge and expertise of Jerome C. Bechstein,
the Company's President, Chief Executive Officer and Director. The loss of his
services could have an adverse affect on the business of the Company. The
success of the Company's future operations and expansion will depend upon its
ability to employ and retain management personnel and qualified employees and
market representatives in a competitive labor market. There is no assurance
that the Company can attract or retain such persons.
ANTITAKEOVER PROVISIONS. The Articles of Incorporation of the Company
contain provisions which would discourage the acquisition of control of the
Company. The number of Shares purchased now or in the future by the Company's
management may have a similar effect. These factors may have an adverse effect
upon the value of the Shares acquired hereunder.
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THE RESCISSION OFFER
BACKGROUND AND PURPOSE
The Company had a total of 370,761 Shares issued and outstanding at
September 30, 1997. The founders of the Company purchased 6,500 Shares in
connection with the formation of the Company and 348,464 Shares were sold, from
1992 through 1995, by the Company in its initial public offering, in each case
for $12.50 per share. The initial public offering shares were issued in
November, 1995. During 1996, the Company sold a total of 15,797 Shares and, to
facilitate limited transfers by shareholders, purchased and resold 7,853 Shares
at prices ranging from $12.50 to $14.50 per share. Some of these sales by the
Company may have violated the registration or prospectus delivery requirements
of the Act and the registration or qualification requirements of state
securities laws. It is possible that claims could be made against the Company
for violations of the Act and state securities laws, subjecting the Company to
potential civil liability. In general, the amount of such liability would be
the sale price of the Shares, plus interest. Any such liability is contingent
on a shareholder successfully asserting and proving such a violation.
While the Company believes that certain of these sales may have complied
with applicable securities laws and/or that it has meritorious defenses to most
such claims, it nonetheless desires to remove or reduce to the extent possible
any contingent liability it may have as a result of such sales. The Rescission
Offer is intended to give each shareholder the opportunity to elect whether to
keep his Shares or rescind his purchase and receive the price paid for the
Shares, together with interest thereon through the date of repayment by the
Company at the applicable legal rate, if any, mandated by the state of residence
of the purchaser at the time of the initial purchase of the Shares, or ____% per
annum for Ohio residents (the "Applicable Rate"). The Rescission Offer is not
an admission that the Company did not comply with the registration provisions of
applicable federal and state law nor is it a waiver of any statutes of
limitation defense by the Company to any such claim.
The shares sold by the Company in connection with its public offering
were issued prior to the filing of the amendment to the Company's Amended
Articles of Incorporation, which increased the Company's authorized common
stock from 13,000 shares to 800,000 shares. On November 29, 1997, the
Company held a special meeting of shareholders pursuant to notice sent only
to shareholders of the Company's common stock immediately prior to the close
of the public offering and the issuance of the shares sold in the public
offering. At that meeting, a majority of the common shares held by those
shareholders were voted in favor of the Second Amended and Restated Articles
of Incorporation of the Company, the sole purpose of which was to increase
the authorized capital stock of the Company to 800,000 common shares, without
par value. The Second Amended and Restated Articles of Incorporation were
filed at the direction of the Company's directors on January 5, 1998.
In addition to the Rescission Offer, the Company is seeking ratification of
all actions taken in connection with the increase of its authorized capital
stock to 800,000 common shares. A rejection of the Rescission Offer will
constitute ratification of those actions.
THE RESCISSION OFFER
Under the terms of the Rescission Offer, the Company hereby offers to
repurchase Shares from shareholders who purchased the Shares directly from the
Company from 1992 through 1996 for an amount equal to the consideration paid
for the Shares together with interest thereon at the Applicable Rate per annum
from the date of purchase by each of them through the date of repayment by the
Company, subject to the Conditions. See " - Conditions of the Rescission
Offer" below. Subject to the Conditions, the Company will pay to any offeree
hereunder who accepts the Rescission Offer such amount in cash or by certified
or official bank check within thirty days from satisfaction of the Conditions or
their waiver by the Company. The actual amount to be repaid to any offeree
hereunder would include interest through the date of repayment at the Applicable
Rate.
The Rescission Offer is an offer to rescind the sales of the Shares and to
return the purchase price paid therefor plus interest thereon. No rate of
interest is specified under Ohio law. Accordingly, for those shareholders who
determine to accept the Rescission Offer and who resided in Ohio at the time
they purchased Shares from the Company, the Applicable Rate of interest will be
the Company's current passbook savings rate of 2.8% per annum. The Applicable
Rate of interest for residents of Michigan and Florida is 6% per annum.
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SOURCE OF FUNDS
The Company does not have sufficient funds to repurchase any more than a
small number of Shares under the Rescission Offer. The Company is required to
maintain certain minimum capital under federal and state banking regulations and
is prohibited from purchasing its shares, if such minimum capital would be
impaired as a result of the repurchase. See "Government Regulation." The
Company is also prohibited from repurchasing its shares under the Ohio General
Corporation Act, if immediately after such repurchases its assets would be less
than its liabilities plus stated capital or if it is insolvent or if there is
reasonable grounds to believe that such repurchase would render it insolvent.
The Company intends to sell additional Shares in a public offering to raise
sufficient funds to repurchase any Shares tendered pursuant to the Rescission
Offer. It is anticipated that the public offering would be conducted by
officers of the Company on a best efforts basis without the participation of an
underwriter. Two directors and officers of the Company, Jerome C. Bechstein,
President and Chief Executive Officer, and Lois A. Brigham, Senior Vice
President and Secretary, have indicated that they will invest a total of
$200,000 of their personal funds to purchase Shares in the public offering.
See "Risk Factors - Funding of the Rescission Offer."
CONDITIONS OF THE RESCISSION OFFER
Notwithstanding any other term of the Rescission Offer, the Company shall
not be required to accept for payment or pay for any Shares not theretofore
accepted for payment and paid for, and may terminate or amend the Rescission
Offer at any time by written notice to all shareholders of the Company.
A specific condition of the Company's obligation to pay for any Shares
under the Rescission Offer is that the Company sell sufficient Shares or other
debt or equity securities to provide the Company sufficient regulatory capital
and sufficient working capital following completion of all repurchases under the
Rescission Offer (the "Funding Condition"). If the Funding Condition is not
satisfied by ___________, 1998, all stock certificates for Shares tendered in
acceptance of the Rescission Offer will be returned, and the Rescission Offer
will not affect any claims the shareholders have against the Company. See " -
Effect of Rescission Offer" below.
In addition to the Funding Condition, notwithstanding any other term of the
Rescission Offer, the Company shall not be required to accept for payment or to
pay for any Shares and may terminate or amend the Rescission Offer, if at any
time prior thereto, any of the following conditions exist or shall occur and
remain in effect:
(a) a court of competent jurisdiction or other governmental,
quasi-governmental, self-regulatory agency or other regulatory, judicial or
arbitral body having jurisdiction over the Company shall have issued an order,
judgment, decree or ruling on the merits in connection with an action, suit or
proceeding (i) which challenges or seeks to restrict the acquisition by the
Company of Shares pursuant to the Rescission Offer, or obtain damages in
connection therewith; or (ii) which seeks to make the purchase of or payment for
some or all of the Shares pursuant to the Rescission Offer; or
(b) there shall have been promulgated, enacted, entered, enforced or
deemed applicable to the Rescission Offer any law or there shall have been
issued any injunction resulting in any of the consequences referred to in
subsection (a) above; or
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(c) any person (other than the Company or one or more of its affiliates or
subsidiaries) shall have entered into any agreement in principle or definitive
agreement with the Company with respect to a tender or exchange offer for any
Shares or a merger, consolidation or other business combination with or
involving the Company; or
(d) there shall have occurred (i) any general suspension of, or limitation
on prices for, trading in securities on any national securities exchange or in
the over-the-counter market in the United States for a period in excess of ten
consecutive trading hours, (ii) any declaration of any banking moratorium by any
United States federal or state authorities or any suspension of payments in
respect of banks, or (iii) a commencement of war, armed hostilities or any other
international or national calamity directly or indirectly involving the United
States which is reasonably expected to have a material adverse effect on the
Company or its business or to materially adversely affect the Company's ability
to complete the Rescission Offer.
The Company is required to give the Federal Reserve Bank prior notice
before the Company repurchases its equity securities if the gross
consideration for the repurchase, when aggregated with the net consideration
paid by the Company for all such purchases or redemptions during the
preceding 12 months, is equal to ten percent or more of the Company's
consolidated net worth at the time of the repurchase. If the Company accepts
the tender of the Shares in connection with the Rescission Offer in an amount
that equals or exceeds ten percent of the Company's consolidated net worth,
prior notice to the Federal Reserve Bank is required.
STATE SECURITIES LAWS
In addition to possible violations of the federal securities laws,
securities laws of the states of residence of the Company's shareholders at the
time of their purchase from the Company may have been violated in connection
with the sale of the Shares. The Company also intends to remedy these possible
violations through the Rescission Offer.
An analysis of the shareholder records of the Company indicates that the
shareholders reside in a total of 13 states: California, Colorado, Florida,
Illinois, Indiana, Michigan, Nebraska, New Jersey, New York, Ohio, Oregon,
Pennsylvania, and Virginia. A total of 647 holders of record of 287,633 Shares
reside in Ohio, 68 holders of record of 36,381 Shares reside in Michigan, one
holder of record of 32,513 Shares resides in New York, 8 holders of record of
6,255 Shares reside in Florida, and 23 holders of record of 7,736 shares reside
in the remaining states. The Company believes that the New York shareholder is
a nominee for those shareholders who hold their shares in "street name" in a
stock broker account and that most of the beneficial owners of such shares
reside in Ohio.
Generally, the state remedies available consist of a right to institute an
action at law for an amount equal to the consideration paid for the Shares, plus
interest in most states. If a shareholder accepts the Rescission Offer and
receives payment by the Company, the accepting shareholder may have then
received the full remedy available under both state and federal law insofar as
it relates to their purchase of the Shares. See "- Effect of Rescission Offer"
below. The various states have different statutes of limitations that address
the period during which such an action may be instituted. The requirements for
the Rescission Offer vary from state to state, and the Company may not be able
to comply with the requirements of each and every such state. The Company
reserves the right not to make the Rescission Offer in any state where the
Company in its sole discretion determines it is not possible or it is not
practical or advisable for the Company to make the Rescission Offer in that
state. The Company is not attempting to specifically comply with rescission
provisions of state securities laws other than Ohio and Michigan, because of the
relatively few number of holders in the other states. The following is a brief
discussion of the state laws regarding rescission offers in Ohio and a copy of
the pertinent provisions of Michigan law.
OHIO. Section 1707.43 of the Ohio Revised Code provides that for
violations of any provision of Chapter 1707 of the Ohio Revised Code (the "Ohio
Act"), sales of securities are voidable at the purchaser's election. The
purchaser must tender the securities sold to the seller in order to recover (i)
the full amount paid by the purchaser, and (ii) all taxable court costs. A
court will not award damages if it determines that the violation did not
materially affect the protection contemplated by the violated provision.
Section 1707.43 also provides that no purchaser is entitled to a remedy under
the Ohio Act who has failed to accept, within 30 days from the date of such
offer, an offer in writing made after two weeks from the date of such sale of a
security, by the seller or by any person who has participated in or aided the
seller in any way in making such sale, to take back the security in question and
refund the full amount paid by such purchaser. The statute of limitations
provision in Section 1707.43 provides that no action for the recovery of the
purchase price, and no other action for any recovery based upon or arising out
of a sale or contract for sale made in violation of the Ohio Act, shall be
brought more than two years after the plaintiff knew, or had reason to know, of
the facts by reason of which the actions were unlawful, or more than four years
from the date of such sale or contract for
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sale, whichever is the shorter period. The Ohio Act does not provide for any
amount of interest to be recovered with the purchase price of the security.
MICHIGAN. Section 410 of the Michigan Securities Act (the "Michigan Act")
states, in pertinent part:
(a) Any person who does either of the following shall be liable to the
person buying the security or commodity contract from him or her and the buyer
may sue either at law or in equity to recover the consideration paid for the
security or commodity contract, together with interest at 6% per year from the
date of payment, costs, and reasonable attorneys' fees, less the amount of
income received on the security or commodity contract, upon the tender of the
security or commodity contract, or, if he or she no longer owns the security or
commodity contract, for damages which shall be the amount that would be
recoverable upon a tender less the value of the security or commodity contract
when the buyer disposed of it and interest at 6% per year from the date of
disposition: (1) Offers or sells a security or commodity contract in violation
of section 201(a), 301, or 405(b), or of any rule or order under section 403
which requires the affirmative approval of sales literature before it is used,
or of any condition imposed under section 304(d), 305(f), 305(g), or 412(g), or
(2) Offers or sells a security or commodity contract by means of any untrue
statement of a material fact or any omission to state a material fact necessary
in order to make the statements made, in the light of the circumstances under
which they are made, not misleading, the buyer not knowing of the untruth or
omission, and who does not sustain the burden of proof that he or she did not
know, and in the exercise of reasonable care could not have known, of the
untruth or omission.
(b) Every person who directly or indirectly controls a seller liable under
subsection (a), every partner, officer, or director of such a seller, every
person occupying a similar status or performing similar functions, every
employee of such a seller who materially aids in the sale, and every
broker-dealer or agent who materially aids in the sale are also liable jointly
and severally with and to the same extent as the seller, unless the nonseller
who is so liable sustains the burden of proof that he or she did not know, and
in exercise of reasonable care could not have known, of the existence of the
facts by reason of which the liability is alleged to exist. There is
contribution as in cases of contract among the several persons so liable.
(c) Any tender specified in this section may be made at any time before
entry of judgment.
(d) Every cause of action under this statute survives the death of any
person who might have been a plaintiff or defendant.
(e) A person may not bring an action under subsection (a)(1) more than 2
years after the contract of sale. A person may not bring an action under
subsection (a)(2) more than 2 years after such person, in the exercise of
reasonable care, knew or should have known of the untruth or omission, but in no
event more than 4 years after the contract of sale. A person may not bring an
action under this section if the buyer received a written offer, before the
action and at a time when he or she owned the security or commodity contract, to
refund the consideration paid together with interest at 6% per year from the
date of payment, less the amount of any income received on the security, and he
or she failed to accept the offer within 30 days of its receipt, or if the buyer
received such an offer before the action and at a time when he or she did not
own the security or commodity contract, unless he or she rejected the offer in
writing within 30 days of its receipt. The documents making full written
disclosure about the financial and business condition of the issuer and the
financial and business risks associated with the retention of the securities or
commodities shall be provided to the offeree concurrently with the written
rescission offer. Such an offer shall not be made until 45 days after the date
of sale of the securities and acceptance or rejection of the offer shall not be
binding until 48 hours after receipt by the offeree. The rescission offer
shall recite the provisions of this section. A rescission offer under this
section shall not be valid unless the offeror substantiates that it has the
ability to fund the offering and this information is set forth in the disclosure
documents.
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(f) No person who has made or engaged in the performance of any contract
is violation of any provision of this act or any rule or order hereunder, or who
has acquired any purported right under any such contract with knowledge of the
facts by reason of which its making or performance was in violation, may base
any suit on the contract.
(g) Any condition, stipulation, or provisions binding any person acquiring
any security or commodity contract to waive compliance with any provision of
this act or any rule or order hereunder is void.
(h) The rights and remedies provided by this act are in addition to any
other rights or remedies that may exist at law or in equity, but this act does
not create any cause of action not specified in this section or section 202(e).
EFFECT OF RESCISSION OFFER
It is unclear whether the Rescission Offer will terminate the Company's
liability, if any, for failure to register the issuance of the Shares with the
Securities and Exchange Commission (the "SEC") under the Act. Although the
rights of persons with respect to rescission offers have not been definitely
determined by the courts, the Company intends to assert substantially the
following after the Rescission Offer:
1. Persons who accept the Rescission Offer will thereafter be barred from
asserting any claims against the Company arising out of their original purchase
of the Shares involved.
2. Persons who do not accept the Rescission Offer will thereafter be
estopped to assert any claims against the Company arising out of their original
purchase of the Shares involved.
The staff of the SEC takes the position that a shareholder's federal right
of rescission may survive the Rescission Offer. Consequently, it is unclear
whether the Rescission Offer will terminate the Company's liability, if any, for
failure to register the issuance of the Shares and a contingent liability on the
part of the Company may still exist after the Rescission Offer. Generally, the
statute of limitations for non-compliance with the requirement to register
securities under the Act is one year from the time of the violation and in no
event can an action be brought later than three years after the security was
offered to the public.
The Company also intends to assert that the Rescission Offer terminates the
liability of the Company to purchasers of the Shares for any potential
noncompliance with the registration provisions of the securities laws of the
states of Ohio, Michigan and any other state in which the Rescission Offer
meets applicable state law requirements. There can be no assurance that the
Rescission Offer, because it is subject to certain conditions, including the
availability of funding, would be deemed by a court to meet the requirements of
the Ohio or Michigan Acts. Consequently, a contingent liability may still exist
after the Rescission Offer.
The above discussion does not relate to the antifraud provisions of
applicable securities laws or rights under common law or equity.
ACCEPTANCE
The Rescission Offer may be accepted, only with respect to all Shares
beneficially owned by a shareholder, by completing in pertinent part and signing
the notice of acceptance/rejection of the Rescission Offer (the "Notice")
accompanying this Prospectus, a form of which is attached hereto as Exhibit A,
and delivering the stock certificates representing the Shares, so they are
received by the Company on or before the close of business on the Expiration
Date. All acceptances of the Rescission Offer will be deemed to be effective on
the Expiration Date and, unless the Rescission Offer is accepted on or before
the Expiration Date, the right to accept the Rescission Offer shall terminate.
Any shareholder who rejects the Rescission Offer may revoke such rejection and
accept the Rescission Offer by completing and signing the Notice and delivering
it with the stock certificate for the Shares so they are received by the Company
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prior to the Expiration Date. Any shareholder who accepts the Rescission Offer
may revoke such acceptance and reject the Rescission Offer at any time prior to
payment for the Shares. Payment for Shares as to which the Rescission Offer has
been accepted will be made within thirty (30) days of satisfaction of the
Financing Condition. See " - Conditions to the Rescission Offer" above. If
shareholders desiring to accept the Rescission Offer intend to make use of the
U.S. Mail to transmit their stock certificates, insured registered mail, return
receipt requested, is recommended.
If a Notice fully completed, in pertinent part indicating acceptance, is
executed and the corresponding stock certificates are not received by the
Company on or prior to the Expiration Date from those shareholders actually
receiving notice of the Rescission Offer through this Prospectus, the Rescission
Offer will be deemed to have been rejected by such shareholders.
The Company has not retained nor does it intend to retain any person to
make solicitations or recommendations to shareholders in connection with the
Rescission Offer.
The directors and officers of the Company own a total of 6,106 Shares and
each has indicated that he or she will reject the Rescission Offer. In
addition, two directors and officers have indicated there willingness to invest
an additional $200,000 of their personal funds to puchase additional Shares to
assist the Company in meeting the Financing Condition. See " Source of Funds"
above.
On a parent company only basis, the Company's only source of funds are
dividends paid by the Bank. The ability of the Bank to pay dividends is subject
to limitations under various laws and regulations, and to prudent and sound
banking principles. Generally, subject to certain minimum capital requirements,
the Bank may declare a dividend without the approval of the State of Ohio
Division of Financial Institutions, unless the total dividends in a calendar
year exceed the total of its net profits for the year combined with its retained
profits of the two preceding years. Under these provisions, no amount was
available for dividends at December 31, 1996, without the need to obtain the
approval of the State of Ohio Division of Financial Institutions.
The Board of Governors of the Federal Reserve System generally considers it
to be an unsafe and unsound banking practice for a bank holding company to pay
dividends except out of current operating income, although other factors such as
overall capital adequacy and projected income may also be relevant in
determining whether dividends should be paid. The Company does not, anticipate
the paying of any dividends until the Bank has increased its assets to the point
of being profitable.
MARKET FOR THE SHARES
There is no established public trading market for the Shares. Solely on
the basis of transactions which the Company is aware, the ranges of transaction
prices for the Shares for each quarter through September 30, 1997 were as
follows:
1997 1996 1995
---- ---- ----
First Quarter $14.50 $12.50 N/A
Second Quarter 14.50 14.50 N/A
Third Quarter 14.50 14.50 $12.50
Fourth Quarter 14.50 12.50
No dividends have been declared by the Company on the Shares.
The number of holders of record of the Company's Shares at September 30,
1997 is 741.
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BUSINESS
GENERAL
The Company was incorporated under the laws of the State of Ohio on
April 1, 1992, and is registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended. The Company owns all of the voting
shares of common stock of the Bank. The Bank is the only subsidiary of the
Company, and substantially all of the Company's operations are conducted through
the Bank. The Company, through its subsidiary, the Bank, operates in one
industry segment, the commercial banking industry.
The Company was formed by Jerome Bechstein, John Weinert and others. The
initial capitalization of the new Bank was achieved through the purchase of
6,500 Shares by the organizers as a per share price of $12.50 ($81,250) and by
selling Shares to the general public in the communities of the Bank's service
areas. The offering began in August 1992 and was completed in November 1995
with the issuance of 348,464 Shares at a per share price of $12.50
($4,355,800). The Bank is an Ohio chartered bank and was incorporated in 1995.
The Bank provides services in the State of Ohio to Northern Wood County and
the Western and Southern Lucas County areas as, "The Best Bank In Town For You".
The Bank was incorporated in 1995 and was founded as a new de-novo (start-up)
Bank. The Bank opened the Perrysburg office on October 15, 1996 at the 610 East
South Boundary Street, and the Sylvania office located at 6401 Monroe Street,
opened on January 13, 1997, as the newest commercial bank in the area.
The mission statement of the Bank is to service small and middle market
businesses, agricultural, retail, professional, mortgages and individual
customers. The Bank offers quality financial services through well trained
employees, state-of-the-art equipment and convenient hours, while maintaining
the highest standards of professionalism, commitment and integrity possible to
the communities. The Banks' role as a corporate citizen is very important,
striving to devote the energies and programs necessary for the total enrichment
of the communities in which the Bank serves.
The Bank has developed from the ground up, with the understanding that the
customers are the most important ingredient to success and deserve a superior
level of service. The Bank's competitive edge is the commitment, dedication and
focus on the customer by the management and employees. The employees are
important to the operations and are valued as individuals. The Bank will strive
to enhance their personal and professional growth as, "The Best Bank in Town for
You".
The architecture of the Bank's buildings enhances system performance,
reduces overall costs and facilitates faster and easier implementation of the
initial customer banking transactions and subsequent banking relationships. The
design of the Bank's buildings provides for good customer and employees
relationships, as well as the proper usage and functions on a daily processing
and handling of transactions. The applications are designed for easy usage for
both customers and staff with the state-of-the-art equipment to be compatible
with personal productivity.
The Bank offers a wide range of commercial and retail banking services.
Products are comprised of traditional bank services such as consumer loans,
commercial and individual real estate loans, agricultural, small and medium
sized business loans as well as personal loans. The Bank also offers standard
business and individual checking accounts, money market accounts, savings and
certificate of deposit accounts. Also, the Bank has additional services, such
as credit cards, access cards, safe deposit boxes, drive-up windows, wire
transfer and night depository. The Bank has implemented operational controls as
well as the necessary reporting requirements for the continued growth of the
Bank. Management is a part of the day to day operation, with timely and local
decisions made for the Bank's customers.
On a parent company only basis, the Company's only source of funds is the
receipt of dividends paid by the Bank subsidiary. The ability of the Bank to
pay dividends is subject to limitations under various laws and regulations,
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and to prudent and sound banking principles. Generally, subject to certain
minimum capital requirements, the Bank may declare a dividend without the
approval of the State of Ohio Division of Financial Institutions, unless the
total of the dividends in a calendar year exceeds the total of the two preceding
years. Under these provisions, no amount was available for dividends at
December 31, 1996, without the approval of the State of Ohio Division of
Financial Institutions. The Company's only debt service obligations relate to
two capital lease obligations. Rental payments from the Bank provide the
Company with the cash to meet the monthly debt service obligations.
EFFECTS OF GOVERNMENT MONETARY POLICY
The earnings of the Bank are affected by general and local economic
conditions and by the policies of various governmental regulatory authorities.
In particular, the Federal Reserve Board regulates money and credit conditions
and interest rates in order to influence general economic conditions, primarily
through open market acquisitions or dispositions of United States Government
securities, varying the discount rate on member bank borrowing and setting
reserve requirements against member and nonmember bank deposits. Federal
Reserve Board monetary policies have had a significant effect on the interest
income and interest expense of commercial banks and are expected to continue to
do so in the future.
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COMPETITION
The Bank has active competition in all areas of activity in which it
engages. The Bank competes for commercial and individual deposits and/or loans
with other commercial banks in Northern Wood County and Lucas County in
Northwestern Ohio, as well as with savings and loan associations in the trade
area, credit unions connected with local businesses, and financial units of
non-local bank holding companies. The Bank focuses on personalized service,
pricing of products, community involvement and its local ownership and control
in meeting its competition.
EMPLOYEES
The Company has no employees and conducts its business through its
wholly-owned subsidiary, the Bank.
As of December 31, 1996, the Bank employed 12 full-time employees to whom a
variety of benefits are provided and with whom the Bank believes relationships
are excellent.
LEGAL PROCEEDINGS
The Company, certain officers and a former board member of the Company have
been named as defendants in a civil action initiated by Thomas Eichler, a former
officer and director of the Company. The complaint was filed in the United
States District Court for the Northern District of Ohio, Western Division. The
complaint alleges a breach of duty as a result of the failure to hire Mr.
Eichler as an employee of the Company. The complaint seeks compensatory damages
in the nature of lost wages and punitive damages. The Company denies the claims
and is vigorously defending the action.
PROPERTY
The Company leases two properties under 20 year lease agreements with an
unrelated party. For financial reporting purposes, such leases are accounted
for as capital leases. The main office of the Company and Bank is maintained at
610 East South Boundary Street, Perrysburg, Ohio. The second office of the Bank
is located at 6401 Monroe Street, Sylvania, Ohio. Each of the facilities were
newly constructed in 1996 and are suitable for their intended uses. Management
believes each property is adequately covered by insurance.
MANAGEMENT
The Board of Directors presently consists of three members, each of whom is
also a director of the Bank. Directors are generally elected to serve for
three-year terms or until their respective successors are elected and qualified.
The Board is divided into three classes, with one-third of the Board generally
elected on an annual basis. The number of Directors is to be set at three (3).
The following table sets forth the name, age, and position with the Company of
each executive officer and director of the Company. A narrative description of
the principal occupation of each executive officer and director during the past
five years, together with certain other information, is set forth below the
table.
- --------------------------------------------------------------------------------
Director of the
Name and Age Principal Occupation Company Since
- ------------ -------------------- ---------------
- --------------------------------------------------------------------------------
Jerome C. Bechstein (50) President, Chief Executive 1992
Officer, and Director (Term Expiring - 1997)
- --------------------------------------------------------------------------------
Lois A. Brigham (63) Sr. Vice President, 1993
Secretary, and Director (Term Expiring - 1999)
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
John Weinert (66) Director 1992
(Term Expiring - 1998)
- --------------------------------------------------------------------------------
Jerome C. Bechstein has served as President, Chief Executive Officer, and a
Director of the Company since 1992. He has also served the Bank in the same
capacities since its formation in 1995. Mr. Bechstein has in excess of 23 years
of experienc in banking. He was employed by Mid-American National Bank and
Trust Company, Bowling Green, Ohio from 1968 through June, 1991, serving in
various capacities including Executive Vice President, Lending from 1990 to 1991
and Executive Vice President, Administration from 1988 to 1990. Mr. Bechstein
holds a B.B.A. and a M.B.A. from Bowling Green State University.
Lois A. Brigham has served as Sr. Vice President, Secretary, and a Director
of the Company since 1993. Ms. Brigham has also served in the same capacities
for the Bank since its formation in 1995. Ms. Brigham has extensive experience
in employment with, and consultation to, local banks. She is active in numerous
local civic and charitable activities.
John Weinert has served as a Director of the Company since 1992. Mr.
Weinert is the former head basketball coach for Bowling Green State University
from 1976 to 1987 and a representative of the Athletic Department from 1987 to
1991. Mr. Weinert attended Notre Dame University and the University of
Wisconsin where he received a B.S. Degree in 1955. He received a Masters Degree
from Northern Michigan University in 1968.
DIRECTOR COMPENSATION
Members of the Board of Directors of the Company are paid $100 per meeting
attended. Each director of the Company attended three meetings during the
calendar year ending December 31, 1996, but the Company has not paid the
directors' fees. Members of the Board of Directors of the Bank are paid $100
per meeting attended and $50 for each committee meeting attended.
EXECUTIVE COMPENSATION
The executive officer was not paid either in salary or accrued benefits in
excess of $100,000 during the year of 1996. There were no employment contracts,
stock options or bonuses paid to the executive officers. The following table
sets forth certain information regarding compensation paid during the Company's
last fiscal year to the Company's Chief Executive Officer.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
Name and Principal Other Annual All Other
Position Salary Bonus Compensation Compensation
- ------------------ ------ ----- ------------ ------------
- --------------------------------------------------------------------------------
Jerome C. Bechstein, $73,542 -0- -0- -0-
Chief Executive Officer
- --------------------------------------------------------------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain directors and executive officers, including their immediate
families and companies in which they are principal owners, may at times be loan
customers of the Bank. Such loans are made in the ordinary course of business
in accordance with the Bank's normal lending policies, including the interest
rate charged and collateralization, and do not represent more than a normal
collection risk. Such loans approximated $80,000 at December 31, 1996 and were
paid in full in January 1997.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company was incorporated under the laws of the State of Ohio on April
1, 1992, and is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended. The Company owns all of the voting Shares of
Towne Bank (the "Bank"), an Ohio chartered bank incorporated in 1995, which
commenced operations on October 15, 1996. The Bank is the only subsidiary of
the Company, and substantially all of the Company's operations are conducted
through the Bank. The principal offices of both the Company and the Bank are
located at 610 E. South Boundary, Perrysburg, Ohio. The Bank opened the
Perrysburg office on October 15, 1996 and the Sylvania, Ohio office on January
13, 1997. The Company and the Bank had total consolidated assets of $12,994,091
at December 31, 1996 and $18,746,407 at September 30, 1997.
The Company applied for regulatory approvals, recruited and hired
personnel, and performed significant financial planning relating to the
formation of the Bank. On October 15, 1996, the Company received final approval
of regulatory authorities to purchase 100 percent of the common stock of the
Bank, a Federal Reserve member bank formed under the laws of the State of Ohio
and insured by the Federal Deposit Insurance Corporation. The Company was
approved as a bank holding company by the Board of Governors of the Federal
Reserve System, pursuant to the Bank Holding Company Act of 1956, as amended.
Currently, the Company has no other business activity other than acting as the
holding company for the Bank. As a result, the following discussion relates
primarily to the activities of the Bank. This discussion should be read in
conjunction with the Consolidated Financial Statements and accompanying Notes
included in this Prospectus.
The Company's results of operations are dependent upon the growth of the
Bank and the resulting net interest income, which is the difference ("spread")
between the interest income earned on the loans, securities, and investment
portfolio and the cost of funds, consisting of interest paid on deposits and
borrowed money. The interest rate spread is affected by regulatory, economic
and competitive factors that influence interest rates, loan demand and deposit
flow. The Company's profitability is also affected by loan fee income,
provisions for loan losses, service charges, operating expenses and income
taxes.
The Company's revenues are derived primarily from interest on mortgage
loans, commercial loans, consumer loans and investment securities, as well as
income from service charges and loan origination fees. The Company's operating
expenses principally consist of employee compensation and benefits, occupancy,
and other general and administrative expenses. The Company's results of
operation are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, and governmental
policies of regulatory authorities. The Company and the Bank have offices
located in Perrysburg, and Sylvania, Ohio. The Perrysburg office opened for
business on October 15, 1996 and the Sylvania office of the Bank opened for
business on January 13, 1997.
The Bank is a community financial institution offering a variety of
services to meet the needs of the local communities. The Bank attracts deposits
from the general public and pursues such deposits, together with other funds, to
originate one to four family residential mortgage loans and other consumer
loans. The Bank also originates residential construction, commercial business
and agricultural loans. Deposits are insured up to the maximum allowable amount
by the Federal Deposit Insurance Corporation ("FDIC"). The Bank invests in
securities issued by the U.S. government or agencies of the U.S. government, as
well as mortgage-backed securities insured or guaranteed by federal agencies.
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RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Total assets at September 30, 1997 totaled $18,746,407 compared to
$12,994,091 at 1996 year end. Total deposits increased to $13,271,496 from
$6,505,572 at year end, and net loans increased to $10,227,343 from $1,102,913
at December 31, 1996. Stockholders equity at September 30, 1997 decreased from
$3,703,544 at December 31, 1996 to $2,841,310 at September 30, 1997.
Net loss for the nine months ended September 30, 1997 was ($863,560). The
interest income is growing due to the increase in loan activity. Also, the
interest expense increased due to the growth in the deposits. The allowance for
loan loss increased to $110,000 at the end of the quarter, which is warranted
due to the growing loan portfolio. The net interest income was $378,420 for the
nine months ended September 30, 1997. The non-interest expenses are beginning
to stabilize after the start-up costs, advertising, and other one time
expenditures that occurred in 1995. Federal Funds Sold decreased to $2,116,000
at September 30, 1997 from $5,429,000 as December 31, 1996. This was due to the
increased loan volume.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND
1995
The Company is not aware of any market or institutional trends, events or
uncertainties that are expected to have a material effect on liquidity, capital
resources or operations and any current recommendations by the regulators which
would have a material effect if implemented. Total assets of the Company were
$12,994,091 at December 31, 1996, compared to $4,728,897 at December 31, 1995.
The increase was primarily attributable to the opening of the Bank, which
resulted in deposits of $6,505,572 as of December 31,1996. Deposits were
obtained primarily from individuals and businesses in the market area. These
funds were invested in federal funds, investment securities and loans.
Short term investments are in federal funds sold of $5,429,000 as of
December 31, 1996. These funds are invested overnight with up to eleven
different banks with a Standard and Poor rating of A- or better. Investment
securities were $3,389,270 as of December 31, 1996. Securities are designated
as held-to-maturity or available-for-sale.
Net loans receivable were $1,102,913 as of December 31, 1996 and consisted
of real estate residential mortgages of $682,138; commercial loans of $233,015;
consumer loans of $136,810 and the balance included other loans less deferred
loan fees and the allowance for loan losses.
Net premises and equipment was $2,499,349 as of December 31, 1996. This
includes $2,500,000 relating to the capital leases of two banking offices,
equipment of $59,766 and accumulated depreciation of $60,417.
The net loss for 1996 was ($873,361), compared to net income for 1995 of
$127,643. The 1996 net loss reflects the impact of the pre-opening costs of the
new bank start-up. Net interest income is the largest component of income for
the Company, and consists of the difference between interest income generated on
interest earning assets and interest expense incurred on interest bearing
liabilities. The interest income is primarily affected by the volumes, interest
rates and composition of interest earning assets and interest bearing
liabilities.
The provision for loan losses is based on management's regular review of
the loan portfolio, which considers factors such as prevailing general economic
conditions and considerations applicable to specific loans, such as the ability
of the borrower to repay the loan and the estimated value of the underlying
collateral, as well as changes in the size and growth of the loan portfolio.
Management believes that the allowance for loan losses as of December 31, 1996,
is adequate to absorb potential losses of the present loan portfolio; however,
future additions to the allowance may be necessary based on changes in economic
conditions. The provision for loan losses was $20,000 for 1996. Non-interest
expenses were $1,041,256 for 1996, primarily consisting of salaries and benefits
expense, occupancy expenses and other operating expenses. Salaries and benefits
reflect the hiring of personnel for the opening of the two banking offices.
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Increases in occupancy expenses were due to the leasing of the two banking
offices. Other operating expenses increased because of the start-up costs
incurred in the areas of advertising, printing and supplies along with the
normal operating expenses of the Bank since it opened in October 1996. Also,
increased expenses for professional fees and litigation costs related to a
lawsuit with a former organizer of the Company.
LIQUIDITY
In basic banking terms, liquidity relates to the ability to convert assets
into cash or to acquire deposit funds in order to meet the cash withdrawal needs
of depositors or to provide funds for borrowers. In a more complex business
environment, it also represents the availability to fund expanding operations,
allow for contingencies and provide investment opportunities for the Company.
The Company manages liquidity to meet the cash flow needs of customers,
such as borrowing and deposit withdrawals, while at the same time striving to
maximize the yield on investments and loans. To meet these cash flow
requirements and also to improve and expand service in existing markets there
must be sufficient sources of liquid funds and adequate capital. The major
sources of asset liquidity are federal funds sold and that portion of the
securities portfolio which matures within one year. These sources are
supplemented by new deposit growth and by loans that are paid during the period.
The Company has and expects to continue to have more than sufficient funds to
meet the liquidity requirements.
CAPITAL RESOURCES
Capital provides the foundation for future growth and expansion. The major
component of capital is the Company' shareholders' equity. The adequacy of
capital can be evaluated based on guidelines established by banking regulatory
agencies. The risk-based capital requirements assign risk weights to on-and-off
balance sheet items in arriving at total risk-adjusted assets. Regulatory
capital is divided by the computed total of risk-adjusted assets to arrive at
the capital measure. The regulatory minimum total capital ratio is 8%. Due to
the issuance of over $4,480,000 in common stock and the start-up nature of the
Bank, both the Company and the Bank are well capitalized.
YEAR 2000 ISSUE
The Company has reviewed all of its current computer applications, both
in-house and those provided by outside vendors, with respect to the year 2000
issue. The Company believes all of its applications are substantially
compliant and the cost of making all applications year 2000 compliant will
not result in a significant cost.
GOVERNMENT REGULATION
GENERAL
To the extent that the following information describes statutory
or regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in applicable laws
or regulations may have a material effect on the business and prospects of the
Company and the Bank. The operations of the Company and the Bank may be
affected by legislative changes and by the policies of various regulatory
authorities. The Company is unable to predict the nature or the extent of the
effects on its business and earnings that fiscal or monetary policies, economic
controls or new Federal or state legislation may have in the future.
The Company and the Bank are extensively regulated under Federal and
state law. These laws and regulations are intended to protect depositors,
not stockholders. In addition to laws and regulations which are applicable
to all state banks which are members of the Federal Reserve System and bank
holding companies, the Federal Reserve Bank and the Ohio Division imposed
certain conditions on the approval of the Company's application to become a
bank holding company, the Bank's application to become a member of the
Federal Reserve System and the Bank's application to become a state chartered
bank.
The Federal Reserve Bank's approval, dated August 14, 1995, of the
Company's application to become a bank holding company was expressly conditioned
(a) on the Company's commitment not to incur debt during the first three years
of operation without providing prior notice to the Federal Reserve Bank and
receiving no-objection response regarding the requested debt and (b) on the
Company's commitment to refrain from the payment of dividends for the first
three years of operating without receiving a prior written no-objection response
from the Federal Reserve Bank.
The Federal Reserve Bank's approval of the Bank's application for
membership in the Federal Reserve System, also dated August 14, 1995, was
conditioned on compliance with a commitment to refrain from the payment of
dividends for the first three years of operation without receiving no-objection
response from the Federal Reserve Bank.
The Ohio Division's approval order, dated February 14, 1995, which related
to the formation of the Bank, required the Bank to maintain a leverage ratio of
at least ten percent until such time, not less than three years after the
commencement of operations, as the Superintendent advises the Bank in writing
that such level of capitalization is no longer necessary. Similarly, the
Federal Reserve Bank's approval of the Bank's application was expressly
conditioned on a commitment to maintain a tangible leverage ratio of nine
percent during the first three years of operation.
FEDERAL BANK HOLDING COMPANY REGULATION
The Company is a bank holding company within the meaning of the Bank
Holding Company ("BHC") Act, and as such, it is subject to regulation,
supervision and examination by the Board of Governors of the Federal Reserve
System (the "FRB"), acting primarily through officials of the Federal Reserve
Bank of Cleveland. The Company is required to file annual reports with the FRB
and to provide the FRB such additional information as the FRB may require.
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The BHC Act requires every bank holding company to obtain the prior
approval of the FRB before (1) acquiring, directly or indirectly, ownership or
control of any voting Shares of another bank or bank holding company if, after
such acquisition, it would own or control more than 5% of such Shares (unless it
already owns or controls the majority of such Shares); (2) acquiring all or
substantially all of the assets of another bank or bank holding company; or (3)
merging or consolidating with another bank holding company. The FRB will not
approve any acquisition, merger or consolidation that would have a substantially
anticompetitive result, unless the anticompetitive effects of the proposed
transaction are clearly outweighed by a greater public interest in meeting the
convenience and needs of the community to be served. The FRB also considers
capital adequacy and other financial and managerial factors in reviewing
acquisitions or mergers.
With certain exceptions, the BHC Act also prohibits a bank holding company
from acquiring or retaining direct or indirect ownership or control of more than
5% of the voting Shares of any company which is not a bank or holding company,
or from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by FRB regulation or order, have been
identified as activities closely related to the business of banking or of
managing or controlling banks. In making this determination, the FRB considers
whether the performance of such activities by a bank holding company can be
expected to produce benefits to the public such as greater convenience,
increased competition or gains in efficiency in resources, which can be expected
to outweigh the risks of possible adverse effects such as decreased or unfair
competition, conflicts of interest or unsound banking practices.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to the
bank holding company or its subsidiaries, on investments in their securities and
on the use of their securities as collateral for loans to any borrower. These
regulations and restrictions may limit the Company's ability to obtain funds
from the Bank for its cash needs, including funds for payment of dividends,
interest and operating expenses. Further, under the BHC Act and certain
regulations of the FRB, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services. For
example, the Bank may not generally require a customer to obtain other services
from the Bank or the Company, and may not require that customer to promise not
to obtain other services from a competitor, as a condition to an extension of
credit to the customer.
STATE BANK HOLDING COMPANY REGULATION
The Company, as an Ohio bank holding company, is also subject to
regulation by the Ohio Division of Financial Institutions. With prior notice
to the Superintendent, Ohio law authorizes a bank holding company to acquire
an Ohio bank if after the acquisition the bank holding company will not
control more than ten percent to the deposits of banks, savings banks, and
savings associations nationwide and not more than thirty percent of such
institutions in Ohio. Ohio law also authorizes interstate branching by
merger and by the acquisition of existing branches or opening of new banking
offices inside and outside of Ohio. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 permits the Federal Reserve Board to approve
interstate bank mergers upon satisfaction of various conditions, including
deposit limits similar to those imposed by Ohio law.
FEDERAL AND STATE BANK REGULATION
The Bank, as a federally-insured Ohio bank, is subject to the supervision
and regulation of the Ohio Division of Financial Institutions, and to the
supervision and regulation of the FDIC. As a state member bank, the Board of
Governors of the Federal Reserve System is the Bank's primary federal bank
regulator. These agencies may prohibit the Bank from engaging in what they
believe constitute unsafe or unsound banking practices.
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The maximum legal rate of interest which the Bank may charge on a
particular loan depends on a variety of factors such as the type of borrower,
the purpose of the loan, the amount of the loan and the date the loan is made.
A state statute sets the maximum legal rate of interest for various kinds of
loans.
The ability of banks and bank holding companies to operate in multiple
locations or in more than one state is regulated by both Federal and state law.
Ohio currently does not permit interstate branch banking, and permits interstate
bank holding company activities only between Ohio and the five states adjacent
to it.
The Community Reinvestment Act requires that, in connection with
examinations of financial institutions within their jurisdiction, the FDIC shall
evaluate the record of the financial institutions in meeting the credit needs of
their local communities, including low and moderate income neighborhoods,
consistent with the safe and sound operation of those banks. These factors are
also considered in evaluating mergers, acquisitions and applications to open a
branch or facility.
The Bank is also subject to certain restrictions imposed by the Federal
Reserve Act on extensions of credit to executive officers, directors, principal
stockholders or any related interest of such persons. Extensions of credit (i)
must be made on substantially the same terms, including interest rates and
collateral as, and following credit underwriting procedures that are not less
stringent than, those prevailing at the time for comparable transactions with
persons not covered above and who are not employees, and (ii) must not involve
more than the normal risk of repayment or present other unfavorable features.
The Bank is also subject to certain lending limits and restrictions on
overdrafts to such persons. A violation of these restrictions may result in the
assessment of substantial civil monetary penalties on the Bank or any officer,
director, employee, agent or other person participating in the conduct of the
affairs of the Bank, the imposition of a cease and desist order, and other
regulatory sanctions.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") imposed a number of mandatory supervisory measures on banks. Among
other things, FDICIA requires the federal depository institution regulatory
agencies to prescribe by regulation safety and soundness standards for all
insured depository institutions. FDICIA also establishes a system of prompt
corrective action to resolve the problems of undercapitalized institutions,
whereby all institutions are classified into one of five categories based in
large measure upon their regulatory capital ratios. FDICIA requires the
depository institution regulatory agencies to appoint a receiver or conservator
shortly after an institution enters the category of institutions with the
weakest capitalization. It also authorized the agencies to reclassify an
institution from one category into a lower category if it is in an unsafe or
unsound condition or engaging in an unsafe or unsound practice, and it requires
undercapitalized institutions that are not in the category of weakest
capitalization to take certain actions to increase their capital or otherwise
decrease the risks to the federal deposit insurance funds.
Under FDICIA, each Federal banking agency is required to prescribe, by
regulation, non-capital safety and soundness standards for institutions under
its authority. These standards are to cover internal controls, information
systems and internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth, compensation, fees and benefits, such
other operational and managerial standards as the agency determines to be
appropriate, and standards for asset quality, earnings and stock valuation. An
institution which fails to meet these standards must develop a plan acceptable
to the agency, specifying the steps that the institution will take to meet the
standards. Failure to submit or implement such a plan may subject the
institution to regulatory sanctions. The Company believes that it already meets
substantially all the standards which are likely to be adopted, and therefore
does not believe that the implementation of these regulatory standards will
materially affect the Company's business operations. FDICIA also imposed new
capital standards on insured depository institutions. See "Government
Regulation--Capital Adequacy."
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DEPOSIT INSURANCE
As an FDIC member institution, the deposits of the Bank are currently
insured to a maximum of $100,000 per depositor through the Bank Insurance Fund
("BIF"), administered by the FDIC, and the Bank is required to pay semiannual
deposit insurance premium assessments to the FDIC.
FDICIA included provisions to reform the Federal deposit insurance system,
including the implementation of risk-based deposit insurance premiums, and
permits the FDIC to make special assessments on insured depository institutions,
in amounts determined by the FDIC to be necessary to give it adequate assessment
income to repay amounts borrowed from the U.S. Treasury and other sources or for
any other purpose the FDIC deems necessary. Pursuant to FDICIA, the FDIC
implemented a transitional risk-based insurance premium system on January 1,
1993. Generally, under this system, banks are assessed insurance premiums
according to how much risk they are deemed to present to BIF. Banks with higher
levels of capital and involving a low degree of supervisory concern are assessed
lower premiums than banks with lower levels of capital or involving a higher
degree of supervisory concern.
Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), a depository institution insured by the FDIC can be held liable
for any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to a commonly controlled
FDIC-insured depository institution in danger of default (the "Cross
Guarantee"). "Default" is defined generally as the appointment of a conservator
or receiver and "in danger of default" is defined generally as the existence of
certain conditions indicating either that there is no reasonable prospect that
the institution will be able to meet the demands of its depositors or pay its
obligations in the absence of regulatory assistance, or that its capital has
been depleted and there is no reasonable prospect that it will be replenished in
the absence of regulatory assistance. The Cross Guarantee thus enables the FDIC
to assess a holding company's healthy BIF members for the losses of any of such
holding company's failed BIF members. Cross Guarantee liabilities are generally
superior in priority to obligations of the depository institution to its
stockholders due solely to their status as stockholders and obligations to other
affiliates. Under FIRREA, failure to meet applicable capital guidelines could
subject a banking institution to a variety of enforcement remedies available to
Federal regulatory authorities, including the termination of deposit insurance
by the FDIC and a prohibition on the taking of "brokered deposits."
DIVIDENDS
The principal source of the Company's cash revenues is cash dividends
received from the Bank. Ohio law requires the approval of the Superintendent
for the declaration of dividends by an Ohio bank if the total of all
dividends and distributions declared in any year exceeds the total of its net
income for that year with its retained net income of the preceding two years.
In addition, dividends may only be paid from undivided profits unless
approved by two-thirds of the shareholders and the Superintendent.
Similarly, federal law applicable to state member banks, such as the Bank,
requires that the payment of dividends in excess of the current year's net
earnings plus retained earnings for the previous two years be approved by the
Federal Reserve Bank; however, in no event may a bank pay dividends in excess
of undivided profits then on hand or reduce capital by paying dividend
without approval by two-thirds of shareholders and the Federal Reserve Bank.
In addition, as a bank holding company which is subject to the regulation
of the FRB, the Company must comply with policy statements issued by the FRB.
The FRB has issued a policy statement with respect to the payment of cash
dividends. In summary, the policy statement concludes that a bank holding
company should not maintain an existing rate of cash dividends on common stock
unless (1) the organization's net income available to common stockholders over
the year in question has been sufficient to fully fund the dividends and (2) the
prospective rate or earnings retention appears consistent with the
organization's capital needs, asset quality, and overall financial condition.
The Company intends to comply with the policy.
The Company's application to become a bank holding company was approved,
subject to the satisfaction of certain conditions, including limitations on
the payment of dividends. See "GOVERNMENT REGULATION--GENERAL."
CAPITAL ADEQUACY
The Federal bank regulatory agencies use capital adequacy guidelines in
their examination and regulation of bank holding companies and banks. If the
capital falls below the minimum levels established by these guidelines, the
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bank holding company or bank may be denied approval to acquire or establish
additional banks or non-bank businesses or to open facilities.
The FRB and FDIC have adopted risk-based capital guidelines for banks and
bank holding companies. The risk-based capital guidelines are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, to account for off-balance sheet
exposure and to minimize disincentives for holding liquid assets. Assets and
off-balance sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items. The
guidelines are minimums, and the FRB has noted that bank holding companies
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain ratios well in excess of the
minimum. The current guidelines require all bank holding companies and
Federally-regulated banks to maintain a minimum risk-based total capital ratio
equal to 8%, of which at least 4% must be Tier 1 capital (see description of
Tier 1 and Tier 2 capital below). Bank holding companies are required under
such guidelines to deduct all intangibles except purchased mortgage servicing
rights from capital.
Tier 1 capital for bank holding companies includes common stockholders'
equity, qualifying perpetual preferred stock (up to 25% of total Tier 1 capital,
if cumulative; under a FRB rule, redeemable perpetual preferred stock may not be
counted as Tier 1 capital unless the redemption is subject to the prior approval
of the FRB) and minority interests in equity accounts of consolidated
subsidiaries, less intangibles except as described above. Tier 2 capital
includes: (1) the allowance for loan losses up to 1.25% of risk-weighted
assets; (ii) any qualifying perpetual preferred stock which exceeds the amount
which may be included in Tier 1 capital; (iii) hybrid capital instruments; (iv)
perpetual debt (v) mandatory convertible securities and (vi) subordinated debt
and intermediate term preferred stock of up to 50% of Tier 1 capital. Total
capital is the sum of Tier 1 and Tier 2 capital less reciprocal holdings of
other banking organizations, capital instruments and investments in
unconsolidated subsidiaries.
Bank's and bank holding companies' assets are given risk-weights of 0%,
20%, 50% and 100%. In addition, certain off-balance sheet items are given
credit conversion factors to convert them to asset equivalent amounts to which
an appropriate risk-weight will apply. These computations result in the total
risk-weighted assets.
Most loans are assigned to the 100% risk category, except for first
mortgage loans fully secured by residential property, which carry a 50% rating.
Most investment securities are assigned to the 20% category, except for
municipal or state revenue bonds, which have a 50% risk-weight, and direct
obligations of or obligations guaranteed by the United States Treasury or United
States Government agencies, which have a 0% risk-weight. In converting
off-balance sheet items, direct credit substitutes, including general guarantees
and standby letters of credit backing financial obligations, are given a 100%
conversion factor. Transaction related contingencies such as bid bonds, other
standby letters of credit and undrawn commitments, including commercial credit
lines with an initial maturity of more than one year, have a 50% conversion
factor. Short-term, self-liquidating trade contingencies are converted at 20%,
and short-term commitments have a 0% factor.
The FRB also has implemented a leverage ratio, which is Tier 1 capital as a
percentage of total assets less intangibles, to be used as a supplement to the
risk-based guidelines. The principal objective of the leverage ratio is to
place a constraint on the maximum degree to which a bank holding company may
leverage its equity capital base. The FRB requires a minimum leverage ratio of
3%. However, for all but the most highly rated bank holding companies and for
bank holding companies seeking to expand, the FRB expects an additional cushion
of at least 100 to 200 basis points. At September 30, 1997, the Company and
the Bank were in compliance with all capital regulatory requirements.
FDICIA also created a new statutory framework which applies to every
insured depository institution a system of supervisory actions indexed to the
capital level of the individual institution. Under the implementing regulations
adopted by the FDIC, an institution is assigned to one of five capital
categories depending on its total risk-based capital ratio, Tier 1 risk-based
capital ratio, and leverage ratio, together with certain subjective factors.
Institutions which are deemed to be "undercapitalized" depending on the category
to which they are assigned are subject to certain mandatory
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supervisory corrective actions. The Company does not anticipate that these
regulations will have any material effect on the Bank.
MONETARY POLICY
The earnings of a bank holding company are affected by the policies of
regulatory authorities, including, in particular, the FRB, in connection with
the FRB's regulation of the money supply. Various methods employed by the FRB
are open market operations in United States Government securities, changes in
the discount rate on member bank borrowings and changes in reserve requirements
against member bank deposits. These methods are used in varying combinations to
influence overall growth and distribution of bank loans, investments and
deposits, and their use may also affect interest rates charged on loans or paid
on deposits. The monetary policies of the FRB have had a significant effect on
the operating results of commercial banks in the past and are expected to
continue to do so in the future.
PROPOSED LEGISLATION AND FUTURE REGULATORY POLICIES
The laws and regulations affecting banks and bank holding companies are
subject to change. The rules and the regulatory agencies in this area have
changed significantly over recent years, and there is reason to expect that
similar changes will continue in the future. It is difficult to predict the
outcome of these changes. Banking-related initiatives applicable to the Company
that are pending before Congress include a financial services modernation bill
which would allow new affiliations among banks, securities firms, and insurance
companies. Based on what is presently known about this initiative, management
does not believe that the Company's operations will be materially adversely
affected by it or by other pending initiatives that may be enacted in the
future.
Additionally, one of the major additional burdens imposed on the banking
industry by FDICIA is the increased authority of federal agencies to regulate
the activities of federal and state banks and their holding companies. The
Federal Reserve Board and the FDIC have extensive authority to policy unsafe or
unsound practices and violations of applicable laws and regulations by
depository institutions and their holding companies. The agencies can assess
civil money penalties, issue cease and desist or removal orders, seek
injunctions, and publicly disclose such actions. FDICIA, FIRREA and other laws
have expanded the agencies' authority in recent years, and the agencies have not
yet fully tested the limits of their powers. In addition, the Ohio
Superintendent of Financial Institutions possesses certain enforcement powers
enumerated particularly to address violations of Ohio banking law for Ohio
state-chartered banks.
The policies of regulatory authorities, including the monetary policy of
the FRB, have a significant effect on the operating results of bank holding
companies and their subsidiaries. See "Government Regulation - Monetary
Policy."
DESCRIPTION OF THE SHARES
The Shares offered hereby are common shares, without par value. The
Company has 800,000 Shares authorized and 370,761 Shares are issued and
outstanding as of the date hereof.
The holders of the Shares have no preemptive right to acquire other or
additional Shares which may, from time to time, be authorized and issued by the
Company. Such issuance would cause a dilution in the ownership percentage of
the Shares held by any shareholder. It is not currently contemplated that the
Company will issue any other class of Shares other than the Shares offered
hereunder.
As is required by Ohio law, each shareholder of the Company shall have the
right to cumulatively vote his/her Shares in connection with the election of
Directors. Cumulative voting allows a shareholder to vote the number of Shares
owned by him times the number of directors to be elected and to cast such votes
for one director or to allocate
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such votes among directors as he deems appropriate. Each Share shall be
entitled to one (1) vote per share on all issues other than the right to
cumulate votes in the election of Directors.
All Shares offered hereby will be, upon issuance, fully paid and
nonassessable. However, the Company may be required to fund the Bank in the
future in the event that the Ohio Division of Financial Institutions determines
such capital infusion is necessary. In such event, if the Company does not have
significant unencumbered assets to provide such infusion of capital, the Company
would be forced to look to the existing shareholders for such funds, to borrow
such funds or to have an additional equity offering of Shares in the Company.
Since the Company and the Bank are both start-up operations, it is the
policy of the Board of Directors of the Company to retain any earnings for the
period of time necessary to ensure the success of their operations. The payment
of dividends will depend substantially on the Bank's earnings and will be
subject to legal and regulatory restrictions applicable to the Company and the
Bank. As a result, the Company has no current plans to initiate payment of cash
dividends, and its future dividend policy will depend on the Bank's earnings,
capital requirements, financial condition and other factors considered relevant
by the Board of Directors of the Company.
The Articles of Incorporation of the Company contain certain provisions
limiting the liability of Directors and providing for indemnification of the
Company's Directors and Officers (see "INDEMNIFICATION").
A vote of eighty percent (80%) of the Company's outstanding Shares will be
required to approve certain business combination transactions (see "ANTITAKEOVER
MEASURES").
ANTITAKEOVER MEASURES
DISCUSSION OF FAIR PRICE AND SUPERMAJORITY VOTE PROVISIONS
The Company's Articles of Incorporation contain a "Fair Price" and
"Supermajority Vote" provision. Such provision was included in the Company's
Articles of Incorporation based on the fact that certain tactics have become
relatively common in recent corporate takeover practice, including the
accumulation of a substantial block of stock as a prelude to an attempted
takeover or proxy fight or the use of a partial tender offer followed by a
second step merger or business combination involving less favorable
considerations than were offered in the partial tender offer. The Board of
Directors of the Company considers that such tactics can be highly disruptive
and can result in dissimilar and unfair treatment of shareholders.
The fair price and supermajority vote provisions are designed to encourage
potential takeover bidders to negotiate at arms length with the Board of
Directors. In the absence of such negotiations, the provisions are intended to
achieve a measure of assurance that any multistep attempt to take over the
Company is made on terms that offer similar treatment to all shareholders.
Neither the proposed fair price provision nor the supermajority vote provision
will impede a takeover that is approved by two-thirds of the directors of the
Company who are unaffiliated with a ten percent (10%) or more shareholder.
The Board of Directors is not aware of any current efforts to obtain
control of the Company or to effect substantial accumulations of the Shares.
However, Article X of the Company's Articles of Incorporation was included in
order to have in place appropriate safeguards to protect the shareholders in
light of numerous two-step takeover attempts for public corporations and in
light of developments in legislation regarding interstate banking.
An effect of these provisions in the Company's Articles of Incorporation is
to make more difficult the consummation of a business combination with a ten
percent (10%) or more shareholder in the absence of the approval of the Board of
Directors of the Company. Accordingly, the provisions may discourage takeover
attempts which are
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not supported by the Board of Directors (see "Purpose and Effect of Article X of
the Company's Articles of Incorporation Concerning "Fair Price" and
"Supermajority Vote" Provisions").
THE FAIR PRICE AND SUPERMAJORITY VOTE PROVISIONS MAY HAVE THE EFFECT OF
PROTECTING THE INCUMBENT BOARD OF DIRECTORS AND MANAGEMENT BY DISCOURAGING
TAKEOVER ATTEMPTS WHICH ARE NOT SUPPORTED BY THE BOARD AND MANAGEMENT. AS A
RESULT, SHAREHOLDERS MAY NOT HAVE THE OPPORTUNITY TO SELL SOME OR ALL OF THEIR
SHARES IN SUCH A TAKEOVER ATTEMPT. THESE PROVISIONS IN THE COMPANY'S ARTICLES
OF INCORPORATION MAY HAVE SIGNIFICANT EFFECTS ON THE ABILITY OF THE SHAREHOLDERS
OF THE COMPANY TO BENEFIT FROM CERTAIN TRANSACTIONS WHICH ARE NOT APPROVED BY
THE INCUMBENT BOARD OF DIRECTORS. ACCORDINGLY, SHAREHOLDERS ARE URGED TO READ
CAREFULLY THE FOLLOWING SECTIONS OF THIS PROSPECTUS, WHICH DESCRIBE MORE FULLY
THE SPECIFIC PROVISIONS OF THE ARTICLES OF INCORPORATION AND CODE OF REGULATIONS
AND WHICH DISCUSS THE ADVANTAGES AND DISADVANTAGES OF THESE MEASURES.
REASONS FOR FAIR PRICE AND SUPERMAJORITY VOTE PROVISIONS
The so-called "fair price" and "supermajority vote" provision would be
applicable in the case of certain business combinations with a shareholder
owning ten percent (10%) or more of the voting stock of the Company. The Board
of Directors determined that the provisions are desirable to assure all
shareholders fair and equitable treatment in the event of certain types of
"two-step" transactions.
There have been a number of takeovers of publicly-owned corporations
accomplished by the purchase of a control block of stock by means of open market
purchases or by means of a tender offer made directly to a target corporation's
shareholders at a price above the prevailing market price, followed by a second
step merger or other business combination. The value of the consideration given
for the acquired corporation's Shares in the second step of such an acquisition
may be, and frequently is, less than the value paid in the first step and/or the
form of the consideration in the first step. The Board of Directors was
concerned that the interest of all shareholders may not be adequately protected
in such a two-step acquisition.
The Company has a large number of shareholders who individually hold a
small number of Shares. The Board believes that sophisticated arbitragers and
other market professionals are generally in a better position to take advantage
of the more lucrative first-step transaction, while other shareholders will
often, as a practical matter, be compelled to accept the less favorable
consideration payable in the second step merger or other business combination.
Although the remaining shareholders subject to the second step may have
available certain legal remedies in such a situation, including the right to
dissent under applicable law in a merger and certain other business
combinations, the enforcement of such rights or remedies by a minority
shareholder may involve significant expense, delay and uncertainty.
There have been significant developments in the area of interstate banking.
Under the Bank Holding Company Act, a bank holding company is generally
prohibited from acquiring the voting stock or assets of a bank or bank holding
company located outside the state where the principal operations of the
acquiring bank holding company are conducted, unless statutes of the state,
where the bank or the bank holding company to be acquired is located, expressly
authorize such an acquisition. Several states have adopted, in various forms,
statutes authorizing out-of-state bank holding companies to acquire banks and
bank holding companies located in their states. Ohio has adopted such a
statute; the statute provides that any state which allows Ohio bank holding
companies to acquire banks and bank holding companies in its state has the
ability to acquire banks and bank holding companies in the State of Ohio. This
provision greatly increases the number of potential acquirors of Ohio banks and
bank holding companies.
Use of the two-step acquisition and further expansion of interstate banking
are two principal reasons that the Board of Directors of the Bank and the
Company determined that these provisions are desirable.
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SUMMARY OF FAIR PRICE AND SUPERMAJORITY VOTE PROVISIONS
The following summary is qualified by reference to the full text of the
Articles of Incorporation. Article X contains both a "fair price" and
"supermajority vote" provision. The following definitions are applicable to the
"fair price" and "supermajority" vote provisions.
The "business combinations" covered by Article X include the following
transactions:
(i) Any merger or consolidation of the Company or any of its
subsidiaries with or into an interested shareholder;
(ii) Any sale or other disposition between the Company or any of its
subsidiaries and an interested shareholder of assets constituting ten
percent (10%) or more of the Corporation's total shareholders' equity;
(iii) Issuance, sale or other transfer by the Company or any
subsidiary of any securities of the Company or any subsidiary to an
interested shareholder (other than an issuance or transfer of securities
which is effected on a pro rata basis to all shareholders of the Company);
(iv) The acquisition by the Company or any of its subsidiaries of
any securities of an interested shareholder;
(v) The adoption of any plan for liquidation or dissolution of the
Company proposed by or on behalf of an interested shareholder;
(vi) Any reclassification or recapitalization of securities of the
Company if the effect, directly or indirectly, of such transaction is to
increase the relative voting power of an interested shareholder; or
(vii) Any agreement, contract or other arrangement providing for or
resulting in any of the foregoing transactions.
An "interested shareholder" is defined to mean any person, and the
affiliates and associates (as defined) of such person(s) who or which together
are the beneficial owner(s), directly or indirectly, of ten percent (10%) or
more of the outstanding voting stock, or were, within the two-year period
immediately prior to the date in question, the beneficial owner(s), directly or
indirectly, of ten percent (10%) or more of the outstanding voting stock. This
definition of an "interested shareholder" excludes the Company and its
subsidiaries, or any Trust Department of the Company and its subsidiaries with
full voting control of the Company stock, as well as a trustee under any Company
profit sharing, stock purchase and savings, employee pension, or other employee
benefit plan, or under any similar plan of a subsidiary of the Company. Any
assignee or successor of an interested shareholder in a transaction not
involving a public offering within the meaning of the Securities Act of 1933
would be an interested shareholder. At the present time, the Bank is not aware
of the existence of any shareholder which would be an interested shareholder.
An "independent shareholder" is any shareholder of the Company other than
the interested shareholder engaged in or proposing a business combination.
A "continuing director" means any member of the Board of Directors of the
Company who is unaffiliated with the interested shareholder and was a member of
the Board of Directors prior to the time that the interested shareholder became
an interested shareholder, and any successor of a continuing director who is
unaffiliated with the interested shareholder and is approved to succeed a
continuing director by the continuing directors, or any member of the Board of
Directors who is approved to fill a vacancy on the Board of Directors and is
approved by the continuing directors.
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"Voting stock" means all outstanding Shares of capital stock of the Company
entitled (Common and Preferred) to vote in the election of directors.
Under the "fair price" provision, no business combination may be effected
without the approval of two-thirds of the Continuing Directors, unless either:
(i) Approved by holders of not less than 66 2/3% of the voting
stock held by all independent shareholders voting together as a class; or
(ii) All of the following minimum price and other requirements and
conditions are complied with:
a. the cash and fair market value of property (as
determined by the Continuing Directors as of the consummation date) to
be received, per share, in the business combination shall not be less
than the sum of (1) the highest per share price paid by the interested
shareholder in acquiring Shares of such class or series, or if
greater, in the case of preferred stock, the amount of the per share
redemption price, and (2) the amount by which a market rate of
interest (based on the 91-day Treasury bill rate) on the per share
price from the date the interested shareholder first became such, to
consummation of the business combination exceeds the per share amount
of cash dividends received by, the independent shareholders during
such period;
b. the form of consideration to be paid to the independent
shareholder shall be the same as previously paid by the interested
shareholder in acquiring the largest number of Shares of such class or
series acquired by it or, if no Shares of such class or series have
been acquired, the form of consideration shall be cash;
c. from the date the interested shareholder became such
until consummation of the business combination, unless two-thirds of
the Continuing Directors otherwise approve; (1) the interested
shareholder did not receive benefits (except proportionately as a
shareholder) from the Company; (2) there has been no failure to
declare and pay in full dividends required to be paid on any class or
series of the Company's Shares or reduction in the rate of dividends
on common Shares; and (3) there have been no amendments to the Company
employee benefit plan, which change the manner of voting any Company
common Shares covered by the plan; and
d. a proxy or information statement describing the
business combination is mailed at least 30 days prior to completion of
the business combination to all shareholders which contains, if
two-thirds of the Continuing Directors deem it advisable, a
recommendation of the Continuing Directors as to the advisability or
inadvisability of the business combination and/or an opinion of an
investment banking firm as to the fairness or the unfairness of the
business combination to the independent shareholders.
It is possible that, if the interested shareholder has not made a recent
purchase of Company stock, the "fair price" might be a price paid by the
interested shareholder several years ago. That price may have no relation to
the present market value of the stock, particularly if the stock has declined in
value during the interim period.
As the fair price is an aggregate of the cash and fair market value of
property paid plus interest paid on such property from the date the interested
shareholder became such to the date of consummation, a determination of whether
the price paid satisfies the fair price provision may conceivably not be made
until the date of consummation. Due to this uncertainty of whether the fair
price provision has been satisfied, the actual vote required at the meeting of
shareholders may not be determinable until consummation. This uncertainty may
preclude an interested shareholder
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from actually determining the price required to satisfy the fair price
provision, even if the interested shareholder had every intention of doing so.
The uncertainty associated with the fair price provision may have the
effect of encouraging an interested shareholder who is not assured of the eighty
percent (80%) supermajority vote to negotiate any proposed business combination
with the Board of Directors, and more specifically, negotiate with the
Continuing Directors.
The purpose of the foregoing condition is to require, in the absence of the
approval of two-thirds of the Continuing Directors or holders of at least
66 2/3% of all voting stock held by the independent shareholders, that the
independent shareholders receive in a business combination the minimum price
specified in (a) above, which is the highest price per share paid by the
interested shareholder in acquiring Shares of such class or series or, if
greater, in the case of preferred stock the amount of the per share redemption
price, plus interest less cash dividends received. The form of the
consideration would be the same as previously paid by the interested shareholder
to acquire the largest number of Shares of such class or series. The conditions
in (c) above are to deter the interested shareholder from self-dealing or taking
advantage of its equity position in the Company.
Article X also contains a "supermajority vote" provision. The vote
required by the supermajority vote provision is in addition to any vote required
by the fair price provision. Under the supermajority vote provision, no
business combination with an interested shareholder may be effected without the
approval of two-thirds of the Continuing Directors, unless approved by holders
of not less than eighty percent (80%) of the outstanding voting stock voting
together as a single class. (This 80% supermajority vote requirement includes
the vote of the interested shareholder.)
Any vote of shareholders of the Company under Article X is in addition to
any required vote of the holders of any class of Shares of capital stock of the
Company and is required notwithstanding that no shareholder vote or a lesser
percentage shareholder vote may be required by law or other provisions of the
Articles of Incorporation.
All actions required to be taken by the Continuing Directors under Article
X shall be taken by the vote or written consent of two-thirds (2/3) of the
Continuing Directors. In the event that the number of Continuing Directors is
at any time less than four (4), all power and authority of the Continuing
Directors under Article X shall cease, including the ability to waive the
applicability of the fair price and/or supermajority voting provisions, the
authority to approve business combinations and successor Continuing Directors
and to fill director vacancies. The Continuing Directors are given authority
under Article X to determine, consistent with their fiduciary obligations, such
matters as whether any person is an interested shareholder; fair market value of
property, securities and other noncash considerations; and other matters.
Provisions of Article Tenth may not be repealed, amended, supplemented or
otherwise modified unless;
(i) the Continuing Directors (or, if there is no interested
shareholder, a majority of directors of the Company), recommend such
repeal, amendment, supplement or modification and such repeal, amendment,
supplement or modification is approved by the affirmative vote of the
holders of Shares entitling them to exercise 66 2/3% of the voting power of
the Company, or
(ii) such repeal, amendment, supplement or modification is approved
by the affirmative vote of holders of:
a. not less than 80% of the outstanding voting stock
voting together as a single class, and
b. not less than 66 2/3% of the outstanding voting
stock held by all shareholders other than interested shareholders
voting together as a single class.
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The advantages and disadvantages of proposed Article X are discussed in the
section entitled, "Purpose and Effect of Article X which contains Fair Price and
Supermajority Vote Provisions," of this Prospectus.
PURPOSE AND EFFECT OF ARTICLE X WHICH CONTAINS FAIR PRICE AND SUPERMAJORITY VOTE
PROVISIONS
Article X of the Company's Articles of Incorporation contains the fair
price and supermajority vote provisions and is intended to encourage potential
takeover bidders to seek approval of the Company's Board of Directors through
negotiations prior to attempting a takeover and if the takeover bidder chooses
not to obtain the approval of the Board, including the Continuing Directors, to
prevent against inequitable treatment of shareholders which may result from a
two-step acquisition. Absent approval by two-thirds of the Continuing
Directors, an interested shareholder could not consummate a business combination
without obtaining the affirmative vote of holders of at least 80% of the
outstanding voting stock and either complying with the price and other
conditions specified by the fair price provision or obtaining the affirmative
vote of holders of at least 66 2/3% of the voting stock held by the independent
shareholders. The effect of the voting requirement of the fair price provision
may be that as the percentage of stock owned by the interested shareholder
increases, the number of shares required to veto the proposed business
combination transaction decreases. This is illustrated as follows:
% Shares Owned By % of Shares Required To
Interested Shareholder Veto Transaction
---------------------- -----------------------
1. 25% 25.0%
2. 50% 16.7%
3. 75% 8.3%
4. 95% 1.6%
The effect of these alternatives may be either to increase the price of the
acquisition for the potential acquiror, or to create a degree of uncertainty as
to whether a proposed second-step business combination will obtain the required
approval.
The Board of Directors believes that encouraging a prospective purchaser to
negotiate directly with the Board and Management will be beneficial to all
shareholders. The Board believes that it and Management, in consultation with
their professional advisors, are in the best position to assess the business and
prospects of the Company. Accordingly, the Board is of the opinion that
negotiations between the Company and a potential acquiror will increase the
likelihood that shareholders will receive a higher price for their Shares.
THE FAIR PRICE AND SUPERMAJORITY VOTE PROVISIONS MAY HAVE THE EFFECT OF
PROTECTING MANAGEMENT BY DISCOURAGING TAKEOVER ATTEMPTS WHICH ARE NOT SUPPORTED
BY MANAGEMENT. AS A RESULT, SHAREHOLDERS MAY NOT HAVE THE OPPORTUNITY TO SELL
SOME OR ALL OF THEIR SHARES IN SUCH A TAKEOVER ATTEMPT. TENDER OFFERS FOR
CONTROL USUALLY INVOLVE A PURCHASE PRICE HIGHER THAN THE PREVAILING MARKET PRICE
AND MAY RESULT IN A BIDDING CONTEST BETWEEN COMPETING TAKEOVER BIDDERS. IN
ADDITION, THE PROVISIONS COULD AFFECT THE PRICE OF THE COMPANY COMMON SHARES BY
MAKING IT LESS ATTRACTIVE TO PERSONS WHO INVEST IN SECURITIES IN ANTICIPATION OF
AN INCREASE IN PRICE IF A TAKEOVER ATTEMPT OCCURS. ON THE OTHER HAND, DEFEATING
UNDESIRABLE TENDER OFFERS CAN BE EXPENSIVE AND DISRUPTIVE. THE FAIR PRICE AND
SUPERMAJORITY VOTE PROVISIONS MAY ALSO DETER AN INTERESTED SHAREHOLDER FROM
PROCEEDING WITH A SECOND-STEP BUSINESS COMBINATION UNLESS APPROVED BY TWO-THIRDS
OF THE CONTINUING DIRECTORS, ESPECIALLY IF THE MARKET PRICE OF THE COMPANY
SHARES HAS DECLINED FROM THE HIGHEST PRICE PAID BY THE INTERESTED SHAREHOLDER IN
ACQUIRING SHARES OF SUCH CLASS. FURTHERMORE, UNLESS TWO-THIRDS OF THE
CONTINUING DIRECTORS APPROVE A
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BUSINESS COMBINATION, THE PROVISION WOULD GIVE THE HOLDER OF A MINORITY OF
THE TOTAL OUTSTANDING SHARES A VETO POWER OVER A BUSINESS COMBINATION WITH AN
INTERESTED SHAREHOLDER NOTWITHSTANDING THAT THE OTHER SHAREHOLDERS, INCLUDING
THE INTERESTED SHAREHOLDER, MAY BELIEVE THE BUSINESS COMBINATION TO BE
DESIRABLE OR BENEFICIAL.
CLASSIFIED BOARD OF DIRECTORS
The Company's Board of Directors is divided into three classes and each
class is elected for a three year term. The classified election system for
directors provides continuity of directors and also serves as a defense against
unwanted takeovers. Shareholders desiring to change a majority of the Board
would have to wait two years as that only one-third of the directors are elected
annually. This may discourage potential acquirors of the Company's Shares from
making acquisition of the Company's Shares.
ADDITIONAL CONSIDERATIONS
Federal law requires prior approval by the Board of Governors of the
Federal Reserve System before any company acquires control of a bank or bank
holding company. Independent of any provision of the Company's Articles of
Incorporation or Code of Regulations, the requirement for such regulatory
approval may delay efforts to obtain control over the Company. The Ohio General
Corporation Law requires shareholder approval of the acquisition of control of
certain Ohio corporations, including the Company. A "Control Share Acquisition"
is defined as acquisition by any person of voting power over twenty percent
(20%) or more of the total voting power of certain "issuing public corporations"
as defined by Ohio law, which it is assumed will include the Company. A person
has voting power over a voting share if the person has or Shares, directly or
indirectly, through any option, contract, arrangement, understanding, conversion
right or relationship, or by acting jointly or in concert or otherwise, the
power to vote or to direct the voting of the voting share.
The availability of the authorized and unissued Shares of the Company to be
issued into friendly hands with the purpose of diluting a potential acquiror's
ownership of the Company may also be determined to have an antitakeover effect.
The Company's Articles of Incorporation and Code of Regulations currently
contain no other provisions that were intended to be or could fairly be
considered as antitakeover in nature or effect. The Board of Directors has no
present intention to amend further the Articles of Incorporation to add any
antitakeover provisions, nor are the above described provisions the result of
Management's knowledge of any effort to obtain control of the Company by any
means.
INDEMNIFICATION
The Code of Regulations of the Company, in conjunction with provisions of
the Ohio Revised Code, contains certain indemnification provisions which provide
that directors, officers, employees or agents of the Company will be indemnified
against expenses actually and reasonably incurred by them if they are successful
on the merits of a claim or proceeding.
Even when a case or dispute is not ultimately determined on its merits
(i.e., settled), the indemnification provisions of the Code of Regulations and
Ohio law provide that the Company will indemnify directors when they meet the
applicable standards of conduct. The applicable standard of conduct is met if
the director acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the Company or, with respect to
any criminal action or proceeding, if the director had no reasonable cause to
believe his or her conduct was unlawful. Whether the applicable standard of
conduct has been met is determined by the Board of Directors, a disinterested
committee of the Board, the shareholders or independent legal counsel in each
specific case.
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The Code of Regulations of the Company also provides that the
indemnification rights set forth therein are not exclusive of any other
indemnification rights to which a director may be entitled under any resolution
or agreement, either specifically or in general terms approved by the
affirmative vote of the holders of a majority of the Shares entitled to vote
thereon. The Company can also provide for greater indemnification than that set
forth in the Code of Regulations if it chooses to do so. Additionally, and
subject to the limitations set forth below, the Corporation shall indemnify its
present and past directors for personal liability for monetary damages resulting
from breach of their fiduciary duty as directors. Notwithstanding the above, no
indemnification for personal liability shall be provided for: (i) any breach
of the directors' duty of loyalty to the corporation or its stockholders; (ii)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) illegal distribution of dividends; and (iv) any
transaction from which the director derived an improper personal benefit.
The indemnification provisions of the Code of Regulations specifically
provide that the Company may purchase and maintain insurance on behalf of any
director against any liability asserted against such person and incurred by him
or her in any such capacity, whether or not the Company would have had the power
to indemnify against such liability.
The Company is not aware of any pending or threatened action, suit or
proceeding involving any of its directors or officers for which indemnification
from the Company may be sought.
Insofar as indemnification for liabilities (primarily relating to public
distribution of securities) arising under the Securities Act of 1933, as amended
(the "1933 Act"), may be permitted to directors, officers and controlling
persons of the Company, or to an affiliate of the Company pursuant to the
Company's Code of Regulations or otherwise, the Board of Directors has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. Accordingly, it is possible that the indemnification
provisions may not apply to liabilities arising under the 1933 Act unless the
person to be indemnified is successful on the merits of the claim or proceeding.
LEGAL MATTERS
The validity of the Common Stock offered hereby is being passed upon for
the Company by Porter, Wright, Morris & Arthur, Columbus, Ohio.
EXPERTS
The consolidated financial statements as of December 31, 1996, and for each
of the two years in the period ended December 31, 1996 included in this
Prospectus have been audited by Clifton Gunderson Ltd., independent certified
public accountants, and have been so included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-2 under the Securities Act, with respect to the Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Shares offered hereby, reference is made to the
Registration Statement and the exhibits thereto. Statements herein contained
concerning the provisions of any document are not necessarily complete and in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement. The Registration Statement and the
exhibits may be inspected without charge at the offices of the Commission
described above or copies obtained at prescribed rates from the Public Reference
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Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Commission also maintains a Web site that contains reports and other
information about the Company at http://www.sec.gov.
The Company will provide without charge to each person who receives a
Prospectus, upon written or oral request of such person, a copy of any of the
information that was incorporated by reference in the Prospectus. Any such
request may be made to the Company at 610 E. South Boundry, Perrysburg, Ohio,
(419)874-2090.
31
<PAGE>
TOWNE
BANCORP, INC.
Perrysburg, Ohio
CONSOLIDATED
FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . . F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations. . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity. . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . F-6
Summary of Significant Accounting Policies . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . .F-10
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Stockholders and Board of Directors
Towne Bancorp, Inc.
Perrysburg, Ohio
We have audited the accompanying consolidated balance sheet of Towne Bancorp,
Inc. and its subsidiary as of December 31, 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1996 and 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Towne Bancorp, Inc.
and its subsidiary as of December 31, 1996, and the results of their operations
and their cash flows for the years ended December 31, 1996 and 1995 in
conformity with generally accepted accounting principles.
Toledo, Ohio
February 13, 1997, except as to Clifton Gunderson LTD.
Note 17, which is as of
May 6, 1997 and the first
paragraph of Note 12, which
is as of November 12, 1997
F-2
<PAGE>
TOWNE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
DECEMBER 31, 1997
ASSETS 1996 (UNAUDITED)
------------ -------------
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 383,547 $ 431,780
Federal funds sold 5,429,000 2,116,000
----------- -----------
Total cash and cash equivalents 5,812,547 2,547,780
----------- -----------
INVESTMENT SECURITIES
Available-for-sale, at market value 1,396,103 1,198,054
Held-to-maturity, at amortized cost,
market value of $1,987,064 in 1996
and $1,994,381 in 1997 1,993,167 1,995,460
----------- -----------
Total investment securities 3,389,270 3,193,514
----------- -----------
LOANS RECEIVABLE, net of allowance for losses
of $20,000 in 1996 and $110,000 in 1997 1,102,913 10,227,343
PREMISES AND EQUIPMENT, net 2,499,349 2,438,557
OTHER ASSETS 190,012 339,213
----------- -----------
TOTAL ASSETS $12,994,091 $18,746,407
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand accounts $ 515,413 $ 2,600,467
Savings accounts 317,278 773,007
Certificates of deposit and other
time accounts 5,672,881 9,898,022
----------- -----------
Total deposits 6,505,572 13,271,496
Capital lease obligations 2,500,000 2,482,729
Accrued interest, taxes and other liabilities 284,975 150,872
----------- -----------
Total liabilities 9,290,547 15,905,097
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, without par value.
Authorized 800,000 shares; issued and
outstanding 370,761 shares at stated value 370,761 370,761
Surplus 4,111,772 4,111,772
Accumulated deficit (781,224) (1,644,784)
Net unrealized holding gain on investment
securities available-for-sale 2,235 3,561
----------- -----------
Total stockholders' equity 3,703,544 2,841,310
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,994,091 $18,746,407
----------- -----------
----------- -----------
These consolidated financial statements should be read only in connection with
the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-3
<PAGE>
TOWNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED SEPTEMBER 30,
DECEMBER 31, 1997
------------ ----
1995 1996 (UNAUDITED)
---- ---- -------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ - $ 13,614 $ 472,654
Interest and dividends on investment securities:
U.S. Treasury securities - 8,010 47,597
Obligations of U.S. Government agencies
and corporations - 11,972 95,059
Federal reserve stock - - 5,760
Interest on deposits in other bank, escrow account 358,819 110,570 -
Interest on federal funds sold - 52,789 146,117
-------- --------- ---------
Total interest income 358,819 196,955 767,187
-------- --------- ---------
INTEREST EXPENSE
Deposits - 42,233 388,767
Common stock, escrow account 172,369 - -
Organizer advances 11,868 481 -
-------- --------- ---------
Total interest expense 184,237 42,714 388,767
-------- --------- ---------
Net interest income 174,582 154,241 378,420
PROVISION FOR LOAN LOSSES - 20,000 90,000
-------- --------- ---------
Net interest income after provision
for loan losses 174,582 134,241 288,420
-------- --------- ---------
NON-INTEREST INCOME
Service charges on deposit accounts - 1,535 7,956
Other operating income - 519 18,595
-------- --------- ---------
Total non-interest income - 2,054 26,551
-------- --------- ---------
NON-INTEREST EXPENSES
Salaries, wages and employee benefits - 350,886 334,550
Net occupancy expenses, including capital
lease interest 3,525 228,170 352,423
Other operating expenses 11,814 462,200 491,558
-------- --------- ---------
Total non-interest expenses 15,339 1,041,256 1,178,531
-------- --------- ---------
Income (loss) before federal
income taxes 159,243 (904,961) (863,560)
PROVISION (CREDIT) FOR FEDERAL
INCOME TAXES 31,600 (31,600) -
-------- --------- ---------
NET INCOME (LOSS) $127,643 $(873,361) $(863,560)
-------- --------- ---------
-------- --------- ---------
NET INCOME (LOSS) PER SHARE $ 2.73 $ (2.38) $ (2.33)
-------- --------- ---------
-------- --------- ---------
AVERAGE SHARES OUTSTANDING 46,728 366,689 370,761
-------- --------- ---------
-------- --------- ---------
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-4
<PAGE>
TOWNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1996
AND NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
RETAINED NET
COMMON STOCK EARNINGS UNREALIZED
---------------------- (ACCUMULATED HOLDING
SHARES AMOUNT SURPLUS DEFICIT) GAIN
------ ------ ------- ------- ----
<S> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1994 6,500 $ 6,500 $ 74,750 $ (35,506) $ -
Issuance of common stock 348,464 348,464 4,007,336 - -
Deferred selling costs charged
to surplus - - (146,105) - -
Net income for 1995 - - - 127,643 -
------- -------- ---------- ----------- ------
BALANCE AT
DECEMBER 31, 1995 354,964 354,964 3,935,981 92,137 -
Issuance of common stock 23,650 23,650 292,771 - -
Purchases of common stock (7,853) (7,853) (103,931) - -
Deferred selling costs charged
to surplus - - (13,049) - -
Net loss for 1996 - - - (873,361) -
Change in net unrealized
holding gain - - - - 2,235
------- -------- ---------- ----------- ------
BALANCE AT
DECEMBER 31, 1996 370,761 370,761 4,111,772 (781,224) 2,235
Net loss for nine months ended
September 30, 1997 (unaudited) - - - (863,560) -
Change in net unrealized
holding gain (unaudited) - - - - 1,326
------- -------- ---------- ----------- ------
BALANCE AT SEPTEMBER 30,
1997 (unaudited) 370,761 $370,761 $4,111,772 $(1,644,784) $3,561
------- -------- ---------- ----------- ------
------- -------- ---------- ----------- ------
</TABLE>
These consolidated financial statements should be read only in connection
with the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-5
<PAGE>
TOWNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED SEPTEMBER 30,
DECEMBER 31, 1997
------------ ----
1995 1996 (UNAUDITED)
---- ---- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 127,643 $ (873,361) $ (863,560)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,226 66,209 115,178
Interest expense - common stock, escrow account 167,983 - -
Provision for loan losses - 20,000 90,000
Accretion of investment securities discounts, net of
premium amortization - (300) (2,918)
Expenses paid directly by organizers 6,603 6,511 -
Increase in other assets (74,364) (129,795) (198,167)
Increase (decrease) in accrued interest, taxes
and other liabilities 309,415 (24,440) (91,843)
---------- ---------- ----------
Net cash provided by (used in)
operating activities 541,506 (935,176) (951,310)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of premises under
sale-leaseback agreement - 1,496,510 -
Proceeds from maturity of available-for-sale
investment security - - 200,000
Purchases of investment securities:
Available-for-sale - (1,393,750) -
Held-to-maturity - (1,992,985) -
Net increase in loans receivable - (1,122,913) (9,214,430)
Additions to premises and equipment (663,830) (892,446) (47,680)
---------- ---------- ----------
Net cash used in investing activities (663,830) (3,905,584) (9,062,110)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits - 6,505,572 6,765,924
Proceeds from issuance of common stock 4,187,817 316,421 -
Principal payments on capital lease obligations - - (17,271)
Purchase of common stock - (111,784) -
Repayment of advances from organizers, net (73,200) (49,349) -
---------- ---------- ----------
Net cash provided by financing activities 4,114,617 6,660,860 6,748,653
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,992,293 1,820,100 (3,264,767)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 154 3,992,447 5,812,547
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $3,992,447 $5,812,547 $2,547,780
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
These consolidated financial statements should be read only in connection
with the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-6
<PAGE>
TOWNE BANCORP, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
Towne Bancorp, Inc. ("the Company") was incorporated on April 1, 1992 in the
state of Ohio. The Company is a bank holding company and has one wholly-owned
subsidiary, Towne Bank ("the Bank"). The Company, through its subsidiary,
operates in one industry segment, the commercial banking industry. The Bank, an
Ohio chartered bank, was organized in 1995 and has offices in Perrysburg and
Sylvania, Ohio. The Perrysburg office was opened in October 1996 and the
Sylvania office opened in January 1997. The Bank's primary market areas are
northern Wood County and Lucas County. The Bank's customers are predominantly
small and middle-market businesses and individuals.
Significant accounting policies followed by the Company are presented below.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during each reporting period. The
most significant areas involving the use of management's estimates and
assumptions are the allowance for loan losses and depreciation and amortization
of premises and equipment. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Bank is required to maintain certain daily reserve balances on hand in
accordance with Federal Reserve Board requirements. The average reserve balance
for the period ended December 31, 1996 and September 30, 1997 approximated
$25,000 and $25,000 (unaudited), respectively.
For purposes of the statements of cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and federal funds sold which mature
overnight or within three days.
INVESTMENT SECURITIES
The Bank's investment securities are designated as held-to-maturity or
available-for-sale. Securities designated as held-to-maturity are carried at
their amortized cost. All other securities are classified as
available-for-sale. Securities designated as available-for-sale are carried at
market value, with unrealized gains and losses on such securities recognized as
a separate component of stockholders' equity. The Bank has no trading
securities.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity. Gains and losses on sales of investment
securities are accounted for on a completed transaction basis, using the
specific identification method, and are included in non-interest income.
F-7
<PAGE>
TOWNE BANCORP, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans receivable are stated at their outstanding principal amount, adjusted for
loan fees and costs and net of an allowance for loan losses. Interest is
accrued as earned based upon the daily outstanding principal balance.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan.
The determination of the balance of the allowance for loan losses is based on an
analysis of the loan portfolio and reflects an amount which, in management's
judgment, is adequate to provide for possible loan losses. Such analysis is
based on the character of the loan portfolio, value of any underlying
collateral, current economic conditions, and such other factors as management
believes requires current recognition in estimating possible loan losses.
Various regulatory agencies, as part of their examination process, will
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Routine maintenance and repairs are charged to expense as
incurred, and expenditures which materially increase values or extend useful
lives are capitalized. Upon the sale or disposition of the assets, the
difference between the depreciated cost and proceeds is charged or credited to
income.
The cost of premises, which is recorded under two capital leases, is being
amortized on the straight-line method over the 20 year term of the leases.
Equipment is depreciated based on the estimated useful lives of the individual
assets, ranging from 3 to 7 years, using the straight-line method.
ORGANIZATIONAL COSTS, STOCK OFFERING COSTS AND
PRE-OPENING EXPENSES
Certain costs incurred in organizing the Company, as well as costs incurred to
organize the Bank were deferred and are being amortized to expense on the
straight-line method over a five-year period. All costs related to the issuance
of the Company's common stock were initially deferred and subsequently charged
against surplus upon issuance of the shares.
Most other expenses incurred prior to the opening of the Bank were charged
against operations, except for certain pre-opening expenses of the Bank which
were deferred. Substantially all deferred pre-opening expenses were
subsequently charged to expense when the Bank opened its Perrysburg office in
October 1996, as described in Note 7.
F-8
<PAGE>
TOWNE BANCORP, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
FEDERAL INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The deferred tax asset is subject to a valuation allowance
provided for that portion of the asset for which it is more likely than not that
it will not be realized.
The Company and the Bank are not currently subject to state and local income
taxes.
PER SHARE DATA
Net income (loss) per share is computed based on the weighted average number of
shares of common stock outstanding during each period.
This information is an integral part of the accompanying
consolidated financial statements
F-9
<PAGE>
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 1 - INVESTMENT SECURITIES
The amortized cost and market value of investment securities as of December 31,
1996 and September 30, 1997 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1996 COST GAINS LOSSES VALUE
- ----------------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities $ 600,425 $1,659 $ - $ 602,084
Obligations of U.S. Government agencies
and corporations 697,443 1,256 (680) 698,019
Federal Reserve Bank of Cleveland stock 96,000 - - 96,000
---------- ------ ------- ----------
Total available-for-sale 1,393,868 2,915 (680) 1,396,103
---------- ------ ------- ----------
Held-to-maturity:
U.S. Treasury securities 494,335 - (1,838) 492,497
Obligations of U.S. Government agencies
and corporations 1,498,832 - (4,265) 1,494,567
---------- ------ ------- ----------
Total held-to-maturity 1,993,167 - (6,103) 1,987,064
---------- ------ ------- ----------
TOTAL $3,387,035 $2,915 $(6,783) $3,383,167
---------- ------ ------- ----------
---------- ------ ------- ----------
SEPTEMBER 30, 1997 (UNAUDITED)
- ------------------------------
Available-for-sale:
U.S. Treasury securities $ 600,515 $2,485 $ - $ 603,000
Obligations of U.S. Government agencies
and corporations 497,978 1,194 (118) 499,054
Federal Reserve Bank of Cleveland stock 96,000 - - 96,000
---------- ------ ------- ----------
Total available-for-sale 1,194,493 3,679 (118) 1,198,054
---------- ------ ------- ----------
Held-to-maturity:
U.S. Treasury securities 496,307 - (651) 495,656
Obligations of U.S. Government agencies
and corporations 1,499,153 541 (969) 1,498,725
---------- ------ ------- ----------
Total held-to-maturity 1,995,460 541 (1,620) 1,994,381
---------- ------ ------- ----------
TOTAL $3,189,953 $4,220 $(1,738) $3,192,435
---------- ------ ------- ----------
---------- ------ ------- ----------
</TABLE>
F-10
<PAGE>
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 1 - INVESTMENT SECURITIES (CONTINUED)
The amortized cost and market value of investment securities at December 31,
1996 and September 30, 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.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------ ----------------
AMORTIZED MARKET AMORTIZED MARKET
DECEMBER 31, 1996 COST VALUE COST VALUE
- ----------------- ---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less $ 399,734 $ 399,940 $ 200,396 $ 200,328
Due after one year through five years 898,134 900,163 1,792,771 1,786,736
Other security having no maturity date 96,000 96,000 - -
---------- ---------- ---------- ----------
TOTAL $1,393,868 $1,396,103 $1,993,167 $1,987,064
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SEPTEMBER 30, 1997 (UNAUDITED)
- ------------------------------
Due in one year or less $ 399,105 $ 399,562 $ 599,219 $ 599,194
Due after one year through five years 699,388 702,492 1,396,241 1,395,187
Other security having no maturity date 96,000 96,000 - -
---------- ---------- ---------- ----------
TOTAL $1,194,493 $1,198,054 $1,995,460 $1,994,381
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
NOTE 2 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans receivable at December 31, 1996 and September 30, 1997 consist of the
following:
1997
1996 (UNAUDITED)
--------- ----------
Commercial $ 233,015 $ 3,481,534
Real estate - residential mortgage 682,138 5,991,391
Real estate - construction 76,040 90,560
Consumer 136,810 807,197
---------- -----------
1,128,003 10,370,682
Less:Deferred loan fees (5,090) (33,339)
Allowance for loan losses (20,000) (110,000)
---------- -----------
NET LOANS RECEIVABLE $1,102,913 $10,227,343
---------- -----------
---------- -----------
Fixed rate loans approximated $160,000 at December 31, 1996 and $1,625,000
(unaudited) at September 30, 1997.
F-11
<PAGE>
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 2 - LOANS RECEIVABLE AND ALLOWANCE
FOR LOAN LOSSES (CONTINUED)
The Bank had no impaired loans as of or during the year ended December 31, 1996.
At September 30, 1997, the recorded investment in impaired loans consisted of
one loan approximating $99,000 (unaudited). Such loan has a related allowance
for loan losses of $9,906 (unaudited) at September 30, 1997. The following is a
summary of the activity in the allowance for loan losses of impaired loans,
which is part of the Bank's overall allowance for loan losses for the nine
months ended September 30, 1997 (unaudited):
Balance at beginning of period $ -
Provision charged to operations 9,906
-------
BALANCE AT END OF PERIOD $ 9,906
-------
-------
The average recorded investment in impaired loans for the nine months ended
September 30, 1997 was approximately $19,800 (unaudited). Interest income on
impaired loans is accrued based on the principal amounts outstanding. The
accrual of interest is discontinued when an impaired loan becomes 90 days
delinquent unless it is well collateralized and in the process of collection.
Interest income recognized on impaired loans for the nine months ended September
30, 1997 approximated $10,915 (unaudited), including approximately $3,685
(unaudited) which was recognized on a cash basis.
The following represents a summary of the activity in the allowance for loan
losses for the year ended December 31, 1996 and the nine months ended September
30, 1997:
1997
1996 (UNAUDITED)
---- -----------
Balance at beginning of period $ - $20,000
Provision charged to operations $ 20,000 90,000
-------- -------
BALANCE AT END OF PERIOD $ 20,000 $110,000
-------- --------
-------- --------
Certain directors and executive officers, including their immediate families and
companies in which they are principal owners, may at times be loan customers of
the Bank. Such loans are made in the ordinary course of business in accordance
with the Bank's normal lending policies, including the interest rate charged and
collateralization, and do not represent more than a normal collection risk. The
following is a summary of activity during 1996 and the nine months ended
September 30, 1997 for such loans:
BALANCE AT BALANCE
BEGINNING ADDITIONS REPAYMENTS AT END
---------- --------- ---------- -------
Year ended December 31, 1996 $ - $ 80,000 $ - $ 80,000
--------- --------- --------- ---------
--------- --------- --------- ---------
Nine months ended September 30,
1997 (unaudited) $ 80,000 $ 12,000 $ 80,000 $ 12,000
--------- --------- --------- ---------
--------- --------- --------- ---------
F-12
<PAGE>
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 3 - PREMISES AND EQUIPMENT
The following is a summary of premises and equipment at December 31, 1996 and
September 30, 1997:
1997
1996 (UNAUDITED)
---- -----------
Premises - capital leases $ 2,500,000 $ 2,500,000
Equipment 59,766 107,446
------------ ------------
2,559,766 2,607,446
Accumulated depreciation and amortization 60,417 168,889
------------ ------------
PREMISES AND EQUIPMENT, NET $ 2,499,349 $ 2,438,557
------------ ------------
------------ ------------
Depreciation and amortization of premises and equipment amounted to $60,417 in
1996 (none in 1995) and $108,472 (unaudited) for the nine months ended September
30, 1997. All of the accumulated depreciation and amortization at December 31,
1996 related to the premises - capital leases. See Note 5 for details of
capital leases.
NOTE 4 - DEPOSITS
Time deposits at December 31, 1996 and September 30, 1997 include individual
deposits of $100,000 and over which amounted to approximately $1,923,000 and
$3,619,000(unaudited), respectively. Interest expense on time deposits of
$100,000 or more amounted to approximately $11,000 for 1996 and $131,000
(unaudited) for the nine months ended September 30, 1997.
At December 31, 1996 and September 30, 1997, the scheduled maturities of
certificates of deposit and other time accounts are as follows:
1997
1996 (UNAUDITED)
---- -----------
1997 $ 666,352 $ 626,235
1998 4,609,800 7,333,535
1999 - 1,397,809
2000 - -
2001 - 417,374
2002 396,729 123,069
------------ ------------
TOTAL $ 5,672,881 $ 9,898,022
------------ ------------
------------ ------------
F-13
<PAGE>
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 5 - CAPITAL LEASE OBLIGATIONS
In September 1995, the Company entered into a lease agreement with the lessor
agreeing to construct a banking facility in Perrysburg, Ohio to be used by the
Company's subsidiary. The lessor agreed to pay a maximum of $1,000,000, with
any excess costs to be paid by the Company. Upon completion of the facility in
February 1996, the Company accepted possession of the facilities and recorded a
capital lease obligation amounting to $1,000,000. Under the terms of the lease
agreement, the Company has agreed to make monthly payments of $8,500 through
February 1999, and monthly payments of $9,417, subject to periodic inflationary
increases, through February 2016. The lease also requires a $25,000 payment at
the end of each lease year (as defined). For financial reporting purposes,
interest has been imputed at the annual rate of 12.10%.
In August 1996, the Company received $1,496,510 from the sale of land and a
banking facility under construction in Sylvania, Ohio. There was no gain or
loss recognized on the sale. Immediately following the sale, the Company
entered into a lease agreement with the purchaser of the property and recorded a
capital lease obligation amounting to $1,500,000. Under the terms of the lease
agreement, the Company has agreed to make monthly payments of $12,000 through
September 1999, and monthly payments of $13,107, subject to periodic
inflationary increases, through September 2016. The lease also requires a
$34,000 payment at the end of each lease year (as defined). For financial
reporting purposes, interest has been imputed at the annual rate of 10.97%.
The balance due on the capital lease obligations remained $2,500,000 at December
31, 1996 since the payments stipulated in the lease agreements were not
sufficient to cover imputed interest. See Note 10 with regards to further
capital lease obligations. The balance due on the capital lease obligations
amounted to $2,482,729 (unaudited) at September 30, 1997. Accrued interest
payable of $21,774 and $11,081 (unaudited) is included in the December 31, 1996
and September 30, 1997 consolidated balance sheets, respectively.
Interest expense of $142,774 and amortization of capitalized lease premises of
$60,417 is included in net occupancy expenses in the 1996 consolidated statement
of operations. For the nine months ended September 30, 1997, interest expense
of $215,536 (unaudited) and amortization of capitalized lease premises of
$93,750 (unaudited) is included in net operating expense in the 1997
consolidated statement of operations.
NOTE 6 - STOCKHOLDERS' EQUITY
The organizers of the Company purchased a total of 6,500 shares of common stock,
without par value, at $12.50 per share. In July 1992, the Company initiated a
public offering of its common stock, also at $12.50 per share. Over a period of
approximately three years, the organizers actively sought, without compensation,
subscriptions to purchase the common shares of the Company. All subscription
payments were deposited with a bank escrow agent and the subscribers earned
interest on amounts paid at an amount equal to the passbook savings rate of the
escrow agent. A significant portion of the interest earned by the subscribers
was ultimately paid through the issuance of additional shares of the Company's
common stock.
In November 1995, the initial offering of the common stock was completed and the
escrow agent issued 348,464 shares at a value of $4,355,800, including $167,983
of accrued interest expense due the subscribers. Since such date, additional
shares have been issued and purchased at various prices per share.
F-14
<PAGE>
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 7 - NON-INTEREST EXPENSES
Upon the opening of the Perrysburg office in October 1996, $311,191 of deferred
pre-opening expenses, principally salaries, wages and employee benefits and
outside services incurred in 1996, were charged to operations.
The following is a summary of other operating expenses for the years ended
December 31, 1995 and 1996 and the nine months ended September 30, 1997:
<TABLE>
<CAPTION>
1997
1995 1996 (UNAUDITED)
---- ---- -----------
<S> <C> <C> <C>
Advertising, printing, and supplies $ 4,707 $ 111,667 $ 50,617
Professional fees, litigation and settlements - 172,348 95,744
Equipment rent - 54,079 102,756
Insurance - 41,675 29,711
Outside services - 42,479 73,054
Franchise and other tax - 7,686 44,994
Other expenses 7,107 32,266 94,682
---------- ---------- ----------
TOTAL OTHER OPERATING EXPENSES $ 11,814 $ 462,200 $ 491,558
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
NOTE 8 - FEDERAL INCOME TAXES
The provision (credit) for federal income taxes for the years ended December 31,
1995 and 1996 and amounted to $31,600 and ($31,600), respectively (none for the
nine months ended September 30, 1997). The actual provision (credit) for income
taxes attributable to income (loss) from operations differed from the amounts
computed by applying the U.S. federal income tax rate of 34% to income (loss)
before federal income taxes as a result of the following:
<TABLE>
<CAPTION>
1997
1995 1996 (UNAUDITED)
---- ---- -----------
<S> <C> <C> <C>
Expected tax using statutory tax rate of 34% $ 54,100 $ (307,700) $ (293,600)
Impact of the following:
Increase in the valuation allowance for deferred tax assets - 267,700 293,300
Surtax exemption and other items, net (22,500) 8,400 300
---------- ---------- ----------
TOTAL $ 31,600 $ (31,600) $ -
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-15
<PAGE>
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 8 - FEDERAL INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to deferred tax assets
at December 31, 1996 and September 30, 1997 are presented below:
1997
1996 (UNAUDITED)
---- ----------
Net operating loss carryforward $ 38,000 $ 307,700
Allowance for loan losses 6,600 35,300
Pre-opening costs 178,800 150,600
Capital leases 27,900 52,900
Accrued expenses and other 16,400 14,500
---------- -----------
267,700 561,000
Less valuation allowance 267,700 561,000
---------- -----------
TOTAL DEFERRED TAX ASSETS, NET OF VALUATION ALLOWANCE $ - $ -
---------- -----------
---------- -----------
At December 31, 1996, the Company has a net operating loss carryforward
approximating $112,000, which is available to reduce future regular federal
taxable income. Such carryforward expires in 2011.
In assessing the realization of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible or are available.
Due to the start-up nature of the Company's operations and the uncertainty as to
when the operations will generate future taxable income, a valuation allowance
of $267,700 was established at December 31, 1996 to eliminate all deferred tax
assets. Such accounting continued through September 30, 1997.
Refundable federal income taxes, resulting from a carryback claim for taxes paid
in 1995, amounted to $22,290 at December 31, 1996 and September 30, 1997, and is
included in other assets in the December 31, 1996 and September 30, 1997
consolidated balance sheets.
NOTE 9 - RETIREMENT PLAN
Employees of the Bank who meet certain eligibility requirements may elect to
participate in a 401(k) plan administered by Great Lakes Pension Services.
Under the Plan, the Bank matches a percentage of employee contributions up to
limits specified in the Plan. The Bank's contribution amounted to $2,861 for
the year ended December 31, 1996 and $4,650 (unaudited) for the nine months
ended September 30, 1997.
F-16
<PAGE>
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 10 - LEASE COMMITMENTS
At December 31, 1996, future minimum lease payments were as follows:
CAPITAL OPERATING
LEASES LEASES
------ ------
Year ending December 31:
1997 $ 305,000 $ 143,614
1998 305,000 143,614
1999 317,496 143,614
2000 329,296 143,614
2001 329,296 52,932
Thereafter 4,805,947 -
----------- -----------
Total minimum lease payments 6,392,035 $ 627,388
-----------
-----------
Less amount representing interest 3,892,035
-----------
PRESENT VALUE OF MINIMUM CAPITAL LEASE PAYMENTS $ 2,500,000
-----------
-----------
In addition to the minimum lease payments on the capital lease agreements, the
Company is responsible for real estate taxes and insurance for the properties.
Rent expense under various operating lease agreements and other short-term lease
arrangements approximated $3,500 in 1995, $54,000 in 1996, and $103,000
(unaudited) for the nine months ended September 30, 1997, respectively.
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments are loan commitments to extend credit and involve, to
varying degrees, elements of credit risk in excess of the amounts recognized in
the consolidated balance sheet. The contract amount of these instruments
reflects the extent of involvement the Bank has in these financial instruments.
The Bank's exposure to credit loss in the event of the nonperformance by the
other party to the financial instruments for loan commitments to extend credit
is represented by the contractual amounts of these instruments. The Bank uses
the same credit policies in making loan commitments as it does for on-balance
sheet loans.
Financial instruments whose contract amount represents credit risk approximated
the following amounts at December 31, 1996 and September 30, 1997:
1997
1996 (UNAUDITED)
---- -----------
Commitments to extend credit $ 578,000 $ 1,827,000
----------- -----------
----------- -----------
F-17
<PAGE>
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amount does not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained if deemed
necessary by the Bank upon extension of credit is based on management's credit
evaluation of the customer. Collateral held varies but may include accounts
receivable; inventory; property, plant, and equipment; and income-producing
commercial properties.
NOTE 12 - REGULATORY MATTERS
The Company and Bank are regulated by federal and state banking agencies. As
a result, they are subject to periodic examinations by the agencies and are
required to comply with various regulatory matters. As a result of a June
30, 1997 Joint Report of Examination issued by the Ohio Division of Financial
Institutions and the Federal Reserve Bank of Cleveland, the Board of
Directors of the Bank on November 12, 1997 authorized the acceptance of a
Memorandum of Understanding between the Bank and the regulatory agencies.
Under the Memorandum, the Bank agreed to develop a capital plan, upgrade its
budgeting process, assess its management structure and board oversight, hire
an experienced chief lending officer, establish loan review procedures,
periodic reporting to the regulators and other matters.
The Company and Bank are subject to various regulatory capital requirements
administered by federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and Bank must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and Bank to maintain minimum amounts and ratios (set forth
in the table below) of Total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital to average assets
(as defined). Management believes, as of December 31, 1996, that the Company
and Bank meet all capital adequacy requirements to which it is subject.
As of December 31, 1996, the Company and Bank are classified as "well
capitalized" under the regulatory framework for prompt corrective action. To be
categorized as "well capitalized", the minimum total risk-based, Tier I
risk-based and Tier I leverage ratios as set forth in the table must be
maintained.
F-18
<PAGE>
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 12 - REGULATORY MATTERS (CONTINUED)
The actual capital amounts and ratios of the Company and Bank are also presented
in the table.
<TABLE>
<CAPTION>
TO BE
FOR "WELL CAPITALIZED"
CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------- ---------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
Total Capital (to Risk
Weighted Assets)
Consolidated $ 3,722 > or = 28.6% $ 1,040 > or = 8.0% $ 1,299 > or = 10.0%
Bank 3,480 > or = 33.0 843 > or = 8.0 1,053 > or = 10.0
Tier I Capital (to Risk
Weighted Assets)
Consolidated 3,702 > or = 28.5 520 > or = 4.0 780 > or = 6.0
Bank 3,460 > or = 32.9 421 > or = 4.0 632 > or = 6.0
Tier I Capital (to
Average Assets)
Consolidated 3,702 > or = 45.4 326 > or = 4.0 408 > or = 5.0
Bank (*) 3,460 > or = 41.9 330 > or = 4.0 412 > or = 5.0
AS OF SEPTEMBER 30, 1997
(UNAUDITED):
Total Capital (to Risk
Weighted Assets)
Consolidated $ 2,948 > or = 29.5% $ 800 > or = 8.0% $ 1,000 > or = 10.0%
Bank 2,889 > or = 30.1 769 > or = 8.0 961 > or = 10.0
Tier I Capital (to Risk
Weighted Assets)
Consolidated 2,838 > or = 28.4 400 > or = 4.0 600 > or = 6.0
Bank 2,779 > or = 28.9 385 > or = 4.0 577 > or = 6.0
Tier I Capital (to
Average Assets)
Consolidated 2,838 > or = 17.8 637 > or = 4.0 797 > or = 5.0
Bank 2,779 > or = 18.8 591 > or = 4.0 739 > or = 5.0
</TABLE>
* Average assets of Bank determined for period October 15, 1996 to December 31,
1996.
F-19
<PAGE>
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 12 - REGULATORY MATTERS (CONTINUED)
On a parent company only basis, the Company's only source of funds are dividends
paid by the Bank. The ability of the Bank to pay dividends is subject to
limitations under various laws and regulations, and to prudent and sound banking
principles. Generally, subject to certain minimum capital requirements, the
Bank may declare a dividend without the approval of the State of Ohio Division
of Financial Institutions, unless the total dividends in a calendar year exceed
the total of its net profits for the year combined with its retained profits of
the two preceding years. Under these provisions, no amount was available for
dividends at December 31, 1996, without the need to obtain the approval of the
State of Ohio Division of Financial Institutions.
The Board of Governors of the Federal Reserve System generally considers it to
be an unsafe and unsound banking practice for a bank holding company to pay
dividends except out of current operating income, although other factors such as
overall capital adequacy and projected income may also be relevant in
determining whether dividends should be paid. The Company does not anticipate
the paying of any dividends until the Bank has increased its assets to the point
of being profitable.
NOTE 13 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION
A summary of condensed financial information of the parent company as of
December 31, 1996 and September 30, 1997 and for the periods then ended are as
follows:
1997
BALANCE SHEET 1996 (UNAUDITED)
---- ------------
ASSETS
Cash $ 448,599 $ 214,362
Investment in subsidiary 3,461,721 2,783,691
Premises under capital lease, net 2,439,583 2,345,833
Other assets 22,290 59,570
------------- ------------
TOTAL ASSETS $ 6,372,193 $ 5,403,456
------------- ------------
------------- ------------
LIABILITIES
Capital lease obligations $ 2,500,000 $ 2,482,729
Accrued interest and other liabilities 168,649 79,417
------------- ------------
Total liabilities 2,668,649 2,562,146
------------- ------------
STOCKHOLDERS' EQUITY
Common stock 370,761 370,761
Surplus 4,111,772 4,111,772
Accumulated deficit (781,224) (1,644,784)
Net unrealized holding gain on investment
securities available-for-sale 2,235 3,561
------------- ------------
Total stockholders equity 3,703,544 2,841,310
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 6,372,193 $ 5,403,456
------------- ------------
------------- ------------
F-20
<PAGE>
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 13 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------- 1997
STATEMENTS OF OPERATIONS 1995 1996 (UNAUDITED)
---- ---- -----------
<S> <C> <C> <C>
Interest income $ 358,819 $ 110,570 $ -
Interest expense 184,237 481 -
---------- ---------- ----------
Net interest income 174,582 110,089 -
---------- ---------- ----------
Occupancy expenses, net of rent income from subsidiary 3,525 199,452 74,470
Other operating expenses 11,814 275,084 109,734
---------- ---------- ----------
Total non-interest expenses 15,339 474,536 184,204
---------- ---------- ----------
Income (loss) before federal income taxes 159,243 (364,447) (184,204)
Provision (credit) for federal income taxes 31,600 (31,600) -
---------- ---------- ----------
Income (loss) before equity in
net loss of subsidiary 127,643 (332,847) (184,204)
Equity in net loss of subsidiary - (540,514) (679,356)
---------- ---------- ----------
NET INCOME (LOSS) $ 127,643 $ (873,361) $ (863,560)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-21
<PAGE>
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 13 - CONDENSED PARENT COMPANY FINANCIAL
INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------- 1997
STATEMENTS OF CASH FLOWS 1995 1996 (UNAUDITED)
---- ---- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 127,643 $ (873,361) $ (863,560)
Adjustments:
Depreciation and amortization 4,226 65,543 93,750
Interest expense - common stock, escrow account 167,983 - -
Equity in net loss of subsidiary - 540,514 679,356
Expenses paid directly by organizers 6,603 6,511 -
Increase in other assets (74,364) (84,907) (37,280)
Increase (decrease) in other liabilities 309,415 (115,512) (89,232)
------------ ------------ ------------
Net cash provided by (used in)
operating activities 541,506 (461,212) (216,966)
------------ ------------ ------------
INVESTING ACTIVITIES
Investment in subsidiary - (3,855,000) -
Proceeds from sale-leaseback agreement - 1,496,510 -
Additions to premises and equipment (663,830) (879,434) -
------------ ------------ ------------
Net cash used in investing activities (663,830) (3,237,924) -
------------ ------------ ------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 4,187,817 316,421 -
Principal payments on capital lease obligations - - (17,271)
Purchase of common stock - (111,784) -
Repayment of advances from organizers, net (73,200) (49,349) -
------------ ------------ ------------
Net cash provided by (used in)
financing activities 4,114,617 155,288 (17,271)
------------ ------------ ------------
Increase (decrease) in cash 3,992,293 (3,543,848) (234,237)
CASH AT BEGINNING OF PERIOD 154 3,992,447 448,599
------------ ------------ ------------
CASH AT END OF PERIOD $ 3,992,447 $ 448,599 $ 214,362
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-22
<PAGE>
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of the Bank's principal financial
instruments, as defined by the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments", are as follows at December 31, 1996:
CARRYING FAIR
AMOUNT VALUE
------ -----
Financial assets:
Cash and cash equivalents $ 5,812,547 $ 5,812,547
Investment securities 3,389,270 3,383,167
Loans receivable, net 1,102,913 1,102,913
Accrued interest receivable 46,970 46,970
------------- -------------
TOTAL $ 10,351,700 $ 10,345,597
------------- -------------
------------- -------------
Financial liabilities:
Deposits $ 6,505,572 $ 6,516,714
Capital lease obligations 2,500,000 2,500,000
Accrued interest, taxes and other expenses 284,975 284,975
------------- -------------
TOTAL $ 9,290,547 $ 9,301,689
------------- -------------
------------- -------------
The Bank also has unrecognized financial instruments at December 31, 1996.
These financial instruments relate to commitments to extend credit. The
contract amount of such financial instruments total approximately $578,000 at
December 31, 1996. Such amount is also considered to be the estimated fair
value.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments shown above:
CASH AND CASH EQUIVALENTS:
Because of the short maturity of cash equivalents, the carrying amount reported
in the consolidated balance sheet approximates fair value.
INVESTMENT SECURITIES:
The fair value of investment securities is determined based on quoted market
prices of the individual securities or, if not available, estimated fair value
was obtained by comparison to other known securities with similar risk and
maturity characteristics. Such value does not consider possible tax
ramifications or estimated transaction costs.
LOANS RECEIVABLE:
Fair value for loans receivable was estimated for portfolios of loans with
similar financial characteristics. For adjustable rate loans, which re-price at
least annually and generally possess low risk characteristics, the carrying
amount is a reasonable estimate of fair value. For fixed rate and other loans
the fair value is estimated based on estimated discounted cash flows using
current interest rates. Such computations consider weighted average rates and
terms of the portfolio, and are adjusted for credit and interest rate risk
inherent in the loans. Since all loans were made in the period October to
December 1996 and there has not been a change in interest rates, carrying value
approximates fair value.
F-23
<PAGE>
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
DEPOSIT LIABILITIES:
The fair value of core deposits, including demand deposits, savings accounts,
and certain money market deposits, is the amount payable on demand. The fair
value of fixed-maturity certificates of deposit and other time accounts is
estimated using the rates offered at year end for deposits of similar remaining
maturities. The estimated fair value does not include the benefit that results
from the low-cost funding provided by the deposit liabilities compared to the
cost of borrowing funds in the market.
OTHER FINANCIAL INSTRUMENTS:
The fair value of accrued interest receivable and accrued interest, taxes and
other expenses is determined to be the carrying amount.
The fair value of capital lease obligations is determined to be the carrying
amount since the interest rates on such amounts are considered to be reasonably
close to current rates.
The fair value of commitments to extend credit is determined to be the contract
amount since these financial instruments generally represent commitments at
existing rates.
NOTE 15 - FUTURE CHANGE IN ACCOUNTING PRINCIPLE
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" and Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income".
Statement 125 becomes effective for transactions occurring after December 31,
1996, except that certain provisions of Statement 125 have been deferred by
Statement 127. Statement 125 distinguishes transfers of financial assets that
are sales from transfers that are secured borrowings. A transfer of financial
assets in which the transferor surrenders control over those assets is accounted
for as a sale to the extent that consideration other than beneficial interests
in the transferred assets is received in exchange. Statement 125 also
establishes standards on the initial recognition and measurement of servicing
assets and other retained interests and servicing liabilities, and their
subsequent measurement.
Statement 125 also requires that debtors reclassify financial assets pledged as
collateral and that secured parties recognize those assets and their obligation
to return them in certain circumstances in which the secured party has taken
control of those assets. In addition, Statement 125 requires that a liability
be derecognized only if the debtor is relieved of its obligation through payment
to the creditor or by being legally released from being the primary obligor
under the liability either judicially or by the creditor.
Statement 130 establishes standards for reporting and display of comprehensive
income (as defined) in a full set of general-purpose financial statements.
Statement 130 will require classification of items of other comprehensive income
by their nature in a financial statement and display of the accumulated balance
of other comprehensive income separately from retained earnings (accumulated
deficit) and surplus in the equity section of the statement of financial
position. Statement 130 is effective for fiscal years beginning after December
15, 1997 and requires reclassification of financial statements for earlier
periods provided for comparative purposes.
Management does not believe the application of Statements 125 and 130 will
materially affect the Company's consolidated financial position and results of
operations.
F-24
<PAGE>
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 16 - SUPPLEMENTAL CASH FLOW DISCLOSURES
Consolidated supplemental cash flow disclosures consisted of the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------ 1997
1995 1996 (UNAUDITED)
---- ---- -----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest, including $121,000 in 1996 and
$215,536 (unaudited) for the nine months
ended September 30, 1997 relating to
capital lease obligations $ 10,463 $ 148,484 $ 584,790
------------ ------------ ------------
------------ ------------ ------------
Federal income taxes $ - $ 23,474 $ -
------------ ------------ ------------
------------ ------------ ------------
Non-cash investing and financing activities:
Capital lease obligations $ - $ 2,500,000 $ -
------------ ------------ ------------
------------ ------------ ------------
Common stock issued in lieu of paying interest $ 167,983 $ - $ -
------------ ------------ ------------
------------ ------------ ------------
Deferred selling costs charged to surplus $ 146,105 $ 13,049 $ -
------------ ------------ ------------
------------ ------------ ------------
Deferred selling costs paid directly by organizers $ 23,597 $ 6,438 $ -
------------ ------------ ------------
------------ ------------ ------------
Change in net unrealized holding gain on
available-for-sale investment securities $ - $ 2,235 $ 1,326
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-25
<PAGE>
Parent company supplemental cash flow disclosures consisted of the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------ 1997
1995 1996 (UNAUDITED)
---- ---- -----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 10,463 $ 122,886 $ 215,536
------------ ------------ ------------
------------ ------------ ------------
Federal income taxes $ - $ 23,474 $ -
------------ ------------ ------------
------------ ------------ ------------
Non-cash investing and financing activities:
Capital lease obligations $ - $ 2,500,000 $ -
------------ ------------ ------------
------------ ------------ ------------
Common stock issued in lieu of paying interest $ 167,983 $ - $ -
------------ ------------ ------------
------------ ------------ ------------
Assets transferred to the Bank as part
of capitalization $ - $ 145,000 $ -
------------ ------------ ------------
------------ ------------ ------------
Transfer pre-opening costs and related
payable to Bank $ - $ 25,254 $ -
------------ ------------ ------------
------------ ------------ ------------
Deferred selling costs charged to surplus $ 146,105 $ 13,049 $ -
------------ ------------ ------------
------------ ------------ ------------
Deferred selling costs paid directly by organizers $ 23,597 $ 6,438 $ -
------------ ------------ ------------
------------ ------------ ------------
Change in net unrealized holding gain on
available-for-sale investment securities $ - $ 2,235 $ 1,326
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
NOTE 17 - CONTINGENT LIABILITIES
In the normal course of business, the Company and its subsidiary may be involved
in various legal actions, but in the opinion of management and its legal
counsel, the ultimate disposition of such matters is not expected to have a
material adverse effect on the consolidated financial statements.
The Company has a potential contingent liability related to the sale of common
stock in its initial public offering, as a result of possible defects in its
registration with the Securities and Exchange Commission and various state
securities authorities. The maximum potential contingent liability would be the
full purchase price of all 370,761 shares sold by the Company, or approximately
$4,500,000, plus interest. The Company has retained special securities law
counsel to advise it with respect to the matter. The Company believes it can
undertake a successful rescission offer to eliminate or materially reduce this
potential contingent liability. However, no assurance can be made in that
regard.
This information is an integral part of the accompanying
consolidated financial statements.
F-26
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER
MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES, OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT
BE LEGALLY MADE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
TABLE OF CONTENTS
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Rescission Offer . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Busines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . . .
Antitakeover Measures. . . . . . . . . . . . . . . . . . . . . . . . . . .
Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . .
400,000 SHARES
COMMON STOCK
____________
PROSPECTUS
____________
_______________, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Registrant has estimated costs of the Offering as follows:
Legal $60,000
Accounting $10,000
Escrow Fee -0-
Printing and Mailing $3,000
Registration Fees (federal and state) $1,600
Miscellaneous $5,000
Total Estimated Expense $79,600
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Indemnification of directors, officers, employees and agents is required
under Section 1701.13 of the Ohio General Corporation Law ("Ohio GCL") in those
cases where the person to be indemnified has been successful on the merits or
otherwise in defense of a lawsuit. Indemnification is permitted in third party
actions where the indemnified person 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 in criminal actions where he had no reasonable cause to believe
his conduct was unlawful. Indemnification is also permitted in lawsuits brought
by or on behalf of the corporation if the standards of conduct described above
are met, except that no indemnification is permitted in respect to any matter in
which the person is adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation unless a court shall determine that
indemnification is fair and reasonable in view of all the circumstances of the
case. In cases where indemnification is permissive, a determination as to
whether the person met the applicable standard of conduct must be made either by
the court, disinterested directors, by independent legal counsel, or by the
shareholders. Such indemnification rights are specifically not deemed to be
exclusive of other rights of indemnification by agreement or otherwise and the
corporation is authorized to advance expenses incurred prior to the final
disposition of a matter upon receipt of an undertaking to repay such amounts on
a determination that indemnification was not permitted in the circumstances of
the case.
Under Section 1701.13 of the Ohio GCL, a corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the corporation, or who, while serving in such capacity,
is or was at the request of the corporation, a director, officer, employee or
agent of another corporation or legal entity or of an employee benefit plan,
against liability asserted against or incurred by such person in any such
capacity whether or not the corporation would have the power to provide
indemnity under Section 1701.13 of the Ohio GCL.
Article VII of the Company's Articles of Incorporation provides as follows:
ARTICLE VII
The Corporation shall indemnify its present and past directors,
officers, employees and agents, and such other persons as it
shall have powers to indemnify to the full extent permitted
under, and subject to the limitations of, Title 17 of the Ohio
Revised Code. Additionally, and subject to the limitations set
forth below, the Corporation shall indemnify its present and
past directors for personal liability for monetary damages
resulting from breach of their fiduciary duty as directors.
Notwithstanding the above, no indemnification for personal
liability shall be provided for: (i) any breach of the
directors' duty of loyalty to the corporation or its
stockholders; (ii) acts or omissions not in good faith or
which involve intentional
<PAGE>
misconduct or a knowing violation of law; (iii) illegal
distribution of dividends; and (iv) any transaction from
which the director derived an improper personal benefit.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT
OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS, OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED
THAT, IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH
INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE SECURITIES ACT OF
1933, AND IS THEREFORE UNENFORCEABLE.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) EXHIBITS
Exhibit
Number Description
- ------- -----------
4.1 Second Amended and Restated Articles of Incorporation of Towne Bancorp
4.2 Code of Regulations of Towne Bancorp, Inc. (Incorporated by reference
to Exhibit 3.3 to the Registration Statement on Form S-1 (Registration
No. 33-47504) filed on May 4, 1992)
5.0 Opinion of Porter, Wright, Morris & Arthur regarding the legality of
the Shares
10.1 Incentive Stock Option Plan of Towne Bancorp, Inc. (Incorporated by
reference to Exhibit 10.2 to the Registration Statement on Form S-1,
(Registration No. 33-47504) filed on May 4, 1992)
10.2 Lease by and between Carol A. Hass, Trustee and Towne Bancorp, Inc.,
dated ____________, 1995, relating to the East South Boundry Street
office.
10.3 Lease by and between Carol A. Mockensturm Hass, Trustee and Towne
Bancorp, Inc., dated August 29, 1996, relating to 6401 Monroe Street.
23.1 Consent of Clifton Gunderson Ltd.
23.2 Consent of Porter, Wright, Morris & Arthur (included in Opinion set
forth as 5.0 hereof)
24.0 Power of Attorney
27.0 Financial/Data Schedule
- -------------------------
*Filed herewith
<PAGE>
(b) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the required information is
included in the financial statements or the notes thereto.
ITEM 17. 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 or securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; (iii) to
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement; (2) that for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be anew registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; (3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
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 Securities Act
of 1933 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 Securities
Act of 1933 and will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Perrysburg, State of
Ohio, on December 12, 1997.
TOWNE BANCORP, INC.
By: /s/ Jerome C. Bechstein
------------------------------------
Jerome C. Bechstein, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jerome C. Bechstein President, Chief Executive Officer, ) December 12, 1997
- --------------------------- Chief Accounting Officer and )
Jerome C. Bechstein Director )
)
)
* Senior Vice President, Secretary ) December 12, 1997
- --------------------------- and Director )
Lois A. Brigham )
)
)
* Director ) December 12, 1997
- --------------------------- )
John Weinert )
)
)
)
)
*By: /s/ Jerome C. Bechstein ) December 12, 1997
------------------------------------- )
Jerome C. Bechstein, Attorney-in-fact )
for each of the persons indicated )
</TABLE>
<PAGE>
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
TOWNE BANCORP, INC.
* * * * *
ARTICLE I
The name of said Corporation shall be:
Towne Bancorp, Inc.
ARTICLE II
The place in the State of Ohio where its principal office is to be
located is Perrysburg, in Wood County.
ARTICLE III
The purposes for which it is formed are:
To engage in any lawful act or activity for which corporations may be
formed under Sections 1701.01 to 1701.99 inclusive of the Ohio Revised Code.
ARTICLE IV
The authorized number of shares of the Corporation is Eight Hundred
Thousand (800,000) all of which shall be common stock, without par value.
ARTICLE V
The Board of Directors of the Corporation is hereby authorized to fix and
determine and to vary the amount of working capital of the Corporation, to
determine whether any and, if any, what part of its surplus, however created or
arising, shall be used or disposed of or declared in dividends
<PAGE>
or paid to shareholders, and without action by shareholders, to use and apply
such surplus or any part thereof at any time or from time to time in the
purchase or acquisition of shares of any class, voting trust, certificates for
shares, bonds, debentures, notes, script, warrants, obligations, evidences of
indebtedness of the Corporation or other securities of the Corporation, to such
extent or amount and in such manner and upon such terms as the Board of
Directors of the Corporation shall deem expedient to the extent not prohibited
by law.
ARTICLE VI
Each officer, director or member of any committee designated by the Board
of Directors of the Corporation shall, in the performance of his duties, be
fully protected in relying in good faith upon the books of accounts or reports
made to the Corporation by any of its officers or employees or by an independent
public accountant or by an appraiser selected with reasonable care by the Board
of Directors of the Corporation or by any such committee or in relying in good
faith upon other records of the Corporation.
ARTICLE VII
The Corporation shall indemnify its present and past directors, officers,
employees and agents, and such other persons as it shall have power to indemnify
to the full extent permitted under, and subject to the limitations of, Title 17
of the Ohio Revised Code. Additionally, and subject to the limitations set
forth below, the Corporation shall indemnify its present and past directors for
personal liability for monetary damages resulting from breach of their fiduciary
duty as directors. Notwithstanding the above, no indemnification for personal
liability shall be provided for: (i) any breach of the directors' duty of
loyalty to the corporation or its stockholders; (ii) acts or omissions
2
<PAGE>
not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) illegal distribution of dividends; and (iv) any transaction from
which the director derived an improper personal benefit.
ARTICLE VIII
Each shareholder shall be entitled to one vote for each common share
standing in his name on the books of the Corporation; provided, however, that
shareholders shall have the right to cumulate votes in the election of directors
of the Corporation.
ARTICLE IX
Upon the offering or sale for cash of shares of stock of the Corporation,
shareholders shall not have any preemptive rights.
ARTICLE X
A. DEFINITIONS AS USED IN THIS ARTICLE X
(1) "Affiliate" or "associate" shall have the respective
meanings given to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on July 1, 1991.
(2) A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly; or
(ii) which such person or any of its Affiliates or
Associates has by itself or with others (a) the right to acquire (whether such
right is exercisable immediately or only after
3
<PAGE>
the passage of time), pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (b) the right to vote pursuant to any agreement, arrangement or
understanding; or
(iii) which is beneficially owned, directly or indirectly,
by any other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of Voting Stock.
(3) "Business Combination" shall include:
(i) any merger or consolidation of the Corporation or
any of its subsidiaries with or into an Interested Shareholder, regardless of
which person is the surviving entity;
(ii) any sale, lease, exchange, mortgage, pledge, or
other disposition (in one transaction or a series of transactions) from the
Corporation or any of its subsidiaries to an Interested Shareholder, or from an
Interested Shareholder to the Corporation or any of its subsidiaries, of assets
having an aggregate Fair Market Value of ten percent (10%) or more of the
Corporation's total stockholders' equity;
(iii) the issuance, sale or other transfer by the
Corporation or any subsidiary thereof of any securities of the Corporation or
any subsidiary thereof to an Interested Shareholder (other than an issuance or
transfer of securities which is effected on a pro rata basis to all shareholders
of the Corporation);
(iv) the acquisition by the Corporation or any of its
subsidiaries of any securities of an Interested Shareholder;
4
<PAGE>
(v) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on behalf of an
Interested Shareholder;
(vi) any reclassification or recapitalization of
securities of the Corporation if the effect, directly or indirectly, of such
transaction is to increase the relative voting power of an Interested
Shareholder; or
(vii) any agreement, contract or other arrangement
providing for or resulting in any of the transactions described in this
definition of Business Combination.
(4) "Continuing Director" shall mean any member of the Board of
Directors of the Corporation who is unaffiliated with the Interested Shareholder
and was a member of the Board of Directors prior to the time that the Interested
Shareholder became an Interested Shareholder; any successor of a Continuing
Director who is unaffiliated with the Interested Shareholder and is approved to
succeed a Continuing Director by the Continuing Directors; any member of the
Board of Directors who is appointed to fill a vacancy on the Board of Directors
who is unaffiliated with the Interested Shareholder and is approved by the
Continuing Directors.
(5) "Fair Market Value" shall mean:
(i) in the case of securities listed on a national
securities exchange or quoted in the National Association of Securities Dealers
Automated Quotations System (or any successor thereof), the highest sales price
or bid quotation, as the case may be, reported for securities of the same class
or series traded on a national securities exchange or in the over-the-counter
market during the 30-day period immediately prior to the date in question, or if
no such report or quotation is available, the fair market value as determined by
the Continuing Directors; and
5
<PAGE>
(ii) in the case of other securities and of other
property or consideration (other than cash), the Fair Market Value as determined
by the Continuing Directors; provided, however, in the event the power and
authority of the Continuing Directors ceases and terminates pursuant to
Subdivision F of this Article X as a result of there being less than five
Continuing Directors at any time, then (a) for purposes of clause (ii) of the
definition of "Business Combination," any sale, lease, exchange, mortgage,
pledge, or other disposition of assets from the Corporation or any of its
subsidiaries to an Interested Shareholder or from an Interested Shareholder to
the Corporation or any of its subsidiaries, regardless of the Fair Market Value
thereof, shall constitute a Business Combination, and (b) for purposes of
paragraph 1 of Subdivision D of this Article X, in determining the amount of
consideration received or to be received per share by the Independent
Shareholders in a Business Combination, there shall be excluded all
consideration other than cash and the Fair Market Value of securities listed on
a national securities exchange or quoted in the National Association of
Securities Dealers Automated Quotations System (or any successor thereof) for
which there is a reported sales price or bid quotation, as the case may be,
during the 30-day period immediately prior to the date in question.
(6) "Independent Shareholder" shall mean shareholders of the
Corporation other than the Interested Shareholder engaged in or proposing the
Business Combination.
(7) "Interested Shareholder" shall mean: (a) any person (other
than the Corporation or any of its subsidiaries), and (b) the Affiliates and
Associates of such person, who, or which together, are:
(i) the beneficial owner, directly or indirectly, of 10%
or more of the outstanding Voting Stock or were within the two-year period
immediately prior to the date in
6
<PAGE>
question the beneficial owner, directly or indirectly, of 10% or more of the
then outstanding Voting Stock; or
(ii) an assignee of or other person who has succeeded to
any shares of the Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by an Interested
Shareholder, if such assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933.
Notwithstanding the foregoing, no Trust Department, or designated
fiduciary or other trustee of such Trust Department of the Corporation or a
subsidiary of the Corporation, or other similar fiduciary capacity of the
Corporation with direct voting control of the outstanding Voting Stock shall be
included or considered as an Interested Shareholder. Further, no
profit-sharing, employee stock ownership, employee stock purchase and savings,
employee pension, or other employee benefit plan of the Corporation or any of it
subsidiaries, and no trustee of any such plan in its capacity as such trustee,
shall be included or considered as an Interested Shareholder.
(8) A "Person" shall mean an individual, partnership, trust,
corporation, or other entity and includes any two or more of the foregoing
acting in concert.
(9) "Voting Stock" shall mean all outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of directors
of the Corporation.
B. SUPERMAJORITY VOTE TO EFFECT BUSINESS COMBINATION. No Business
Combination shall be effected or consummated unless:
(1) Authorized and approved by the Continuing Directors and, if
otherwise required by law to authorize or approve the transaction, the approval
or authorization of shareholders
7
<PAGE>
of the Corporation, by the affirmative vote of the holders of such number of
shares as is mandated by the Ohio Revised Code; or
(2) Authorized and approved by the affirmative vote of holders
of not less than 80% of the outstanding Voting Stock voting together as a single
class.
The authorization and approval required by this Subdivision B is in
addition to any authorization and approval required by Subdivision C of this
Article X.
C. FAIR PRICE REQUIRED TO EFFECT BUSINESS COMBINATION. No Business
Combination shall be effected or consummated unless:
(1) All the conditions and requirements set forth in
Subdivision D of this Article X have been satisfied; or
(2) Authorized and approved by the Continuing Directors; or
(3) Authorized and approved by the affirmative vote of holders
of not less than 66 2/3% of the outstanding Voting Stock held by all Independent
Shareholders voting together as a single class.
Any authorization and approval required by this Subdivision C is
in addition to any authorization and approval required by Subdivision B of this
Article X.
D. CONDITIONS AND REQUIREMENTS TO FAIR PRICE. All the following
conditions and requirements must be satisfied in order for clause (1) of
Subdivision C of this Article X to be applicable.
(1) The cash and Fair Market Value of the property, securities
or other consideration to be received by the Independent Shareholders in the
Business Combination per share for each class or series of capital stock of the
Corporation must not be less than the sum of:
8
<PAGE>
(i) the highest per share price (including brokerage
commissions, transfer taxes, soliciting dealer's fees and similar payments) paid
by the Interested Shareholder in acquiring any shares of such class or series,
respectively, and, in the case of Preferred Stock, if greater, the amount of the
per share redemption price; and
(ii) the amount, if any, by which interest on the per
share price, calculated at the Treasury Bill Rate from time to time in effect,
from the date the Interested Shareholder first became an Interested Shareholder
until the Business Combination has been consummated, exceeds the per share
amount of cash dividends received by the Independent Shareholders during such
period. The "Treasury Bill Rate" means for each calendar quarter, or part
thereof, the interest rate of the last auction in the preceding calendar of
91-day United States Treasury Bills expressed as a bond equivalent yield.
For purposes of this paragraph (1) per share amounts shall be
appropriately adjusted for any recapitalization, reclassification, stock
dividend, stock split, reserve split, or other similar transaction. Any
Business Combination which does not result in the Independent Shareholders
receiving consideration for or in respect of their shares of capital stock of
the Corporation shall not be treated as complying with the requirements of this
paragraph (1).
(2) The form of the consideration to be received by the
Independent Shareholders owning the Corporation's shares must be the same as was
previously paid by the Interested Shareholder(s) for shares of the same class or
series; provided, however, if the Interested Shareholder previously paid for
shares of such class or series with different forms of consideration, the form
of the consideration to be received by the Independent Shareholders owning
shares of such class or series must be in the form as was previously paid by the
Interested Shareholder in acquiring the
9
<PAGE>
largest number of shares of such class or series previously acquired by the
Interested Shareholder, provided, further, in the event no shares of the same
class or series had been previously acquired by the Interested Shareholder, the
form of consideration must be cash. The provisions of this paragraph (2) are
not intended to diminish the aggregate amount of cash and Fair Market Value of
any other consideration that any holder of the Corporation's shares is otherwise
entitled to receive upon the liquidation or dissolution of the Corporation,
under the terms of any contract with the Corporation or an Interested
Shareholder, or otherwise.
(3) From the date the Interested Shareholder first became an
Interested Shareholder until the Business Combination has been consummated, the
following requirements must be complied with unless the Continuing Directors
otherwise approve:
(i) the Interested Shareholder has not received,
directly or indirectly, the benefit (except proportionately as a shareholder) of
any loan, advance, guaranty, pledge, or other financial assistance, tax credit
or deduction, or other benefit from the Corporation or any of its subsidiaries;
(ii) there shall have been no failure to declare and pay
in full, when and as due or scheduled, any dividends required to be paid on any
class or series of the Corporation's shares;
(iii) there shall have been (a) no reduction in the annual
rate of dividends paid on Common Shares of the Corporation (except as necessary
to reflect any split of such shares), and (b) an increase in the annual rate of
dividends as necessary to reflect reclassification (including a reverse split),
recapitalization or any similar transaction which has the effect of reducing the
number of outstanding Common Shares; and
10
<PAGE>
(iv) there shall have been no amendment or other
modification to any profit-sharing, employee stock ownership; employee stock
purchase and savings, employee pension or other employee benefit plan of the
Corporation or any of its subsidiaries, the effect of which is to change in any
manner the provisions governing the voting of any shares of capital stock of the
Corporation in or covered by such plan.
(4) A proxy or information statement describing the Business
Combination and complying with the requirements of the Securities Exchange Act
of 1934, as amended, and the rules and regulations under it (or any subsequent
provisions replacing that Act and the rules and regulations under it) has been
mailed at least 30 days prior to the completion of the Business Combination to
the holders of all outstanding Voting Stock. If deemed advisable by the
Continuing Directors, the proxy or information statement shall contain a
recommendation by the Continuing Directors as to the advisability (or
inadvisability) of the Business Combination and/or an opinion by an investment
banking firm, selected by the Continuing Directors and retained at the expense
of the Corporation, as to the fairness (or unfairness) of the Business
Combination to the Independent Shareholders.
E. OTHER APPLICABLE VOTING REQUIREMENT. The affirmative votes or
approvals required to be received from shareholders of the Corporation under
Subdivisions B, C and H of this Article X are in addition to the vote of the
holders of any class of shares of capital stock of the Corporation otherwise
required by law, or by other provisions of these Articles of Incorporation, or
by the express terms of the shares of such class. The affirmative votes or
approvals required to be received from shareholders of the Corporation under
Subdivisions B, C and H of this Article X shall apply even though no vote or a
lesser percentage vote, may be required by law, or by other provisions of
11
<PAGE>
these Articles of Incorporation, or otherwise. Any authorization, approval or
other action of the Continuing Directors under this Article X is in addition to
any required authorization, approval or other action of the Board of Directors.
F. CONTINUING DIRECTORS. All actions required or permitted to be
taken by the Continuing Directors shall be taken with or without a meeting by
the vote or written consent of two-thirds of the Continuing Directors,
regardless of whether the Continuing Directors constitute a quorum of the
members of the Board of Directors then in office. In the event that the number
of Continuing Directors is at any time less than four (4), all power and
authority of the Continuing Directors under this Article X shall thereupon cease
and terminate, including, without limitation, the authority of the Continuing
Directors to authorize and approve a Business Combination under Subdivisions B
and C of this Article X and to approve a successor Continuing Director.
Two-thirds of the Continuing Directors shall have the power and duty, consistent
with their fiduciary obligations, to determine for the purpose of this Article
X, on the basis of information known to them:
(1) Whether any person is an Interested Shareholder;
(2) Whether any person is an Affiliate or Associate of another;
(3) Whether any person has an agreement, arrangement, or
understanding with another or is acting in concert with another; and
(4) The Fair Market Value of property, securities or other
consideration (other than cash).
The good faith determination of the Continuing Directors on such matters
shall be binding and conclusive for purposes of this Article X.
12
<PAGE>
G. EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED SHAREHOLDERS.
Nothing contained in this Article X shall be construed to relieve any Interested
Shareholder from any fiduciary obligations imposed by law.
H. REPEAL. Notwithstanding any other provisions of these Articles of
Incorporation (and notwithstanding the fact that a lesser percentage vote may be
required by law or other provision of these Articles of Incorporation), the
provisions of this Article X may not be repealed, amended, supplemented or
otherwise modified, unless:
(1) The Continuing Directors (or, if there is no Interested
Shareholder, a majority vote of the whole Board of Directors of the Corporation)
recommend such repeal, amendment, supplement or modification and such repeal,
amendment or modification is approved by the affirmative vote of the holders of
not less than 66 2/3% of the outstanding Voting Stock; or
(2) Such repeal, amendment, supplement or modification is
approved by the affirmative vote of holders of (a) not less than 80% of the
outstanding Voting Stock voting together as a single class, and (b) not less
than 66 2/3% of the outstanding Voting Stock held by all shareholders other than
Interested Shareholders voting together as a single class.
I. FURTHER CONSIDERATIONS TO EFFECT BUSINESS COMBINATION. No
Business Combination shall be effected or consummated unless, in addition to the
consideration set forth in Subdivisions B, C, D and E of this Article X, the
Board of Directors of the Corporation, including the Continuing Directors shall
consider all of the following factors and any other factors which they deem
relevant:
(1) The Social and economic effects of the transaction on the
Corporation and its subsidiaries, employees, depositors, loan and other
customers, creditors and other elements of the communities in which the
Corporation and its subsidiaries operate or are located;
13
<PAGE>
(2) The business and financial conditions and earnings
prospects of the Interested Shareholder, including, but not limited to, debt
service and other existing or likely financial obligations of the Interested
Shareholder, and the possible effect on other elements of the communities in
which the Corporation and its subsidiaries operate or are located, and
(3) The competence, experience and integrity of the Interested
Shareholder and his (its) or their management.
ARTICLE XI
Meetings of shareholders may be held within or without the State of Ohio,
as the Code of Regulations may provide. The books of the Corporation may be
kept (subject to Ohio law) outside the State of Ohio at such place or places as
may be designated from time to time by the Board of Directors or in the Code of
Regulations of the Corporation. Elections of directors need not be by written
ballot unless the Code of Regulations of the Corporation shall provide.
ARTICLE XII
These Articles of Incorporation may be amended or repealed by the
affirmative vote of the holders of not less than a majority of the voting shares
of the corporation subject to the requirements of a higher percentage as
specified under other provisions of these Articles of Incorporation.
ARTICLE XIII
These Amended and Restated Articles of Incorporation take the place of
and supersede the existing Articles of Incorporation as heretofore amended.
14
<PAGE>
January 5, 1998
Towne Bancorp, Inc.
610 E. South Boundry Street
Perrysburg, Ohio
Re: Shares Registered on Form S-2
Gentlemen:
This opinion is furnished with respect to the Registration Statement on
Form S-2 (the "Registration Statement") being filed by Towne Bancorp, Inc.
("Towne") with the Securities and Exchange Commission relating to the
registration of 370,761 shares of Towne common stock, no par value (the
"Stock"), which are the subject of the rescission offer described in the
Registration Statement (the "Rescission Offer").
We are counsel for Towne and have participated in the preparation of the
Registration Statement. We have reviewed Towne's Second Amended and Restated
Articles of Incorporation (the "Amended Articles") and Code of Regulations, the
corporate action taken to date in connection with the Registration Statement and
the Rescission Offer, and such other documents and authorities as we deem
relevant for the purpose of this opinion.
Based upon the foregoing, we are of the opinion that:
(a) upon the ratification of the adoption of the Amended Articles of Towne
by the shareholders of Towne and assuming that such ratification
combined with the adoption of the Amended Articles by certain
shareholders of Towne on November 29, 1997 constitutes due
authorization of the 800,000 shares of common stock, without par
value, of Towne;
(b) upon compliance with the Securities Act of 1933, as amended, and with
the Securities or "blue sky" laws of the states in which the Stock is
to be offered for sale;
(c) upon satisfaction of all of the conditions stated in the Registration
Statement; and
(d) upon rejection of the Rescission Offer;
<PAGE>
that portion of the Stock for which shareholders of Towne have rejected the
Rescission Offer will be legally issued, fully paid, and nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Porter, Wright, Morris & Arthur
PORTER, WRIGHT, MORRIS & ARTHUR
<PAGE>
L E A S E
By and Between
Carol A. Haas, Trustee
(Landlord)
and
Towne Bancorp, Inc.
(Tenant)
PREMISES: Perrysburg, Ohio
08/18/95
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE NO.
------- --------
1 PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4 CONSTRUCTION OF PREMISES AND POSSESSION . . . . . . . . . . . . 3
5 RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6 OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7 UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . .10
8 TENANT'S REPAIRS. . . . . . . . . . . . . . . . . . . . . . . .10
9 CONFORMITY WITH LAW . . . . . . . . . . . . . . . . . . . . . .11
10 TENANT'S FIXTURES AND SIGNS . . . . . . . . . . . . . . . . . .12
11 ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . .13
12 SURRENDER OF PREMISES . . . . . . . . . . . . . . . . . . . . .13
13 ACCESS BY LANDLORD. . . . . . . . . . . . . . . . . . . . . . .14
14 LANDLORD'S REMEDIES UPON DEFAULT. . . . . . . . . . . . . . . .14
15 DEMAND FOR RENT . . . . . . . . . . . . . . . . . . . . . . . .16
16 DAMAGE BY FIRE OR CASUALTY. . . . . . . . . . . . . . . . . . .16
17 SUBORDINATION OF LEASE. . . . . . . . . . . . . . . . . . . . .18
18 HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . . .19
19 WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . . . .20
20 EMINENT DOMAIN. . . . . . . . . . . . . . . . . . . . . . . . .20
21 NON-WAIVER OF DEFAULT . . . . . . . . . . . . . . . . . . . . .22
22 QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . .22
23 RECORDING . . . . . . . . . . . . . . . . . . . . . . . . . . .23
24 ACCEPTANCE OF LEASE . . . . . . . . . . . . . . . . . . . . . .24
25 NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
26 TAX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
27 TRANSFER OF LANDLORD'S INTEREST . . . . . . . . . . . . . . . .25
28 RIGHT OF FIRST REFUSAL. . . . . . . . . . . . . . . . . . . . .26
29 PUBLIC LIABILITY INSURANCE. . . . . . . . . . . . . . . . . . .26
30 ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . .27
31 ESTOPPEL CERTIFICATES . . . . . . . . . . . . . . . . . . . . .28
32 FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . .28
33 TIME OF THE ESSENCE . . . . . . . . . . . . . . . . . . . . . .29
34 LIMITATION OF LANDLORD'S LIABILITY. . . . . . . . . . . . . . .29
35 USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
36 RENTAL TAXES. . . . . . . . . . . . . . . . . . . . . . . . . .29
37 LATE CHARGE . . . . . . . . . . . . . . . . . . . . . . . . . .30
38 CONDITIONS PRECEDENT TO LANDLORD'S OBLIGATIONS. . . . . . . . .30
39 RISK OF LOSS FOR PERSONAL PROPERTY OR BUSINESS. . . . . . . . .31
<PAGE>
THIS LEASE
Made in Sylvania, Ohio this day of , 1995,
by and between Carol A. Haas, Trustee, of 3333 E. Florida Avenue, House 102,
Denver, Colorado 80210 (hereinafter called "Landlord"), and Towne Bancorp, Inc.,
of P. O. Box 202, Perrysburg, Ohio 43552 (hereinafter called "Tenant").
WITNESSETH:
ARTICLE 1. PREMISES.
Landlord does hereby let and lease unto Tenant premises situated in the
City of Perrysburg, County of Wood, and State of Ohio, and known and described
as follows, to wit:
A certain free-standing, one story bank building (hereinafter known as
"Premises"). A legal description of the real property upon which the
Premises are located (hereinafter known as the "Property") is attached
hereto as Exhibit "A" and made a part hereof.
The Premises shall have approximately square feet of
interior space as outlined in red on the plot plan of the Property attached
hereto as Exhibit "B" and made a part hereof for the purpose of more
specifically locating the Premises.
In determining the square footage of the Premises, measurements shall be
from the center of all common walls and the outside of all exterior walls.
ARTICLE 2. PARKING.
Tenant and Tenant's visitors, customers, agents and employees shall have
the exclusive right, without charge, to use all sidewalks, driveways, service
areas, and parking spaces on the Property or made available for the use thereof
together with the right to use and enjoy any appurtenances thereto, now or
hereafter in existence. Tenant shall keep all sidewalks, driveways, service
areas, and
<PAGE>
parking spaces open and accessible at all times, except for temporary closing
for repairs and maintenance. Tenant shall comply with the minimum parking
requirements of the municipality.
ARTICLE 3. TERM.
The term of this Lease shall commence on the Commencement Date (as
hereinafter defined) and terminate on the last day of the twentieth (20th)
consecutive Lease Year (as hereinafter defined) thereafter unless sooner
terminated as provided herein.
The "Commencement Date" as used herein is defined as the earlier of either:
(a) the thirtieth (30th) day after Landlord delivers and Tenant accepts
possession of the Premises (subject to the provisions of Article 4) fully
completed in accordance with Tenant's plans and specifications approved as
outlined in Article 4; or
(b) when Tenant shall open the Premises for banking business;
but shall be extended by the number of days of delay (but in no event longer
than ten (10) days) resulting from strikes, casualties, Tenant's inability to
secure necessary licenses or any other cause beyond Tenant's control.
The term "Lease Year" as used herein shall mean a period of twelve (12)
consecutive full calendar months. The first Lease Year shall begin on the
Commencement Date if the Commencement Date shall occur on the first day of a
calendar month; if not, then the first Lease Year shall commence upon the first
day of the calendar month next following the Commencement Date and shall include
the period between the Commencement Date and the first day of the next following
calendar month. References herein to the term of this Lease shall include all
extended terms unless limited specifically or by context to the initial term.
-4-
<PAGE>
ARTICLE 4. CONSTRUCTION OF PREMISES AND POSSESSION.
Landlord represents and warrants it has no knowledge of any present or
previous use of the Premises or the Property, or the presence therein or
thereupon of any substance or material which might be construed as creating an
environmental hazard, including but not limited to, the deposit, storage, and/or
disposal of hazardous wastes or substances.
Tenant agrees to construct the Premises as reflected on Exhibit "B", after
Landlord's approval of plans and specifications, which approval will not be
unreasonably withheld, in a good and workmanlike manner, with a maximum cost of
building construction, construction loan interest, site acquisition, site
improvements, engineering and architectural costs, permits, construction
management, and whatever other costs that would be associated with the Premises
and Property, not to exceed One Million Dollars ($1,000,000.00), which shall be
paid by Landlord in customary draws with both architectural and title company
written approval prior to each draw. Tenant shall pay all sums for the
aforesaid Property and Improvements on the Premises in excess of one Million
Dollars ($1,000,000.00). The Premises are to be constructed in accordance with
architectural drawings prepared by Tenant or Tenant's architect, and approved by
Landlord as aforesaid. No changes from said approved plans and specifications
shall be made without the approval of Landlord and Tenant in writing.
Within thirty (30) days after the date this Lease is signed by both
parties, Tenant shall prepare, at Tenant's sole cost and expense, final
architectural drawings for the Premises in conformance with the requirements of
Tenant's plans and specifications and any applicable laws, ordinances, rules and
regulations of any public authority or Board of Insurance Underwriters or
similar agency having jurisdiction over the construction of the Premises, and
deliver same to
-5-
<PAGE>
Landlord for Landlord's approval as aforesaid, which approval shall not be
unreasonably withheld. Landlord shall notify Tenant within five (5) days after
receipt of the architectural drawings of Landlord's approval or disapproval of
same. In the event Landlord shall not approve such architectural drawings,
Landlord shall notify Tenant in writing of any reasonable changes required by
Landlord and consistent with the plans and specifications originally submitted
by Tenant to Landlord. Tenant shall incorporate any such changes and deliver to
Landlord within five (5) days after receipt of such notice, the final
architectural drawings, as altered, for Landlord's approval. Landlord shall
notify Tenant within five (5) days after receipt of the altered final drawings
of Landlord's approval or disapproval of same.
Tenant shall commence construction of the Premises within two (2) months
from the date hereof, and in the event Tenant shall fail to commence
construction by said date, Landlord may cancel this Lease at any time thereafter
prior to the commencement of construction. Construction shall be deemed to have
commenced after the footings and foundations shall have been completed and all
building permits issued.
Tenant shall provide or cause to be provided as part of the original
installation in the Premises, the necessary mains, conduits, lines, utility
meters, and facilities in order that gas, electricity, water and sewer services
may be furnished to the Premises, which costs shall be included in total
construction cost.
Tenant shall be responsible for obtaining any required occupancy permit for
the Premises as a condition precedent to the commencement of the term of this
Lease and Tenant's obligations hereunder.
-6-
<PAGE>
ARTICLE 5. RENT.
(a) Tenant hereby covenants and agrees to pay Landlord as Fixed Rent for
the Premises during the term of this Lease the sum of Eight Thousand Five
Hundred Dollars ($8,500.00) per month during Lease Years 1 through 3; the sum of
Nine Thousand Four Hundred Seventeen and 42/100 Dollars ($9,417.42) per month
during Lease Years 4 through 5, plus any increases in the Landlord's mortgage
payment; and for Lease Years 6 through 20, the rent shall be the monthly rental
of Lease Years 4 through 5, plus any increases in the Landlord's mortgage
payment and also shall be increased by the CPI adjustment, not to exceed ten
percent (10%), every five (5) years, beginning in Lease Year 6. The month of
December in the year 1995 would be the bass month and year for the CPI increase
for Lease Years 2000 through 2005. The month of December in the year 2000 would
be the base month and year for the CPI increase for Lease Years 2005 through
2010. The month of December in the year 2005 would be the base month and year
for the CPI increase for Lease Years 2010 through 2015. The CPI used to
calculate any CPI adjustments under this Lease would be the Consumer Price Index
(CPI) US Cities Average, CPI-W, 1982-84 base. Each monthly rental payment is
payable in advance upon the first day of every calendar month during said term.
Fixed Rent shall be prorated for any fraction of a month. Until further notice
from Landlord to Tenant, rent checks shall be payable and mailed to Landlord at:
Carol A. Haas, Trustee
c/o Gerdenich & Co.
5415 Monroe Street
Toledo, Ohio 43623
Attn: James Ostrowski, President
(b) As additional rent, Tenant will also pay Landlord at the end of each
Lease Year the sum of Twenty-Five Thousand Dollars ($25,000.00) in the form of
common stock of Towne
-7-
<PAGE>
Bancorp, Inc. The number of common stock shares to be issued and delivered by
Tenant to Landlord would be based upon the price of the stock offered to the
public at the beginning of the first five-year period of this Lease. During the
last three (3) five-year periods of this Lease, the number of common stock
shares to be issued and delivered to Tenant by Landlord would be based upon the
price of the stock offered to the public at the beginning of the sixth,
eleventh, and sixteenth year(s) of this Lease.
ARTICLE 6. OPTIONS.
(a) Tenant shall have right to extend the term of this Lease for two (2)
additional consecutive periods of five (5) years each, upon the same terms and
conditions, except Fixed Rent, as provided in the original term of this Lease,
upon the condition that Tenant notifies Landlord in writing of its intention to
extend at least one hundred eighty (180) days prior to the date of commencement
of each such extension term and thereupon, this Lease shall be so extended
without the execution of any further document. Fixed Rent during each of the
five-year option periods shall be the monthly rent paid during the twentieth
(20th) year of the Lease, plus CPI increase not to exceed ten percent (10%) for
the first five-year option period, and ten percent (10%) CPI increase for the
second five-year option period. The month of September in the year 2010 would
be the base month and year for the CPI increase for the Lease Years 2015 through
2020 (first option period), and the month of September in the year 2015 would be
the base month and year for the Lease Years 2020 through 2025 (second option
period).
In addition to the Fixed Rent, Tenant will also pay Landlord at the end of
each Lease Year the sum of Twenty-Five Thousand Dollars ($25,000.00) in cash or
in the form of common stock of the Towne Bancorp, Inc. The number of common
stock shares to be issued and delivered by Tenant
-8-
<PAGE>
to Landlord would be based upon the price of the stock offered to the public at
the beginning of each of the two (2) five-year option periods of this Lease,
i.e. year 2015 and year 2020.
(b) Provided that Tenant has fully complied with the terms and conditions
of this Lease, Tenant is hereby given an option to purchase the Premises and
Property at the end of every five-year period of this Lease by giving written
notice to the Landlord of the exercise of its option to purchase at least one
hundred twenty (120) days prior to the expiration of the respective five-year
periods. The purchase price would be One Million Dollars ($1,000,000.00) plus
appreciation of two percent (2%) per year or the sum of One Million One Hundred
Four Thousand Eighty-One Dollars ($1,104,081.00), plus deferred rent of
$16,514.00, after the first five-year period, the sum of One Million Two.
Hundred Thirteen Thousand Nine Hundred Ninety-Five Dollars ($1,213,995.00) after
the end of the second five-year period, the sum of One Million Three Hundred
Forty-Five Thousand Eight Hundred Seventy Dollars ($1,345,870.00) after the end
of the third five-year period, and the sum of One Million Four Hundred
Eighty-Five Thousand Nine Hundred Thirty-Nine Dollars ($1,485,939.00) after the
end of the fourth five-year period.
In the event that Landlord's mortgage rate interest at any time during the
Lease term is in excess of twelve percent (12%), Tenant shall have the right to
exercise their option to purchase the Property and Premises based on the
valuation formula as set forth above, plus any unpaid deferred rent of $642.00
per month effective in Lease Years 4 through 10, and if this purchase takes
place between Lease Years 6-10, the Purchaser shall be given credit towards the
purchase price of one-third (1/3) of the principal reduction in the loan.
In the event Tenant exercises its option to purchase after ten (10) years
of occupancy by Tenant, Landlord will give Tenant a credit on the purchase price
for one-half (1/2) of the loan equity,
-9-
<PAGE>
up to a maximum of One Hundred Thousand Dollars ($100,000.00), based on the
original loan amount of Seven Hundred Fifty Thousand Dollars ($750,000.00) and
term of twenty (20) years, subject to any interest rate fluctuations under the
loan agreement.
In the event of the exercise by the Tenant of this option to purchase the
Premises and the Property, Landlord shall furnish Tenant with a preliminary
letter for a guaranteed certificate of title, such as title insurance, at
Tenant's cost. Said preliminary letter shall show good and merchantable title
of record in the Landlord, subject to easements and restrictions of record and
mortgage(s) to be discharged at closing.
ARTICLE 7. UTILITIES.
Tenant shall pay when due, all bills for gas, water, electricity and other
utilities supplied to the Premises after the date Tenant accepts possession of
the Premises and until expiration of the term. Tenant, at its own expense,
shall install separate meters for the utilities used in the Premises in
compliance with the outlined specifications and requirements of the utility
supplier.
ARTICLE 8. TENANT'S REPAIRS.
Tenant agrees to keep and maintain (including repair and/or replacement
when necessary) the interior and exterior of the Premises, including doors and
windows in good condition and repair, and Tenant shall maintain, repair and make
replacements to the heating, ventilating, air conditioning, plumbing, gas,
electrical and other similar units and systems within or exclusively serving the
Premises, as well as roof, parking lot, and driveways. Tenant shall be required
to make structural repairs. Tenant shall provide rubbish removal from the
Premises and for removal of all rubbish from the Property which is generated by
or from the Premises. The parties hereto understand that this
-10-
<PAGE>
Lease is a triple net lease with the Tenant paying for all taxes and assessments
on the Property, insurance and maintenance costs as aforesaid, including the
building structure and roof.
ARTICLE 9. CONFORMITY WITH LAW.
Tenant will use and occupy the Premises and appurtenances in a careful,
safe and proper manner and comply with the valid requirements of the proper
public officials regarding the manner in which Tenant conducts its business.
Tenant will not use the Premises for any unlawful purpose nor commit or suffer
waste thereon. To the extent of Landlord's control thereof, Landlord warrants
that the Premises are in conformity with applicable building and zoning codes
and other laws, ordinances and regulations of any authority having jurisdiction.
Tenant shall at its own risk and expense remove and dispose of any hazardous or
toxic material or underground storage tank present in or on the Premises or the
Property. Landlord shall not grant any occupancy rights in the sidewalk space
in front of the Premises or in the parking or other areas of the Property
without Tenant's consent.
If at any time during the term of this Lease or any extension thereof, any
governmental agency or other authority having jurisdiction requires repairs,
alterations, additions or remedial action to the Premises or to the systems
serving the Premises and the same is brought about by reasons involving the
bank, or other business conducted by Tenant, or involving Tenant's manner of use
of the Premises or Property, all consequential actions shall be at Tenant's sole
cost and expense.
ARTICLE 10. TENANT'S FIXTURES AND SIGNS.
Tenant may install, operate and maintain in or on the Premises, machinery
and any other mechanical equipment, pipes, conduits,. ducts and communication
antennas as required and in so
-11-
<PAGE>
doing shall comply with all lawful requirements. Any roof penetration shall
require the prior consent of Landlord. Tenant shall, at all times, have the
right to remove all fixtures, machinery, equipment, appurtenances or other
property furnished or installed by Tenant, it being expressly understood and
agreed that said property shall not become part of the Premises, but shall at
all times be and remain the property of Tenant and not subject to any Landlord's
lien. Tenant shall repair all damage caused by its removal of its property.
Landlord waives all rights which it may now or hereafter have under law or by
virtue of this Lease or Tenant's occupancy of the Premises to levy upon, claim
or assert a lien upon or right or title to any or all of Tenant's personal
property now or hereafter installed on or located at the Premises, by reason of
rentals due hereunder or for any monetary obligations arising by reason of or
default under this Lease.
All exterior signs installed by Tenant shall be at its own cost and expense
and in conformity with the rules and regulations of the local governmental
authorities having jurisdiction, however Landlord agrees, at Tenant's cost and
expense, to cooperate with Tenant in approving, locating, obtaining permits,
erecting and supplying electricity to such sign. No exterior sign shall be
installed without the Landlord's approval as to design, placement and method of
attachment to the Premises, which approval shall not be unreasonably withheld or
delayed.
ARTICLE 11. ALTERATIONS.
Tenant may at its own cost and expense make changes and alterations to the
interior of the Premises but shall obtain Landlord's consent, which consent
shall not be reasonably withheld, before making any changes to the building
structure. In the event Tenant has not received written objections from
Landlord within thirty (30) days after submission of Tenant's written request
for its consent, Landlord, not so responding within said thirty (30) day period,
shall be deemed to have
-12-
<PAGE>
consented thereto. If requested by Tenant, Landlord, at Tenant's cost and
expense, shall cooperate in securing necessary permits and authority. Tenant
shall not permit any mechanics' or other liens to stand against the Premises or
Property for work or material furnished to Tenant or to the Premises or Property
by its contractor, subcontractors, or materialmen or their respective subs and
suppliers.
ARTICLE 12. SURRENDER OF PREMISES.
Tenant will surrender and deliver possession of the Premises to Landlord
upon the expiration of this Lease or its termination in any way, in good
condition and repair (loss by fire; acts of God; ordinary wear and decay;
casualty; neglect, fault or default of Landlord; taking by eminent domain and
alterations approved by Landlord excepted) and deliver the keys to the office of
Landlord or Landlord's agent. Any property not removed by Tenant upon surrender
or abandonment of the Premises shall be deemed abandoned.
ARTICLE 13. ACCESS BY LANDLORD.
Landlord may have free access to the Premises during business hours for the
purpose of examining same. During the last six (6) months of the term of this
Lease, provided the same shall not interfere with Tenant's business, Landlord
may have access to the Premises for the purposes of exhibiting the Premises.
ARTICLE 14. LANDLORD'S REMEDIES UPON DEFAULT.
(a) In the event Tenant shall at any time fail to make timely payment of
rent or perform any of its obligations under this Lease, and Tenant shall fail
to remedy such failure within fifteen (15) days after receipt of written notice
thereof from Landlord if said failure relates to payment of rent, or other
monetary charges under this Lease, or within thirty (30) days after receipt of
written notice thereof from Landlord if the failure relates to matters other
than payment of rent or other
-13-
<PAGE>
monetary charges under this Lease, (but Tenant shall not be in default of a
matter other than payment of rent or other monetary charges under this Lease if
it commences to remedy same within thirty (30) days after such notice and
proceeds therewith with due diligence) or if Tenant shall be adjudged a bankrupt
or enter into an arrangement for the benefit of creditors under any state or
federal insolvency law and such proceedings are not dismissed or terminated
within sixty (60) days after the commencement thereof, then Landlord may declare
the terms of this Lease terminated, enter into possession of the Premises and
sue for all rents and damages accrued under this Lease or arising out of any
violation hereof, or Landlord may sue without declaring this Lease void or
entering into possession of the Premises and any recovery of rents shall be on a
monthly basis as the same become due. Notwithstanding the recital of any
specific remedies, Landlord shall likewise have all rights and remedies (except
acceleration) to which Landlord is entitled either in law or equity.
Notwithstanding the notice requirements set forth above, Landlord shall not
be required to provide Tenant with more than two (2) fifteen-day notices during
any twelve-month period for nonpayment of rent, or other charges payable by
Tenant, before Landlord exercises its immediate rights upon default as set forth
and permitted above.
(b) Notwithstanding any other provisions contained in this Lease, in the
event (i) Tenant or its successors or assignees shall become insolvent or
bankrupt, or if it or their interests under this Lease shall be levied upon or
sold under execution or other legal process, or (ii) the depository institution
then operating on the Premises is closed, or is taken over by any depository
institution supervisory authority ("Authority"), Landlord may, in either such
event, terminate this Lease only with the concurrence of any Receiver or
Liquidator appointed by such Authority; provided, that in the event this Lease
is terminated by the Receiver or Liquidator, the maximum
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claim of Landlord for rent, damages, or indemnity for injury resulting from the
termination, rejection, or abandonment of the unexpired Lease shall by law in no
event be in an amount equal to all accrued and unpaid rent to the date of
termination.
ARTICLE 15. DEMAND FOR RENT.
No receipt of monies by Landlord from or on the account of Tenant or from
anyone in possession or occupancy of the Premises after the termination in any
way of this Lease, or after the giving of any notice of termination, shall
reinstate, continue or extend the term of this Lease or affect any notice given
to Tenant prior to the receipt of such money. After service of any notice of
commencement of any suit or final judgment therein, Landlord may receive and
collect any rent due and such collection or receipt shall not operate as a
waiver of, nor affect such notice, suit or judgment.
ARTICLE 16. DAMAGE BY FIRE OR CASUALTY.
During the term of this Lease, Landlord agrees to carry standard form "All
Risk" property insurance (or the insurance industry equivalent), including loss
of rents insurance, on the Property wherein the Premises are situated and all
improvements therein for one hundred percent (100%) of the full replacement
thereof and shall provide Tenant with a certificate of insurance reflecting such
coverage.
Tenant shall reimburse Landlord for the premium for such insurance.
Landlord shall make demand for reimbursement from Tenant for such insurance
premium costs which shall be paid by Tenant within thirty (30) days of its
receipt thereof. Each such demand for reimbursement shall be accompanied by a
copy of the insurance premium invoice for which reimbursement is requested.
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If the Premises or a portion thereof shall be destroyed or injured by any
cause insurable by standard policies of 'All Risk" insurance or its equivalent
and such destruction or injury could reasonably be repaired within ninety (90)
days thereafter, Landlord shall with diligence undertake and substantially
complete repairs within ninety (90) days after the happening of such destruction
or injury. If Tenant shall be deprived of the occupancy of any portion of the
Premises due to any destruction or injury but can nevertheless continue to
engage in its regular business, a rental abatement shall be allowed in
proportion to the area rendered untenantable and continuing until the Premises
are restored. No rent shall be payable during any period that Tenant is unable
to engage in its regular business.
If the destruction or injury cannot reasonably be repaired within ninety
(90) days after the happening thereof, Landlord shall notify Tenant within
twenty-one (21) days after the happening of such destruction or injury whether
or not Landlord will repair or rebuild. If Landlord elects not to repair or
rebuild, this Lease shall be terminated. If Landlord shall elect to repair or
rebuild, Landlord shall specify the time within which repairs or reconstruction
will be completed and Tenant shall have the option within twenty-one (21) days
after the receipt of such notice to elect either to terminate this Lease and
further liability thereunder or to extend the term or renewal term of this Lease
by a period of time equivalent to the period from the happening of such
destruction or injury until the Premises are restored to their former condition.
In the event Tenant elects to extend the term of the Lease, Landlord shall
restore the Premises to their former condition within the time specified in the
notice and Tenant shall be entitled to an abatement of rent in the manner
hereinbefore set forth.
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Tenant shall remove the debris and repair and replace the property which
may be removed by it upon surrender of the Premises. Landlord shall remove the
debris and repair and replace the building and the interior of the Premises.
If this Lease is terminated by reason of damage or destruction, Landlord
shall refund all prepaid rentals and unearned charges, pro rated to the date of
such termination.
ARTICLE 17. SUBORDINATION OF LEASE.
Upon the request of Landlord in writing, Tenant shall subordinate this
Lease to the lien of any present or future first mortgage and/or ground lease of
the Premises or any property of which the Premises forms a part, provided that
the holder of any such mortgage and/or ground lease ("Mortgagee") shall enter
into a written agreement with Tenant to the effect that (i) in the event of
foreclosure or other action taken under the mortgage and/or ground lease by
Mortgagee, this Lease and the rights of Tenant hereunder shall not be disturbed
so long ad Tenant shall not be in material default hereunder beyond any time
permitted to cure, but shall continue in full force and effect; and (ii) such
Mortgagee shall permit insurance proceeds to be used for any restoration and
repair required by the provisions of this Lease as set forth in Article 16. If
on the date of this Lease there is in existence a mortgage on the Property,
Landlord agrees to obtain from such mortgagee, a written agreement that this
Lease and the right of Tenant hereunder shall not be disturbed so long as Tenant
shall not be in material default hereunder beyond any time permitted to cure.
The word "mortgage" as used herein includes mortgage, deed of trust or other
similar instrument and any modifications, extensions, renewals and replacements
thereof.
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ARTICLE 18. HOLDING OVER.
Except when the term of this Lease is extended pursuant to Article 6
hereof, Tenant's continued occupancy of the Premises after expiration of the
term of this Lease or any renewal or extension thereof or any earlier
termination provided or permitted by this Lease, shall be from month-to-month.
All covenants, provisions, obligations and conditions of this Lease shall remain
in full force and effect during such month-to-month tenancy.
ARTICLE 19. WAIVER OF SUBROGATION.
Landlord and Tenant agree that it is their intention that each shall look
solely to its own resources and/or its own insurance carrier for recovery of any
loss to real and/or personal property. Landlord and Tenant hereby waive all
rights of recovery and causes of action which either has or may have or which
may arise hereafter against the other, whether caused by negligence, intentional
misconduct or otherwise, for any loss, including deductible amounts and/or
self-retained loss levels, caused by any perils coverable by "All Risk" property
insurance (or the insurance industry equivalent), consequential loss, or use and
occupancy types of insurance, or for which either party may be reimbursed as a
result of insurance coverage affecting any loss suffered by it and each party
shall have its respective insurance policies properly endorsed (if necessary) to
prevent any invalidation that might arise as the result of foregoing waivers.
ARTICLE 20. EMINENT DOMAIN.
In the event that the entire Premises shall at any time after execution of
this Lease be taken in public or quasi-public use or condemned under eminent
domain, then this Lease shall terminate and expire effective the date of such
taking and any prepaid rent or unearned charges shall be refunded to Tenant.
Tenant shall have the right of termination of this Lease with an appropriate
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refund of prepaid rent or unearned charges, if, as a result of such eminent
domain proceeding or other governmental or quasi-public action:
(a) Any portion of the Premises shall be taken and the remaining portion
shall be unsuitable for Tenant's continued business operations, determined in
Tenant's sole business judgments; or
(b) The total number of parking spaces established for the Premises shall
be reduced by twenty percent (20%) or more, or Tenant, its customers, agents,
employees and visitors are for more than thirty (30) days denied reasonable
access to the Premises or parking areas.
Should Tenant elect to remain in the Premises under the circumstances
described in subparagraph (a), then rent shall be reduced for the remainder of
the term thereafter in proportion to the amount of the Premises taken. All
damages awarded in connection with the taking of the Premises whether permitted
as compensation for diminution in value to the leaseholdor the fee of the
Premises or for taking of any portion of the Property shall belong to Landlord,
provided, however, if Tenant has made any leasehold improvements to the Premises
or structural changes to the Premises with Landlord's written approval and at
its own expense (regardless of when made), Tenant and not Landlord shall be
entitled to claim an award for unamortized balance of Tenant's cost thereof
amortized over the useful life thereof, not to exceed ten (10) years. In the
event the condemning authority shall not make a separate award therefor,
Landlord shall make a claim therefor on behalf of Tenant and if such claim is
allowed, assign the portion of its award equal to such unamortized cost to
Tenant. In addition, Tenant shall be entitled to claim an award from the
condemning authority for loss of business, DAMAGE to merchandise and fixtures,
removal and reinstallation costs and moving expenses.
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ARTICLE 21. NON-WAIVER OF DEFAULT.
No acquiescence by either party in any breach of covenant or default by the
other party hereunder shall operate as a waiver of its rights with respect to
any other breach of default, whether of the same or any other covenant or
condition, nor shall the acceptance of rent by Landlord at any time constitute a
waiver of any rights of Landlord hereunder.
ARTICLE 22. QUIET ENJOYMENT.
Landlord hereby warrants that on or before the Commencement Date it will
have a good and marketable fee simple estate in the Property and the Premises
and full right and authority to lease the Premises in accordance with the terms
hereof. Landlord covenants and agrees that in the event Tenant shall perform
all covenants and agreements herein stipulated to be performed on Tenant's part"
Tenant shall at all times have the peaceable and quiet enjoyment and possession
of the Premises and easement rights herein granted with respect to the Property,
without any manner of let or hindrance from Landlord or any other person or
persons claiming rights by or through Landlord. Landlord further warrants that
the execution of this Lease, compliance with the terms hereof and occupation of
the Premises and the Property by Tenant will not conflict with, constitute or
cause a breach or default under the terms of any agreement or instrument to
which Landlord is a party.
A breach of this Article by Landlord shall entitle Tenant to all available
equitable relief as well as any and all remedies at law and Landlord shall
indemnify Tenant from and against all damages, expense and costs arising out of
or resulting from a breach of this Article.
Upon written request from Tenant, Landlord shall provide Tenant with
evidence of Landlord's title to the Premises and the Property. Such title 3nay
be evidenced by a photocopy of an existing policy of title insurance issued by a
recognized title insurance company.
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ARTICLE 23. RECORDING.
This Lease shall not be recorded, but at any time upon the request of
either party hereto, the other party shall join in the execution of a recordable
memorandum or so-called "short form" of this Lease for the purpose of public
recordation. Said memorandum or short form of this Lease shall describe the
parties, the Premises, the Property, the lease term and all options to extend or
renew hereunder, any exclusive use provisions and shall incorporate this Lease
by reference only, shall be in recordable form and may be recorded by either
party at the cost and expense of the party requesting such recording.
ARTICLE 24. ACCEPTANCE OF LEASE.
This instrument shall me undertakings between the parties hereto with
respect to the premises and constitute the entire Lease Agreement unless
otherwise hereafter modified by both parties in writing.
ARTICLE 25. NOTICE.
Any notice or consent required to be given by or on behalf of either party
to the other shall be in writing and given by mailing such notice or consent by
certified mail, return receipt requested, or by overnight courier, addressed to
the other party as follows:
(a) If to Landlord:
Carol A. Haas, Trustee
c/o Gerdenich & Co.
5415 Monroe Street
Toledo, Ohio 43623
Attn: James Ostrowski, President
(b) If to Tenant:
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P. O. Box 202
Perrysburg, Ohio 43552
Attn: Jerome Bechstein
or at such other addresses as may be specified from time to time in writing by
either party. Mailed notices shall be deemed effective three (3) business days
after mailing and notices by overnight courier shall be deemed effective on the
date delivery is requested by the sending party.
ARTICLE 26. TAX.
Landlord will pay all general real estate taxes and assessments for
betterments or improvements which may be levied or assessed by any lawful
authority against the Property and the Premises. Commencing with the date
Tenant shall open its Premises for business and during the term of this Lease
for each full calendar year and proportionately for any part of a calendar year,
Tenant agrees to reimburse Landlord as set forth below for any such real estate
taxes and assessments levied or assessed against the Property and Premises, on a
due and payable basis. Landlord shall make demand for reimbursement from
Tenant, and each such demand shall be accompanied by a copy of the receipted tax
statements for the taxes for which reimbursement is requested. Tenant shall pay
to Landlord, within thirty (30) days following its receipt of Landlord's
statement, the amount shown as due thereon.
ARTICLE 27. TRANSFER OF LANDLORD'S INTEREST.
No transfer or sale of Landlord's interest hereunder shall be binding upon
Tenant until Tenant has received a photocopy of the original instrument
assigning or transferring Landlord's interest in this Lease provided, however,
this provision shall not be applicable to any such transfer as security for any
loans made to Landlord.
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ARTICLE 28. RIGHT OF FIRST REFUSAL.
If the Landlord desires to sell the Premises during the term of this Lease
or extension hereof and prior to the Tenant exercising its option to purchase
hereunder, Landlord shall give Tenant ten (10) days prior written notice of the
terms and conditions of an offer to purchase the Premises that Landlord is
willing to accept, then Tenant shall have a right of first refusal for the
aforesaid ten-day period to match the terms and conditions of the aforesaid
acceptable offer by entering into an agreement for the sale of the Premises with
the Landlord. If Tenant fails to enter into an agreement for sale of the
Premises with the Landlord during said ten-day period, then Landlord may sell
same to a third party on the aforesaid terms and conditions.
ARTICLE 29. PUBLIC LIABILITY INSURANCE.
Tenant shall, after accepting possession of the Premises and thereafter
during the entire term hereof, keep in full force and effect a policy of
comprehensive general liability insurance coverage and property damage insurance
with respect to claims arising from the use and occupancy of the Property and
Premises by Tenant, under which the limits of public liability shall not be less
than Two Million Dollars ($2,000,000.00) combined single limit per occurrence or
the equivalent thereof. Such policy shall provide that not less than thirty
(30) days written notice be given to Landlord in advance of the effective date
of cancellation, non-renewal or material change in such policy. A certificate
reflecting such insurance coverage and designating Landlord as insured
thereunder shall be delivered to Landlord upon request therefor.
The policy required by this Article 28 shall provide coverage on an
occurrence basis and shall include products and completed operations coverage.
Additionally, the parties agree to periodically increase the limits of such
policy as prudent, good business judgment would dictate.
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ARTICLE 30. ASSIGNMENT AND SUBLETTING.
Tenant shall have the right, without Landlord's consent, to assign this
Lease or sublet the Premises: (i) to the parent or a subsidiary of Tenant; (ii)
to a subsidiary or affiliate of Tenant's parent; or (iii) to any entity with
which Tenant or Tenant's parent may merge or consolidate. Additionally, Tenant
shall have the right, without Landlord's consent, to assign this Lease or sublet
the Premises at any time for use as a bank. In ail of the foregoing instances,
Tenant shall remain liable for all performance of all terms, covenants and
conditions of this Lease.
In the event that Tenant desires to assign this Lease or sublet the
Premises for use other than the operation of a bank, such primary use (i) shall
not be demeaning to the Property and/or the Premises; and (ii) Tenant shall
notify Landlord in writing of its intention to assign this Lease or sublet the
Premises, stating the entity to which it desires to assign or sublet and
reflecting the proposed use for the Premises. Landlord shall approve such
requested assignment or subletting with the understanding that Tenant will
remain liable for the Tenant's performance of the terms, covenants, and
conditions contained in this Lease.
ARTICLE 31. ESTOPPEL CERTIFICATES.
Landlord and Tenant agree, within fifteen (15) days of receipt of written
request therefor, to execute, acknowledge and deliver to either party requesting
such, a statement confirming the status of the Lease and confirming certain
facto with respect thereto, provided such information and facto are true and
readily ascertainable.
ARTICLE 32. FORCE MAJEURE.
If either party shall be delayed or prevented from the performance of any
act required by this Lease by reason of strikes, utility failure, restrictive
laws, riot, acts of God or other similar reasons
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not the fault of the non-performing party, then the performance time for such
act shall be extended for a period equivalent to the period of such delay but
not longer, than fifteen (15) days. The provisions of this Article shall not
operate to excuse Tenant from prompt payment of rent or other charges hereunder.
ARTICLE 33. TIME OF THE ESSENCE.
Time is of the essence in the performance of each and every one of the
terms, covenants, conditions and obligations of this Lease.
ARTICLE 34. LIMITATION OF LANDLORD'S LIABILITY.
Anything in this Lease to the contrary notwithstanding, Tenant agrees that
it shall look solely to the estate, property and interest of the Landlord in
this Lease and the land, improvements and buildings (including but not limited
to the Premises) comprising the Property and the Premises for the satisfaction
of any judgment requiring the payment of money by Landlord or in the event of
any default or breach by Landlord, and no other property or assets of Landlord
or the owners of Landlord shall be subject to levy, execution or other
procedures for the satisfaction of Tenant's remedies.
ARTICLE 35. USE.
Provided Landlord fulfills all of the conditions precedent to the
commencement of this Lease, Tenant agrees to initially open the Premises as a
bank, and operate as such during the initial term of this Lease and any renewal
hereof.
ARTICLE 36. RENTAL TAXES.
Should any governmental taxing authority levy, assess, or impose any tax,
excise or assessment (other than income or franchise tax) upon or against the
rentals payable by Tenant to Landlord, either by way of substitution for or in
addition to any existing tax on land, buildings or
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otherwise, Tenant shall be responsible for and shall pay any such tax, excise or
assessment, or shall reimburse Landlord for the amount hereof, as the case may
be.
ARTICLE 37. LATE CHARGE.
Any monthly installment of rent not received by Landlord within ten (10)
days from the due date shall be subject to a penalty of five percent (5%) of the
monthly rent until paid. Landlord shall not be required more than two (2) times
in any Lease Year to give Tenant written notice of default for failure to pay
Fixed Rent, as provided in Article 14.
ARTICLE 38. CONDITIONS PRECEDENT TO LANDLORD'S OBLIGATIONS.
Notwithstanding anything else in this Lease to the contrary, Landlord's
obligations under this Lease shall be contingent on the following conditions
precedent, and Landlord may unilaterally terminate this Lease upon Landlord's
inability to accomplish any of the following conditions:
(a) Landlord's acquisition of the Property described on Exhibit A;
(b) Tenant obtaining all necessary permits to engage in the construction
of the Premises as identified in this Lease;
(c) Landlord securing adequate financing to build the Premises and acquire
the Property;
(d) Landlord obtaining a Phase I Environmental Report on the Property,
satisfactory to Landlord, its lender, and the Tenant.
ARTICLE 39. RISK OF LOSS FOR PERSONAL PROPERTY OR BUSINESS.
Anything to the contrary herein notwithstanding, all Property of the Tenant
of any kind or description whatsoever in the Premises shall be at Tenant's sole
risk and Landlord shall not be liable for any damage done to or loss of such
property, or damage or loss suffered by the business of the
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Tenant arising from any acts or neglect of Landlord, Landlord's agents,
independent contractor, or from the bursting, overflowing, or leaking of water,
sewer, or electric wires, fire, theft, or from gas or odors, caused in any other
manner whatsoever not limited by the foregoing, except in the case of willful
acts on the part of the Landlord.
IN WITNESS WHEREOF, the parties hereto have set their hands to multiple
copies hereof as of the date first above written.
IN THE PRESENCE OF:
/s/ Carol A. Mockensturm Haas
- ----------------------------------- --------------------------------------
Carol A. Mockensturm Haas, Trustee
- ----------------------------------- "Landlord"
Towne Bancorp, Inc.
By: /s/ Jerome Bechstein
- ----------------------------------- -----------------------------------
Jerome Bechstein, President
By: /s/ Lois A. Brigham
- ----------------------------------- -----------------------------------
Lois A. Brigham, Vice President
"Tenant"
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L E A S E
By and Between
Carol A. Mockensturm Haas, Trustee
(Landlord)
and
Towne Bancorp, Inc.
(Tenant)
PREMISES: Sylvania, Ohio
08/27/96
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE NO.
1 PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 PARKING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4 CONSTRUCTION OF PREMISES AND POSSESSION. . . . . . . . . . . . . . . 3
5 RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6 OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7 UTILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8 TENANT'S REPAIRS . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9 CONFORMITY WITH LAW. . . . . . . . . . . . . . . . . . . . . . . . . 8
10 TENANT'S FIXTURES AND SIGNS. . . . . . . . . . . . . . . . . . . . . 9
11 ALTERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
12 SURRENDER OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . .11
13 ACCESS BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . .11
14 LANDLORD'S REMEDIES UPON DEFAULT . . . . . . . . . . . . . . . . . .12
15 DEMAND FOR RENT. . . . . . . . . . . . . . . . . . . . . . . . . . .14
16 DAMAGE BY FIRE OR CASUALTY . . . . . . . . . . . . . . . . . . . . .14
17 SUBORDINATION OF LEASE . . . . . . . . . . . . . . . . . . . . . . .16
18 HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
19 WAIVER OF SUBROGATION. . . . . . . . . . . . . . . . . . . . . . . .17
20 EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . .18
21 NON-WAIVER OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . .20
22 QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . .20
23 RECORDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
24 ACCEPTANCE OF LEASE. . . . . . . . . . . . . . . . . . . . . . . . .21
25 NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
26 TAX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
27 TRANSFER OF LANDLORD'S INTEREST. . . . . . . . . . . . . . . . . . .23
28 RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . . . .23
29 PUBLIC LIABILITY INSURANCE . . . . . . . . . . . . . . . . . . . . .24
30 ASSIGNMENT AND SUBLETTING. . . . . . . . . . . . . . . . . . . . . .25
31 ESTOPPEL CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . .26
32 FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . . .26
33 TIME OF THE ESSENCE. . . . . . . . . . . . . . . . . . . . . . . . .26
34 LIMITATION OF LANDLORD'S LIABILITY . . . . . . . . . . . . . . . . .27
35 USE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
36 RENTAL TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
37 LATE CHARGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
38 CONDITIONS PRECEDENT TO LANDLORD'S OBLIGATIONS . . . . . . . . . . .28
39 RISK OF LOSS FOR PERSONAL PROPERTY OR BUSINESS . . . . . . . . . . .28
<PAGE>
THIS LEASE
Made in Sylvania, Ohio this day of August, 1996, by and between
Carol A. Mockensturm Haas, Trustee, of 3333 E. Florida Avenue, House 102,
Denver, Colorado 80210 (hereinafter called "Landlord"), and Towne Bancorp, Inc.,
610 E. South Boundary Street, Perrysburg, Ohio 43551 (hereinafter called
"Tenant").
WITNESSETH:
ARTICLE 1. PREMISES.
Landlord does hereby let and lease unto Tenant premises situated in the
City of Sylvania, County of Lucas, and State of Ohio, and known and described as
follows, to wit:
A certain free-standing, one story bank building (hereinafter
known as "Premises"). A legal description of the real property
upon which the Premises are located (hereinafter known as the
"Property") is described as Lot I of the Village at River
Crossings, a Subdivision in the City of Sylvania, Lucas County,
Ohio, a/k/a 6401 Monroe Street.
The Premises shall have approximately 7,000 square feet of interior space
as outlined in red on the plot plan of the Property attached hereto as Exhibit
"All and made a part hereof for the purpose of more specifically locating the
Premises.
In determining the square footage of the Premises, measurements shall be
from the center of all common walls and the outside of all exterior walls.
ARTICLE 2. PARKING.
Tenant and Tenant's visitors, customers, agents and employees shall have
the exclusive right, without charge, to use all sidewalks, driveways, service
areas, and parking spaces on the Property or made available for the use thereof
together with the right to use and enjoy any appurtenances
<PAGE>
thereto, now or hereafter in existence. Tenant shall keep all sidewalks,
driveways, service areas, and parking spaces open and accessible at all times,
except for temporary closing for repairs and maintenance. Tenant shall comply
with the minimum parking requirements of the municipality.
ARTICLE 3. TERM.
The term of this Lease shall commence on the Commencement Date of September
1, 1996 and terminate on the last day of the twentieth (20th) consecutive Lease
Year (as hereinafter defined) thereafter unless sooner terminated as provided
herein.
The term "Lease-Year" as used herein shall mean a period of twelve (12)
consecutive full calendar months. The first Lease Year shall begin on the
Commencement Date if the Commencement Date shall occur on the first day of a
calendar month; if not, then the first Lease Year shall commence upon the first
day of the calendar month next following the Commencement Date and shall include
the period between the Commencement Date and the first day of the next following
calendar month. References herein to the term of this Lease shall include all
extended terms unless limited specifically or by context to the initial term.
ARTICLE 4. CONSTRUCTION OF PREMISES AND POSSESSION.
Landlord represents and warrants it has no knowledge of any present or
previous use of the Premises or the Property, or the presence therein or
thereupon of any substance or material which might be construed as creating an
environmental hazard, including but not limited to, the deposit, storage, and/or
disposal of hazardous wastes or substances.
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Tenant shall be responsible for obtaining any required occupancy permit for
the Premises as a condition precedent to the commencement of the term of this
Lease and Tenant's obligations hereunder.
ARTICLE 5. RENT.
(a) Tenant hereby covenants and agrees to pay Landlord as Fixed Rent
for the Premises during the term of this Lease the sum of Twelve Thousand
Dollars ($12,000.00) per month during Lease Years 1 through 3; the sum of
Thirteen Thousand, One Hundred Seven and 26/100 Dollars ($13,107.26) per month
during Lease Years 4 through 5, plus any increases in the Landlord's mortgage
payment; and for Lease Years 6 through 20, the rent shall be the monthly rental
of Lease Years 4 through 5, plus any increases in the Landlord's mortgage
payment and also shall be increased by the CPI adjustment, not to exceed ten
percent (10%), every five (5) years, beginning in Lease Year 6. The month of
August in the year 1996 would be the base month and year for the CPI increase
for Lease Years 6 through 10. The month of August in the year 2001 would be the
base month and year for the CPI increase for Lease Years 11 through 15. The
month of August in the year 2006 would be the base month and year for the CPI
increase for Lease Years 16 through 20. The CPI used to calculate any CPI
adjustments under this Lease would be the Consumer Price Index (CPI) US Cities
Average, CPI-W, 1982-84 base. Each monthly rental payment is payable in advance
upon the first day of every calendar month during said term. Fixed Rent shall
be prorated for any fraction of a month. Until further notice from Landlord to
Tenant, rent checks shall be payable and mailed to Landlord at:
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Carol A. Mockensturm Haas, Trustee
c/o Gerdenich & Co.
5415 Monroe Street
Toledo, Ohio 43623
Attn: James Ostrowski, President
(b) As additional rent, Tenant will also pay Landlord at the end of
each Lease Year the sum of Thirty-Four Thousand Dollars ($34,000.00) in the form
of cash or common stock of Towne Bancorp, Inc. The number of common stock
shares to be issued and delivered by Tenant to Landlord would be based upon the
price of the stock offered to the public at the beginning of the first five-year
period of this Lease. During the last three (3) five-year periods of this
Lease, the number of common stock shares to be issued and delivered to Tenant by
Landlord would be based upon the price of the stock offered to the public at the
beginning of the sixth, eleventh, and sixteenth year(s) of this Lease.
ARTICLE 6. OPTIONS.
(a) Tenant shall have right to extend the term of this Lease for two
(2) additional consecutive periods of five (5) years each, upon the same terms
and conditions, except Fixed Rent, as provided in the original term of this
Lease, upon the condition that Tenant notifies Landlord in writing of its
intention to extend at least one hundred eighty (180) days prior to the date of
commencement of each such extension term and thereupon, this Lease shall be so
extended without the execution of any further document. Fixed Rent during each
of the five-year option periods shall be the monthly rent paid during the
twentieth (20th) year of the Lease, plus CPI increase not to exceed ten percent
(10%) for the first five-year option period, and ten percent (10%) CPI increase
for the second five-year option period. The month of August in the year 2011
would be the base
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month and year for the CPI increase for the Lease Years 21 through 25 (first
option period), and the month of August in the year 2016 would be the base month
and year for the Lease Years 26 through 30 (second option period).
In addition to the Fixed Rent, Tenant will also pay Landlord at the end of
each Lease Year the sum of Thirty-Four Thousand Dollars ($34,000.00) in cash or
in the form of common stock of the Towne Bancorp, Inc. The number of common
stock shares to be issued and delivered by Tenant to Landlord would be based
upon the price of the stock offered to the public at the beginning of each of
the two (2) five-year option periods of this Lease, i.e. year 2011 and year
2016.
(b) Provided that Tenant has fully complied with the terms and
conditions of this Lease, Tenant is hereby given an option to purchase the
Premises and Property at the end of every five-year period of this Lease by
giving written notice to the Landlord of the exercise of its option to purchase
at least one hundred twenty (120) days prior to the expiration of the respective
five-year periods. The purchase price would be One Million Five Hundred
Thousand Dollars ($1,500,000.00) plus appreciation of two percent (2%) per year
or the sum of One Million, Six Hundred and Fifty-Six Thousand Dollars
($1,656,000.00), plus deferred rent of Seven Thousand, Nine Hundred Seventy-Two
Dollars ($7,972.00), after the first five-year period; the sum of One Million,
Eight Hundred Twenty-Eight Thousand, Four Hundred Ninety-Two Dollars
($1,828,492.00) after the end of the second five-year period; the sum of Two
Million, Eighteen Thousand, Eight Hundred Three Dollars ($2,018,803.00) after
the end of the third five-year period; and the sum of Two Million, Two Hundred
Twenty-Eight Thousand, Nine Hundred Twenty-Two Dollars ($2,228,922.00) after the
end of the fourth five-year period.
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In the event that Landlord's mortgage rate interest at any time during the
Lease term is in excess of twelve percent (12%), Tenant shall have the right to
exercise their option to purchase the Property and Premises based on the
valuation formula as set forth above, plus any unpaid deferred rent of Three
Hundred Twenty-Three and 68/100 Dollars ($323.68) per month effective in Lease
Years 4 through 10, and if this purchase takes place between Lease Years 6-10,
the Purchaser shall be given credit towards the purchase price of one-third
(1/3) of the principal reduction in the loan.
In the event Tenant exercises its option to purchase after ten (10) years
of occupancy by Tenant, Landlord will give Tenant a credit on the purchase price
for one-half (1/2) of the loan equity, up to a maximum of One Hundred Thousand
Dollars ($100,000.00), based on the original loan amount of One Million, One
Hundred Twenty-Five Thousand Dollars ($1,125,000.00) and amortized over twenty
(20) years at 8 3/4% annual interest rate, subject to any interest rate
fluctuations under the loan agreement.
In the event of the exercise by the Tenant of this option to purchase the
Premises and the Property, Landlord shall furnish Tenant with a preliminary
letter for a guaranteed certificate of title for the Property issued by Port
Lawrence Title & Trust Company. The Tenant shall purchase any additional
evidence of title, such as title insurance, at Tenant's cost. Said preliminary
letter shall show good and merchantable title of record in the Landlord, subject
to easements and restrictions of record and mortgage(s) to be discharged at
closing.
ARTICLE 7. UTILITIES.
Tenant shall pay when due, all bills for gas, water, electricity and other
utilities supplied to the Premises after the date Tenant accepts possession of
the Premises and until expiration of the
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term. Tenant, at its own expense, shall install separate meters for the
utilities used in the Premises in compliance with the outlined specifications
and requirements of the utility supplier.
ARTICLE 8. TENANT'S REPAIRS.
Tenant agrees to keep and maintain (including repair and/or replacement
when necessary) the interior and exterior of the Premises, including doors and
windows in good condition and repair, and Tenant shall maintain, repair and make
replacements to the heating, ventilating, air conditioning, plumbing, gas,
electrical and other similar units and systems within or exclusively serving the
Premises, as well as roof, parking lot, and driveways. Tenant shall be required
to make structural repairs. Tenant shall provide rubbish removal from the
Premises and for removal of all rubbish from the Property which is generated by
or from the Premises. The parties hereto understand that this Lease is a triple
net lease with the Tenant paying for all taxes and assessments on the Property,
insurance and maintenance costs as aforesaid, including the building structure
and roof.
ARTICLE 9. CONFORMITY WITH LAW.
Tenant will use and occupy the Premises and appurtenances in a careful,
safe and proper manner and comply with the valid requirements of the proper
public officials regarding the manner in which Tenant conducts its business.
Tenant will not use the Premises for any unlawful purpose nor commit or suffer
waste thereon. To the extent of Landlord's control thereof, Landlord warrants
that the Premises are in conformity with applicable building and zoning codes
and other laws, ordinances and regulations of any authority having jurisdiction.
Tenant shall at its own risk and expense remove and dispose of any hazardous or
toxic material or underground storage tank present
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in or on the Premises or the Property. Landlord shall not grant any occupancy
rights in the sidewalk space in front of the Premises or in the parking or other
areas of the Property without Tenant's consent.
If at any time during the term of this Lease or any extension thereof, any
governmental agency or other authority having jurisdiction requires repairs,
alterations, additions or remedial action to the Premises or to the systems
serving the Premises and the same is brought about by reasons involving the
bank, or other business conducted by Tenant, or involving Tenant's manner of use
of the Premises or Property, all consequential actions shall be at Tenant's sole
cost and expense.
ARTICLE 10. TENANT'S FIXTURES AND SIGNS.
Tenant may install, operate and maintain in or on the Premises, machinery
and any other mechanical equipment, pipes, conduits, ducts and communication
antennas as required and in so doing shall comply with all lawful requirements.
Any roof penetration shall require the prior consent of Landlord. Tenant shall,
at all times, have the right to remove all fixtures, machinery, equipment,
appurtenances or other property furnished or installed by Tenant, it being
expressly understood and agreed that said property shall not become part of the
Premises, but shall at all times be and remain the property of Tenant and not
subject to any Landlord's lien. Tenant shall repair all damage caused by its
removal of its property. Landlord waives all rights which it may now or
hereafter have under law or by virtue of this Lease or Tenant's occupancy of the
Premises to levy upon, claim or assert a lien upon or right or title to any or
all of Tenant's personal property now or hereafter installed on
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or located at the Premises, by reason of rentals due hereunder or for any
monetary obligations arising by reason of or default under this Lease.
All exterior signs installed by Tenant shall be at its own cost and expense
and in conformity with the rules and regulations of the local governmental
authorities having jurisdiction, however Landlord agrees, at Tenant's cost and
expense, to cooperate with Tenant in approving, locating, obtaining permits,
erecting and supplying electricity to such sign. No exterior sign shall be
installed without the Landlord's approval as to design, placement and method of
attachment to the Premises, which approval shall not be unreasonably withheld or
delayed.
ARTICLE 11. ALTERATIONS.
Tenant may at its own cost and expense make changes and alterations to the
interior of the Premises but shall obtain Landlord's consent, which consent
shall not be reasonably withheld, before making any changes to the building
structure. In the event Tenant has not received written objections from
Landlord within thirty (30) days after submission of Tenant's written request
for its consent, Landlord, not so responding within said thirty (30)
day period, shall be deemed to have consented thereto. If requested by Tenant,
Landlord, at Tenant's cost and expense, shall cooperate in securing necessary
permits and authority. Tenant shall not permit any mechanics' or other liens to
stand against the Premises or Property for work or material furnished to Tenant
or to the Premises or Property by its contractor, subcontractors, or materialmen
or their respective subs and suppliers.
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ARTICLE 12. SURRENDER OF PREMISES.
Tenant will surrender and deliver possession of the Premises to Landlord
upon the expiration of this Lease or its termination in any way, in good
condition and repair (loss by fire; acts of God; ordinary wear and decay;
casualty; neglect, fault or default of Landlord; taking by eminent domain and
alterations approved by Landlord excepted) and deliver the keys to the office of
Landlord or Landlord's agent. Any property not removed by Tenant upon surrender
or abandonment of the Premises shall be deemed abandoned.
ARTICLE 13. ACCESS BY LANDLORD.
Landlord may have free access to the Premises during business hours for the
purpose of examining same. During the last six (6) months of the term of this
Lease, provided the same shall not interfere with Tenant's business, Landlord
may have access to the Premises for the purposes of exhibiting the Premises.
ARTICLE 14. LANDLORD'S REMEDIES UPON DEFAULT.
(a) In the event Tenant shall at any time fail to make timely payment
of rent or perform any of its obligations under this Lease, and Tenant shall
fail to remedy such failure within fifteen (15) days after receipt of written
notice thereof from Landlord if said failure relates to payment of rent, or
other monetary charges under this Lease, or within thirty (30) days after
receipt of written notice thereof from Landlord if the failure relates to
matters other than payment of rent or other monetary charges under this Lease,
(but Tenant shall not be in default of a matter other than payment of rent or
other monetary charges under this Lease if it commences to remedy same within
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thirty (30) days after such notice and proceeds therewith with due diligence) or
if Tenant shall be adjudged a bankrupt or enter into an arrangement for the
benefit of creditors under any state or federal insolvency law and such
proceedings are not dismissed or terminated within sixty (60) days after the
commencement thereof, then Landlord may declare the terms of this Lease
terminated, enter into possession of the Premises and sue for all rents and
damages accrued under this tease or arising out of any violation hereof, or
Landlord may sue without declaring this Lease void or entering into possession
of the Premises and any recovery of rents shall be on a monthly basis as the
same become due. Notwithstanding the recital of any specific remedies, Landlord
shall likewise have all rights and remedies (except acceleration) to which
Landlord is entitled either in law or equity.
Notwithstanding the notice requirements set forth above, Landlord shall not
be required to provide Tenant with more than two (2) fifteen-day notices during,
any twelve-month period for nonpayment of rent, or other charges payable by
Tenant, before Landlord exercises its immediate rights upon default as set forth
and permitted above.
(b) Notwithstanding any other provisions contained in this Lease, in
the event (i) Tenant or its successors or assignees shall become insolvent or
bankrupt, or if it or their interests under this Lease shall be levied upon or
sold under execution or other legal process, or (ii) the depository institution
then operating on the Premises is closed, or is taken over by any depository
institution supervisory authority ("Authority"), Landlord may, in either such
event, terminate this Lease only with the concurrence of any Receiver or
Liquidator appointed by such Authority; provided, that in the event this Lease
is terminated by the Receiver or Liquidator, the maximum claim of Landlord for
rent, damages, or indemnity for injury resulting from the termination,
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rejection, or abandonment of the unexpired Lease shall by law in no event be in
an amount equal to all accrued and unpaid rent to the date of termination.
ARTICLE 15. DEMAND FOR RENT.
No receipt of monies by Landlord from or on the account of Tenant or from
anyone in possession or occupancy of the Premises after the termination in any
way of this Lease, or after the giving of any notice of termination, shall
reinstate, continue or extend the term of this Lease or affect any notice given
to Tenant prior to the receipt of such money. After service of any notice of
commencement of any suit or final judgment therein, Landlord may receive and
collect any rent due and such collection or receipt shall not operate as a
waiver of, nor affect such notice, suit or judgment.
ARTICLE 16. DAMAGE BY FIRE OR CASUALTY.
During the term of this Lease, Landlord agrees to carry standard form "All
Risk" property insurance (or the insurance industry equivalent), including loss
of rents insurance, on the Property wherein the Premises are situated and all
improvements therein for one hundred percent (100%) of the full replacement
thereof and shall provide Tenant with a certificate of insurance reflecting such
coverage.
Tenant shall reimburse Landlord for the premium for such insurance.
Landlord shall make demand for reimbursement from Tenant for such insurance
premium costs which shall be paid by Tenant within thirty (30) days of its
receipt thereof. Each such demand for reimbursement shall be accompanied by a
copy of the insurance premium invoice for which reimbursement is requested.
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If the Premises or a portion thereof shall be destroyed or injured by any
cause insurable by standard policies of "All Risk" insurance or its equivalent
and such destruction or injury could reasonably be repaired within ninety (90)
days thereafter, Landlord shall with diligence undertake and substantially
complete repairs within ninety (90) days after the happening of such destruction
or injury. If Tenant shall be deprived of the occupancy of any portion of the
Premises due to any destruction or injury but can nevertheless continue to
engage in its regular business, a rental abatement shall be allowed in
proportion to the area rendered untenantable and continuing until the Premises
are restored. No rent shall be payable during any period that Tenant is unable
to engage in its regular business.
If the destruction or injury cannot reasonably be repaired within ninety
(90) days after the happening thereof, Landlord shall notify Tenant within
twenty-one (21) days after the happening of such destruction or injury whether
or not Landlord will repair or rebuild. If Landlord elects not to repair or
rebuild, this Lease shall be terminated. If Landlord shall elect to repair or
rebuild, Landlord shall specify the time within which repairs or reconstruction
will be completed and Tenant shall have the option within twenty-one (21) days
after the receipt of such notice to elect either to terminate this Lease and
further liability thereunder or to extend the term or renewal term of this Lease
by a period of time equivalent to the period from the happening of such
destruction or injury until the Premises are restored to their former condition.
In the event Tenant elects to extend the term of the Lease, Landlord shall
restore the Premises to their former condition within the time specified in the
notice and Tenant shall be entitled to an abatement of rent in the manner
hereinbefore set forth.
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Tenant shall remove the debris and repair and replace the property which
may be removed by it upon surrender of the Premises. Landlord shall remove the
debris and repair and replace the building and the interior of the Premises.
If this Lease is terminated by reason of damage or destruction, Landlord
shall refund all prepaid rentals and unearned charges, pro rated to the date of
such termination.
ARTICLE 17. SUBORDINATION OF LEASE.
Upon the request of Landlord in writing, Tenant shall subordinate this
Lease to the lien of any present or future first mortgage and/or ground lease of
the Premises or any property of which the Premises forms a part, provided that
the holder of any such mortgage and/or ground lease ("Mortgagee") shall enter
into a written agreement with Tenant to the effect that (i) in the event of
foreclosure or other action taken under the mortgage and/or ground lease by
Mortgagee, this Lease and the rights of Tenant hereunder shall not be disturbed
so long as Tenant shall not be in material default hereunder beyond any time
permitted to cure, but shall continue in full force and effect; and (ii) such
Mortgagee shall permit insurance proceeds to be used for any restoration and
repair required by the provisions of this Lease as set forth in Article 16. If
on the date of this Lease there is in existence a mortgage on the Property,
Landlord agrees to obtain from such mortgagee, a written agreement that this
Lease and the right of Tenant hereunder shall not be disturbed so long as Tenant
shall not be in material default hereunder beyond any time permitted to cure.
The word "mortgage" as used herein includes mortgage, deed of trust or other
similar instrument and any modifications, extensions, renewals and replacements
thereof.
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ARTICLE 18. HOLDING OVER.
Except when the term of this Lease is extended pursuant to Article 6
hereof, Tenant's continued occupancy of the Premises after expiration of the
term of this Lease or any renewal or extension thereof or any earlier
termination provided or permitted by this Lease, shall be from month-to-month.
All covenants, provisions, obligations and conditions of this Lease shall remain
in full force and effect during such month-to-month tenancy.
ARTICLE 19. WAIVER OF SUBROGATION.
Landlord and Tenant agree that it is their intention that each shall look
solely to its own resources and/or its own insurance carrier for recovery of any
loss to real and/or personal property. Landlord and Tenant hereby waive all
rights of recovery and causes of action which either has or may have or which
may arise hereafter against the other, whether caused by negligence, intentional
misconduct or otherwise, for any loss, including deductible amounts and/or
self-retained loss levels, caused by any perils coverable by "All Risk" property
insurance (or the insurance industry equivalent), consequential loss, or use and
occupancy types of insurance, or for which either party may be reimbursed as a
result of insurance coverage affecting any loss suffered by it and each party
shall have its respective insurance policies properly endorsed (if necessary) to
prevent any invalidation that might arise as the result of foregoing waivers.
ARTICLE 20. EMINENT DOMAIN.
In the event that the entire Premises shall at any time after execution of
this Lease be taken in public or quasi-public use or condemned under eminent
domain, then this Lease shall terminate
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and expire effective the date of such taking and any prepaid rent or unearned
charges shall be refunded to Tenant. Tenant shall have the right of termination
of this Lease with an appropriate refund of prepaid rent or unearned charges,
if, as a result of such eminent domain proceeding or other governmental or
quasi-public action:
(a) Any portion of the Premises shall be taken and the remaining
portion shall be unsuitable for Tenant's continued business operations,
determined in Tenant's sole business judgments; or (b) The total number of
parking spaces established for the Premises shall be reduced by twenty percent
(20%) or more, or Tenant, its customers, agents, employees and visitors are for
more than thirty (30) days denied reasonable access to the Premises or parking
areas.
Should Tenant elect to remain in the Premises under the circumstances
described in subparagraph (a), then rent shall be reduced for the remainder of
the term thereafter in proportion to the amount of the Premises taken. All
damages awarded in connection with the taking of the Premises whether permitted
as compensation for diminution in value to the leasehold or the fee of the
Premises or for taking of any portion of the Property shall belong to Landlord,
provided, however, if Tenant has made any leasehold improvements to the Premises
or structural changes to the Premises with Landlord's written approval and at
its own expense (regardless of when made), Tenant and not Landlord shall be
entitled to claim an award for unamortized balance of Tenant's cost thereof
amortized over the useful life thereof, not to exceed ten (10) years. In the
event the condemning authority shall not make a separate award therefor,
Landlord shall make a claim therefor on behalf of Tenant and if such claim is
allowed, assign the portion of its award equal to such unamortized cost to
Tenant. In addition, Tenant shall be entitled to claim an award from the
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condemning authority for loss of business, damage to merchandise and fixtures,
removal and reinstallation costs and moving expenses.
ARTICLE 21. NON-WAIVER OF DEFAULT.
No acquiescence by either party in any breach of covenant or default by the
other party hereunder shall operate as a waiver of its rights with respect to
any other breach of default, whether of the same or any other covenant or
condition, nor shall the acceptance of rent by Landlord at any time constitute a
waiver of any rights of Landlord hereunder.
ARTICLE 22. QUIET ENJOYMENT.
Landlord hereby warrants that on or before the Commencement Date it will
have a good and marketable fee simple estate in the Property and the Premises
and full right and authority to lease the Premises in accordance with the terms
hereof. Landlord covenants and agrees that in the event Tenant shall perform
all covenants and agreements herein stipulated to be performed on Tenant's part,
Tenant shall at all times have the peaceable and quiet enjoyment and possession
of the Premises and easement rights herein granted with respect to the Property,
without any manner of let or hindrance from Landlord or any other person or
persons claiming rights by or through Landlord. Landlord further warrants that
the execution of this Lease, compliance with the terms hereof and occupation of
the Premises and the Property by Tenant will not conflict with, constitute or
cause a breach or default under the terms of any agreement or instrument to
which Landlord is a party.
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A breach of this Article by Landlord shall entitle Tenant to all available
equitable relief as well as any and all remedies at law and Landlord shall
indemnify Tenant from and against all damages, expense and costs arising out of
or resulting from a breach of this Article.
Upon written request from Tenant, Landlord shall provide Tenant with
evidence of Landlord's title to the Premises and the Property. Such title may
be evidenced by a photocopy of an existing policy of title insurance issued by a
recognized title insurance company.
ARTICLE 23. RECORDING.
This Lease shall not be recorded, but at any time upon the request of
either party hereto, the other party shall join in the execution of a recordable
memorandum or so-called "short form" of this Lease for the purpose of public
recordation. Said memorandum or short form of this Lease shall describe the
parties, the Premises, the Property, the lease term and all options to extend or
renew hereunder, any exclusive use provisions and shall incorporate this Lease
by reference only, shall be in recordable form and may be recorded by either
party at the cost and expense of the party requesting such recording.
ARTICLE 24. ACCEPTANCE OF LEASE.
This instrument shall merge all undertakings between the parties hereto
with respect to the Premises and constitute the entire Lease Agreement unless
otherwise hereafter modified by both parties in writing.
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ARTICLE 25. NOTICE.
Any notice or consent required to be given by or on behalf of either party
to the other shall be in writing and given by mailing such notice or consent by
certified mail, return receipt requested, or by overnight courier, addressed to
the other party as follows:
(a) If to Landlord:
Carol A. Mockensturm Haas, Trustee
c/o Gerdenich & Co.
5415 Monroe Street
Toledo, Ohio 43623
Attn: James Ostrowski, President
(b) If to Tenant:
610 E. South Boundary Street
Perrysburg, Ohio 43551
Attn: Jerome Bechstein
or at such other addresses. as may be specified from time to time in writing by
either party. Mailed notices shall be deemed effective three (3) business days
after mailing and notices by overnight courier shall be deemed effective on the
date delivery is requested by the sending party.
ARTICLE 26. TAX.
Landlord will pay all general real estate taxes and assessments for
betterments or improvements which may be levied or assessed by any lawful
authority against the Property and the Premises. Commencing with the date
Tenant shall open its Premises for business and during the term of this Lease
for each full calendar year and proportionately for any part of a calendar year,
Tenant agrees to reimburse Landlord as set forth below for any such real estate
taxes and assessments levied or assessed against the Property and Premises, on a
due and payable basis.
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Landlord shall make demand for reimbursement from Tenant, and each such demand
shall be accompanied by a copy of the receipted tax statements for the taxes for
which reimbursement is requested. Tenant shall pay to Landlord, within thirty
(30) days following its receipt of Landlord's statement, the amount shown as due
thereon.
ARTICLE 27. TRANSFER OF LANDLORD'S INTEREST.
No transfer or sale of Landlord's interest hereunder shall be binding upon
Tenant until Tenant has received a photocopy of the original instrument
assigning or transferring Landlord's interest in this Lease provided, however,
this provision shall not be applicable to any such transfer as security for any
loans made to Landlord.
ARTICLE 28. RIGHT OF FIRST REFUSAL.
If the Landlord desires to sell the Premises during the term of this Lease
or extension hereof and prior to the Tenant exercising its option to purchase
hereunder, Landlord shall give Tenant ten (10) days prior written notice of the
terms and conditions of an offer to purchase the Premises that Landlord is
willing to accept, then Tenant shall have a right of first refusal for the
aforesaid ten-day period to match the terms and conditions of the aforesaid
acceptable offer by entering into an agreement for the sale of the Premises with
the Landlord. If Tenant fails to enter into an agreement for sale of the
Premises with the Landlord during said ten-day period, then Landlord may sell
same to a third party on the aforesaid terms and conditions.
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ARTICLE 29. PUBLIC LIABILITY INSURANCE.
Tenant shall, after accepting possession of the Premises and thereafter
during the entire term hereof, keep in full force and effect a policy of
comprehensive general liability insurance coverage and property damage insurance
with respect to claims arising from the use and occupancy of the Property and
Premises by Tenant, under which the limits of public liability shall not be less
than Two Million Dollars ($2,000,000.00) combined single limit per occurrence or
the equivalent thereof. Such policy shall provide that not less than thirty
(30) days written notice be given to Landlord in advance of the effective date
of cancellation, non-renewal or material change in such policy. A certificate
reflecting such insurance coverage and designating Landlord as insured
thereunder shall be delivered to Landlord upon request therefor.
The policy required by this Article 28 shall provide coverage on an
occurrence basis and shall include products and completed operations coverage.
Additionally, the parties agree to periodically increase the limits of such
policy as prudent, good business judgment would dictate.
ARTICLE 30. ASSIGNMENT AND SUBLETTING.
Tenant shall have the right, without Landlord's consent, to assign this
Lease or sublet the Premises: (i) to the parent or a subsidiary of Tenant; (ii)
to a subsidiary or affiliate of Tenant's parent; or (iii) to any entity with
which Tenant or Tenant's parent may merge or consolidate. Additionally, Tenant
shall have the right, without Landlord's consent, to assign this Lease or sublet
the Premises at any time for use as a bank. In all of the foregoing instances,
Tenant shall remain liable for all performance of all terms, covenants and
conditions of this Lease.
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In the event that Tenant desires to assign this Lease or sublet the
Premises for use other than the operation of a bank, such primary use (i) shall
not be demeaning to the Property and/or the Premises; and (ii) Tenant shall
notify Landlord in writing of its intention to assign this Lease or sublet the
Premises, stating the entity to which it desires to assign or sublet and
reflecting the proposed use for the Premises. Landlord shall approve such
requested assignment or subletting with the understanding that Tenant will
remain liable for the Tenant's performance of the terms, covenants, and
conditions contained in this Lease.
ARTICLE 31. ASSIGNMENT AND SUBLETTING.
Landlord and Tenant agree, within fifteen (15) days of receipt of written
request therefor, to execute, acknowledge and deliver to either party requesting
such, a statement confirming the status of the Lease and confirming certain
facts with respect thereto, provided such information and facts are true and
readily ascertainable.
ARTICLE 32. FORCE MAJEURE.
If either party shall be delayed or prevented from the performance of any
act required by this Lease by reason of strikes, utility failure, restrictive
laws, riot, acts of God or other similar reasons not the fault of the
non-performing party, then the performance time for such act shall be extended
for a period equivalent to the period of such delay but not longer than fifteen
(15) days. The provisions of this Article shall not operate to excuse Tenant
from prompt payment of rent or other charges hereunder.
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<PAGE>
ARTICLE 33. TIME OF THE ESSENCE.
Time is of the essence in the performance of each and every one of the
terms, covenants, conditions and obligations of this Lease.
ARTICLE 34. LIMITATION OF LANDLORD'S LIABILITY.
Anything in this Lease to the contrary notwithstanding, Tenant agrees that
it shall look solely to the estate, property and interest of the Landlord in
this Lease and the land, improvements and buildings (including but not limited
to the Premises) comprising the Property and the Premises for the satisfaction
of any judgment requiring the payment of money by Landlord or in the event of
any default or breach by Landlord, and no other property or assets of Landlord
or the owners of Landlord shall be subject to levy, execution or other
procedures for the. satisfaction of Tenant's remedies.
ARTICLE 35. USE.
Provided Landlord fulfills all of the conditions precedent to the
commencement of this Lease, Tenant agrees to initially open the Premises as a
bank, and operate as such during the initial term of this Lease and any renewal
hereof.
ARTICLE 36. RENTAL TAXES.
Should any governmental taxing authority levy, assess, or impose any tax,
excise or assessment (other than income or franchise tax) upon or against the
rentals payable by Tenant to Landlord, either by way of substitution for or in
addition to any existing tax on land, buildings or
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otherwise, Tenant shall be responsible for and shall pay any such tax, excise or
Assessment, or shall reimburse Landlord for the amount hereof, as the case may
be.
ARTICLE 37. LATE CHARGE.
Any monthly installment of rent not received by Landlord within ten (10)
days from the due date shall be subject to a penalty of five percent (5%) of the
monthly rent until paid. Landlord shall not be required more than two (2) times
in any Lease Year to give Tenant written notice of default for failure to pay
Fixed Rent, as provided in Article 14.
ARTICLE 38. CONDITIONS PRECEDENT TO LANDLORD'S OBLIGATIONS.
Notwithstanding anything else in this Lease to the contrary, Landlord's
obligations under this Lease shall be contingent on the following conditions
precedent, and Landlord may unilaterally terminate this Lease upon Landlord's
inability to accomplish any of the following conditions:
(a) Landlord securing adequate financing to acquire the Property;
(b) Landlord obtaining a Phase I Environmental Report on the
Property, satisfactory to Landlord, its lender, and the Tenant.
ARTICLE 39. RISK OF LOSS FOR PERSONAL PROPERTY OR BUSINESS.
Anything to the contrary herein notwithstanding, all Property of the Tenant
of any kind or description whatsoever in the Premises shall be at Tenant's sole
risk and Landlord shall not be liable for any damage done to or loss of such
property, or damage or loss suffered by the business of the Tenant arising from
any acts or neglect of Landlord, Landlord's agents, independent contractor, or
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from the bursting, overflowing, or leaking of water, sewer, or electric wires,
fire, theft, or from gas or odors, caused in any other manner whatsoever not
limited by the foregoing, except in the case of willful acts on the part of the
Landlord.
IN WITNESS WHEREOF, the parties hereto have set their hands to multiple
copies hereof as of the date first above written.
IN THE PRESENCE OF:
/s/ CAROL A. MOCKENSTURM HAAS, TRUSTEE
- ---------------------- -----------------------------------------------
Karen E. Thomasson Carol A. Mockensturm Haas, Trustee
- ---------------------- "Landlord"
James B. Bauer
Towne Bancorp, Inc.
By: /s/ JEROME BECHSTEIN
- --------------------- --------------------------------------------
Richard N. Sands Jerome Bechstein, President
- ---------------------
James J. Ostrowski
By: /s/ LOIS A. BRIGHAM
--------------------------------------------
Lois A. Brigham, Vice President
"Tenant"
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<PAGE>
STATE OF COLORADO )
) SS:
COUNTY OF DENVER )
BEFORE ME, a Notary Public in and for said county and state personally
appeared Carol A. Mockensturm Haas, Trustee, to me known to be the person who
executed the within and foregoing instrument, who acknowledged that she did
execute such instrument as Trustee and that the game is her free and voluntary
act and deed for the uses and purposes therein set forth.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
_______ , ________ this _______ day of ____________ , 1996.
------------------------------------
Notary Public
STATE OF OHIO )
) SS:
COUNTY OF LUCAS )
BEFORE ME, a Notary Public in and for said county and state appeared Jerome
Bechstein and Lois Brigham, to me personally known who, being by me sworn, did
say the they are the President and Vice President, respectively, of Towne
Bancorp, Inc., the corporation named in and which executed the within
instrument; that said instrument was signed on behalf. of said corporation by
authority of its Board of Directors; and that said instrument is their free act
and deed of said corporation, Towne Bancorp, Inc.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
_______ , Ohio, this ________ day of _________ , 1996.
------------------------------------
Notary Public
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EXHIBIT "A"
PLOT PLAN
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<PAGE>
CONSENT OF CLIFTON GUNDERSON LTD.
The Board of Directors
Towne Bancorp, Inc.
Perrysburg, Ohio
We have issued our report dated February 13, 1997, except as to Note 17, which
is as of May 6, 1997 and the first paragraph of Note 12, which is as of November
12, 1997, accompanying the financial statements of Towne Bancorp, Inc. contained
in Form S-2 Towne Bancorp, Inc. to be filed with the Securities and Exchange
Commission on or about January 5, 1998. We consent to the use of the
aforementioned report in the Registration Statement Form S-2 and Prospectus, and
to the reference to our firm under the caption "EXPERTS".
Toledo, Ohio
January 5, 1998 /s/ Clifton Gunderson LTD.
398199
<PAGE>
POWER OF ATTORNEY
Each of the undersigned officers and/or directors of Towne Bancorp, Inc.,
an Ohio corporation (the "Company"), hereby appoints Jerome C. Bechstein as his
or her true and lawful attorney-in-fact, in his or her name and on his or her
behalf, and in any and all capacities stated below, to sign and to cause to be
filed with the Securities and Exchange Commission the Company's Registration
Statement on Form S-2 (the "Registration Statement") to register under the
Securities Act of 1933, as amended, 370,761 shares of common stock, without par
value, and any and all amendments, including post-effective amendments, to the
Registration Statement, hereby granting unto such attorney-in-fact, full power
and authority to do and perform in the name and on behalf of the undersigned, in
any and all such capacities, every act and thing whatsoever necessary to be done
in and about the premises as fully as the undersigned could or might do in
person, hereby granting to such attorney-in-fact full power of substitution and
revocation, and hereby ratifying all that any such attorney-in-fact or his
substitute may do 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 and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Jerome C. Bechstein Chief Executive Officer, President December 12, 1997
- ----------------------- and Director (Principal Executive
Jerome C. Bechstein Officer and Chief Accounting
Officer)
/s/ Lois Brigham Senior Vice President, Secretary December 12, 1997
- ----------------------- and Director
Lois Brigham
/s/ John Wienert Director December 12, 1997
- -----------------------
John Weinert
