<PAGE> 1
As filed with the Securities and Exchange Commission on , 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
FIRST CITIZENS BANC CORP
(Exact name of Registrant as specified in its charter)
------------------------
<TABLE>
<S> <C> <C>
OHIO 6022 34-1558688
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code No.) Identification No.)
incorporation or
organization)
</TABLE>
100 East Water Street, Sandusky, Ohio 44870
(419) 625-4121
(Address, including zip code and telephone number, including area code,
of Registrant's principal executive offices)
------------------------
David A. Voight
100 East Water Street
Sandusky, Ohio 44870
(419) 625-4121
(Name, address, including zip code
& telephone number, including
area code of agent for service)
Copies to:
<TABLE>
<S> <C>
M. Patricia Oliver, Esq. Dean S. Lucal, Esq.
Squire, Sanders & Dempsey L.L.P. Lucal & McGookey
4900 Key Tower, 127 Public Square 502 West Washington Street
Cleveland, Ohio 44114-1304 Sandusky, Ohio 44870
</TABLE>
------------------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================
Proposed Proposed Maximum
Title of Each Class Maximum Offering Aggregate Amount of
of Securities to be Amount to be Price Per Offering Registration
Registered Registered Unit(2) Price(2) Fee
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<S> <C> <C> <C> <C>
Common Stock.................. 1,212,000 $13.16 $15,954,000 $4,706.43
========================================================================================================
</TABLE>
(1) Based upon the maximum number of shares to be issued in connection with the
acquisition of The Farmers State Bank of New Washington, Ohio.
(2) Amount arrived at pursuant to Rule 457(f)(2) based on the book value of the
acquired company at September, 30, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEMS OF PART I, FORM S-4 HEADING IN PROXY STATEMENT/PROSPECTUS
------------------------- -----------------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Forepart of Registration Statement and Outside Front Cover
Statement and Outside Page of Prospectus
Front Cover Page of
Prospectus
2. Inside Front and Outside Inside Front Cover and Outside Back Cover Pages of
Back Cover Pages of Prospectus; "AVAILABLE INFORMATION"
Prospectus
3. Risk Factors, Ratio of "SUMMARY"; "INFORMATION WITH RESPECT TO FIRST
Earnings to Fixed Charges CITIZENS -- "Business", "Security Ownership of Management",
and Other Information "Supplementary Financial Information" and "Information
Incorporated by Reference"; "INFORMATION WITH RESPECT TO
FARMERS -- Business" and "Security Ownership of Management
and Certain Beneficial Owners"; "PROPOSED MERGER"; "PRO
FORMA SELECTED FINANCIAL INFORMATION"; "PRO FORMA FINANCIAL
INFORMATION"; "COMPARATIVE PER SHARE DATA"; "COMPARATIVE
MARKET VALUE DATA"; "INDEX TO FINANCIAL INFORMATION"
4. Terms of the Transaction "PROPOSED MERGER"; "DESCRIPTION OF FIRST CITIZENS COMMON
SHARES"; "COMPARATIVE RIGHTS OF FARMERS' SHAREHOLDERS"
5. Pro Forma Financial "PRO FORMA SELECTED FINANCIAL INFORMATION"; "PRO FORMA
Information FINANCIAL INFORMATION"
6. Material Contacts with Not Applicable
the Company Being
Acquired
7. Additional Information Not Applicable
Required for Reoffering
by Persons and Parties
Deemed to be Underwriters
8. Interests of Named "EXPERTS"; "LEGAL OPINIONS"
Experts and Counsel
9. Disclosure of Commission "INDEMNIFICATION"
Position on
Indemnification for
Securities Act
Liabilities
10. Information with Respect "INFORMATION WITH RESPECT TO FIRST CITIZENS"
to S-3 Registrants
11. Incorporation of Certain "INFORMATION WITH RESPECT TO FIRST CITIZENS"
Information by Reference
12. Information with Respect Not Applicable
to S-2 or S-3 Registrants
13. Incorporation of Certain Not Applicable
Information by Reference
14. Information with Respect Not Applicable
to Registrants other than
S-2 or S-3 Registrants
15. Information with Respect Not Applicable
to S-3 Companies
16. Information with Respect Not Applicable
to S-2 or S-3 Companies
17. Information with Respect "INFORMATION WITH RESPECT TO FARMERS"; "INDEX TO FINANCIAL
to Companies other than INFORMATION"
S-2 or S-3 Companies
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEMS OF PART I, FORM S-4 HEADING IN PROXY STATEMENT/PROSPECTUS
------------------------- -----------------------------------------------------------
<C> <S> <C>
18. Information if Proxies, "INFORMATION CONCERNING THE FIRST CITIZENS SPECIAL
Consents or MEETING"; "INFORMATION CONCERNING THE FARMERS SPECIAL
Authorizations Are to be MEETING"; "PROPOSED MERGER -- Rights of Dissenting
Solicited Shareholders"; "INFORMATION WITH RESPECT TO FIRST
CITIZENS -- Security Ownership of Management"; "INFORMATION
WITH RESPECT TO FARMERS -- Security Ownership of Management
and Certain Beneficial Owners"
19. Information if Proxies, Not Applicable
Consents or
Authorizations Are Not to
be Solicited or in an
Exchange Offer
</TABLE>
<PAGE> 4
FIRST CITIZENS BANC CORP
100 EAST WATER STREET
SANDUSKY, OHIO 44870
December , 1997
To Our Shareholders:
A special meeting (the "First Citizens Special Meeting") of shareholders of
First Citizens Banc Corp, a bank holding company organized and existing under
the laws of the State of Ohio ("First Citizens"), has been scheduled for January
, 1998 at 2:00 p.m. at The Citizens Banking Company, 100 East Water Street,
Sandusky, Ohio. The accompanying Notice of the First Citizens Special Meeting,
Proxy Statement/Prospectus and Proxy Card set forth the formal business to be
transacted at the First Citizens Special Meeting. I encourage you to review
these materials and to attend the First Citizens Special Meeting.
At the First Citizens Special Meeting, holders of First Citizens common
shares, without par value, are being asked to consider and vote upon a proposal
(the "Proposal") to adopt the Agreement and Plan of Reorganization dated July 3,
1997, as amended November 25, 1997 and November 26, 1997, respectively, by and
between First Citizens and The Farmers State Bank of New Washington, Ohio, a
commercial bank organized and existing under the laws of the State of Ohio
("Farmers") (as amended, the "Reorganization Agreement"), and the Merger
Agreement dated November 26, 1997 by and among First Citizens, Farmers and
Farmers Interim Bank, a wholly-owned subsidiary of First Citizens organized and
existing under the laws of the State of Ohio for the limited purpose of
effecting the Merger (as hereinafter defined) (the "Merger Agreement"); and to
approve the transactions contemplated thereby, including the merger (the
"Merger") of Farmers Interim Bank with and into Farmers. In the Merger, each
outstanding common share of Farmers, par value $20.00 per share, will be
converted into the right to receive 6.06 common shares, without par value, of
First Citizens, upon the terms and subject to the conditions set forth in the
Reorganization Agreement and the Merger Agreement, as described in the
accompanying Proxy Statement/Prospectus (with cash paid in lieu of fractional
shares).
Consummation of the Merger is subject to certain conditions, including, but
not limited to, obtaining the requisite vote of the shareholders of Farmers and
First Citizens and the approval of the Merger by various regulatory agencies.
THE FIRST CITIZENS BOARD OF DIRECTORS HAS UNANIMOUSLY CONCLUDED THAT THE
MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE FIRST CITIZENS SHAREHOLDERS
AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL. First Citizens'
financial advisor, McDonald & Company Securities, Inc., has rendered an opinion
dated July 3, 1997 and updated to the date hereof to the First Citizens Board of
Directors to the effect that, as of the date hereof and based upon and subject
to certain matters stated in such opinion, the exchange ratio set forth in the
Merger Agreement is fair to the shareholders of First Citizens from a financial
point of view.
If the accompanying Proxy Card is executed properly and returned to First
Citizens in time to be voted at the First Citizens Special Meeting, the shares
represented thereby will be voted in accordance with the instructions marked
thereon. Executed but unmarked proxies will be voted FOR approval of the
Proposal. The presence of a shareholder at the First Citizens Special Meeting
will not automatically revoke such shareholder's proxy. A First Citizens
shareholder may, however, revoke a proxy at any time prior to its exercise by
filing a written notice of revocation with or delivering a duly executed proxy
bearing a later date to Donna J. Dalferro, Vice President and Secretary, First
Citizens Banc Corp, 100 East Water Street, Sandusky, Ohio 44870 or by attending
the First Citizens Special Meeting and advising the Secretary of the
shareholder's intent to vote the shares.
Approval of the Proposal requires the affirmative vote of a majority of the
outstanding common shares of First Citizens. Accordingly, it is very important
that your shares be represented at the First Citizens Special Meeting. I urge
you to vote FOR the Proposal and to sign, date and return the accompanying Proxy
Card as soon as possible, even if you plan to attend the First Citizens Special
Meeting. This procedure will not prevent you from voting in person, but will
ensure that your vote is counted if you are unable to attend.
Very truly yours,
David A. Voight
President
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YOUR VOTE IS IMPORTANT
WE ENCOURAGE YOU TO SIGN, DATE AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED
ENVELOPE REGARDLESS
OF WHETHER YOU PLAN TO ATTEND THE FIRST CITIZENS SPECIAL MEETING.
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<PAGE> 5
FIRST CITIZENS BANC CORP
100 EAST WATER STREET
SANDUSKY, OHIO 44870
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of First Citizens Banc Corp:
A special meeting (including any adjournments or reschedulings thereof, the
"First Citizens Special Meeting") of shareholders of First Citizens Banc Corp, a
bank holding company organized and existing under the laws of the State of Ohio
("First Citizens"), will be held on January , 1998 at 2:00 p.m. at The
Citizens Banking Company, 100 East Water Street, Sandusky, Ohio. A Proxy Card
and Proxy Statement/Prospectus for the First Citizens Special Meeting are
enclosed.
The First Citizens Special Meeting is for the purpose of considering and
voting upon a proposal (the "Proposal") to:
Adopt the Agreement and Plan of Reorganization dated July 3, 1997, as
amended November 25, 1997 and November 26, 1997, respectively, by and
between First Citizens and The Farmers State Bank of New Washington, Ohio,
a commercial bank organized and existing under the laws of the State of
Ohio ("Farmers") (as amended, the "Reorganization Agreement"), and the
Merger Agreement dated November 26, 1997 by and among First Citizens,
Farmers and Farmers Interim Bank, a wholly-owned subsidiary of First
Citizens organized and existing under the laws of the State of Ohio for the
limited purpose of effecting the Merger (as hereinafter defined) (the
"Merger Agreement"); and approve the transactions contemplated thereby,
including the merger (the "Merger") of Farmers Interim Bank with and into
Farmers. Copies of the Reorganization Agreement and the Merger Agreement
are attached as Appendices A and B, respectively, to the accompanying Proxy
Statement/Prospectus.
No other business will be transacted at the First Citizens Special Meeting
other than possible adjournments or reschedulings thereof.
THE FIRST CITIZENS BOARD OF DIRECTORS HAS UNANIMOUSLY CONCLUDED THAT THE
MERGER IS IN THE BEST INTERESTS OF THE FIRST CITIZENS SHAREHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL.
The Board of Directors of First Citizens has fixed the close of business on
, 1997 as the record date for determination of the shareholders of
First Citizens entitled to notice of and to vote at the First Citizens Special
Meeting.
It is very important that your shares be represented at the First Citizens
Special Meeting. You are urged to complete and sign the accompanying Proxy Card,
which is solicited by the Board of Directors of First Citizens and to mail it
promptly in the enclosed envelope. All proxies are important, so please complete
each Proxy Card sent to you and return it in the envelope provided.
David A. Voight
President
December , 1997
<PAGE> 6
THE FARMERS STATE BANK OF NEW WASHINGTON, OHIO
102 SOUTH KIBLER STREET
NEW WASHINGTON, OHIO 44854-9401
December , 1997
To Our Shareholders:
A special meeting (the "Farmers Special Meeting") of shareholders of The
Farmers State Bank of New Washington, Ohio, a commercial bank organized and
existing under the laws of the State of Ohio ("Farmers") has been scheduled for
January , 1998 at 2:00 p.m. at 102 South Kibler Street, New Washington, Ohio.
The accompanying Notice of the Farmers Special Meeting, Proxy
Statement/Prospectus and Proxy Card set forth the formal business to be
transacted at the Farmers Special Meeting. I encourage you to review these
materials and to attend the Farmers Special Meeting.
At the Farmers Special Meeting, holders of Farmers common shares, par value
$20.00 per share, are being asked to consider and vote upon a proposal (the
"Proposal") to adopt the Agreement and Plan of Reorganization dated July 3,
1997, as amended November 25, 1997 and November 26, 1997, respectively, by and
between Farmers and First Citizens Banc Corp, a bank holding company organized
and existing under the laws of the State of Ohio ("First Citizens") (as amended,
the "Reorganization Agreement"), and the Merger Agreement dated November 26,
1997 by and among Farmers, First Citizens and Farmers Interim Bank, a
wholly-owned subsidiary of First Citizens organized and existing under the laws
of the State of Ohio for the limited purpose of effecting the Merger (as
hereinafter defined) (the "Merger Agreement"); and to approve the transactions
contemplated thereby, including the merger (the "Merger") of Farmers Interim
Bank with and into Farmers. In the Merger, each outstanding common share of
Farmers, par value $20.00 per share, will be converted into the right to receive
6.06 common shares, without par value, of First Citizens, upon the terms and
subject to the conditions set forth in the Reorganization Agreement and the
Merger Agreement, as described in the accompanying Proxy Statement/Prospectus
(with cash paid in lieu of fractional shares).
Consummation of the Merger is subject to certain conditions, including, but
not limited to, obtaining the requisite vote of the shareholders of Farmers and
First Citizens and the approval of the Merger by various regulatory agencies.
THE FARMERS BOARD OF DIRECTORS HAS UNANIMOUSLY CONCLUDED THAT THE MERGER IS
FAIR TO AND IN THE BEST INTERESTS OF THE FARMERS SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL. Farmers' financial advisor, Austin
Associates, Inc., has rendered an opinion dated as of the date hereof to the
Farmers Board of Directors to the effect that, as of the date hereof and based
upon and subject to certain matters stated in such opinion, the exchange ratio
set forth in the Merger Agreement is fair to the shareholders of Farmers from a
financial point of view.
If the accompanying Proxy Card is executed properly and returned to Farmers
in time to be voted at the Farmers Special Meeting, the shares represented
thereby will be voted in accordance with the instructions marked thereon.
Executed but unmarked proxies will be voted FOR approval of the Proposal. The
presence of a shareholder at the Farmers Special Meeting will not automatically
revoke such shareholder's proxy. A Farmers shareholder may, however, revoke a
proxy at any time prior to its exercise by filing a written notice of revocation
with or delivering a duly executed proxy bearing a later date to Wanda J. White,
Secretary, The Farmers State Bank of New Washington, Ohio, 102 South Kibler
Street, New Washington, Ohio 44854-9401 or by attending the Farmers Special
Meeting and advising the Secretary of the shareholder's intent to vote the
shares.
Approval of the Proposal requires the affirmative vote of the holders of
two-thirds of the outstanding common shares of Farmers. Accordingly, it is very
important that your shares be represented at the Farmers Special Meeting. I urge
you to vote FOR the Proposal and to sign, date and return the accompanying Proxy
Card as soon as possible, even if you plan to attend the Farmers Special
Meeting. This procedure will not prevent you from voting in person, but will
ensure that your vote is counted if you are unable to attend.
Very truly yours,
William Sheaffer
Interim President and C.E.O.
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
WE ENCOURAGE YOU TO SIGN, DATE AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED
ENVELOPE REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE FARMERS SPECIAL MEETING.
- --------------------------------------------------------------------------------
<PAGE> 7
THE FARMERS STATE BANK OF NEW WASHINGTON, OHIO
102 SOUTH KIBLER STREET
NEW WASHINGTON, OHIO 44854-9401
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of The Farmers State Bank of New Washington, Ohio:
A special meeting (including any adjournments or reschedulings thereof, the
"Farmers Special Meeting") of shareholders of The Farmers State Bank of New
Washington, Ohio, a commercial bank organized and existing under the laws of the
State of Ohio ("Farmers"), will be held on January , 1998, at 2:00 p.m., at
102 South Kibler Street, New Washington, Ohio. A Proxy Card and Proxy
Statement/Prospectus for the Farmers Special Meeting are enclosed.
The Farmers Special Meeting is for the purpose of considering and voting
upon a proposal (the "Proposal") to:
Adopt the Agreement and Plan of Reorganization dated July 3, 1997, as
amended November 25, 1997 and November 26, 1997, respectively, by and
between Farmers and First Citizens Banc Corp, a bank holding company
organized and existing under the laws of the State of Ohio ("First
Citizens") (as amended, the "Reorganization Agreement"), and the Merger
Agreement dated November 26, 1997 by and among Farmers, First Citizens and
Farmers Interim Bank, a wholly-owned subsidiary of First Citizens organized
and existing under the laws of the State of Ohio for the limited purpose of
effecting the Merger (as hereinafter defined) (the "Merger Agreement"); and
approve the transactions contemplated thereby, including the merger (the
"Merger") of Farmers Interim Bank with and into Farmers. Copies of the
Reorganization Agreement and the Merger Agreement are attached as
Appendices A and B, respectively, to the accompanying Proxy
Statement/Prospectus.
No other business will be transacted at the Farmers Special Meeting other
than possible adjournments or reschedulings thereof.
THE FARMERS BOARD OF DIRECTORS HAS UNANIMOUSLY CONCLUDED THAT THE MERGER IS
IN THE BEST INTERESTS OF THE FARMERS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR THE PROPOSAL.
The Board of Directors of Farmers has fixed the close of business on
, 1997 as the record date for determination of the shareholders of
Farmers entitled to notice of and to vote at the Farmers Special Meeting.
It is very important that your shares be represented at the Farmers Special
Meeting. You are urged to complete and sign the accompanying Proxy Card, which
is solicited by the Board of Directors of Farmers and to mail it promptly in the
enclosed envelope. All proxies are important, so please complete each Proxy Card
sent to you and return it in the envelope provided.
William Sheaffer
Interim President and C.E.O.
December , 1997
<PAGE> 8
<TABLE>
<S> <C>
PROXY STATEMENT/PROSPECTUS OF PROXY STATEMENT OF
FIRST CITIZENS BANC CORP THE FARMERS STATE BANK
OF NEW WASHINGTON, OHIO
</TABLE>
FIRST CITIZENS BANC CORP
AND
THE FARMERS STATE BANK OF NEW WASHINGTON, OHIO
SPECIAL MEETINGS OF SHAREHOLDERS
First Citizens Banc Corp -- January , 1998
The Farmers State Bank of New Washington, Ohio -- January , 1998
This Proxy Statement/Prospectus is being furnished to shareholders of
record on , 1997 of First Citizens Banc Corp, a bank holding company
organized and existing under the laws of the State of Ohio ("First Citizens"),
and shareholders of record on , 1997 of The Farmers State Bank of
New Washington, Ohio, a commercial bank organized and existing under the laws of
the State of Ohio ("Farmers"), in connection with the solicitation of proxies by
First Citizens and Farmers for use at the special meetings of their respective
shareholders (the "Special Meetings"). The Special Meeting of First Citizens
Shareholders (the "First Citizens Special Meeting") is to be held at The
Citizens Banking Company, 100 East Water Street, Sandusky, Ohio 44870 on January
, 1998, at 2:00 p.m., local time, and at any adjournment or adjournments
thereof; and the Special Meeting of Farmers shareholders (the "Farmers Special
Meeting") is to be held at 102 South Kibler Street, New Washington, Ohio, on
January , 1998, at 2:00 p.m., local time, and at any adjournment or
adjournments thereof.
At each of the Special Meetings, the respective shareholders of First
Citizens and Farmers will be asked to approve an Agreement and Plan of
Reorganization dated July 3, 1997, as amended November 25, 1997 and November 26,
1997, respectively, by and between First Citizens and Farmers (as amended, the
"Reorganization Agreement") and the Merger Agreement dated November 26, 1997 by
and among First Citizens, Farmers and Farmers Interim Bank, a wholly-owned
subsidiary of First Citizens organized and existing under the laws of the State
of Ohio for the limited purpose of effecting the Merger (as hereinafter defined)
(the "Merger Agreement"); and to approve the transactions contemplated thereby,
including the merger (the "Merger") of Farmers Interim Bank with and into
Farmers. Copies of the Reorganization Agreement and the Merger Agreement are
attached to this Proxy Statement/Prospectus as Appendices A and B, respectively,
and are incorporated herein by reference.
The shares of First Citizens and Farmers represented by proxy will be voted
at the respective Special Meetings of First Citizens and Farmers as specified by
their respective shareholders. In each case, executed but unmarked proxies will
be voted FOR approval of the Merger. Upon consummation of the Merger, each
outstanding common share of Farmers, par value $20.00 per share, (consisting of
200,000 common shares) (the "Farmers Common Shares"), other than shares held by
shareholders who exercise their right to be dissenting shareholders, will be
converted into the right to receive 6.06 common shares of First Citizens,
without par value (the "First Citizens Common Shares"), upon the terms and
subject to the conditions set forth in the Reorganization Agreement and the
Merger Agreement (the "Exchange Ratio"). Dissenters' rights are described in the
section entitled "PROPOSED MERGER -- Rights of Dissenting Shareholders." For a
more detailed description of the Reorganization Agreement and the Merger
Agreement, the Exchange Ratio and the terms of the Merger, see "PROPOSED
MERGER." The last sale price of First Citizens Common Shares on the Nasdaq
Bulletin Board at , 1997 was $ .
This Proxy Statement/Prospectus constitutes the Proxy Statement of Farmers
and the Proxy Statement/Prospectus of First Citizens covering the First Citizens
Common Shares to be issued pursuant to the Merger.
This Proxy Statement/Prospectus and the accompanying Proxy Card (relating
to the First Citizens Special Meeting or the Farmers Special Meeting, as the
case may be) are first being mailed to First Citizens shareholders on or about
December , 1997, and to Farmers shareholders on or about December , 1997.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS
ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
THE SECURITIES TO BE OFFERED IN CONNECTION WITH THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
REGULATORY AUTHORITY NOR HAS THE COMMISSION OR ANY STATE REGULATORY AUTHORITY
PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is December , 1997.
<PAGE> 9
AVAILABLE INFORMATION
First Citizens is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by First Citizens can be inspected and copied at the public reference
facilities maintained by the Commission in Washington, D.C., and at its Regional
Office located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can also be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a Web site that contains reports, proxy
statements and other information filed by First Citizens. The Commission's
Internet address is http://www.sec.gov. First Citizens Common Shares are quoted
on the Nasdaq Bulletin Board and reports, proxy statements and other information
concerning First Citizens are available for inspection and copying at prescribed
rates at the office of the National Association of Securities Dealers, Inc.,
1735 K Street, Washington, D.C. 20006.
First Citizens has filed with the Commission a Registration Statement on
Form S-4 under the Securities Act of 1933, as amended (the "1933 Act"), covering
the First Citizens Common Shares to be issued in connection with the Merger.
This Proxy Statement/Prospectus was filed with the Registration Statement as the
Prospectus of First Citizens; however, it does not contain all of the
information set forth in the Registration Statement. The Registration Statement
and the exhibits thereto can be inspected at the Commission's public reference
room, Room 1024, 450 5th Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
as well as the Commission's Regional Office listed above.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE
WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS
PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST, FROM
DONNA J. DALFERRO, VICE PRESIDENT AND SECRETARY, FIRST CITIZENS BANC CORP, 100
EAST WATER STREET, SANDUSKY, OHIO 44870, (419) 625-4121. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY [INSERT DATE
WHICH IS 5 BUSINESS DAYS PRIOR TO FARMERS' MEETING].
No person has been authorized to give any information or make any
representations not contained herein, and, if given or made, such information or
representation must not be relied upon as having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell any securities other
than the securities to which it relates or an offer to sell any securities
covered by this Proxy Statement/Prospectus in any jurisdiction where, or to any
person to whom, it is unlawful to make such an offer. Neither the delivery
hereof nor any distribution of securities by First Citizens made hereunder
shall, under any circumstances, create an implication that there has been no
change in the facts herein set forth since the date hereof.
All information concerning First Citizens contained in this Proxy
Statement/Prospectus has been furnished by First Citizens and all information
concerning Farmers has been furnished by Farmers.
INCORPORATION BY REFERENCE
The following documents filed with the Commission under the 1934 Act by
First Citizens are incorporated by reference into this Proxy
Statement/Prospectus: (a) First Citizens' annual report on Form 10-K for the
year ended December 31, 1996, (b) First Citizens' quarterly reports on Form 10-Q
for the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997 and
(c) First Citizens' current report on Form 8-K dated July 3, 1997.
All documents filed by First Citizens under Sections 13(a), 13(c), 14, or
15(d) of the 1934 Act after the date of this Proxy Statement/Prospectus and
prior to the date of the Farmers Special Meeting shall be deemed to be
incorporated by reference in this Proxy Statement/Prospectus and to be a part
hereof from the date of filing such documents. Any statement contained herein or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for the purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which is also deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such
i
<PAGE> 10
statement so modified or superseded, shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement/Prospectus.
The information relating to First Citizens contained in this Proxy
Statement/Prospectus should be read together with the information in the
documents incorporated by reference.
THIS PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS
WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF
FIRST CITIZENS FOLLOWING THE CONSUMMATION OF THE MERGER. THESE FORWARD LOOKING
STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. FACTORS THAT MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD
LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1)
EXPECTED COST SAVINGS FROM THE MERGER CANNOT BE FULLY REALIZED; (2) DEPOSIT
ATTRITION, CUSTOMER LOSS OR REVENUE LOSS FOLLOWING THE MERGER IS GREATER THAN
EXPECTED (3) COMPETITIVE PRESSURE IN THE BANKING INDUSTRY INCREASES
SIGNIFICANTLY; (4) COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF THE
BUSINESSES OF FIRST CITIZENS AND FARMERS ARE GREATER THAN EXPECTED; (5) CHANGES
IN THE INTEREST RATE ENVIRONMENT WHICH MAY REDUCE MARGINS; AND (6) GENERAL
ECONOMIC CONDITIONS, EITHER NATIONALLY OR IN THE AREA IN WHICH FIRST CITIZENS
AND FARMERS WILL BE DOING BUSINESS, ARE LESS FAVORABLE THAN EXPECTED. FURTHER
INFORMATION ON OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF FIRST
CITIZENS AFTER THE MERGER IS INCLUDED IN THE COMMISSION FILINGS INCORPORATED BY
REFERENCE HEREIN.
ii
<PAGE> 11
THE FARMERS STATE BANK OF NEW WASHINGTON, OHIO
FIRST CITIZENS BANC CORP
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................................. i
INCORPORATION BY REFERENCE............................................................ i
SUMMARY............................................................................... 1
PRO FORMA SELECTED FINANCIAL INFORMATION.............................................. 7
COMPARATIVE PER SHARE DATA............................................................ 8
COMPARATIVE MARKET VALUE DATA......................................................... 9
INFORMATION CONCERNING THE FIRST CITIZENS SPECIAL MEETING............................. 9
General............................................................................. 9
Solicitation, Voting and Revocability of Proxies.................................... 9
INFORMATION CONCERNING THE FARMERS SPECIAL MEETING.................................... 11
General............................................................................. 11
Solicitation, Voting and Revocability of Proxies.................................... 11
PROPOSED MERGER....................................................................... 12
First Citizens Background and Reasons for the Merger................................ 12
Recommendation of the First Citizens Board of Directors............................. 13
Farmers Background and Reasons for the Merger....................................... 13
Recommendation of the Farmers Board of Directors.................................... 14
Description of the Merger........................................................... 14
Exchange of Farmers Common Shares................................................... 15
Fairness Opinion of McDonald & Company.............................................. 15
Fairness Opinion of Austin Associates, Inc.......................................... 19
Effective Time of the Merger........................................................ 21
Payment of Cash in Lieu of Fractional Shares........................................ 21
Surrender of Certificates........................................................... 22
Interest of Management in the Merger................................................ 22
Rights of Dissenting Shareholders................................................... 23
Federal Income Tax Consequences of the Merger....................................... 23
Regulatory Approvals................................................................ 24
Business Pending the Merger......................................................... 25
Other Provisions of the Reorganization Agreement and the Merger Agreement........... 26
Representations and Warranties................................................... 26
Conditions to the Merger......................................................... 26
Amendments; Termination.......................................................... 27
Expenses of the Merger........................................................... 27
Operations of Farmers After the Merger.............................................. 27
Accounting Treatment................................................................ 27
Resale of First Citizens Common Shares.............................................. 27
DESCRIPTION OF FIRST CITIZENS COMMON SHARES........................................... 29
General............................................................................. 29
Provisions Relating to Business Combinations........................................ 29
Business Combinations............................................................ 29
</TABLE>
iii
<PAGE> 12
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Board Considerations............................................................. 29
Shareholder Approval............................................................. 30
COMPARATIVE RIGHTS OF FARMERS' SHAREHOLDERS........................................... 30
Authorized and Outstanding Shares................................................... 30
Notice of Shareholder Meetings...................................................... 30
Quorum.............................................................................. 30
Voting.............................................................................. 31
Nomination of Directors............................................................. 31
Number of Directors................................................................. 31
PRO FORMA FINANCIAL INFORMATION....................................................... 32
INFORMATION WITH RESPECT TO FIRST CITIZENS............................................ 39
Business............................................................................ 39
Selected Financial Information...................................................... 39
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Quarter and Nine Months Ended September 30, 1997.............. 39
Certain Statistical Information With Respect to First Citizens...................... 39
Management.......................................................................... 40
Security Ownership of Management.................................................... 41
Market Price of First Citizens Common Shares........................................ 43
Information Incorporated by Reference............................................... 43
INFORMATION WITH RESPECT TO FARMERS................................................... 43
Business............................................................................ 43
Market Price and Dividends on Farmers Common Shares................................. 45
Selected Financial Information...................................................... 46
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 46
Introduction..................................................................... 46
Overview......................................................................... 47
Comparison of Operating Results for the Nine Months Ended September 30, 1997 and
1996............................................................................ 49
Comparison of Operating Results for the Years Ended December 31, 1996 and 1995... 50
Asset Quality.................................................................... 51
Summary of Loan Loss Experience.................................................. 52
Comparison of September 30, 1997 and December 31, 1996 Financial Condition....... 52
Comparison of December 31, 1996 and 1995 Financial Condition..................... 53
Capital Resources................................................................ 53
Liquidity........................................................................ 54
Asset/Liability Management....................................................... 54
Impact of Inflation on Changing Prices........................................... 55
Certain Statistical Information With Respect to Farmers............................. 55
Distribution of Assets, Liabilities and Shareholders' Equity, Interest Rates and
Interest Differential........................................................... 55
Investment Portfolio............................................................. 55
Loan Portfolio................................................................... 57
Summary of Loan Loss Experience.................................................. 58
Deposits......................................................................... 58
Return on Equity and Assets...................................................... 59
Short-Term Borrowings............................................................ 59
Management.......................................................................... 59
Security Ownership of Management and Certain Beneficial Owners...................... 60
</TABLE>
iv
<PAGE> 13
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPERTS............................................................................... 61
LEGAL OPINIONS........................................................................ 61
INDEMNIFICATION....................................................................... 61
INDEX TO FINANCIAL INFORMATION........................................................ 62
</TABLE>
APPENDICES:
<TABLE>
<S> <C>
A. Agreement and Plan of Reorganization dated July 3, 1997, as amended November 25,
1997 and November 26, 1997, respectively
B. Merger Agreement dated November 26, 1997
C. Dissenters' Rights Under Sections 1115.19 and 1701.85 of the Ohio Revised Code
D. Fairness Opinion of McDonald & Company Securities, Inc. dated as of ,
1997
E. Fairness Opinion of Austin Associates, Inc. dated as of , 1997
</TABLE>
v
<PAGE> 14
SUMMARY
This summary is necessarily general and abbreviated and has been prepared
to assist the respective shareholders of First Citizens and Farmers in their
review of the Proxy Statement/Prospectus. The summary is not intended to be a
complete explanation of the matters covered in the Proxy Statement/Prospectus
and is qualified in all respects by reference to the more detailed information
contained in the Proxy Statement/Prospectus and the Appendices hereto, which the
respective shareholders of First Citizens and Farmers are urged to read
carefully.
THE PARTIES
FIRST CITIZENS BANC CORP... First Citizens is a bank holding company organized
and existing under the laws of the State of Ohio
and registered with the Board of Governors of the
Federal Reserve System (the "Federal Reserve
Board") pursuant to the Bank Holding Company Act of
1956, as amended. First Citizens has three
wholly-owned banking subsidiaries: The Citizens
Banking Company, a commercial bank organized and
existing under the laws of the State of Ohio
("CBC"); The Castalia Banking Company, a commercial
bank organized and existing under the laws of the
State of Ohio ("Castalia"); and Farmers Interim
Bank, an interim bank organized and existing under
the laws of the State of Ohio for the limited
purpose of effecting the Merger. See "PROPOSED
MERGER -- Description of the Merger." In addition,
First Citizens has two wholly-owned nonbank
subsidiaries which provide services related to its
primary business: SCC Resources, Inc., a data
processing services company; and R.A. Reynolds
Appraisal Services, Inc., a real estate appraisal
services company. As of September 30, 1997 and
December 31, 1996, First Citizens had total
consolidated assets of approximately $317.9 million
and $302.8 million and total shareholders' equity
of approximately $36.1 million and $34.4 million,
respectively.
First Citizens' primary business is incidental to
its two operating bank subsidiaries, CBC and
Castalia. Located in Erie County, Ohio, both CBC
and Castalia conduct a general banking business
which involves collecting customer deposits, making
loans and purchasing securities. Commercial banking
accounts for substantially all of the revenue,
operating income and assets of First Citizens.
First Citizens Common Shares are traded on the
Nasdaq Bulletin Board under the symbol "FCZA." For
the nine months ended September 30, 1997, First
Citizens' annualized return on average assets and
return on average equity was 1.34% and 10.44%,
respectively. First Citizens' principal executive
offices are located at 100 East Water Street,
Sandusky, Ohio 44870. The telephone number of First
Citizens' executive offices is (419) 625-4121.
THE FARMERS STATE BANK OF
NEW WASHINGTON, OHIO....... Farmers is a commercial bank organized and existing
under the laws of the State of Ohio with its
principal office located in New Washington, Ohio
and branch offices located in Chatfield, Tiro,
Richwood and Green Camp, Ohio. Farmers provides a
full range of banking services, including checking
and savings accounts; certificates of deposit;
individual retirement accounts; commercial, real
estate, consumer and agricultural loans; and safe
deposit boxes. As of September 30, 1997 and
December 31, 1996, Farmers had total assets of
approximately $155.9 million and $153.1 million and
total shareholders' equity of approximately $16.0
million and $14.3 million, respectively. Farmers'
principal executive offices are located at 102
South Kibler Street, New Washington, Ohio
44854-9401. The telephone number of Farmers'
executive offices is (419) 492-2177.
1
<PAGE> 15
CONTRIBUTION BY THE PARTIES
The following table summarizes the percentage of net interest income, net
income, total assets and shareholders' equity to be contributed by First
Citizens and Farmers, respectively, using information as of and for the nine
months ended September 30, 1997, and the voting percentage each group of
shareholders will have after the Merger, based on the Exchange Ratio.
<TABLE>
<CAPTION>
FIRST CITIZENS FARMERS TOTAL
-------------- ------- -----
<S> <C> <C> <C>
Net interest income........... 75.2% 24.8% 100.0%
Net income.................... 73.9 26.1 100.0
Total assets.................. 67.1 32.9 100.0
Shareholders' equity.......... 69.4 30.6 100.0
Voting percentage after
Merger...................... 71.6 28.4 100.0
</TABLE>
INFORMATION CONCERNING THE FIRST CITIZENS SPECIAL MEETING
GENERAL.................... The First Citizens Special Meeting will be held at
The Citizens Banking Company, 100 East Water
Street, Sandusky, Ohio 44870 on January , 1998 at
2:00 p.m., local time.
The purpose of the First Citizens Special Meeting
is to consider and vote upon the Reorganization
Agreement and the Merger Agreement and the
transactions contemplated thereby, as hereinafter
described, including the exchange of First Citizens
Common Shares for Farmers Common Shares and the
Merger, on the terms described in this Proxy
Statement/Prospectus. Copies of the Reorganization
Agreement and the Merger Agreement are attached to
this Proxy Statement/Prospectus as Appendices A and
B, respectively, and are incorporated in this Proxy
Statement/Prospectus by reference.
SOLICITATION AND VOTING OF
PROXIES.................. All shareholders of record of First Citizens on
, 1997 (the "First Citizens Record
Date") will be entitled to vote at the First
Citizens Special Meeting. The affirmative vote, in
person or by proxy, of the holders of not less than
a majority of the issued and outstanding First
Citizens Common Shares are required for approval of
the Reorganization Agreement and the Merger
Agreement.
The directors and executive officers of First
Citizens and their affiliates own, as of the First
Citizens Record Date, 903,177 First Citizens Common
Shares (approximately 29.58% of the total number of
outstanding First Citizens Common Shares at such
date), and have indicated an intention to vote for
the Merger.
INFORMATION CONCERNING THE FARMERS SPECIAL MEETING
GENERAL.................... The Farmers Special Meeting will be held at 102
South Kibler Street, New Washington, Ohio on
January , 1998 at 2:00 p.m., local time.
The purpose of the Farmers Special Meeting is to
consider and vote upon the Reorganization Agreement
and the Merger Agreement and the transactions
contemplated thereby, as hereinafter described,
including the exchange of First Citizens Common
Shares for Farmers Common Shares and the Merger, on
the terms described in this Proxy
Statement/Prospectus. Copies of the Reorganization
Agreement and the Merger Agreement are attached to
this Proxy Statement/Prospectus as Appendices A and
B,
2
<PAGE> 16
respectively, and are incorporated in this Proxy
Statement/Prospectus by reference.
SOLICITATION AND VOTING OF
PROXIES.................. All shareholders of record of Farmers on
, 1997 (the "Farmers Record Date")
will be entitled to vote at the Farmers Special
Meeting. The affirmative vote, in person or by
proxy, of the holders of not less than two-thirds
of the issued and outstanding Farmers Common Shares
are required for approval of the Reorganization
Agreement and the Merger Agreement.
The directors and executive officers of Farmers and
their affiliates own, as of the Farmers Record
Date, 64,332 Farmers Common Shares (32.18% of the
total number of outstanding Farmers Common Shares
at such date), and have indicated an intention to
vote for the Merger.
PROPOSED MERGER
EXCHANGE OF FARMERS........ Common Shares Upon consummation of the Merger, each
Farmers shareholder who does not exercise his or
her right to become a dissenting shareholder will
have the right to receive 6.06 First Citizens
Common Shares for each Farmers Common Share
exchanged therefor, plus cash in lieu of fractional
shares.
For a complete description of the consideration to
be received by Farmers shareholders, see "PROPOSED
MERGER -- Exchange of Farmers Common Shares."
BACKGROUND AND REASONS FOR
THE MERGER................. First Citizens. First Citizens' Board of Directors
has concluded that the Merger is in the best
interests of the First Citizens shareholders
because, among other things, (i) the Merger will
facilitate the logical expansion of First Citizens'
business into three complementary markets
(Crawford, Union and Marion Counties), (ii) Farmers
has the leading market share in Crawford County,
(iii) First Citizens has identified certain
strategic initiatives which may enhance Farmers'
customer service and financial performance, (iv)
the Merger will potentially improve the trading
market as well as increase the liquidity of the
Citizens Common Shares due to the issuance of
additional First Citizens Common Shares, and (v)
the Merger will potentially provide for an improved
earnings growth rate in the future. First Citizens'
Board of Directors did not assign any particular
weight to each of the factors considered. See
"PROPOSED MERGER -- First Citizens Background and
Reasons for the Merger."
Farmers. Farmers' Board of Directors has concluded
that the Merger is in the best interests of Farmers
and its shareholders based on, among other things,
(i) the business earnings and potential for future
growth and prospects of Farmers and First Citizens,
(ii) the potential operational and managerial
benefits that will be derived from the Merger,
(iii) the consideration to be received by Farmers
shareholders in the Merger in relation to the book
value and earnings of Farmers, (iv) the prices paid
for Farmers' Common Shares in the limited trades
known to Farmers' management, (v) the prices paid
in similar merger transactions, (vi) the increased
dividend rate; (vii) the tax-free nature of the
stock-for-stock exchange; and (viii) the
comparatively greater liquidity that Farmers'
shareholders might enjoy by being shareholders of a
larger institution.
3
<PAGE> 17
Farmers' Board of Directors also considered its
belief that First Citizens shares a community
banking philosophy that will benefit the employees,
depositors and customers of Farmers and the
communities it serves and that the Merger will
allow Farmers to offer a diversity of products and
services to its customers. Farmers' Board of
Directors did not assign any particular weight to
each of the factors considered. See "PROPOSED
MERGER -- Farmers Background and Reasons for the
Merger."
FAIRNESS OPINIONS.......... First Citizens. McDonald & Company Securities, Inc.
("McDonald & Company") has rendered an opinion to
First Citizens' Board of Directors that as of July
3, 1997 and updated to the date hereof, the
Exchange Ratio is fair from a financial point of
view to the First Citizens shareholders. For
additional information, see "PROPOSED MERGER--
Fairness Opinion of McDonald & Company." The
opinion of McDonald & Company is attached as
Appendix D to this Proxy Statement/Prospectus.
First Citizens shareholders are urged to read such
opinion in its entirety for a description of the
procedures followed and matters considered in
connection therewith.
Farmers. Austin Associates, Inc. ("Austin
Associates") orally advised Farmers' Board of
Directors as of July 3, 1997, and has rendered a
written opinion to Farmers' Board of Directors as
of the date hereof, to the effect that the Exchange
Ratio is fair from a financial point of view to the
Farmers shareholders. For additional information,
see "PROPOSED MERGER -- Fairness Opinion of Austin
Associates." The opinion of Austin & Associates is
attached as Appendix E to this Proxy
Statement/Prospectus. Farmers shareholders are
urged to read such opinion in its entirety for a
description of the procedures followed and matters
considered in connection therewith.
INTEREST OF MANAGEMENT IN
THE MERGER................. The Reorganization Agreement provides that First
Citizens will offer the existing full-time
employees of Farmers the opportunity to continue as
employees of Farmers, as the surviving bank
("Surviving Bank") following the Merger. The
Reorganization Agreement further provides, however,
that such commitment shall not be deemed to be a
contract of employment or construed to give
Farmers' employees any rights other than as
employees at will under Ohio law and Farmers'
employees shall not be deemed to be third-party
beneficiaries of such commitment. See "PROPOSED
MERGER -- Operations of Farmers After the Merger
and "Interest of Management in the Merger."
RECOMMENDATIONS OF THE
BOARDS OF DIRECTORS........ First Citizens. The First Citizens Board of
Directors has unanimously approved the
Reorganization Agreement and the Merger Agreement
and believes that such agreements are fair to and
in the best interests of the First Citizens
shareholders. The First Citizens Board of Directors
unanimously recommends that the First Citizens
shareholders adopt the Reorganization Agreement and
the Merger Agreement.
Farmers. The Farmers Board of Directors has
unanimously approved the Reorganization Agreement
and the Merger Agreement and believes that such
agreements are fair to and in the best interests of
the Farmers shareholders. The Farmers Board of
Directors unanimously recommends that Farmers'
shareholders adopt the Reorganization Agreement and
the
4
<PAGE> 18
Merger Agreement. See "PROPOSED
MERGER -- Recommendations of the Boards of
Directors."
DISSENTERS' RIGHTS......... Holders of Farmers Common Shares may exercise their
right to become dissenting shareholders to the
extent, and in strict compliance with the
procedure, specified in Sections 1115.19 and
1701.85 of the Ohio Revised Code. HOLDERS OF
FARMERS COMMON SHARES WHO WANT TO EXERCISE THEIR
DISSENTERS' RIGHTS MUST NOT VOTE IN FAVOR OF THE
MERGER AGREEMENT AT FARMERS' SPECIAL MEETING AND
MUST SEND WRITTEN DEMANDS FOR PAYMENT FOR THEIR
FARMERS COMMON SHARES WITHIN TEN DAYS AFTER THE
FARMERS SPECIAL MEETING. See "PROPOSED
MERGER -- Rights of Dissenting Shareholders" and
the text of Sections 1701.85 and 1115.19 of the
Ohio Revised Code attached to this Proxy
Statement/Prospectus as Appendix C.
FEDERAL INCOME TAX
CONSEQUENCES OF THE
MERGER................... It is intended that the Merger will be treated as a
reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended,
and that, accordingly, for federal income tax
purposes no gain or loss will be recognized by
Farmers or First Citizens as a result of the
Merger. The obligation of Farmers and First
Citizens to consummate the Merger is conditioned on
the receipt by Farmers of an opinion of its
counsel, Werner & Blank Co., L.P.A., dated as of
the closing date of the Merger, substantially to
the effect that (i) the Merger will constitute a
tax free reorganization, (ii) no gain or loss will
be recognized by Farmers as a consequence of the
Merger, (iii) no gain or loss will be recognized by
the Farmers shareholders upon the receipt solely of
First Citizens Common Shares in exchange for
Farmers Common Shares, except with respect to any
cash received in lieu of a fractional share
interest in First Citizens Common Shares, (iv) the
federal income tax basis of the First Citizens
Common Shares received by the Farmers shareholders
for their Farmers Common Shares will be the same as
the federal income tax basis of the Farmers Common
Shares surrendered in exchange therefor, and (v)
the holding period for the First Citizens Common
Shares received by each Farmers Shareholders in
exchange for Farmers Common Shares will include the
period for which the Farmers Common Shares
exchanged therefor were held, provided that the
exchanged Farmers Common Shares were held as
capital assets by such Farmers shareholder. Farmers
shareholders who exercise dissenters' rights and
receive cash for their Farmers Common Shares will
be treated as having received a distribution in
redemption of their shares which will result in
such shareholders receiving income for federal
income tax purposes.
All Farmers shareholders should read carefully the
description under "PROPOSED MERGER -- Federal
Income Tax Consequences of the Merger," and should
consult their own tax advisors concerning these
matters.
CONDITIONS; AMENDMENTS;
TERMINATION.............. Completion of the Merger is contingent upon
approval of the Reorganization Agreement and the
Merger Agreement by the respective shareholders of
Farmers and First Citizens and certain regulatory
authorities and upon certain other conditions
described in this Proxy Statement/Prospectus.
Neither the Reorganization Agreement nor the Merger
Agreement may be
5
<PAGE> 19
amended except by a written agreement executed by
the parties. Both the Reorganization Agreement and
the Merger Agreement may be terminated and the
Merger abandoned by mutual agreement of First
Citizens and Farmers, or by either First Citizens
or Farmers in the event of failure to satisfy
certain conditions, or if the Merger has not been
consummated by February 28, 1998. In addition, the
Merger Agreement may be terminated (i) by Farmers
or Farmers Interim Bank if, prior to the
consummation of the Merger, there has been a final
judicial determination that any material provision
of the Merger Agreement is illegal, invalid or
unenforceable; and (ii) by Farmers if the market
price for the First Citizens Common Shares falls
below a certain level.
See "PROPOSED MERGER -- Other Provisions of the
Reorganization Agreement and the Merger Agreement."
MANAGEMENT AFTER THE
MERGER..................... Upon completion of the Merger, Farmers Interim Bank
will be merged with and into Farmers, with Farmers
as the Surviving Bank. At the Effective Time, the
Board of Directors of the Surviving Bank shall
consist of all of the persons who were directors of
Farmers immediately prior to the Effective Time,
plus two nominees of First Citizens. See "PROPOSED
MERGER -- Operations of Farmers After the Merger."
COMPARATIVE RIGHTS OF FARMERS SHAREHOLDERS
The rights of shareholders of First Citizens and shareholders of Farmers,
while similar in many respects, also differ in some respects. For a description
of the relative rights of the holders of First Citizens Common Shares and
Farmers Common Shares, see "COMPARATIVE RIGHTS OF FARMERS SHAREHOLDERS." First
Citizens' Articles of Incorporation include provisions governing certain
business combinations involving First Citizens. For a description of this
provision, see "DESCRIPTION OF FIRST CITIZENS COMMON SHARES -- Provisions
Relating to Business Combinations."
6
<PAGE> 20
PRO FORMA SELECTED FINANCIAL INFORMATION
The table below sets forth selected pro forma financial information for
First Citizens and Farmers combined as of and for the nine months ended
September 30, 1997 and 1996, and as of and for the years ended December 31,
1996, 1995 and 1994. This information is derived from and should be read in
conjunction with the historical financial statements of First Citizens and
Farmers that are incorporated by reference or appear elsewhere in this Proxy
Statement/Prospectus, and with the pro forma condensed consolidated financial
statements of First Citizens, which give effect to the Merger and which appear
in this Proxy Statement/Prospectus under the caption "PRO FORMA FINANCIAL
INFORMATION." The pro forma condensed consolidated financial information has
been prepared based on the use of the "pooling-of-interests" method of
accounting, assuming that 1,212,000 First Citizens Common Shares will be issued
and that no Farmers shareholders will dissent. This information will vary if any
Farmers shareholders exercise dissenter rights with respect to the Merger. The
historical financial information of First Citizens and Farmers has been combined
for each period presented. For a discussion of the pooling-of-interests method
of accounting and the condition to First Citizens' and Farmers' obligations
under the Reorganization Agreement that the Merger qualify for the
pooling-of-interests method of accounting, see "PROPOSED MERGER -- Accounting
Treatment" and "Other Provisions of the Reorganization Agreement and the Merger
Agreement."
PRO FORMA SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS ENDED AS OF AND FOR THE
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net interest income.............. $ 13,049 $ 12,182 $ 16,485 $ 16,047 $ 16,213
Provision for loan losses........ 1,014 512 733 457 433
Net income....................... 3,800 4,089 5,568 5,278 5,377
PER SHARE DATA:
Net income....................... $ .89 $ .96 $ 1.31 $ 1.24 $ 1.26
Cash dividends................... .30 .27 .80 .57 .34
Book value at period end......... 12.21 11.40 11.42 10.92 9.50
Weighted average shares
outstanding.................... 4,263,504 4,263,504 4,263,504 4,263,504 4,263,504
BALANCE SHEET DATA (AT PERIOD
END):
Total assets..................... $ 473,736 $ 455,500 $ 455,908 $ 446,819 $ 431,059
Net loans........................ 285,010 251,910 260,023 240,358 226,757
Total deposits................... 390,745 374,854 375,810 369,241 363,136
Total shareholders' equity....... 52,059 48,607 48,688 46,563 40,496
</TABLE>
7
<PAGE> 21
COMPARATIVE PER SHARE DATA
The following table sets forth First Citizens' and Farmers' historical per
share data and pro forma combined per share data. The information is based on
the historical financial statements of First Citizens and Farmers. The pro forma
data do not purport to be indicative of the results of future operations or the
actual results that would have occurred had the Merger been consummated at the
beginning of the periods presented. The pro forma data give effect to the Merger
and are based on numerous assumptions and estimates. The pro forma data are
included as required by the rules of the Commission and are provided for
comparative purposes only. The pro forma combined per share data and Farmers
equivalent per share data are prepared assuming 1,212,000 First Citizens Common
Shares will be issued based on the Exchange Ratio. See "PROPOSED
MERGER -- Exchange of Farmers Common Shares."
FIRST CITIZENS BANC CORP AND THE FARMERS STATE BANK OF NEW WASHINGTON, OHIO
COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
AS OF AND
FOR
THE NINE
MONTHS ENDED AS OF AND FOR THE YEAR ENDED
SEPTEMBER DECEMBER 31,
30, ----------------------------
1997 1996 1995 1994
------------ ------ ------ ------
<S> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE:
Historical:
First Citizens................................... $ 0.92 $ 1.30 $ 1.21 $ 1.20
Farmers.......................................... 4.96 8.02 7.98 8.60
Pro Forma Combined................................. 0.89 1.31 1.24 1.26
Equivalent Amount of Farmers....................... 5.39 7.94 7.51 7.64
DIVIDENDS PER COMMON SHARE:
Historical:
First Citizens................................... $ 0.42 $ 1.02 $ 0.71 $ 0.41
Farmers.......................................... 0.00 1.40 1.20 1.00
Pro Forma Combined................................. 0.42 1.02 0.71 0.41
Equivalent Amount of Farmers....................... 1.82 4.85 3.45 2.06
BOOK VALUE PER COMMON SHARE:
Historical:
First Citizens................................... $11.83 $11.28 $11.08 $10.46
Farmers.......................................... 79.77 73.42 63.94 42.78
Pro Forma Combined................................. 12.21 11.42 10.92 9.50
Equivalent Amount of Farmers....................... 73.99 69.21 66.18 57.57
</TABLE>
8
<PAGE> 22
COMPARATIVE MARKET VALUE DATA
First Citizens Common Shares are traded on the Nasdaq National Bulletin
Board under the symbol "FCZA." Farmers Common Shares are not traded in any
established market. The information presented in the following table reflects
the last reported sale price for First Citizens on July 2, 1997, the last
trading day preceding execution of the Reorganization Agreement; the sale price
for Farmers Common shares in the most recent transaction occurring prior to July
3, 1997, of which Farmers' management is aware; and the equivalent per share
basis of Farmers. The equivalent per share basis has been calculated by
multiplying the last reported sale price on such date by the Exchange Ratio. The
market value of the consideration to be received by the Farmers Shareholders
will depend on the market value of a share of First Citizens Common Shares at
such time. No assurance can be given as to what the market price of First
Citizens Common Shares will be if and when the Merger is consummated. See also
"INFORMATION WITH RESPECT TO FIRST CITIZENS-- Market Price of First Citizens
Common Shares" and "INFORMATION WITH RESPECT TO FARMERS--Market Price and
Dividends on Farmers Common Shares."
FIRST CITIZENS BANC CORP AND THE FARMERS STATE BANK OF NEW WASHINGTON, OHIO
COMPARATIVE MARKET VALUE
JULY 2, 1997
<TABLE>
<CAPTION>
FARMERS
EQUIVALENT
PER SHARE
FIRST CITIZENS FARMERS BASIS
-------------- ------- ----------
<S> <C> <C> <C>
Common Shares.......................... $34.50(1) $72.00(2) $ 209.07
</TABLE>
- ---------------
(1) Based on the last trade of First Citizens Common Shares on July 2, 1997, as
reported on the Nasdaq Bulletin Board.
(2) Based on the last trade of Farmers Common Shares prior to July 3, 1997, of
which Farmers' management is aware.
INFORMATION CONCERNING THE FIRST CITIZENS SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of First
Citizens Common Shares as part of the solicitation of proxies by the First
Citizens Board of Directors for use at the First Citizens Special Meeting to be
held on January , 1998 at 2:00 p.m., at The Citizens Banking Company, 100 East
Water Street, Sandusky, Ohio 44870, including any adjournments or reschedulings
thereof. This Proxy Statement/Prospectus and the accompanying Proxy Card are
first being mailed to shareholders of First Citizens on or about December ,
1997.
The purpose of the First Citizens Special Meeting is to consider and vote
upon the Proposal to adopt the Reorganization Agreement and the Merger Agreement
and to approve the transactions contemplated thereby, including the Merger. No
other business will be transacted at the First Citizens Special Meeting other
than possible adjournments or reschedulings thereof.
The Merger is subject to a number of conditions, including the receipt of
required regulatory and shareholder approvals. (See "PROPOSED
MERGER -- "Regulatory Approvals" and "Other Provisions of the Reorganization
Agreement and the Merger Agreement.")
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
The First Citizens Board of Directors has fixed the close of business on
, 1997 (the "First Citizens Record Date") as the record date for the
determination of the shareholders of First Citizens entitled to notice of and to
vote at the First Citizens Special Meeting. Only holders of record of First
Citizens Common Shares at the close of business on the First Citizens Record
Date will be entitled to vote on each matter properly
9
<PAGE> 23
presented at the First Citizens Special Meeting. On the First Citizens Record
Date, 3,051,504 First Citizens Common Shares were issued and outstanding. Votes
may be cast in person or by proxy, and each First Citizens Common Share entitles
its holder to one vote. Pursuant to the First Citizens Code of Regulations and
in accordance with the Ohio Revised Code ("ORC"), the presence of the holders of
a majority of the First Citizens Common Shares issued and outstanding, in person
or by proxy, and entitled to vote at the First Citizens Special Meeting is
required for and shall constitute a quorum for the transaction of business at
the First Citizens Special Meeting. For such purpose, abstentions and broker
non-votes will be counted in establishing the quorum. A majority of the First
Citizens Common Shares present at the First Citizens Special Meeting, in person
or by proxy, whether or not constituting a quorum, may vote to, or the First
Citizens Board in its discretion may, adjourn the First Citizens Special Meeting
from time to time without further notice, including for the purpose of
soliciting additional proxies. Under the First Citizens Articles of
Incorporation and the ORC, the affirmative vote of the holders of at least a
majority of the total number of outstanding First Citizens Common Shares
entitled to vote at the First Citizens Special Meeting is required to approve
the Proposal. An abstention and a broker non-vote would thus have the same
effect as a vote against the Proposal.
Only shareholders of record on the First Citizens Record Date are eligible
to give their proxies. Therefore, shareholders owning shares held in the name of
a brokerage firm, bank, or other institution should sign, date and return their
proxy cards to such brokerage firm, bank or other institution in the envelope
provided by that firm. In addition, under the rules of the New York Stock
Exchange, brokers who hold shares in street name for customers who are the
beneficial owners of such shares are prohibited from giving a proxy to vote
shares held for such customers on the approval of the Proposal without specific
instructions from such customers. Given that the First Citizens Articles of
Incorporation require the affirmative vote of the holders of a majority of the
outstanding First Citizens Common Shares entitled to vote at the First Citizens
Special Meeting in order to approve the Proposal, the failure of such customers
to provide specific instructions with respect to their First Citizens Common
Shares to their broker will have the effect of a vote against the approval of
the Proposal. Failure to return a properly executed proxy card or to vote at the
First Citizens Special Meeting will have the same effect as a vote against the
Proposal.
Proxies in the accompanying form which are properly executed and returned
to First Citizens will be voted at the First Citizens Special Meeting in
accordance with the shareholders' instructions contained in such proxies and, at
the discretion of the Proxy Committee, on such other matters as may properly
come before the meeting. If a shareholder returns a proxy card that is signed,
dated and not marked, that shareholder will be deemed to have voted FOR the
Proposal. An executed proxy may be revoked at any time prior to its exercise by
submitting another proxy with a later date, by appearing in person at the First
Citizens Special Meeting and advising the Secretary of the shareholder's intent
to vote the shares or by sending a written, signed and dated revocation which
clearly identifies the proxy being revoked to the principal executive offices of
First Citizens at 100 East Water Street, Sandusky, Ohio 44870, Attention: Donna
J. Dalferro, Vice President and Secretary. A revocation may be in any written
form validly signed by the record holder as long as it clearly states that the
proxy previously given is no longer effective. In addition, shareholders whose
First Citizens Common Shares are not registered in their own name will need
additional documentation from the record holder of such shares to vote in person
at the First Citizens Special Meeting.
Proxies may be solicited by mail, telephone, telegraph, telex, telecopier
and advertisement and in person. Solicitation may be made in the same manner by
directors, officers and other representatives of First Citizens who will not be
specially compensated for such activities, but who may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation.
Banks, brokerage houses and other custodians, nominees and fiduciaries will
be requested to forward the solicitation materials to the beneficial owners of
First Citizens Common Shares for which they hold of record, and First Citizens
will reimburse them for their reasonable out-of-pocket expenses.
The expenses related to the proxy solicitation for the First Citizens
Special Meeting will be borne by First Citizens, except that the cost of
preparing and mailing this Proxy Statement/Prospectus will be shared by First
Citizens and Farmers.
10
<PAGE> 24
The directors and executive officers of First Citizens and their affiliates
own, as of the First Citizens Record Date, 903,177 First Citizens Common Shares
(approximately 29.60% of the total number of outstanding shares of First
Citizens Common Shares at such date).
INFORMATION CONCERNING THE FARMERS SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of Farmers
Common Shares as part of the solicitation of proxies by the Farmers Board of
Directors for use at the Farmers Special Meeting to be held on January , 1998
at 2:00 p.m., at 102 South Kibler Street, New Washington, Ohio, including any
adjournments or reschedulings thereof. This Proxy Statement/Prospectus and the
accompanying Proxy Card are first being mailed to shareholders of Farmers on or
about December , 1997.
The purpose of the Farmers Special Meeting is to consider and vote upon the
Proposal to adopt the Reorganization Agreement and the Merger Agreement and to
approve the transactions contemplated thereby, including the Merger. No other
business will be transacted at the Farmers Special Meeting other than possible
adjournments or reschedulings thereof.
The Merger is subject to a number of conditions, including the receipt of
required regulatory and shareholder approvals. (See "PROPOSED
MERGER -- "Regulatory Approvals" and "Other Provisions of the Reorganization
Agreement and the Merger Agreement.")
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
The Farmers Board has fixed the close of business on , 1997
(the "Farmers Record Date") as the record date for the determination of the
shareholders of Farmers entitled to notice of and to vote at the Farmers Special
Meeting. Only holders of record of Farmers Common Shares at the close of
business on the Farmers Record Date will be entitled to vote on each matter
properly presented at the Farmers Special Meeting. On the Farmers Record Date,
200,000 Farmers Common Shares were issued and outstanding. Votes may be cast in
person or by proxy, and each Farmers Common Share entitles its holder to one
vote. Pursuant to the ORC, the shareholders of Farmers present, in person or by
proxy, shall constitute a quorum for the transaction of business at the Farmers
Special Meeting. A majority of the Farmers Common Shares present at the Farmers
Special Meeting, in person or by proxy, may vote to adjourn the Farmers Special
Meeting from time to time without further notice, including for the purpose of
soliciting additional proxies. Under the ORC, the affirmative vote of the
holders of at least two-thirds of the total number of outstanding Farmers Common
Shares entitled to vote at the Farmers Special Meeting is required to approve
the Proposal. An abstention and a broker non-vote would thus have the same
effect as a vote against the Proposal.
Only shareholders of record on the Farmers Record Date are eligible to give
their proxies. Therefore, shareholders owning shares held in the name of a
brokerage firm, bank, or other institution should sign, date and return their
proxy cards to such brokerage firm, bank or other institution in the envelope
provided by that firm. In addition, under the rules of the New York Stock
Exchange, brokers who hold shares in street name for customers who are the
beneficial owners of such shares are prohibited from giving a proxy to vote
shares held for such customers on the approval of the Proposal without specific
instructions from such customers. Given that the ORC requires the affirmative
vote of the holders of two-thirds of the outstanding Farmers Common Shares
entitled to vote at the Farmers Special Meeting in order to approve the
Proposal, the failure of such customers to provide specific instructions with
respect to their Farmers Common Shares to their broker will have the effect of a
vote against the approval of the Proposal. Failure to return a properly executed
proxy card or to vote at the Farmers Special Meeting will have the same effect
as a vote against the Proposal.
Proxies in the accompanying form which are properly executed and returned
to Farmers will be voted at the Farmers Special Meeting in accordance with the
shareholders' instructions contained in such proxies and, at the discretion of
the Proxy Committee, on such other matters as may properly come before the
meeting. If a shareholder returns a proxy card that is signed, dated and not
marked, that shareholder will be deemed to have
11
<PAGE> 25
voted for the Proposal. An executed proxy may be revoked at any time prior to
its exercise by submitting another proxy with a later date, by appearing in
person at the Farmers Special Meeting and advising the Secretary of the
shareholder's intent to vote the shares or by sending a written, signed and
dated revocation which clearly identifies the proxy being revoked to the
principal executive offices of Farmers at 102 South Kibler Street, New
Washington, Ohio 44854-9401, Attention: Wanda J. White, Secretary. A revocation
may be in any written form validly signed by the record holder as long as it
clearly states that the proxy previously given is no longer effective. In
addition, shareholders whose Farmers Common Shares are not registered in their
own name will need additional documentation from the record holder of such
shares to vote in person at the Farmers Special Meeting.
Proxies may be solicited by mail, telephone, telegraph, telex, telecopier
and advertisement and in person. Solicitation may be made in the same manner by
directors, officers and other representatives of Farmers who will not be
specially compensated for such activities, but who may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation.
Banks, brokerage houses and other custodians, nominees and fiduciaries will
be requested to forward the solicitation materials to the beneficial owners of
Farmers Common Shares for which they hold of record, and Farmers will reimburse
them for their reasonable out-of-pocket expenses.
The expenses related to the proxy solicitation for the Farmers Special
Meeting will be borne by Farmers, except that the cost of preparing and mailing
this Proxy Statement/Prospectus will be shared by Farmers and First Citizens.
The directors and executive officers of Farmers and their affiliates own,
as of the Farmers Record Date, 64,332 Farmers Common Shares representing 32.18%
of the total number of outstanding shares of Farmers Common Shares at such date.
PROPOSED MERGER
The following description of certain aspects of the Merger does not purport
to be complete and is qualified in its entirety by reference to the
Reorganization Agreement and the Merger Agreement which are set forth in
Appendices A and B, respectively, attached to and incorporated by reference in
this Proxy Statement/Prospectus. All shareholders are urged to read the
Reorganization Agreement and the Merger Agreement in their entirety.
FIRST CITIZENS BACKGROUND AND REASONS FOR THE MERGER
Background of the Merger
On or about March 12, 1997, the management of First Citizens was approached
by Austin Associates as to the level of interest First Citizens might have in an
acquisition of Farmers. Management brought this inquiry to the attention of the
Board of Directors of First Citizens. Because Farmers was within the size and
geographic location initially set in First Citizens' planning sessions, the
First Citizens Board directed management to obtain the package of information
from Austin Associates, solicit input from McDonald & Company and prepare a
presentation to the Board on the viability of such a merger.
During the month of May, 1997, First Citizens conducted its initial due
diligence investigation of Farmers. On June 6, 1997, First Citizens submitted a
final proposal to Farmers regarding the proposed acquisition.
During the last several weeks of June, 1997, First Citizens and Farmers and
their respective representatives negotiated the financial and other terms of the
Reorganization Agreement on an "arm's length" basis. First Citizens and Farmers
entered into the Reorganization Agreement on July 3, 1997.
The Reorganization Agreement was amended on November 25, 1997 to extend the
deadline for consummation of the Merger from February 1, 1998 to February 28,
1998. The Reorganization Agreement was amended again on November 26, 1997 to
remove certain time constraints relating to the consummation of the Merger and
reduce the Exchange Ratio from 6.5 to 6.06. Each such amendment was approved in
advance by the respective
12
<PAGE> 26
Boards of First Citizens and Farmers. The Merger Agreement was executed by
Farmers, First Citizens and Farmers Interim Bank on November 26, 1997.
Reasons for the Merger
In reaching the determination that the Merger is fair to, and in the best
interests of, First Citizens' shareholders, the First Citizens Board consulted
with First Citizens' management, as well as its financial and legal advisors,
and considered a number of factors, including, without limitation, the
following, which include all of the material factors considered:
(i) the Merger will facilitate the logical expansion of First
Citizens' business into three complementary markets in Ohio (Crawford,
Union and Marion Counties);
(ii) Farmers has the leading market share in Crawford County, with
approximately 17.1% of total deposits in the Crawford County market;
(iii) First Citizens believes it will have an opportunity to enhance
Farmers' net interest margin through an increase in Farmers' loan volume;
(iv) First Citizens believes it will be able to improve Farmers'
noninterest revenues through the addition of trust, securities brokerage,
automated teller machines and expanded demand deposit products which are
currently not offered to Farmers' customers;
(v) the Merger will potentially improve the trading market as well as
increase the liquidity of the First Citizens Common Shares due to the
issuance of additional First Citizens Common Shares; and
(vi) the Merger will potentially provide for an improved earnings
growth rate in the future.
The First Citizens Board considered many different factors in its
evaluation and did not believe it was practical to, and did not quantify or
otherwise assign relative weights to, the individual factors considered in
reaching its determination.
RECOMMENDATION OF THE FIRST CITIZENS BOARD OF DIRECTORS
IN VIEW OF ALL THE CONSIDERATIONS DESCRIBED ABOVE, THE BOARD OF DIRECTORS
OF FIRST CITIZENS UNANIMOUSLY CONCLUDED THAT THE MERGER IS IN THE BEST INTERESTS
OF AND IS FAIR TO THE FIRST CITIZENS SHAREHOLDERS AND RECOMMENDS THAT FIRST
CITIZENS SHAREHOLDERS VOTE FOR THE MERGER.
FARMERS BACKGROUND AND REASONS FOR THE MERGER
Background of the Merger
On October 11, 1996, the Board of Directors of Farmers retained Austin
Associates to assist in a strategic planning process. The process was intended
to provide the Board of Directors with information regarding options and
alternatives available to Farmers as it contemplated its future direction.
Included in the Austin Associates project were an analysis of the value of
Farmers, composition and structure of management, financial condition and
performance, ownership and other strategic issues. On January 22, 1997,
representatives of Austin Associates delivered the results of the strategic
planning process to the Board of Directors of Farmers.
Over approximately the next four weeks, members of the Board of Directors
of Farmers considered the results of the Austin Associates report and determined
that a sale or merger of Farmers would likely provide greater shareholder value
than remaining independent. On February 27, 1997, the Board retained Austin
Associates to serve as financial advisor with respect to a possible sale or
merger of Farmers.
On March 7, 1997, Austin Associates began contacting potential purchasers.
Thirty potential purchasers were contacted either by telephone or in writing.
Twenty potential purchasers executed confidentiality agreements, and were
provided confidential information packages on or about March 21, 1997. The
deadline for submission of indications of interest was April 18, 1997. Seven
proposals were received.
13
<PAGE> 27
On April 28, 1997, representatives of Austin Associates met with the Board
of Directors of Farmers to review and evaluate the seven proposals. Two
proposals were eliminated as being inadequate. One proposal was considered to be
marginally adequate, but when that offeror was invited to perform a due
diligence investigation of Farmers, it declined to do so.
During the months of May and early June, 1997, the remaining four
organizations conducted due diligence investigations of Farmers. These four
organizations then submitted final proposals on June 6, 1997.
The Farmers Board met on June 11, 1997 to review and evaluate the final
four proposals. At that meeting, the Board determined that the offer received
from First Citizens was superior to the other three proposals. In addition, the
Board of Directors of Farmers was cognizant of First Citizens' intention to
retain Farmers' charter, its name and its community banking philosophy.
During the last several weeks of June, First Citizens and Farmers and their
respective representatives negotiated the financial and other terms of the
Reorganization Agreement on an "arm's length" basis. Farmers and First Citizens
entered into the Reorganization Agreement on July 3, 1997.
The Reorganization Agreement was amended on November 25, 1997 to extend the
deadline for consummation of the Merger from February 1, 1998 to February 28,
1998. The Reorganization Agreement was amended again on November 26, 1997 to
remove certain time constraints relating to the consummation of the Merger and
reduce the Exchange Ratio from 6.5 to 6.06. Each such amendment was approved in
advance by the respective Boards of First Citizens and Farmers. The Merger
Agreement was executed by Farmers, First Citizens and Farmers Interim Bank on
November 26, 1997.
Reasons for the Merger
In reaching the determination that the Merger is fair to, and in the best
interests of, Farmers' shareholders, the Farmers' Board consulted with Farmers'
management, as well as its financial and legal advisors, and considered a number
of factors, including, without limitation, the following, which include all of
the material factors considered:
(i) the business earnings and potential for future growth and
prospects of Farmers and First Citizens, (ii) the potential operational and
managerial benefits that will be derived from the Merger, (iii) the
consideration to be received by Farmers shareholders in the Merger in
relation to the book value and earnings of Farmers, (iv) the prices paid
for Farmers' Common Shares in the limited trades known to Farmers'
management, (v) the prices paid in similar merger transactions, (vi) the
increased dividend rate; (vii) the tax-free nature of the stock-for-stock
exchange; and (viii) the comparatively greater liquidity that Farmers'
shareholders might enjoy by being shareholders of a larger institution.
The Board of Directors also considered its belief that First Citizens
shared a community banking philosophy that would benefit the employees,
depositors and customers of Farmers and the communities it serves and that the
Merger would allow Farmers to offer a diversity of products and services to its
customers.
The Farmers Board considered many different factors in its evaluation and
did not believe it was practical to and did not quantify or otherwise assign
relative weights to the individual factors considered in reaching its
determination.
RECOMMENDATION OF THE FARMERS BOARD OF DIRECTORS
IN VIEW OF ALL THE CONSIDERATIONS DESCRIBED ABOVE, THE BOARD OF DIRECTORS
OF FARMERS UNANIMOUSLY CONCLUDED THE MERGER IS IN THE BEST INTERESTS OF AND IS
FAIR TO THE FARMERS SHAREHOLDERS AND RECOMMENDS THAT FARMERS' SHAREHOLDERS VOTE
FOR THE MERGER.
DESCRIPTION OF THE MERGER
Upon consummation of the transactions contemplated under the Merger
Agreement, Farmers Interim Bank will be merged with and into Farmers. Farmers
will be the surviving bank after the Merger and the Articles of
14
<PAGE> 28
Incorporation of Farmers will remain in effect as they were immediately prior to
the Merger. After the Merger, Farmers will be a wholly-owned subsidiary of First
Citizens and will continue to be known as "The Farmers State Bank of New
Washington, Ohio." See also "PROPOSED MERGER -- Operations of Farmers After the
Merger."
EXCHANGE OF FARMERS COMMON SHARES
Upon consummation of the Merger, each shareholder of Farmers who does not
dissent will have the right to receive 6.06 First Citizens Common Shares for
each Farmers Common Share exchanged therefor, plus cash in lieu of the issuance
of fractional shares. Based on the last reported sale price of $ for
First Citizens Common Shares on the Nasdaq Bulletin Board on December , 1997,
the value of First Citizens Common Shares multiplied by the Exchange Ratio as of
that date would have been $ . The market value of First Citizens Common
Shares to be received in the Merger is subject to fluctuation. Fluctuations in
the market price of First Citizens Common Shares would generally result in an
increase or decrease in the value of the consideration to be received by Farmers
shareholders in the Merger. An increase in the market value of First Citizens
Common Shares would generally increase the value of the consideration to be
received by Farmers shareholders in the Merger. A decrease in the market value
of First Citizens Common Shares would generally have the opposite effect.
FAIRNESS OPINION OF MCDONALD & COMPANY
First Citizens has retained McDonald & Company as its financial advisor in
connection with the Merger and requested that McDonald & Company render its
opinion with respect to the fairness, from a financial point of view, of the
Exchange Ratio to the holders of First Citizens Common Shares. McDonald &
Company rendered its oral opinion to the Board of Directors of First Citizens on
July 2, 1997, which it subsequently confirmed in writing, that as of the date of
such opinion, the Exchange Ratio pursuant to the Merger was fair, from a
financial point of view, to the holders of First Citizens Common Shares.
THE FULL TEXT OF THE OPINION OF MCDONALD & COMPANY, UPDATED AS OF THE DATE
OF THIS PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH CERTAIN ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEWS UNDERTAKEN, IS ATTACHED AS
APPENDIX D TO THIS PROXY STATEMENT/PROSPECTUS, AND SHOULD BE READ IN ITS
ENTIRETY. THE SUMMARY OF THE OPINION OF MCDONALD & COMPANY SET FORTH IN THIS
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
OPINION. MCDONALD & COMPANY'S OPINION SHOULD NOT BE CONSTRUED BY HOLDERS OF
FIRST CITIZENS' COMMON SHARES AS A RECOMMENDATION AS TO HOW SUCH HOLDERS SHOULD
VOTE AT THE SPECIAL MEETING.
In arriving at its opinion, McDonald & Company reviewed, among other
things, the Reorganization Agreement together with exhibits and schedules
thereto, certain publicly available information relating to the business,
financial condition and operations of First Citizens and Farmers as well as
certain other nonpublic information, primarily financial in nature, furnished to
it by First Citizens and Farmers relating to the respective businesses,
earnings, assets, financial forecasts and prospects. McDonald & Company also
held discussions with members of senior management of First Citizens and Farmers
concerning their respective businesses, assets, financial forecasts and
prospects. McDonald & Company also reviewed certain publicly available
information concerning the trading of, and the trading market for, First
Citizens Common Shares and Farmers Common Shares and certain publicly available
information concerning comparable companies and transactions, all as more fully
set forth in McDonald & Company's opinion.
McDonald & Company was not engaged to and did not conduct a physical
inspection of any of the assets, properties or facilities of either First
Citizens or Farmers, and was not engaged to conduct and has not made, obtained
or been furnished with any independent evaluation or appraisal of any such
assets, properties or facilities or any of the liabilities of First Citizens or
Farmers. McDonald & Company has assumed and relied, without independent
investigation, upon the accuracy and completeness of the financial and other
information provided to it or publicly available, has relied upon the
representations and warranties of First Citizens and Farmers contained in the
Reorganization Agreement, and has not independently attempted to verify any such
information. McDonald & Company has also assumed that all of the conditions to
the Merger as set forth in the Reorganization
15
<PAGE> 29
Agreement, including the tax-free nature of the reorganization for federal
income tax purposes, would be consummated on a timely basis in the manner
contemplated by the Reorganization Agreement. No limitations were imposed by
First Citizens upon McDonald & Company with respect to the scope of its
investigation nor were any specific instructions given to McDonald & Company in
connection with its opinion.
In connection with rendering its written opinion dated July 3, 1997, and as
updated to the date hereof, McDonald & Company considered a variety of financial
analyses, which are summarized below. McDonald & Company believes that its
analyses must be considered as a whole and that selecting portions of such
analyses and of the factors considered by McDonald & Company without considering
all such analyses and factors may create an incomplete view of the analytical
process underlying McDonald & Company's opinion. In its analyses, McDonald &
Company made numerous assumptions with respect to industry performance, business
and economic conditions and other matters. Any estimates contained in McDonald &
Company's analyses are not necessarily indicative of future results or values,
which may be significantly more or less favorable than such estimates.
The following is a summary of selected analyses considered by McDonald &
Company and discussed with the First Citizens Board of Directors, in connection
with McDonald & Company's opinion dated July 3, 1997:
Introduction
McDonald & Company calculated the offer price per share, offer price to
March 31, 1997 book value, offer price to last twelve months earnings per share
at March 31, 1997, and offer price to estimated 1998 earnings per share for
Farmers implied by the Exchange Ratio. Using First Citizens' July 1, 1997
closing bid price of $34.50, the Exchange Ratio implied a price per share for
Farmers of $224.25, a price to book value of 299.5%, a price to last twelve
months earnings per share of 24.7x and a price to estimated 1998 earnings per
share of 27.6x. Earnings per share estimates were based upon the financial
forecasts of management of First Citizens and Farmers.
Comparison with Selected Companies
McDonald & Company compared the financial performance and stock market
valuation of First Citizens with corresponding data for the following selected
companies: Ambanc Corp., ANB Corp., Beverly Bancorporation Inc., CoBancorp,
Inc., German American Bancorp, Oak Hill Financial Inc., Peoples Bancorp Inc.,
Peoples Bank of Indianapolis, Southside Bancshares Corp., State Financial
Services and Shoreline Financial Corp. (collectively, the "First Citizens Peer
Group") This analysis indicated, among other things, that (i) the median price
to last twelve months earnings per share for the First Citizens Peer Group was
16.2x, as compared to First Citizens' multiple of price to last twelve months
earnings per share of 27.2x, and (ii) the median price to book value per share
for the First Citizens Peer Group was 193%, as compared to First Citizens'
multiple of price to book value per share of 303%. McDonald & Company also noted
that all of the companies in the First Citizens Peer Group were listed on the
Nasdaq National Market and that First Citizens' return on average equity for the
twelve month period ended March 31, 1997 was 11.23%, as compared to the median
return on average equity for the First Citizens Peer Group of 13.29%.
McDonald & Company also compared the financial performance and stock market
valuation of Farmers with corresponding data for the following selected
companies: ANB Corp., Commercial BancShares, Inc., First WV Bancorp Inc., German
American Bancorp, Oak Hill Financial Inc., Peoples Bank of Indianapolis, S.Y.
Bancorp Inc. and United Bancorp Inc. (collectively, the "Farmers Peer Group")
This analysis indicated, among other things, that (i) the median price to last
twelve months earnings per share for the Farmers Peer Group was 14.5x, and (ii)
the median price to book value per share for the Farmers Peer Group was 180%.
At the time, none of the companies in the First Citizens Peer Group or the
Farmers Peer Group had announced a merger transaction or disclosed a possible
interest in pursuing a possible merger transaction which could have
significantly affected the stock market valuations of such companies.
16
<PAGE> 30
Contribution Analysis
McDonald & Company analyzed the contribution of each of Farmers and First
Citizens to, among other things, the shareholders' equity and after-tax net
income of the pro forma combined company. This analysis showed that, among other
factors, Farmers would have contributed 33.2%, 30.1%, and 31.8% of the assets,
shareholders' equity, and net income of the pro forma combined company as of and
for the twelve months ended March 31, 1997, respectively. This compared with a
proposed ownership of 29.9% of the combined company to be held by holders of
Farmers Common Shares.
Pro Forma Merger Analyses
McDonald & Company analyzed certain pro forma effects resulting from the
Merger on the pro forma combined company over a five year period from 1998
through 2002. This analysis, based upon the financial forecasts of management of
First Citizens and Farmers and including estimates of cost savings provided by
the management of First Citizens and Farmers, showed approximately 2.6% dilution
for First Citizens in pro forma earnings per share in 1998 and approximately
2.4% dilution in pro forma earnings per share in 1999. McDonald & Company also
analyzed the changes in per share amount of earnings, book value and indicated
dividend represented by one share of First Citizens Common Shares after the
Merger. The analysis was performed on the basis of financial information for
both companies as of and for the years ended December 31, 1995 and December 31,
1996, and as of and for the twelve months ended March 31, 1997. The analysis
indicated, among other things, that exchanging one Farmers Common Share at the
Exchange Ratio for First Citizens Common Shares on a pro forma basis would have
resulted in a 2.9% increase in earnings per share for each First Citizens Common
Share for the twelve months ended March 31, 1997, a 0.3% increase in book value
per First Citizens Common Share as of March 31, 1997, and no change in dividends
per First Citizens Common Share based on First Citizens' indicated annual
dividend rate as of July 2, 1997.
Analysis of Selected Merger Transactions
McDonald & Company reviewed five groups of selected pending and completed
bank merger transactions involving (i) selling banks headquartered in the
Midwest region; (ii) selling banks having total assets of between $100 million
and $400 million; (iii) selling banks having an equity to assets ratio of
between 9.00% and 10.50%; (iv) selling banks having a return on average assets
ratio of between 1.10% and 1.50%; and (v) selling banks having non-performing
assets as a percent of total assets of between 0.80% and 1.30%. McDonald &
Company reviewed the ratios of the offer value to stated book value and tangible
book value, the multiple of the last twelve months earnings of the acquired
company, and the ratio of the offer value to assets in each such transaction and
computed median ratios and multiples for each group. The calculations yielded
ranges of median ratios of price to stated book value of 172% to 218%. Median
ratios of price to tangible book value ranged from 174% to 228%. Median
multiples of earnings among the five groups ranged from 15.1x to 20.6x. Median
ratios of offer value to assets ranged from 16.5% to 21.3%. Applying the median
of the medians for each of these four ratios to Farmers' actual per share
financial data as of March 31, 1997 showed an imputed reference range of $130 to
$160 per share of Farmers Common Shares.
NO COMPANY OR TRANSACTION USED IN THE ABOVE ANALYSES AS A COMPARISON IS
IDENTICAL TO FIRST CITIZENS, FARMERS, OR THE MERGER. ACCORDINGLY, AN ANALYSIS OF
THE RESULTS OF THE FOREGOING NECESSARILY INVOLVES COMPLEX CONSIDERATIONS AND
JUDGMENTS CONCERNING THE DIFFERENCES IN FINANCIAL AND OPERATING CHARACTERISTICS
OF THE COMPANIES AND OTHER FACTORS THAT COULD AFFECT THE PUBLIC TRADING VALUES
OR ACQUISITION VALUES OF THE COMPANIES TO WHICH THEY ARE BEING COMPARED.
MATHEMATICAL ANALYSIS (SUCH AS DETERMINING THE MEAN OR MEDIAN) IS NOT, IN
ITSELF, A MEANINGFUL METHOD OF USING COMPARABLE COMPANY OR COMPARABLE
TRANSACTION DATA.
Discounted Cash Flow Analysis
Using a discounted cash flow analysis, McDonald & Company estimated the
present value of the future streams of after-tax cash flows that Farmers could
produce over a five year period from 1998 through 2002, under various
assumptions, based upon First Citizens and Farmers management's forecasts.
McDonald & Company
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then estimated the terminal value of Farmers after the five year period by
applying an estimated perpetual growth rate to the terminal year's projected
after-tax cash flow and then applied to this multiples ranging from 12.0x to
16.0x. The five-year cash flow streams and terminal values were then discounted
to present values using different discount rates chosen to reflect different
assumptions regarding the required rates of return of prospective buyers of
Farmers. On the basis of such varying assumptions, this discounted cash flow
analysis indicated a reference range of $103 to $138 per share of Farmers Common
Shares. This analysis was based upon First Citizens and Farmers management's
forecasts, including variations and assumptions made by McDonald & Company,
which included adjustments to reflect the anticipated effects of potential
merger-related cost savings estimated by First Citizens and Farmers.
Management's projections are based upon many factors and assumptions, many of
which are beyond the control of First Citizens or Farmers. As indicated above,
this analysis is not necessarily indicative of actual values or actual future
results and does not purport to reflect the prices at which any securities may
trade at the present time or at any time in the future.
Other Analysis
In addition to performing the analyses summarized above, McDonald & Company
also considered its analysis of the general market for bank and thrift mergers,
Farmers' relative share of the deposit market that it serves and the general
economic conditions and prospects of those markets.
In arriving at its opinion, McDonald & Company placed significant weight on
the Pro Forma Merger Analysis and Contribution Analysis. The disparity between
the valuation levels of the First Citizens Common Shares and the First Citizens
Peer Group (and other bank stocks) affects the comparison of the value of the
Merger in nominal terms to the value indicated in the Analysis of Comparable
Companies, Selected Merger Transactions and Discounted Cash Flow above.
Application of these three valuation techniques to the proposed Merger indicated
that an Exchange Ratio lower than that contemplated by the Reorganization
Agreement would have been appropriate. However, the relative illiquidity of the
market for First Citizens Common Shares, the lack of a research following and
the small number of market makers for the First Citizens Common Shares, as well
as the relationship of various measures of First Citizens' financial performance
to those for companies included in the First Citizens Peer Group led McDonald &
Company to give more weight to valuation methods in which the market valuation
of First Citizens Common Shares was not a central component of the analysis. In
rendering its oral opinion to the Board of Directors of First Citizens on July
2, 1997, McDonald & Company discussed with the First Citizens Board of Directors
its determination that First Citizens Common Shares were valued at significantly
higher multiples of earnings and book value as compared to both the First
Citizens Peer Group and other potential acquirors of Farmers. McDonald & Company
also extensively discussed with the First Citizens Board of Directors the
implications that such trading multiples would have on First Citizens' ability
to offer Farmers a nominally higher offer value in a stock for stock exchange
while limiting the dilution in ownership and earnings per share to the current
First Citizens shareholders.
In performing its analyses, McDonald & Company made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters. The analyses performed by McDonald & Company are not
necessarily indicative of actual values, which may be significantly more or less
favorable than the values suggested by such analyses. Such analyses were
prepared solely as part of McDonald & Company's opinion.
The term "fair from a financial point of view" is a standard phrase
contained in investment banker fairness opinions and refers to the fact that
McDonald & Company's opinion as to the fairness of the Exchange Ratio is
addressed solely to the financial attributes of the Exchange Ratio. The analyses
do not purport to be appraisals or to reflect the prices at which a company
might actually be sold. In addition, as described above, McDonald & Company's
fairness opinion and presentation to the First Citizens Board of Directors were
one of many factors taken into consideration by the First Citizens Board of
Directors in making its determination to approve the Reorganization Agreement.
Consequently, the McDonald & Company analyses described above should not be
viewed as determinative of the First Citizens Board of Directors' conclusions
with respect to the value of Farmers or of the decision of the First Citizens
Board of Directors to agree to the Exchange Ratio.
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McDonald & Company's opinion is based on economic and market conditions and
other circumstances existing on, and information made available as of, the date
of such opinion. In addition, the opinion does not address First Citizens'
underlying business decision to effect the Merger or any other terms of the
Merger. McDonald & Company is not rendering any opinion as to the value of First
Citizens Common Shares or Farmers Common Shares at the Effective Time.
In connection with its opinion dated as of the date of this Joint Proxy
Statement/Prospectus, McDonald & Company performed procedures to update certain
of its analyses and reviewed the assumptions on which such analyses were based
and the factors considered therewith. As a part of these procedures, McDonald &
Company considered the change in the Exchange Ratio to 6.06 as agreed to by
Farmers and First Citizens on November 26, 1997 and that certain historical
financial statements for Farmers have been restated.
McDonald & Company, as part of its investment banking business, is
customarily engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. McDonald & Company has
extensive experience with the valuation of financial institutions. First
Citizens' Board of Directors selected McDonald & Company as its financial
advisor because of McDonald & Company's industry expertise with respect to
financial institutions and because of McDonald & Company's industry experience
in transactions similar to the Merger. McDonald & Company is not affiliated with
either First Citizens or Farmers.
In the ordinary course of business, McDonald & Company makes a market in
First Citizens Common Shares and may actively trade the securities of First
Citizens and Farmers for its own account and for the accounts of its customers.
Accordingly, at any time McDonald & Company may hold a long or short position in
such securities. In addition, McDonald & Company has provided investment banking
services to First Citizens in the past for which it has received customary
compensation and may provide such services to First Citizens in the future.
For its services as financial advisor, First Citizens has paid McDonald &
Company a retainer of $15,000 and a fee of $35,000 upon the rendering of
McDonald & Company's July 2, 1997 oral fairness opinion. Additional fees equal
to approximately $125,000 will be payable to McDonald & Company upon
consummation of the Merger. First Citizens has also agreed to reimburse McDonald
& Company for its reasonable out-of-pocket expenses and to indemnify McDonald &
Company against certain liabilities, including certain liabilities under federal
securities laws.
FAIRNESS OPINION OF AUSTIN ASSOCIATES
Austin Associates is a recognized investment banking firm regularly engaged
in the valuation of financial institutions and other businesses and their
securities in connection with mergers and acquisitions and in valuation for
estate, corporate and other purposes. Farmers selected Austin Associates to
serve as financial adviser in connection with the Merger on the basis of its
reputation and qualifications in representing financial institutions in mergers
and acquisitions.
Austin Associates orally advised Farmers' Board of Directors as of July 3,
1997, and has rendered a written opinion to Farmers' Board of Directors as of
the date hereof, to the effect that the terms of the Merger are fair from a
financial point of view to the shareholders of Farmers as of the date of the
opinion. A copy of Austin Associates' fairness opinion is attached as Appendix E
to this Proxy Statement/Prospectus and should be read in its entirety. Austin
Associates based its opinion upon, among other things: (i) a comparison of the
financial statements and other financial information concerning Farmers and
First Citizens set forth or incorporated by reference in this Proxy
Statement/Prospectus; (ii) certain other financial information concerning
Farmers, including, but not limited to, operating budgets and loan loss reserve
adequacy reports; (iii) financial and share price data of Farmers, First
Citizens and comparable banking organizations; (iv) the financial terms, to the
extent publicly available, of certain comparable transactions; (v) the terms of
certain other proposals received by Farmers from other banking institutions; and
(vi) discussions with the management of Farmers and First Citizens.
THE FULL TEXT OF THE OPINION OF AUSTIN ASSOCIATES, UPDATED AS OF THE DATE
OF THIS PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH CERTAIN ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE
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REVIEWS UNDERTAKEN, IS ATTACHED AS APPENDIX E TO THIS PROXY
STATEMENT/PROSPECTUS, AND SHOULD BE READ IN ITS ENTIRETY. THE SUMMARY OF THE
OPINION OF AUSTIN ASSOCIATES SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OPINION. AUSTIN ASSOCIATES'
OPINION SHOULD NOT BE CONSTRUED BY HOLDERS OF FARMERS' COMMON SHARES AS A
RECOMMENDATION AS TO HOW SUCH HOLDERS SHOULD VOTE AT THE SPECIAL MEETING.
The terms of the Reorganization Agreement were determined by First Citizens
and Farmers, and their representatives, after arm's-length negotiations between
the parties. Austin Associates participated in the negotiations on behalf of
Farmers.
In connection with rendering its opinion, Austin Associates performed a
variety of financial analyses, which are summarized below. Austin Associates
believes its analyses must be considered as a whole and that selecting portions
of such analyses and the factors considered therein, without considering all
factors and analyses, could create an incomplete view of the analyses and the
process underlying the Austin Associates opinion. The preparation of a fairness
opinion is a complex process involving subjective judgments and is not
necessarily susceptible to partial analyses or summary description. In its
analyses, Austin Associates made numerous assumptions with respect to industry
performance, business and economic conditions, and other matters, many of which
are beyond Farmers' or First Citizens' control. Any estimates contained in
Austin Associates' analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable than the estimates.
The Process for Soliciting Indications of Interest from Potential Purchasers
After analysis and discussions between Austin Associates and Farmers,
thirty potential purchasers were contacted to determine their potential interest
in acquiring Farmers. Of the organizations contacted, twenty requested
confidential information packages which provided detailed information regarding
the business and operations of Farmers. Each organization provided information
was requested to submit a specific proposal to acquire Farmers. Austin
Associates pursued discussions with each organization that had requested the
confidential information. As a result of this process, seven organizations
submitted proposals to acquire Farmers. The Farmers Board selected the First
Citizens proposal after extensive deliberation and negotiation.
Comparative Price Analysis
Austin Associates reviewed a comparison of prices paid in selected sale of
control transactions announced in Ohio between January 1, 1995 and November 30,
1997, for banks having assets of between $23 million and $194 million. The 11
transactions reviewed had an average price to book value ratio of 221 percent
and a price to earnings multiple of 22.1 times. The median multiples were 207
percent of book value and 21.8 times earnings. The market value of the
consideration to be received by Farmers shareholders in the Merger is estimated
at 262 percent of Farmers' book value at September 30, 1997, based on an
aggregate transaction value of $41.8 million. The transaction value was computed
using the July 2, 1997 market price of First Citizens of $34.50 per share. The
market value of the consideration is further estimated to equal 26.1 times
Farmers' consolidated earnings per share for the year ended December 31, 1996
and 31.6 times annualized earnings per share for the nine months ended September
30, 1997.
Contribution Analysis
Austin Associates compared the pro forma ownership interest in First
Citizens that Farmers shareholders would receive, in the aggregate, to the
contribution by Farmers to the total assets, equity and net income in the
combined organization. Assuming a September 30, 1997, closing date for the
Merger, Farmers shareholders would own approximately 28.4 percent of First
Citizens on a pro forma basis. Farmers' contribution of total assets would equal
32.9 percent, the contribution of total equity would equal 30.6 percent, and the
contribution of net income for the nine months ending September 30, 1997 would
have equaled 26.1 percent. The contribution of net income for the year ended
December 31, 1996 would have equaled 28.8 percent.
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Dilution Analysis
Austin Associates also reviewed the pro forma effect of the Merger on
Farmers' and First Citizens' December 31, 1996 and September 30, 1997 earnings
per share and book value per share. Farmers recorded earnings per share in 1996
of $8.02 and a book value of $73.42 per share as of year end 1996. Giving effect
to the Merger, the equivalent Farmers earnings per share would have equaled
$7.94, a decrease of 1.0 percent from actual results. Book value per share would
have decreased to $69.21 per share, a decrease of 5.7 percent from actual book
value. Giving effect to the Merger, First Citizens' book value per share would
have been increased by $0.14 or 1.2 percent, and earnings per share would have
been increased by $0.01 or 0.8 percent.
Farmers recorded year to date earnings per share of $4.96 and a book value
of $79.77 per share as of September 30, 1997. Giving effect to the Merger, the
equivalent Farmers earnings per share would have equaled $5.39, an increase of
8.7 percent over actual results. Book value per share would have decreased to
$73.99 per share, a decrease of 7.2 percent from actual book value. Giving
effect to the Merger, First Citizens' book value per share would have been
increased by $0.38 or 3.2 percent, and earnings per share would have been
decreased by $0.03 or 3.3 percent.
Dividends
Austin Associates reviewed the current cash dividends paid by Farmers and
First Citizens. Based on the exchange ratio of 6.06 First Citizens shares for
each share of Farmers, equivalent dividends to Farmers shareholders would have
been $6.18 for the year ended December 31, 1996, a 341 percent increase over
actual dividends received by Farmers shareholders of $1.40 per share.
The summary set forth above does not purport to be a complete description
of the analyses performed by Austin Associates. Further, Austin Associates did
not conduct a physical inspection of any of the properties or assets of Farmers
or First Citizens. Austin Associates has assumed and relied upon the accuracy
and completeness of the financial and other information provided to it or
publicly available, has relied upon the representations and warranties of
Farmers and First Citizens made pursuant to the Reorganization Agreement, and
has not independently attempted to verify any of such information. Austin
Associates has also assumed that the conditions to the Merger as set forth in
the Reorganization Agreement would be satisfied and that the Merger would be
consummated on a timely basis in the manner contemplated by the Reorganization
Agreement. No limitations were imposed by Farmers or First Citizens on the scope
of Austin Associates' investigation nor were any specific instructions given to
Austin Associates in connection with its fairness opinion.
For Austin Associates' services as financial advisor, Farmers will pay the
firm a fee of $40,000, plus a contingent amount equal to 1.00 percent of the
transaction value when the Merger is consummated. In addition, Farmers has
agreed to reimburse Austin Associates for reasonable out-of-pocket expenses and
indemnify Austin Associates against certain liabilities, including liabilities
under the securities laws.
EFFECTIVE TIME OF THE MERGER
As used in this Proxy Statement/Prospectus, "Effective Time" means the date
and time when the Merger becomes effective, which will occur upon the filing
with the Ohio Secretary of State of a certified copy of the Merger Agreement, a
certificate of approval from the Ohio Department of Commerce, Division of
Financial Institutions ("ODFI") in accordance with Sections 1121.05 and 1121.06
of the ORC and a certificate of adoption certifying that the Merger has been
approved by Farmers' Board of Directors and shareholders.
PAYMENT OF CASH IN LIEU OF FRACTIONAL SHARES
No fractional First Citizens Common Shares will be issued in connection
with the Merger. Each Farmers shareholder who would otherwise have been entitled
to receive a fraction of a First Citizens Common Share will receive, in lieu
thereof, cash therefor, without interest, at a price based upon $33.50 per share
of First Citizens Common Shares.
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SURRENDER OF CERTIFICATES
Following approval of the Merger by the respective shareholders of Farmers
and First Citizens, each Farmers' shareholder will receive a Letter of
Transmittal, together with instructions, for use in surrendering certificates
representing Farmers Common Shares ("Old Certificates") in exchange for First
Citizens Common Shares and handling the payment of cash in lieu of fractional
First Citizens Common Shares. The Letter of Transmittal will instruct
surrendering shareholders to send their Old Certificates to Fifth Third Bank, as
exchange agent (the "Exchange Agent"), duly endorsed for transfer or accompanied
by a duly endorsed assignment separate from the certificate(s). If the Merger is
consummated, the Old Certificates surrendered will be exchanged for one or more
certificates representing the whole number of First Citizens Common Shares based
on the Exchange Ratio and payment of cash in lieu of fractional shares. Until so
surrendered, each outstanding Old Certificate shall be deemed from and after the
Effective Time for all purposes to represent only the right to receive, upon
surrender, one or more certificates for First Citizens Common Shares and cash in
lieu of fractional shares. If the Merger is not consummated, the Exchange Agent
will return any Old Certificates it has received to the persons surrendering
such Old Certificates in accordance with the Letter of Transmittal and
instructions.
If any certificates for First Citizens Common Shares are to be issued in a
name(s) other than that in which an Old Certificate surrendered or exchanged is
issued, the Old Certificate so surrendered must be properly endorsed and
otherwise in proper form for transfer. The person requesting the exchange must
affix any requisite stock transfer tax stamps to the Old Certificate
surrendered, provide funds for their purchase, or establish to the satisfaction
of the Exchange Agent that such taxes have been paid or are not applicable.
In the event of a lost certificate, the shareholder shall provide, in lieu
of the lost certificate, an affidavit attesting to the loss of said certificate
and, if required by Farmers or the Exchange Agent, an indemnification or bond in
such reasonable amount as Farmers or the Exchange Agent may direct. Unless and
until the Old Certificates, or affidavit and, if required by the Surviving Bank
or the Exchange Agent, an indemnification or bond in lieu thereof, are presented
to the Exchange Agent, the holder thereof shall not be entitled to receive any
consideration to be paid in connection with the Merger or any dividends payable
on First Citizens Common Shares, or to exercise any rights as a holder of First
Citizens Common Shares. On or after the Effective Time, upon surrender of the
Old Certificates, or affidavit and an indemnification or bond in lieu thereof,
to the Exchange Agent, the holder thereof will be paid the consideration to
which the holder is entitled under the Merger Agreement and any dividends which
theretofore became payable on any First Citizens Common Shares to which the
holder is entitled. No dividends or other distributions, if any, payable to the
holders of record of First Citizens Common Shares as of any date subsequent to
the Effective Time shall be paid to any holder of any outstanding Old
Certificate until the holder thereof surrenders such Old Certificate as provided
in the Merger Agreement. Subject to applicable law, no holder of an Old
Certificate shall be entitled to vote or exercise any other rights of a holder
of First Citizens Common Shares.
After the consummation of the Merger, there will be no transfers on the
stock transfer books of Farmers of any Farmers Common Shares. If, after the
consummation of the Merger, Old Certificates are properly presented to First
Citizens, they will be canceled and exchanged for the consideration specified in
the Merger Agreement, subject to applicable law and to the extent that First
Citizens has not paid such consideration to a public official pursuant to
applicable abandoned property laws.
INTEREST OF MANAGEMENT IN THE MERGER
The Reorganization Agreement provides that First Citizens will offer the
existing full time employees of Farmers the opportunity to continue as employees
of the Surviving Bank following the Merger. The Reorganization Agreement further
provides, however, that such commitment shall not be deemed to be a contract of
employment or construed to give Farmers' employees any rights other than as
employees at will under Ohio law and Farmers' employees shall not be deemed to
be third-party beneficiaries of such commitment. Farmers employees who continue
as employees of the Surviving Bank following the Merger will have their years of
service credited toward eligibility and vesting in First Citizens' pension,
savings and retirement plans and will be entitled to participate in a variety of
on-going educational and training programs offered by First Citizens and its
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subsidiaries. In addition, two members of Farmers' current Board of Directors
shall have the right to serve on the Board of Directors of First Citizens,
effective at or prior to First Citizens' 1998 shareholder meeting.
RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders of Farmers are entitled to certain dissenters' rights pursuant
to Section 1701.85 of the ORC. Sections 1701.85 and 1115.19 generally provide
that shareholders of Farmers will not be entitled to such rights absent
compliance with Section 1701.85 and failure to take any one of the required
steps may result in the termination or waiver of such rights. Specifically, any
Farmers shareholder who is a record holder of Farmers Common Shares on the
Farmers Record Date and whose shares are not voted in favor of the Merger may be
entitled to be paid the "fair cash value" of such Farmers Common Shares after
the Effective Time. To be entitled to such payment, a shareholder must deliver a
written demand for payment therefor to Farmers on or before the tenth day
following the Special Meeting and must otherwise comply with Section 1701.85.
Any written demand must specify the shareholder's name and address, the number
and class of shares held by him or her on the Farmers Record Date, and the
amount claimed as the "fair cash value" of said Farmers Common Shares. See the
text of Sections 1115.19 and 1701.85 of the ORC attached as Appendix C to this
Proxy Statement/Prospectus for specific information on the procedure to be
followed in exercising dissenters' rights.
If Farmers so requests, dissenting shareholders must submit their share
certificates to Farmers within fifteen days of such request, for endorsement
thereon by Farmers that demand for appraisal has been made; failure to comply
with such request could terminate the dissenting shareholders' rights. Such
certificates will be promptly returned to the dissenting shareholders by
Farmers. If Farmers and any dissenting shareholder cannot agree upon the "fair
cash value" of the Farmers Common Shares, either may, within three months after
service of demand by the shareholder, file a petition in the Court of Common
Pleas of Crawford County, Ohio (the "Court") for a determination of the "fair
cash value" of said Farmers Common Shares. The Court may appoint one or more
appraisers to determine the "fair cash value" and if the Court approves the
appraisers' report, judgment will be entered therefor, and the costs of the
proceedings, including reasonable compensation of the appraisers, will be
assessed or apportioned as the Court considers equitable.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary of the material federal income tax consequences of
the Merger to holders who hold Farmers Common Shares as capital assets and deals
only with holders who are (i) citizens or residents of the United States, (ii)
domestic corporations or (iii) otherwise subject to United States federal income
tax on a net income basis in respect of Shares ("U.S. Holders"). This summary
may not apply to certain classes of taxpayers, including, without limitation,
insurance companies, tax-exempt organizations, financial institutions, dealers
in securities, persons who acquired Farmers Common Shares pursuant to the
exercise of employee stock options or rights or otherwise as compensation and
persons who hold shares of Farmers Common Shares in a hedging transaction or as
part of a straddle or conversion transaction. Also, the summary does not address
state, local or foreign tax consequences of the Merger. Consequently, each
holder should consult such holder's own tax advisor as to the specific tax
consequences of the Merger to such holder.
This summary is based on current law and the opinion of counsel to Farmers.
Future legislative, judicial or administrative changes or interpretations, which
may be retroactive, could alter or modify the statements set forth herein. The
opinion of Werner & Blank Co., L.P.A. set forth in this summary is based, among
other things, on assumptions relating to certain facts and circumstances of, and
the intentions of the parties to, the Merger, which assumptions have been made
with the consent of Farmers and First Citizens. Neither Farmers nor First
Citizens has requested, and neither Farmers nor First Citizens will request, any
ruling from the Internal Revenue Service as to the federal income tax
consequences of the Merger.
It is intended that the Merger will be treated as a reorganization within
the meaning of Section 386(a) of the Code, and that, accordingly, for federal
income tax purposes no gain or loss will be recognized by Farmers as a result of
the Merger.
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In the opinion of Werner & Blank Co., L.P.A., the material federal income
tax consequences to U.S. Holders who exchange shares of Farmers Common Shares
for shares of First Citizens Common Shares, pursuant to the Merger will be as
follows:
(i) The Merger will constitute a "Statutory Merger" within the meaning
of Section 368(a)(1)(A) and (a)(2)(E) of the Code and Farmers Interim Bank,
Farmers and First Citizens will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code.
(ii) No gain or loss will be recognized by Farmers as a result of the
Merger.
(iii) No gain or loss will be recognized by Farmers shareholders who
exchange their Farmers Common Shares solely for First Citizens Common
Shares in the Merger.
(iv) The federal income tax basis of the First Citizens Common Shares
received by Farmers shareholders in the Merger will be the same as the
federal income tax basis in the Farmers Common Shares exchanged therefor,
respectively.
(v) The holding period for the First Citizens Common Shares received
by each Farmers shareholder in the Merger will include the period during
which the Farmers Common Shares exchanged therefor were held, provided that
the exchanged Farmers Common Shares were held as capital assets by such
Farmers shareholder on the date of the exchange.
(vi) The payment of cash in lieu of fractional shares for the purpose
of mechanically rounding off the fractions resulting from the exchange
will, in each instance, constitute a distribution not essentially
equivalent to a dividend within the meaning of Section 302(b)(1) of the
Code. The amount received will be treated as a distribution in full payment
in exchange for such Farmers shareholder's fractional share of interest
under Section 302(a) of the Code.
The obligation of Farmers and First Citizens to consummate the Merger is
conditioned on the receipt by Farmers of an opinion of its counsel, Werner &
Blank Co., L.P.A., dated as of the closing date of the Merger, substantially to
the effect that (i) the Merger will constitute a tax free reorganization, (ii)
no gain or loss will be recognized by Farmers as a consequence of the Merger,
(iii) no gain or loss will be recognized by the Farmers shareholders upon the
receipt solely of First Citizens Common Shares in exchange for Farmers Common
Shares, except with respect to any cash received in lieu of a fractional share
interest in First Citizens Common Shares, (iv) the federal income tax basis of
the First Citizens Common Shares received by the Farmers shareholders for their
Farmers Common Shares will be the same as the federal income tax basis of the
Farmers Common Shares surrendered in exchange therefor, and (v) the holding
period for the First Citizens Common Shares received by each Farmers Shareholder
in exchange for Farmers Common Shares will include the period for which the
Farmers Common Shares exchanged therefor were held, provided that the exchanged
Farmers Common Shares were held as capital assets by such Farmers shareholder.
Farmers shareholders who exercise dissenters' rights and receive cash for their
Farmers Common Shares will be treated as having received a distribution in
redemption of their shares which will result in such shareholders receiving
income for federal income tax purposes. The opinion of Werner & Blank Co.,
L.P.A. referred to in this paragraph will be based upon certain facts,
assumptions and representations and/or covenants, including those contained in
certificates of officers of Farmers, First Citizens and, possibly, others.
Subject to the receipt of such representations and/or covenants, Werner & Blank
Co., L.P.A. anticipates that it will render such opinion.
REGULATORY APPROVALS
First Citizens has filed the applications necessary to obtain the approval
for the Merger from the Federal Reserve Board, the ODFI and the Federal Deposit
Insurance Corporation (the "FDIC"). The Merger may not be consummated for 15
days after approval by the Federal Reserve Board, during which time an action
may be brought by the United States Department of Justice challenging the Merger
on antitrust grounds. Neither First Citizens nor Farmers has any reason to
believe the Merger will be challenged on antitrust grounds.
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BUSINESS PENDING THE MERGER
The Reorganization Agreement provides that, pending consummation of the
Merger, Farmers will, among other things: (i) continue to operate in the
ordinary course; (ii) promptly advise First Citizens in writing of all material
actions taken by the directors and shareholders of Farmers and all developments
which, in the opinion of Farmers, may have a material adverse effect upon the
business, properties or condition (either financial or otherwise) of Farmers;
(iii) refrain from issuing, selling or granting any option for, or acquire for
value any shares of its capital stock or otherwise effecting any change in
connection with its capitalization; (iv) subject to certain exceptions, refrain
from changing its method of accounting or its method of tax reporting; (v)
refrain from merging into, consolidating with, or selling its assets to any
other corporation or person, or permitting any other corporation to be merged or
consolidated with it; and (vi) refrain from acquiring all of the assets of any
other corporation or person. The Reorganization Agreement further provides that
Farmers may not declare or pay any dividends or make any distributions other
than regular cash dividends, payable at such times and in amounts consistent
with past practice and not to exceed the per share rate paid in the prior
calendar year; provided, that, if the Merger shall occur prior to the payment of
the regular annual cash dividend of Farmers, Farmers may pay a cash dividend in
an amount equal to the per share rate paid in the prior calendar year, prorated
to the date of the Merger.
In the Reorganization Agreement, Farmers has agreed that it will not,
except with the written consent of First Citizens, directly or indirectly
solicit or encourage, nor will it permit any of its officers, directors,
employees, or agents directly or indirectly to solicit or encourage, including
by way of furnishing information, any inquiries or proposals for a merger,
consolidation, share exchange or similar transaction involving Farmers or for
the acquisition of the stock or all or substantially all of the assets or
business of Farmers, or discuss with or enter into conversations with any person
(other than Farmers' shareholders or employees) concerning any such merger,
consolidation, share exchange or other transaction, other than the Merger;
provided, however, that Farmers may communicate information about any such
proposals or inquiries to its shareholders and to the extent that it is required
to do so in order to reasonably comply with its legal obligations. Farmers has
agreed to promptly notify First Citizens orally (to be confirmed in writing as
soon as practicable thereafter) of all of the relevant details relating to any
inquiries or proposals that it may receive relating to any such matters,
including actions it intends to take with respect to such matters.
In order to induce First Citizens to enter into the Reorganization
Agreement and incur the substantial expenses involved in effectuating the
transactions contemplated thereby, Farmers has further agreed to pay First
Citizens the sum of $500,000 upon First Citizens' demand therefor, in the event
the Farmers shareholders fail to approve the Reorganization Agreement or the
Merger Agreement as a result of Farmers' decision to entertain offers from and
negotiate with a bona fide offeree other than First Citizens.
Pursuant to an Administrative Services Agreement ("Services Agreement")
dated as of September 18, 1997 by and between First Citizens and Farmers, First
Citizens has agreed to provide certain administrative, operational and other
support services to Farmers during the period from September 18, 1997 to the
date of the consummation of the Merger (or earlier termination of the Merger
Agreement) and Farmers has agreed to pay First Citizens the sum of $1,739.40 per
week during such period as compensation for the rendering of such services.
The Services Agreement provides that (i) the specific services to be
performed by First Citizens thereunder must be approved in advance by Farmers'
Board of Directors, (ii) all such services are advisory only and (iii) any
actions taken by Farmers in implementing First Citizens' recommendations will be
taken by Farmers only upon specific authority from, or action by, Farmers'
Board. First Citizens has agreed that in performing services under the Services
Agreement, it will conduct its activities in a manner designed to protect
against the disclosure or misuse of Farmers' proprietary/confidential
information. Each party has agreed to indemnify the other party against any loss
or liability caused by the indemnifying party's negligence or failure to comply
with its obligations under the Service Agreement. The Services Agreement has
been reviewed by the ODFI and the Federal Reserve Board.
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<PAGE> 39
OTHER PROVISIONS OF THE REORGANIZATION AGREEMENT AND THE MERGER AGREEMENT
Representations and Warranties
The Reorganization Agreement contains representations and warranties by the
parties regarding, among other things, their respective organization, authority
to enter into the Reorganization Agreement and the Merger Agreement,
capitalization, pending and threatened litigation, contractual obligations,
compliance with applicable laws and regulations, financial statements and
filings with regulatory agencies. These representations and warranties will not
survive consummation of the Merger. The Reorganization Agreement includes
certain exceptions to Farmers' representations and warranties, none of which are
deemed material to this transaction. Such exceptions are contained in the
Disclosure Letter to the Reorganization Agreement which may be reviewed upon
request to The Farmers State Bank of New Washington, Ohio, 102 South Kibler
Street, New Washington, Ohio 44854-9401; Attention, Wanda J. White, Secretary.
Conditions to the Merger
The obligations of Farmers and First Citizens to consummate the Merger are
subject to, without limitation, the following conditions: (i) Farmers and First
Citizens shall have received all necessary approvals of governmental agencies
and authorities (including but not limited to the Federal Reserve Board, the
FDIC, the ODFI and the Securities and Exchange Commission) of the transactions
contemplated by the Reorganization Agreement and each of such approvals shall
remain in full force and effect at the time the Merger shall have become
effective, and such approvals and the transactions contemplated thereby shall
not have been contested by any formal proceeding which has a reasonable
likelihood of being successfully prosecuted and, if successfully prosecuted,
would materially and adversely affect the benefits intended for each of the
parties under the Reorganization Agreement; (ii) the registration statement of
which this Proxy Statement/Prospectus is a part (registering the exchange of the
First Citizens Common Shares for Farmers Common Shares) and all state securities
and "blue sky" filings have become effective and no stop orders or similar
restraining orders shall have been issued; (iii) the Reorganization Agreement
and the Merger Agreement, and the transactions contemplated thereby, shall have
been duly adopted, ratified and confirmed by the requisite affirmative votes of
the shareholders of Farmers and the shareholders of First Citizens; and (iv)
there shall not have been any material adverse change or discovery of a
condition or the occurrence of an event which has or is likely to result in such
a change, in the financial condition, aggregate net assets, stockholders'
equity, business or operating results of Farmers from December 31, 1996 to the
time the Merger shall become effective.
The obligation of First Citizens to consummate the Merger is also subject
to, without limitation, the following conditions: (i) Farmers shall not have
paid any cash dividends from the date of the Reorganization Agreement to the
Effective Time, except as permitted under the Reorganization Agreement; (ii) all
representations and warranties by Farmers contained in the Reorganization
Agreement shall be true in all material respects as of the Effective Time, other
than representations and warranties made as of a specified time other than the
Effective Time, which shall be true in all material respects as of such
specified time; (iii) First Citizens shall have received the opinion of the
legal counsel for Farmers as to certain matters relating to the transactions
contemplated by the Reorganization Agreement; (iv) Farmers shall have performed
or satisfied in all material respects all undertakings, agreements and
conditions required by the Reorganization Agreement to be performed or satisfied
by it at or prior to the Effective Time; (v) at the Effective Time, no suit,
action or proceeding shall be pending or overtly threatened before any court or
governmental agency in which it is sought to restrain or prohibit the
consummation of the Merger, and no other suit, action or proceeding shall be
pending or overtly threatened and no liability or claim shall have been asserted
against Farmers which has a reasonable likelihood of being successfully
prosecuted and if successfully prosecuted, would materially and adversely affect
the benefits intended for First Citizens under the Reorganization Agreement;
(vi) prior to the effective time of the Merger, First Citizens shall not have
been deprived of adequate opportunity to complete its due diligence
investigation of the business, properties and condition of Farmers; (vii)
holders of not more than 10% of the Farmers Common Shares shall have taken steps
to perfect their rights as dissenting stockholders; (viii) each of the Board of
Directors of Farmers, the shareholders of Farmers and the shareholders of First
Citizens shall have approved the Reorganization Agreement and the Merger
Agreement; and (ix) First Citizens shall have received an opinion
26
<PAGE> 40
letter from Crowe, Chizek and Company LLP stating that the Merger qualifies for
treatment as a "pooling of interests" for financial statement reporting
purposes.
The obligation of Farmers to consummate the Merger is also subject to,
without limitation, the following conditions: (i) all representations and
warranties by First Citizens contained in the Reorganization Agreement shall be
true in all material respects as of the Effective Time, other than
representations and warranties made as of a specified time other than the
Effective Time, which shall be true in all material respects as of such
specified time; (ii) Farmers shall have received the opinion of the legal
counsel for First Citizens as to certain matters relating to the transactions
contemplated by the Reorganization Agreement; (iii) First Citizens shall have
performed or satisfied in all material respects all undertakings, agreements and
conditions required by the Reorganization Agreement to be performed or satisfied
by it at or prior to the Effective Time; (iv) at the Effective Time, no suit,
action or proceeding shall be pending or overtly threatened before any court or
governmental agency in which it is sought to restrain or prohibit the
consummation of the Merger, and no other suit, action or proceeding shall be
pending or overtly threatened and no liability or claim shall have been asserted
against First Citizens which has a reasonable likelihood of being successfully
prosecuted and, if successfully prosecuted, would materially and adversely
affect the benefits intended for Farmers and its shareholders under the
Reorganization Agreement; and (v) Farmers and First Citizens shall have received
an opinion of the legal counsel for Farmers to the effect that (A) the Merger
will constitute a tax free reorganization, (B) no gain or loss will be
recognized by Farmers as a consequence of the Merger, (C) no gain or loss will
be recognized by the Farmers shareholders upon the receipt solely of First
Citizens Common Shares in exchange for Farmers Common Shares, except with
respect to any cash received in lieu of a fractional share interest in First
Citizens Common Shares, (D) the federal income tax basis of the First Citizens
Common Shares received by the Farmers shareholders for their Farmers Common
Shares will be the same as the federal income tax basis of the Farmers Common
Shares surrendered in exchange therefor, and (E) the holding period for the
First Citizens Common Shares received by each Farmers Shareholder in exchange
for Farmers Common Shares will include the period for which the Farmers Common
Shares exchanged therefor were held, provided that the exchanged Farmers Common
Shares were held as capital assets by such Farmers shareholder.
The foregoing disclosure regarding conditions to the Merger represents and
includes all material conditions to the consummation thereof.
Amendments; Termination
Neither the Reorganization Agreement nor the Merger Agreement may be
amended except by a written agreement executed by the party to be charged with
the amendment.
Both the Reorganization Agreement and the Merger Agreement may be
terminated as follows: (i) by First Citizens or Farmers if the conditions
precedent to their respective obligations to consummate the Merger have not been
satisfied; (ii) by mutual consent of First Citizens and Farmers; (iii) by First
Citizens or Farmers if the Merger has not occurred (other than through the
failure of the party seeking to terminate to comply fully with its obligations
under the Merger Agreement) by February 28, 1998; and (iv) by First Citizens if
Farmers receives a written examination report from, or enters into a written
agreement with, any state or federal banking regulatory agency and during the
30-day period following First Citizens' receipt of such report or agreement
(prior to the consummation of the Merger), First Citizens provides Farmers with
written notice of its intent to terminate. In addition, the Merger Agreement may
be terminated by Farmers if the average closing sale price of First Citizens
Common Shares for the ten consecutive trading days ending on the third trading
day prior to the Effective Time is $26.80 or less and by First Citizens or
Farmers if there shall have been a final judicial determination that any
material provision of the Merger is illegal, invalid or unenforceable.
If the Reorganization Agreement is terminated as a result of a party's
breach of the Reorganization Agreement or because of a party's failure to comply
with its obligations under the Reorganization Agreement, the terminating party
shall have the right to pursue all legal remedies available to it.
27
<PAGE> 41
EXPENSES OF THE MERGER
Each of First Citizens and Farmers shall bear its own expenses in
connection with the Merger, except that First Citizens shall be responsible for
all expenses incident to obtaining requisite regulatory approvals.
OPERATIONS OF FARMERS AFTER THE MERGER
Pursuant to the terms of the Reorganization Agreement and the Merger
Agreement, Farmers Interim Bank shall be merged with and into Farmers and
Farmers shall be the Surviving Bank as of the Effective Time. The Articles of
Incorporation and Code of Regulations of Farmers shall become the Articles of
Incorporation and Code of Regulations of the Surviving Bank until thereafter
duly altered, amended or repealed in accordance with applicable law.
At the Effective Time, the Board of Directors of the Surviving Bank shall
consist of all of the persons who were directors of Farmers immediately prior to
the Effective Time, plus two nominees of First Citizens. Each such director
shall serve for the balance of his term and until his successor is duly elected
and qualified or until his earlier death, resignation or removal in the manner
provided in the Code of Regulations of the Surviving Bank or as otherwise
provided by law. Furthermore, each person who is an officer of Farmers prior to
the Effective Time shall remain an officer of the Surviving Bank. For further
information regarding the directors and officers of First Citizens and the
Surviving Bank, see "INFORMATION WITH RESPECT TO FIRST CITIZENS -- Management."
In addition, each common share of Farmers, par value $20.00 per share,
issued and outstanding immediately prior to the Effective Time shall thereafter
continue to be one common share of the Surviving Bank.
Upon completion of the Merger, the Surviving Bank shall be known as
"Farmers State Bank" and the offices of Farmers will be operated as branches of
the Surviving Bank.
ACCOUNTING TREATMENT
The Merger is expected to qualify as a "pooling-of-interests" for
accounting and financial reporting purposes. The pro forma results of this
accounting treatment are shown in the unaudited pro forma financial information
appearing elsewhere in this Proxy Statement/Prospectus. See "PRO FORMA FINANCIAL
INFORMATION."
As noted above, it is a condition to the obligation of First Citizens and
Farmers to consummate the Merger that First Citizens shall have received a
letter from its auditors, Crowe, Chizek and Company LLP, to the effect that the
Merger will qualify as a pooling-of-interests transaction under generally
accepted accounting principles. Among the conditions which must be met in order
for the Merger to qualify for "pooling-of-interests" accounting treatment,
generally accepted accounting principles require that, in the aggregate, no more
than ten percent of the Farmers Common Shares (or 20,000 shares based on 200,000
shares presently outstanding) be held, in the aggregate, by Farmers shareholders
who (i) have exercised dissenters' rights in connection with the Merger and
demanded payment in cash for the value of their Farmers common shares under the
ORC or (ii) receive cash in lieu of fractional shares. In the event such
condition is not met, the Merger would not be consummated unless the condition
was waived by First Citizens and Farmers. Furthermore, in order to qualify for
"pooling-of-interests" accounting treatment, no affiliate of Farmers may reduce
his or her risk relative to the First Citizens Common Shares received in the
Merger until such time as financial results covering at least 30 days of
post-merger combined operations have been published.
RESALE OF FIRST CITIZENS COMMON SHARES
No restrictions on the sale or other transfer of the First Citizens Common
Shares issued pursuant to the Merger will be imposed solely as a result of the
Merger, except for restrictions on the transfer of shares issued to any Farmers
shareholder who may be deemed to be an "affiliate" of Farmers for purposes of
Rule 145 under the 1933 Act. Generally, "affiliates" of Farmers would include
officers, directors and significant shareholders of Farmers. The Merger
Agreement requires Farmers to cause persons who could be considered to be
"affiliates" to enter into an agreement with First Citizens to the effect that
the First Citizens Common Shares to be acquired by
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<PAGE> 42
such "affiliates" will not be sold, pledged, transferred or otherwise disposed
of except in compliance with the 1933 Act and the rules and regulations
thereunder.
First Citizens Common Shares issued to Farmers shareholders who may be
deemed to be affiliates may be resold only (i) in transactions permitted by Rule
145 promulgated under the 1933 Act, (ii) pursuant to an effective registration
statement, or (iii) in transactions exempt from registration.
DESCRIPTION OF FIRST CITIZENS COMMON SHARES
GENERAL
First Citizens has authorized 10,000,000 Common Shares, without par value,
of which 3,051,504 are issued and outstanding and none are treasury shares. Each
outstanding First Citizens Common Share is duly authorized, validly issued,
fully paid and nonassessable. The holders of First Citizens Common Shares have
one vote per share on each matter on which shareholders are entitled to vote
and, in accordance with Ohio law, cumulative voting rights may be requested in
connection with the election of directors. Directors are elected for staggered,
three year terms. Specifically, the Board is divided into three classes of equal
or near equal number, with the members of one class being elected annually. On
liquidation or dissolution of First Citizens, the holders of First Citizens
Common Shares are entitled to share ratably in such assets as remain after
creditors have been paid. Holders of First Citizens Common Shares have the
preemptive rights described in Section 1701.15 of the ORC. Pursuant to Section
1701.15 of the ORC, no preemptive rights are available in connection with shares
issued or agreed to be issued for considerations other than money, as is the
case in the Merger.
First Citizens' Board of Directors determines whether to declare dividends
and the amount of any dividends declared. Such determinations by the Board of
Directors take into account First Citizens' financial condition, results of
operations and other relevant factors. While management expects to maintain its
policy of paying regular cash dividends, no assurances can be given that any
dividends will be declared, or, if declared, what the amount of such dividends
will be. See "INFORMATION WITH RESPECT TO FIRST CITIZENS -- Market Price of
First Citizens Common Shares."
Fifth Third Bank is the transfer agent and registrar for First Citizens
Common Shares.
PROVISIONS RELATING TO BUSINESS COMBINATIONS
Business Combinations
Article SIXTH ("Article SIXTH") of First Citizens' Articles of
Incorporation sets forth certain requirements in connection with the approval or
authorization of any of the following (each, a "Business Combination"): (a) any
merger or consolidation involving First Citizens or any subsidiary
("Subsidiary") of First Citizens; (b) any sale or other disposition of all or a
substantial part of the assets of First Citizens or any Subsidiary; (c) any sale
or other disposition of all of a substantial part of the assets of any entity to
First Citizens or any Subsidiary; (d) any sale or other disposition by First
Citizens or any Subsidiary of any corporation; (e) any recapitalization or
reclassification of First Citizens' securities or other transaction that would
have the effect of increasing the voting power of a Related Person (as defined
below); (f) any liquidation, spin-off, split-up or dissolution of First
Citizens; and (g) any agreement or other arrangement providing for any of the
foregoing.
For purposes of Article SIXTH, "Related Person" generally means any person,
entity or group, including any affiliate or associate thereof, (other than First
Citizens, any wholly-owned Subsidiary and any employee benefit plan sponsored by
First Citizens or any such Subsidiary) that, at the time any Business
Combination is agreed to, authorized or approved, is the beneficial owner of
greater than 10% of the First Citizens Common Shares entitled to vote on such
Business Combination.
Board Considerations
Article SIXTH provides that when evaluating a Business Combination or any
tender or exchange offer, the Board of Directors of First Citizens shall
consider, without limitation: (a) the social and economic effects of the
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<PAGE> 43
transaction on First Citizens and its Subsidiaries, employees, customers,
creditors and community; (b) the business and financial conditions and earning
prospects of the acquiring person or persons; and (c) the competence, experience
and integrity of the acquiring person or persons and its or their management.
Shareholder Approval
Article SIXTH provides that the affirmative vote of the holders of not less
than 80% of each class of First Citizens Common Shares entitled to vote on the
transaction shall be required for the approval of any Business Combination in
which a Related Person has an interest (except proportionately as a
shareholder); provided, however, the 80% voting requirement shall not be
applicable if (a) the continuing directors, who at the time constitute at least
a majority of the Board of Directors of First Citizens, have approved the
Business Combination by at least a two-thirds vote or (b) certain conditions
relating to the fairness of the transaction have been satisfied. Pursuant to
Article FIFTH, if the 80% voting requirement is inapplicable, the transaction
under consideration may be authorized by the affirmative vote of the holders of
First Citizens Common Shares entitling them to exercise a majority of the voting
power of the corporation.
Article SIXTH further provides that no amendment of First Citizens'
Articles of Incorporation shall be effective to amend, alter or repeal any of
the provisions of Article SIXTH unless such amendment shall receive the
affirmative vote of the holders of not less than 80% of the First Citizens
Common Shares entitled to vote thereon; provided, however, the 80% voting
requirement shall not be applicable if such amendment shall have been proposed
and authorized by the Board of Directors of First Citizens by the affirmative
vote of at least 2/3 of the continuing directors.
COMPARATIVE RIGHTS OF FARMERS SHAREHOLDERS
As a consequence of the Merger, shareholders of Farmers will become
shareholders of First Citizens, and their rights as shareholders of First
Citizens will be determined by the ORC and by First Citizens' Articles of
Incorporation and Code of Regulations. In many instances, including pre-emptive
rights, waiver of notice of annual meetings, the capacity to take action without
a meeting, and the availability of indemnification for officers and directors,
the rights of Farmers shareholders, which are currently governed by the Farmers
Articles of Incorporation and the ORC, are substantially the same as the rights
of First Citizens shareholders. The following summary compares certain rights of
the holders of Farmers Common Shares to the rights of holders of First Citizens
Common Shares in areas where those rights are materially different. However,
this summary does not purport to be a complete description of such differences
and is qualified in its entirety by reference to the ORC and the governing
corporate instruments of Farmers and First Citizens.
AUTHORIZED AND OUTSTANDING SHARES
Farmers has authorized 200,000 Farmers Common Shares, $20.00 par value, all
of which are currently issued and outstanding. First Citizens has authorized
10,000,000 First Citizens Common Shares, without par value, of which 3,051,504
are currently issued and outstanding. As a result of the Merger, First Citizens
will have up to 4,263,504 First Citizens Common Shares issued and outstanding.
NOTICE OF SHAREHOLDER MEETINGS
Notice of a special meeting of the Farmers shareholders must be given to
the Farmers shareholders not less than seven nor more than 60 days before the
date of such meeting. By contrast, notice of a special meeting of the First
Citizens shareholders must be given not less than 10 nor more than 60 days
before the date of such meeting.
QUORUM
No particular number of Farmers shareholders is needed to establish a
quorum for a meeting of the Farmers shareholders. A quorum at such meeting
consists of the number of Farmers shareholders present in person or by
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proxy. By contrast, a majority of outstanding First Citizens Common Shares
present in person or by proxy is required to constitute a quorum for a meeting
of the First Citizens shareholders.
VOTING
Both Farmers shareholders and First Citizens shareholders are entitled to
one vote per share; however, unlike Farmers shareholders, First Citizens
shareholders are entitled to request cumulative voting in the election of
directors.
In most instances, matters submitted to the Farmers shareholders or to the
First Citizens shareholders are decided by a majority of votes cast with respect
thereto. However, pursuant to the default provisions of the ORC, Farmers
shareholders may amend the Farmers Articles of Incorporation, within certain
limits and subject to approval by the Superintendent of the ODFI, and approve
certain business combinations and other change-of-control transactions, by the
affirmative vote of the holders of Farmers Common Shares entitling them to
exercise at least two-thirds of the voting power of the corporation. Further, in
certain instances First Citizens has exercised its right to opt-out of the ORC's
default shareholder voting provisions, such that an 80% affirmative vote is
required for specified shareholder amendments to the First Citizens Articles of
Incorporation and for shareholder approval of certain business combinations. See
"DESCRIPTION OF FIRST CITIZENS COMMON SHARES -- Provisions Relating to Business
Combinations."
A majority of votes cast by Farmers shareholders entitled to vote in the
election of directors is always sufficient to remove a director from the Farmers
Board. A majority of votes cast by First Citizens shareholders qualified to vote
in the election of directors may also be sufficient to remove a director from
the First Citizens Board, subject to two qualifications. First, in the event of
a proposed Business Combination, the removal of a First Citizens director by the
First Citizens shareholders requires the affirmative vote of not less than 80%
of the First Citizens Common Shares entitled to vote with respect to such
removal. Second, a First Citizens director may only be removed by the First
Citizens shareholders if the votes cast against his or her removal would not be
enough to elect one director under the cumulative voting scheme.
NOMINATION OF DIRECTORS
With regard to both First Citizens and Farmers, only nominated persons are
eligible for election to their respective boards of directors. Farmers has no
specific requirements for nomination of a person to its Board. By contrast,
First Citizens only recognizes nominations made by or at the direction of the
Board of Directors, or by any shareholder present at a meeting of the First
Citizens shareholders who complies with specified advance notice procedures. In
most instances, to be timely, a shareholder must submit a nomination in writing
to the secretary of First Citizens not less than 14 nor more than 50 days prior
to the meeting of the First Citizens shareholders. However, if First Citizens
fails to provide its shareholders with at least 21 days prior notice of the
meeting, such written nomination need not be submitted until the earlier of (i)
the close of business on the seventh day following notice of the meeting and
(ii) seven days prior to the date of the meeting.
NUMBER OF DIRECTORS
The Farmers Board of Directors, which at all times must consist of no fewer
than five directors and have a majority of outside directors, currently consists
of eight directors, five of whom are outside directors. By contrast, the First
Citizens Board of Directors, which at all times must consist of no fewer than
five nor more than 25 directors, but need not have a majority of outside
directors, currently consists of eleven directors, nine of whom are outside
directors. Each of the First Citizens' Board of Directors and the Farmers' Board
of Directors is divided into three classes of approximately equal number, with
each class being elected for staggered three-year terms.
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PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet as
of September 30, 1997 and the unaudited pro forma condensed consolidated
statements of income for the nine months ended September 30, 1997 and 1996, and
for the years ended December 31, 1996, 1995 and 1994 have been prepared to
reflect First Citizens' acquisition of Farmers as if the acquisition had
occurred on September 30, 1997 with respect to the balance sheet and as of
January 1 with respect to each of the income statements, in each case giving
effect to the pro forma adjustments described in the accompanying notes. The pro
forma adjustments are based on estimates made for the purpose of preparing these
pro forma financial statements. The actual adjustments to the accounts of First
Citizens will be made based on the underlying historical financial data at the
time of the transaction. First Citizens' management believes that the estimates
used in these pro forma financial statements are reasonable under the
circumstances.
The pro forma condensed consolidated financial information has been
prepared based on the "pooling-of-interests" method of accounting assuming
1,212,000 First Citizens Common Shares will be issued and that no Farmers
shareholders will dissent with respect to the Merger. This information will vary
if any Farmers' shareholders dissent. For a discussion of the
pooling-of-interests method of accounting, see "PROPOSED MERGER -- Accounting
Treatment" and "Other Provisions of the Merger Agreement."
The unaudited pro forma condensed consolidated balance sheet as of
September 30, 1997 is not necessarily indicative of the combined financial
position had the Merger been effective at that date. The unaudited pro forma
condensed consolidated statements of income are not necessarily indicative of
the results of operations that would have occurred had the Merger been effective
at the beginning of the periods indicated, or of the future results of
operations of First Citizens. These pro forma financial statements should be
read in conjunction with the historical financial statements and the related
notes incorporated elsewhere in this Proxy Statement/Prospectus.
No adjustments to the pro forma financial statements were necessary to
conform accounting methods as contemplated by Accounting Principles Board
Opinion No. 16.
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PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST PRO
CITIZENS FARMERS ADJ. FORMA
----------- ---------- ------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans................. $14,425,901 $3,679,574 $ -- $18,105,475
Interest and dividends on securities
Taxable................................. 3,407,497 4,066,225 -- 7,473,722
Nontaxable.............................. 1,851,241 748,892 -- 2,600,133
Interest on federal funds sold............. 341,490 41,913 -- 383,403
Interest on deposits with other financial
institutions............................ 4,338 303,422 -- 307,760
Other interest income...................... 662 172,809 -- 173,471
----------- ---------- ------- -----------
Total interest income...................... 20,031,129 9,012,835 -- 29,043,964
----------- ---------- ------- -----------
INTEREST EXPENSE
Interest on deposits....................... 6,740,475 4,869,198 -- 11,609,673
Interest on FHLB borrowings................ 947,514 -- -- 947,514
Interest on other borrowings............... 260,526 13,712 -- 274,238
----------- ---------- ------- -----------
Total interest expense..................... 7,948,515 4,882,910 -- 12,831,425
----------- ---------- ------- -----------
NET INTEREST INCOME.......................... 12,082,614 4,129,925 -- 16,212,539
Provision for loan losses.................... 322,891 110,000 -- 432,891
----------- ---------- ------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES..................................... 11,759,723 4,019,925 -- 15,779,648
----------- ---------- ------- -----------
NONINTEREST INCOME
Computer center data processing fees....... 1,354,433 -- -- 1,354,433
Service charges on deposit accounts........ 356,017 115,746 -- 471,763
Security gain (loss)....................... -- 66,237 -- 66,237
Other operating income..................... 639,358 75,703 -- 715,061
----------- ---------- ------- -----------
Total noninterest income................... 2,349,808 257,686 -- 2,607,494
----------- ---------- ------- -----------
NONINTEREST EXPENSE
Salaries, wages and benefits............... 4,558,166 1,031,397 -- 5,589,563
Net occupancy expense...................... 535,827 65,449 -- 601,276
Equipment expense.......................... 445,444 80,441 -- 525,885
Federal deposit insurance premiums......... 553,481 272,370 -- 825,851
State franchise tax........................ 416,138 140,621 -- 556,759
Professional fees.......................... 274,444 18,280 -- 292,724
Other operating expenses................... 2,545,798 282,262 -- 2,828,060
----------- ---------- ------- -----------
Total noninterest expense.................. 9,329,298 1,890,820 -- 11,220,118
----------- ---------- ------- -----------
Income before taxes.......................... 4,780,233 2,386,791 -- 7,167,024
Provision for income taxes................... 1,122,000 667,569 -- 1,789,569
----------- ---------- ------- -----------
NET INCOME................................... $ 3,658,233 $1,719,222 $ --
=========== ========== ======= ===========
Earnings per common share.................... $ 1.20 $ 8.60 $ 1.26
=========== ========== ===========
Weighted average shares outstanding.......... 3,051,504 200,000 4,263,504
=========== ========== ===========
</TABLE>
33
<PAGE> 47
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO
FIRST FORMA PRO FORMA
CITIZENS FARMERS ADJ. COMBINED
----------- ---------- -------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.............. $16,617,684 $4,146,857 $ -- $20,764,541
Interest and dividends on securities
Taxable.............................. 2,838,512 4,087,412 -- 6,925,924
Nontaxable........................... 1,630,036 835,087 -- 2,465,123
Interest on federal funds sold.......... 574,835 99,990 -- 674,825
Interest on deposits with other
financial institutions............... -- 152,516 -- 152,516
Other interest income................... 3,620 181,635 -- 185,255
----------- ---------- ------- -----------
Total interest income................... 21,664,687 9,503,497 -- 31,168,184
----------- ---------- ------- -----------
INTEREST EXPENSE
Interest on deposits.................... 7,863,437 5,834,215 -- 13,697,652
Interest on FHLB borrowings............. 993,255 -- -- 993,255
Interest on other borrowings............ 389,029 41,563 -- 430,592
----------- ---------- ------- -----------
Total interest expense.................. 9,245,721 5,875,778 -- 15,121,499
----------- ---------- ------- -----------
NET INTEREST INCOME....................... 12,418,966 3,627,719 -- 16,046,685
Provision for loan losses................. 377,477 80,000 -- 457,477
----------- ---------- ------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES............................. 12,041,489 3,547,719 -- 15,589,208
----------- ---------- ------- -----------
NONINTEREST INCOME
Computer center data processing fees.... 1,805,685 -- -- 1,805,685
Service charges on deposit accounts..... 445,487 117,381 -- 562,868
Security gain (loss).................... (221,142) 25,416 -- (195,726)
Other operating income.................. 706,417 96,714 -- 803,131
----------- ---------- ------- -----------
Total noninterest income................ 2,736,447 239,511 -- 2,975,958
----------- ---------- ------- -----------
NONINTEREST EXPENSE
Salaries, wages and benefits............ 5,071,253 1,090,094 -- 6,161,347
Net occupancy expense................... 547,841 66,639 -- 614,480
Equipment expense....................... 564,949 67,632 -- 632,581
Federal deposit insurance premiums...... 284,384 140,280 -- 424,664
State franchise tax..................... 437,961 127,853 -- 565,814
Professional fees....................... 308,579 11,456 -- 320,035
Other operating expenses................ 2,568,558 284,790 -- 2,853,348
----------- ---------- ------- -----------
Total noninterest expense............... 9,783,525 1,788,744 -- 11,572,269
----------- ---------- ------- -----------
Income before taxes....................... 4,994,411 1,998,486 -- 6,992,897
Provision for income taxes................ 1,312,184 402,897 -- 1,715,081
----------- ---------- ------- -----------
NET INCOME................................ $ 3,682,227 $1,595,589 $ -- $ 5,277,816
=========== ========== ======= ===========
Earnings per common share................. $ 1.21 $ 7.98 $ 1.24
=========== ========== ===========
Weighted average shares outstanding....... 3,051,504 200,000 4,263,504
=========== ========== ===========
</TABLE>
34
<PAGE> 48
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST PRO
CITIZENS FARMERS ADJ. FORMA
----------- ---------- ------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans................. $17,143,958 $4,822,646 $ -- $21,966,604
Interest and dividends on securities
Taxable................................. 2,721,126 4,377,844 -- 7,098,970
Nontaxable.............................. 1,430,575 880,366 -- 2,310,941
Interest on federal funds sold............. 508,134 156,267 -- 664,401
Interest on deposits with other financial
institutions............................ -- 93,012 -- 93,012
Other interest income...................... 4,208 202,416 -- 206,624
----------- ---------- ------- -----------
Total interest income...................... 21,808,001 10,532,551 -- 32,340,552
----------- ---------- ------- -----------
INTEREST EXPENSE
Interest on deposits....................... 7,947,510 6,549,900 -- 14,497,410
Interest on FHLB borrowings................ 931,866 -- -- 931,866
Interest on other borrowings............... 371,774 54,514 -- 426,288
----------- ---------- ------- -----------
Total interest expense..................... 9,251,150 6,604,414 -- 15,855,564
----------- ---------- ------- -----------
NET INTEREST INCOME.......................... 12,556,851 3,928,137 -- 16,484,988
Provision for loan losses.................... 368,350 365,000 -- 733,350
----------- ---------- ------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES..................................... 12,188,501 3,563,137 -- 15,751,638
----------- ---------- ------- -----------
NONINTEREST INCOME
Computer center data processing fees....... 2,091,847 -- -- 2,091,847
Service charges on deposit accounts........ 485,316 128,049 -- 613,365
Security gain (loss)....................... 52,599 44,606 -- 97,205
Other operating income..................... 780,432 60,722 -- 841,154
----------- ---------- ------- -----------
Total noninterest income................... 3,410,194 233,377 -- 3,643,571
----------- ---------- ------- -----------
NONINTEREST EXPENSE
Salaries, wages and benefits............... 5,246,145 1,137,062 -- 6,383,207
Net occupancy expense...................... 546,399 82,163 -- 628,562
Equipment expense.......................... 630,033 73,711 -- 703,744
Federal deposit insurance premiums......... 3,000 2,000 -- 5,000
State franchise tax........................ 418,876 175,041 -- 593,917
Professional fees.......................... 331,214 8,613 -- 339,827
Other operating expenses................... 2,912,944 332,852 -- 3,245,796
----------- ---------- ------- -----------
Total noninterest expense.................. 10,088,611 1,811,442 -- 11,900,053
----------- ---------- ------- -----------
Income before taxes.......................... 5,510,084 1,985,072 -- 7,495,156
Provision for income taxes................... 1,545,198 381,720 -- 1,926,918
----------- ---------- ------- -----------
NET INCOME................................... $ 3,964,886 $1,603,352 $ -- $ 5,568,238
=========== ========== ======= ===========
Earnings per common share.................... $ 1.30 $ 8.02 $ 1.31
=========== ========== ===========
Weighted average shares outstanding.......... 3,051,504 200,000 4,263,504
=========== ========== ===========
</TABLE>
35
<PAGE> 49
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST PRO
CITIZENS FARMERS ADJ. FORMA
----------- ---------- ------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans................. $12,741,121 $3,496,992 $ -- $16,238,113
Interest and dividends on securities
Taxable................................. 1,866,082 3,240,727 -- 5,106,809
Nontaxable.............................. 1,086,749 671,414 -- 1,758,163
Interest on federal funds sold............. 372,017 132,677 -- 504,694
Interest on deposits with other financial
institutions............................ -- 74,671 -- 74,671
Other interest income...................... 176,650 141,798 -- 318,448
----------- ---------- ------- -----------
Total interest income...................... 16,242,619 7,758,279 -- 24,000,898
----------- ---------- ------- -----------
INTEREST EXPENSE
Interest on deposits....................... 5,966,755 4,838,565 -- 10,805,320
Interest on FHLB borrowings................ 704,885 -- -- 704,885
Interest on other borrowings............... 268,902 39,330 -- 308,232
----------- ---------- ------- -----------
Total interest expense..................... 6,940,542 4,877,895 -- 11,818,437
----------- ---------- ------- -----------
NET INTEREST INCOME.......................... 9,302,077 2,880,384 -- 12,182,461
Provision for loan losses.................... 238,500 273,750 -- 512,250
----------- ---------- ------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES..................................... 9,063,577 2,606,634 -- 11,670,211
----------- ---------- ------- -----------
NONINTEREST INCOME
Computer center data processing fees....... 1,556,407 -- -- 1,556,407
Service charges on deposit accounts........ 364,891 93,393 -- 458,284
Security gain (loss)....................... 17,850 10,295 -- 28,145
Other operating income..................... 589,404 51,364 -- 640,768
----------- ---------- ------- -----------
Total noninterest income................... 2,528,552 155,052 -- 2,683,604
----------- ---------- ------- -----------
NONINTEREST EXPENSE
Salaries, wages and benefits............... 3,932,921 841,775 -- 4,774,696
Net occupancy expense...................... 414,045 60,188 -- 474,233
Equipment expense.......................... 467,120 59,835 -- 526,955
Federal deposit insurance premiums......... 3,500 2,000 -- 5,500
State franchise tax........................ 319,726 131,281 -- 451,007
Professional fees.......................... 402,290 7,693 -- 409,983
Other operating expenses................... 1,889,552 247,689 -- 2,137,241
----------- ---------- ------- -----------
Total noninterest expense.................. 7,429,154 1,350,461 -- 8,779,615
----------- ---------- ------- -----------
Income before taxes.......................... 4,162,975 1,411,225 -- 5,574,200
Provision for income taxes................... 1,157,584 327,160 -- 1,484,744
----------- ---------- ------- -----------
NET INCOME................................... $ 3,005,391 $1,084,065 $ -- $ 4,089,456
=========== ========== ======= ===========
Earnings per common share.................... $ 0.98 $ 5.42 $ 0.96
=========== ========== ===========
Weighted average shares outstanding.......... 3,051,504 200,000 4,263,504
=========== ========== ===========
</TABLE>
36
<PAGE> 50
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST PRO
CITIZENS FARMERS ADJ. FORMA
----------- ---------- ------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans................. $13,675,600 $4,323,099 $ -- $17,998,699
Interest and dividends on securities
Taxable.................................... 1,883,498 3,127,568 -- 5,011,066
Nontaxable................................. 994,279 658,250 -- 1,652,529
Interest on federal funds sold............. 334,254 25,701 -- 359,955
Interest on deposits with other
financial institutions.................. 34,032 -- 34,032
Other interest income...................... 24,239 173,487 -- 197,726
----------- ---------- ------- -----------
Total interest income...................... 16,911,870 8,342,137 -- 25,254,007
----------- ---------- ------- -----------
INTEREST EXPENSE
Interest on deposits....................... 6,206,641 5,053,314 -- 11,259,955
Interest on FHLB borrowings................ 656,196 -- 656,196
Interest on other borrowings............... 232,850 56,260 -- 289,110
----------- ---------- ------- -----------
Total interest expense..................... 7,095,687 5,109,574 -- 12,205,261
----------- ---------- ------- -----------
NET INTEREST INCOME.......................... 9,816,183 3,232,563 -- 13,048,746
Provision for loan losses.................... 319,500 694,844 -- 1,014,344
----------- ---------- ------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES..................................... 9,496,683 2,537,719 -- 12,034,402
----------- ---------- ------- -----------
NONINTEREST INCOME
Computer center data processing fees....... 1,654,239 -- 1,654,239
Service charges on deposit accounts........ 392,659 103,939 -- 496,598
Security gain (loss)....................... 165,323 (18,939) -- 146,384
Other operating income..................... 769,238 58,513 -- 827,751
----------- ---------- ------- -----------
Total noninterest income................... 2,981,459 143,513 -- 3,124,972
----------- ---------- ------- -----------
NONINTEREST EXPENSE
Salaries, wages and benefits............... 4,283,555 823,775 -- 5,107,330
Net occupancy expense...................... 477,906 58,338 -- 536,244
Equipment expense.......................... 545,921 46,056 -- 591,977
Federal deposit insurance premiums......... 23,229 12,514 -- 35,743
State franchise tax........................ 325,286 145,186 -- 470,472
Professional fees.......................... 483,441 114,573 -- 598,014
Other operating expenses................... 2,388,431 280,315 -- 2,668,746
----------- ---------- ------- -----------
Total noninterest expense.................. 8,527,769 1,480,757 -- 10,008,526
----------- ---------- ------- -----------
Income before taxes.......................... 3,950,373 1,200,475 -- 5,150,848
Provision for income taxes................... 1,142,463 208,853 -- 1,351,316
----------- ---------- ------- -----------
NET INCOME................................... $ 2,807,910 $ 991,622 $ -- $ 3,799,532
=========== ========== ======= ===========
Earnings per common share.................... $ 0.92 $ 4.96 $ 0.89
=========== ========== ===========
Weighted average shares outstanding.......... 3,051,504 200,000 4,263,504
=========== ========== ===========
</TABLE>
37
<PAGE> 51
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST PRO FORMA PRO FORMA
CITIZENS FARMERS ADJ. COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and balances with banks........ $ 12,314,467 $ 3,347,227 $ -- $ 15,661,694
Federal funds sold.................. 7,462,000 3,100,000 -- 10,562,000
Interest bearing deposits........... 442,282 -- 442,282
Securities:
Available for sale............... 57,680,659 47,660,573 -- 105,341,232
Held to maturity................. 7,616,683 32,178,037 -- 39,794,720
Total Loans......................... 221,491,064 68,228,346 -- 289,719,410
Allowance for loan losses........... (2,809,282) (1,900,000) -- (4,709,282)
------------ ------------ ----------- ------------
Loans, net....................... 218,681,782 66,328,346 -- 285,010,128
Office premises and equipment....... 7,102,512 566,097 -- 7,668,609
Intangible assets................... 2,929,023 27,500 -- 2,956,523
Accrued interest and other assets... 4,089,739 2,209,494 -- 6,299,233
------------ ------------ ----------- ------------
Total Assets..................... $317,876,865 $155,859,556 -- $473,736,421
============ ============ =========== ============
LIABILITIES
Deposits............................ $254,247,611 $136,497,294 -- $390,744,905
Federal Home Loan Bank borrowings... 14,790,282 -- 14,790,282
Securities sold under repurchase
agreements....................... 8,793,421 900,000 -- 9,693,421
U.S. Treasury interest-bearing
demand note...................... 2,449,491 415,414 -- 2,864,905
Accrued interest, taxes and other
liabilities...................... 1,491,628 2,091,930 -- 3,583,558
------------ ------------ ----------- ------------
Total liabilities................ 281,772,433 139,904,638 -- 421,677,071
SHAREHOLDERS' EQUITY
Common stock........................ 15,257,520 4,000,000 4,000,000(A) 23,257,520
Additional paid in capital.......... 4,000,000 (4,000,000)(A)
Retained earnings................... 20,531,292 6,606,027 -- 27,137,319
Unrealized gain on securities
available for sale............... 315,620 1,348,891 -- 1,664,511
------------ ------------ ----------- ------------
Total shareholders' equity....... 36,104,432 15,954,918 -- 52,059,350
------------ ------------ ----------- ------------
Total liabilities and
shareholders' equity........... $317,876,865 $155,859,556 -- $473,736,421
============ ============ =========== ============
</TABLE>
- ---------------
(A) Issuance of 1,212,000 First Citizens common shares in exchange for 200,000
Farmers common shares
38
<PAGE> 52
INFORMATION WITH RESPECT TO FIRST CITIZENS
BUSINESS
First Citizens is a bank holding company organized in 1987 under the laws
of the State of Ohio and registered with the Federal Reserve Board pursuant to
the Bank Holding Company Act of 1956, as amended. First Citizens has three
wholly-owned banking subsidiaries: The Citizens Banking Company, a commercial
bank organized and existing under the laws of the State of Ohio ("CBC"); The
Castalia Banking Company, a commercial bank organized and existing under the
laws of the State of Ohio ("Castalia"); and Farmers Interim Bank, an interim
bank organized and existing under the laws of the State of Ohio for the limited
purpose of effecting the transactions contemplated by the Reorganization
Agreement. In addition, First Citizens has two wholly-owned nonbank subsidiaries
which provide services related to its primary business: SCC Resources, Inc., an
Ohio corporation which provides data processing services; and R.A. Reynolds
Appraisal Services, Inc., an Ohio corporation which provides real estate
appraisal services. As of September 30, 1997 and December 31, 1996, First
Citizens had total consolidated assets of approximately $317.9 million and
$302.8 million and total shareholders' equity of $36.1 million and $34.4
million, respectively.
First Citizens' primary business is incidental to its two operating bank
subsidiaries, CBC and Castalia. Located in Erie County, Ohio, both CBC and
Castalia conduct a general banking business which involves collecting customer
deposits, making loans and purchasing securities. Commercial banking accounts
for substantially all of the revenue, operating income and assets of First
Citizens. First Citizens Common Shares are traded on the Nasdaq Bulletin Board.
For the nine months ended September 30, 1997, First Citizens' annualized return
on assets and return on equity was 1.34% and 10.44%, respectively. First
Citizens' principal executive offices are located at 100 East Water Street,
Sandusky, Ohio 44870. The telephone number of First Citizens' executive offices
is (419) 625-4121.
SELECTED FINANCIAL INFORMATION
Selected financial data with respect to First Citizens can be found on
pages 25 and 26 of First Citizens' 1996 annual report on Form 10-K and are
incorporated herein by reference.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997
First Citizens' Management's Discussion and Analysis of Financial Condition
and Results of Operations for the quarter and nine months ended September 30,
1997, as compared to the same periods ended September 30, 1996, is included in
First Citizens' Form 10-Q for the quarter ended September 30, 1997, which is
incorporated herein by reference. Such discussion should be read in conjunction
with (i) the interim consolidated financial statements and the footnotes thereto
included in the Form 10-Q and (ii) Management's Discussion and Analysis of
Financial Condition and Results of Operations for the Year Ended December 31,
1996 included in First Citizens' Form 10-K for the year ended December 31, 1996,
which also is incorporated herein by reference.
CERTAIN STATISTICAL INFORMATION WITH RESPECT TO FIRST CITIZENS
Certain statistical information with respect to First Citizens, such as
information pertaining to the distribution of assets, liabilities and equity,
interest rates and differentials; investment and loan portfolios; loan losses;
deposits; short term borrowings and returns on assets and equity can be found on
pages 11 through 22 of First Citizens' 1996 annual report on Form 10-K and is
incorporated herein by reference.
39
<PAGE> 53
MANAGEMENT
The following table sets forth certain information concerning the directors
and executive officers of First Citizens:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH FIRST CITIZENS
--------------------------------- --- -------------------------------------
<S> <C> <C>
John L. Bacon.................... 72 Director
Mary Lee G. Close................ 82 Director
Richard B. Fuller................ 76 Director
H. Lowell Hoffman, M.D........... 75 Director
Dean S. Lucal.................... 60 Director
W. Patrick Murray................ 60 Director
George L. Mylander............... 64 Director
Paul H. Pheiffer................. 72 Director
Richard O. Wagner................ 84 Director
Lowell W. Leech.................. 70 Director and Chairman of the Board
David A. Voight.................. 54 Director and President
Donald E. Gosser................. 61 Senior Vice President and Treasurer
James O. Miller.................. 45 Senior Vice President and Controller
Jay R. Pressler.................. 53 Senior Vice President
</TABLE>
Set forth below is a brief description of the business experience of each
director and executive officer of First Citizens:
MR. BACON has served as a Director of First Citizens since 1987, as a
Director of CBC since 1973 and as a Director of Castalia since 1990. In
addition, Mr. Bacon serves as Chairman of the Board of Mack Iron Works Company,
a metal fabrication company headquartered in Sandusky, Ohio.
MS. CLOSE has served as a Director of First Citizens since 1987 and as a
Director of CBC since 1983. In addition, Ms. Close manages a portfolio of
personal investments.
MR. FULLER has served as a Director of First Citizens since 1987, as a
Director of CBC since 1960 and as a Director of Farmers Interim Bank since
October 1997. Mr. Fuller is retired from his career in the manufacturing
industry.
DR. HOFFMAN has served as a Director of First Citizens since 1987, as a
Director of CBC since 1980, as a Director of SCC Resources, Inc. since 1993 and
as a Director of Farmers Interim Bank since October 1997. Dr. Hoffman is retired
from his career as a surgeon.
MR. LUCAL has served as a Director of First Citizens since 1987, as a
Director of CBC since 1973 and as a Director of R.A. Reynolds Appraisal
Services, Inc. since 1993. In addition, Mr. Lucal has been a partner in the law
firm of Lucal & McGookey (and its predecessors) since 1965.
MR. MURRAY has served as a Director of First Citizens since 1987, as a
Director of CBC since 1983 and as a Director of Castalia since 1990. In
addition, Mr. Murray has been a partner in the law firm of Murray and Murray
Company, L.P.A. since 1965.
MR. MYLANDER has served as a Director of First Citizens since 1987, as a
Director of CBC since 1965 and as a Director of Farmers Interim Bank since
October 1997. Mr. Mylander is retired from his career as an educator.
MR. PHEIFFER has served as a Director of First Citizens since 1987, as a
Director of CBC since 1968 and as a Director of Farmers Interim Bank since
October 1997. In addition, Mr. Pheiffer serves as Chairman of the Board of
Sandusky Bay Investment Company, Ltd., a marina development and operating
company located in Sandusky, Ohio.
40
<PAGE> 54
MR. WAGNER has served as a Director of First Citizens since 1987, as a
Director of CBC since 1968 and as a Director of Farmers Interim Bank since
October 1997. Mr. Wagner is retired from his career in the banking industry,
which included service as President of CBC.
MR. LEECH has served as a Director of First Citizens since 1987 (serving as
Chairman of its Board since 1987), as a Director of CBC since 1975 (serving as
Chairman of its Board since 1990) and as a Director of Castalia since 1990
(serving as Chairman of its Board since 1990). Mr. Leech's career in the banking
industry included service as President of CBC.
MR. VOIGHT has served on the respective Boards of First Citizens and CBC
since 1989, as a Director of SCC Resources, Inc. since 1993, as a Director of
R.A. Reynolds Appraisal Services, Inc. since 1993 and as a Director of Farmers
Interim Bank since October 1997. In addition, Mr. Voight has served as President
of each of First Citizens and CBC since 1992 and as President of Farmers Interim
Bank since October 1997.
MR. GOSSER has served as Senior Vice President and Treasurer of First
Citizens since 1987 and as Senior Vice President and Cashier of CBC since 1985.
MR. MILLER has served as Senior Vice President and Controller of First
Citizens since 1992, as Senior Vice President of CBC since 1992, as Treasurer
and Secretary of SCC Resources, Inc. since 1993, as Treasurer of Reynolds
Appraisal Services, Inc. since 1994 and as Treasurer and Secretary of Farmers
Interim Bank since October 1997.
MR. PRESSLER has served as Senior Vice President of First Citizens since
1995 and as Senior Vice President of CBC since 1992.
Certain information relating to the management, executive compensation,
various benefit plans (including stock plans), certain relationships and related
transactions and other related matters as to First Citizens is set forth in
First Citizens' Proxy Statement dated February 2, 1997 which is incorporated by
reference in First Citizens' annual report on Form 10-K for the year ended
December 31, 1996. First Citizens' 1996 annual report is incorporated by
reference in this Proxy Statement/Prospectus. See "Information Incorporated by
Reference" below. Farmers shareholders who wish to obtain copies of these
documents may contact First Citizens at its address or telephone number set
forth under "AVAILABLE INFORMATION."
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth (i) as of December , 1997 and (ii) after
consummation of the Merger, the total number and percentage of First Citizens
Common Shares beneficially owned by each director of First Citizens, each
executive officer of First Citizens, and all directors and executive officers of
First Citizens as a group. The number of First Citizens Common Shares shown as
being beneficially owned by each such director and executive officer are those
over which he or she has either sole or shared voting or investment power. As of
December , 1997, there were 3,051,504 shares issued and outstanding and no
shares were held in treasury. The percent of beneficial ownership of management
after the Merger was calculated based on an exchange ratio of 6.06 First
Citizens Common Shares for each Farmers Common Share, assuming that no
dissenters' rights will be
41
<PAGE> 55
exercised by Farmers shareholders and that all 200,000 outstanding Farmers
Common Shares will be exchanged for Farmers Common Shares in the Merger.
<TABLE>
<CAPTION>
PERCENT OF CLASS PERCENT OF CLASS
AMOUNT AND NATURE OF AS OF AFTER
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (a) DECEMBER , 1997 MERGER
- ------------------------------------------- ------------------------ ------------------ ----------------
<S> <C> <C> <C>
John L. Bacon (b)(c)(d).................... 1,784 * *
Mary Lee G. Close (e)...................... 98,312 3.22% 2.31%
Richard B. Fuller (c)(d)................... 8,600 * *
Lowell W. Leech (b)(g)(k).................. 21,200 * *
Dean S. Lucal (g)(h)....................... 18,760 * *
W. Patrick Murray (i)...................... 286,940 9.40 6.73
George L. Mylander (c)(d).................. 321,439 10.53 7.54
Paul H. Pheiffer (c)(j).................... 88,298 2.89 2.07
Richard O. Wagner (b)(c)................... 15,000 * *
H. Lowell Hoffman, M.D. (f)(g)............. 24,280 * *
David A. Voight............................ 6,356 * *
Donald E. Gosser (l)....................... 6,888 * *
James O. Miller (m)........................ 2,480 * *
Jay R. Pressler (n)........................ 2,840 * *
All directors and executive officers as a
group (14 persons)....................... 903,177 29.60 21.18
</TABLE>
- ---------------
* Shares owned represent less than 1% of class.
(a) Unless otherwise indicated, the person has sole voting and investment power
as to the common shares held.
(b) Member of Asset-Liability Committee.
(c) Member of Nominating Committee.
(d) Member of Audit Committee.
(e) 96,240 shares owned directly by Mary Lee G. Close; and 2,072 shares owned
by son, David A. Close.
(f) 11,292 shares owned directly by Harry L. Hoffman Trust; 800 shares owned
directly by H. Lowell Hoffman; 100 shares owned directly by spouse, Helen
A.Hoffman; and 9,008 shares held by National City Investments for the
benefit of H. Lowell Hoffman, IRA.
(g) Member of Compensation, Benefits and Liability Committee.
(h) 3,184 shares owned directly by Dean S. Lucal; 3,060 shares held by Dean S.
Lucal self-directed IRA; 8,916 shares owned jointly with spouse, Martha
Jane Lucal; and 3,600 shares owned directly by spouse, Martha Jane Lucal,
IRA.
(i) 77,952 shares owned jointly by W. Patrick Murray with spouse, Louise
Murray; and 16,236 shares owned directly by spouse, Louise Murray. W.
Patrick Murray is one of five trustees of benefit plans holding 66,576
shares owned by Murray and Murray Company LPA pension plan, and 92,112
shares owned by Murray and Murray Company LPA profitsharing plan. In
addition, W. Patrick Murray is a partner in the limited partnership known
as SFOL, holding 34,064 shares.
(j) 3,451 shares owned directly by Paul H. Pheiffer; 22,419 shares owned by
spouse, Catharine J. Pheiffer; 58,938 shares owned by Catharine J.
Pheiffer, Trustee, for J. Richard Dorn Jr.; and 3,490 shares owned by Dorn
Industries, Inc.
(k) 10,800 shares owned directly by Lowell W. Leech Trust; 10,800 shares owned
directly by spouse, Betty J. Leech Trust; 800 shares owned by Lowell
W.Leech self-directed IRA; and 1,880 shares owned by Betty J. Leech
self-directed IRA.
(l) 3,888 shares owned directly by Donald E. Gosser; and 3,000 shares owned
jointly with spouse, Shirley A. Gosser.
42
<PAGE> 56
(m) 240 shares owned by James O. Miller, Custodian for the benefit of Alexis C.
Miller; 240 shares owned by James O. Miller, Custodian for the benefit of
Allyson O. Miller; and 2,000 shares owned directly by spouse, Martha M.
Miller selfdirected IRA.
(n) 2,840 shares owned jointly with spouse, Judith M. Pressler.
MARKET PRICE OF FIRST CITIZENS COMMON SHARES
First Citizens Common Shares trade on the Nasdaq Bulletin Board under the
symbol "FCZA." The brokerage firms of EVEREN Securities, Inc., Hill, Thompson,
Magid & Co., McDonald & Company, Monroe Securities, Inc., The Ohio Company, and
Quantum Capital currently act as market makers for First Citizens Common Shares.
Information regarding the market price and dividends paid on the First
Citizens Common Shares with respect each quarterly period during 1995 and 1996
may be found on page 24 of First Citizens' 1996 Annual Report. As of December
, 1997 the Nasdaq Bulletin Board closing price of First Citizens Common Shares
was $ and First Citizens Common Shares were held by approximately 933
shareholders.
INFORMATION INCORPORATED BY REFERENCE
First Citizens has filed with the Commission its annual report on Form 10-K
for the year ended December 31, 1996, quarterly reports on Form 10-Q for the
quarters ended March 31, 1997, June 30, 1997 and September 30, 1997,
respectively, and a current report on Form 8-K dated July 3, 1997. Certain of
the information contained therein is also incorporated herein by reference.
Specifically, information about First Citizens' industry segments may be found
on page 6 of the 1996 annual report; selected financial information may be found
on pages 25 and 26 of the 1996 annual report; management's discussion and
analysis of First Citizens' financial condition and results of operations for
the year ended December 31, 1996 may be found on pages 26 through 36 of the 1996
annual report; management's discussion and analysis of First Citizens' financial
condition and results of operations for the quarter ended September 30, 1997 may
be found on pages 16 through 21 of the Form 10-Q for the quarter then ended; and
information regarding any changes in or disagreements with accountants on
accounting and financial disclosures may be found on page 63 of the 1996 annual
report.
INFORMATION WITH RESPECT TO FARMERS
BUSINESS
Farmers is a commercial bank chartered under the laws of the State of Ohio
and headquartered in New Washington, Ohio. In addition to the New Washington
office, Farmers maintains branch offices in Chatfield, Tiro, Richwood and Green
Camp, Ohio. Farmers provides a full range of banking services, including
checking and savings accounts; certificates of deposit; individual retirement
accounts; commercial, real estate, consumer and agricultural loans; and safe
deposit boxes. As of September 30, 1997 and December 31, 1996, Farmers had total
assets of approximately $155.9 million and $153.1 million and total
shareholders' equity of approximately $16.0 million and $14.3 million,
respectively. Farmers' principal executive offices are located at 102 South
Kibler Street, New Washington, Ohio 44854-9401. The telephone number of Farmers'
executive offices is (419) 492-2177.
Regulation; Memorandum of Understanding
Farmers is subject to regulation by the ODFI and the FDIC. Pursuant to a
Memorandum of Understanding dated October 31, 1997 by and among Farmers, the
ODFI and the FDIC (the "MOU"), Farmers has agreed to comply with certain
directives which are intended to correct operational deficiencies identified in
the ODFI's March 14, 1997 Examination Report (the "Examination Report") and
improve Farmers' overall financial condition. The MOU specifies various
deadlines (generally ranging from 10 to 90 days from the date of the MOU) for
the implementation of certain corrective measures and requires that such
measures be maintained until such time as the MOU is stayed, modified,
terminated or suspended by the ODFI and the FDIC.
43
<PAGE> 57
The MOU requires Farmers to, among other things:
i. Achieve and maintain, through charges to current operating income,
an adequate valuation reserve for loan losses; conduct a quarterly
assessment of the loan loss reserve and nonperforming loans; refile Reports
of Condition and Income for December 31, 1996 and the first three quarters
of 1997 to reflect an appropriate level of Allowance for Loan and Lease
Losses; maintain documentation in support of the foregoing; and submit to
the ODFI and the FDIC a record of the methodology used for determining loan
loss reserves;
ii. Develop a written plan designed to improve Farmers' position on
certain loans in excess of $100,000 which are past due on principal or
interest by 90 days or more;
iii. Prepare and submit to the ODFI and the FDIC for review and
approval (A) a management plan describing actions to be taken by Farmers'
Board of Directors to strengthen management and improve the Board's
supervision of Farmers' affairs, (B) an amended written loan policy
including the recommendations detailed in the Examination Report, (C)
written loan review procedures designed to identify and categorize problem
credits and assess the overall quality of the loan portfolio, (D) an
amended appraisal policy and procedures consistent with the Examination
Report and regulatory guidelines, (E) an amended written investment policy
consistent with regulatory guidelines, (F) an amended interest rate risk
policy and procedures consistent with the Examination Report and regulatory
guidelines and (G) quarterly progress reports detailing the actions taken
to secure compliance with the MOU and the results thereof;
iv. Establish procedures to ensure that (A) Farmers' officers and
employees are aware of, have access to, and adhere to Farmers' loan policy,
(B) exceptions to Farmers' loan policy are approved in advance by the Board
of Directors, and (C) the reasons for any such exceptions are noted in the
Board minutes and maintained in the obligor's file;
v. Refrain from (A) declaring or paying dividends without the prior
written approval of the ODFI and the FDIC when Farmers' tier one leverage
ratio is below 7.5% or (B) extending any additional credit to any borrower
who is an obligor to Farmers on any extension of credit or portion thereof
that has been charged-off or classified "substandard," "doubtful," or
"loss" in the Examination Report or in any subsequent examination report so
long as such credit remains uncollected, unless the additional extension of
credit has been authorized in advance by the Farmers Board of Directors in
accordance with certain standards and supported by certain documentation;
vi. Take all necessary steps consistent with sound banking practices
to (A) address all violations described in the Examination Report and
refrain from engaging in such violations in the future, (B) eliminate
and/or correct problems relating to credit information and collateral
documentation and ensure proper collection and maintenance of such
information and documentation in the future, and (C) ensure all
deficiencies in internal routine and controls, as identified in the
Examination Report, are eliminated and/or corrected and procedures are
implemented to maintain a sound system of internal controls;
vii. Establish a Compliance Committee comprised of outside directors
to monitor compliance with the MOU and written policies and procedures; and
viii. Adopt all plans, policies and procedures required by the MOU and
fully comply with all of the terms thereof.
Actions Taken in Response to the Memorandum of Understanding
To date, Farmers has taken the following actions in response to the MOU:
i. Formed a Compliance Committee comprised of outside directors to
monitor compliance with the MOU and Farmers' written policies and
procedures and engaged Austin Associates to assist in the coordination of
MOU compliance efforts;
ii. Contracted for and received a detailed loan review from Austin
Credit Services;
44
<PAGE> 58
iii. Increased loan loss reserves consistent with the recommendations
of the regulatory examiners and Austin Credit Services;
iv. Developed a plan to correct loan documentation deficiencies;
v. Adopted a lending policy which includes a methodology for
determining future loan loss reserves;
vi. Filed with the ODFI and FDIC restated reports of condition dating
back to December 31, 1996 reflecting the increases in its loan loss
reserves and provided the ODFI and FDIC with certain other documents
relating to the actions described above.
While Farmers intends to continue to fully comply with all of the
provisions of the MOU, there can be no assurance that such compliance will
improve Farmers' overall financial condition or result in a timely modification
or termination of the MOU. Moreover, compliance by Farmers with the provisions
of the MOU will not bar, estop or otherwise prevent the ODFI and/or the FDIC or
any other regulatory agency or department from taking any other action affecting
Farmers or any of its current or former affiliates.
MARKET PRICE AND DIVIDENDS ON FARMERS COMMON SHARES
Farmers Common Shares are not traded in any established market. The sale
price for Farmers Common Shares on April 11, 1996, the date of the most recent
transaction of which Farmers' management is aware, was $72.00. As of December
10, 1997, the number of Farmers shareholders was approximately 197.
The following table sets forth the per share cash dividends declared on
Farmers Common Shares for each quarter since January 1, 1995, as restated for
the effect of stock splits:
<TABLE>
<S> <C>
1995
First Quarter........................................ None
Second Quarter....................................... None
Third Quarter........................................ None
Fourth Quarter....................................... $1.20
1996
First Quarter........................................ None
Second Quarter....................................... None
Third Quarter........................................ None
Fourth Quarter....................................... $1.40
1997
First Quarter........................................ None
Second Quarter....................................... None
Third Quarter........................................ None
</TABLE>
It is expected that Farmers will declare its normal annual dividend during
the fourth quarter of 1997. Such dividend would be paid prior to the
consummation of the Merger.
Dividends may be declared by Farmers by its Board of Directors out of
surplus. An Ohio bank must generally maintain surplus in an amount which is
equal to the amount of its capital. In addition to other limitations under Ohio
law with respect to the payment of dividends, approval of the Ohio Division of
Financial Institutions is required for the declaration of dividends by an Ohio
bank if the total of all dividends declared by such bank in any year exceeds the
total of its net profits (as defined in Section 1117.02 of the ORC) for that
year combined with its retained net profits for the preceding two years, less
any required transfers to surplus or a fund for the retirement of any preferred
stock or capital securities.
If, in the opinion of the applicable bank regulatory authority, a bank
under its jurisdiction is engaged in an unsafe or unsound practice (which,
depending on the financial condition of the bank, could include the payment
45
<PAGE> 59
of dividends), such authority may require, after notice and hearing, that such
bank cease and desist from such practice. In addition, the Federal Reserve Board
and the FDIC have issued policy statements which provide that banks should
generally only pay dividends out of current operating earnings. Finally, bank
regulatory authorities have established guidelines with respect to the
maintenance of appropriate levels of capital by a bank under their jurisdiction.
Compliance with standards set forth in such policy statements and guidelines
could limit the amounts which a bank can pay as dividends. For discussions of
the restrictions on the payment of dividends on Farmers Common Shares, see
"INFORMATION WITH RESPECT TO FARMERS -- Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Capital Resources."
SELECTED FINANCIAL INFORMATION
The following table sets forth certain selected financial information of
Farmers and is qualified in its entirety by reference to the detailed
information and financial statements of Farmers included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT SHARES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of earnings:
Total interest income............ $ 8,342 $ 7,762 $ 10,571 $ 9,530 $ 9,041 $ 8,561 $ 7,620
Total interest expense........... 5,109 4,877 6,604 5,876 4,883 4,630 4,502
-------- -------- -------- -------- -------- -------- --------
Net interest income............ 3,233 2,885 3,967 3,654 4,158 3,931 3,118
Provision for loan losses........ 695 274 365 80 110 560 320
-------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for loan losses.... 2,538 2,611 3,602 3,574 4,048 3,371 2,798
Security gains (losses).......... (19) 6 6 (2) 38 168 86
Other............................ 162 144 189 215 192 165 132
-------- -------- -------- -------- -------- -------- --------
Total noninterest income....... 143 150 195 213 230 333 218
Total noninterest expenses....... 1,481 1,350 1,812 1,789 1,891 1,718 1,490
Earnings before federal income
taxes........................ 1,200 1,411 1,985 1,998 2,387 1,986 1,526
Federal income tax expense....... 208 327 382 403 668 605 373
-------- -------- -------- -------- -------- -------- --------
Net earnings................... $ 992 $ 1,084 $ 1,603 $ 1,595 $ 1,719 $ 1,381 $ 1,153
======== ======== ======== ======== ======== ======== ========
Per share of common stock(1)
Net earnings..................... $ 4.96 $ 5.42 $ 8.02 $ 7.98 $ 8.60 $ 6.91 $ 5.77
Dividends........................ 0 0 1.40 1.20 1.00 .88 .75
Book value....................... 79.77 66.84 71.31 63.78 42.93 48.11 39.63
Average common shares(1)
outstanding...................... 200,000 200,000 200,000 200,000 200,000 200,000 200,000
Year-end balances:
Loans, net....................... 66,328 54,307 57,537 47,092 43,205 41,115 38,158
Securities....................... 79,839 89,297 88,682 85,903 75,736 77,816 51,334
Total assets..................... 155,860 152,778 153,131 142,757 128,108 132,508 107,399
Deposits......................... 136,497 136,352 135,312 126,899 119,108 119,561 96,183
Borrowings....................... 1,315 1,764 1,188 918 323 864 892
Shareholders' equity............. 15,955 13,369 14,261 12,756 8,586 9,621 7,925
</TABLE>
- ---------------
(1) All share and per share data has been restated for the effect of common
stock dividends and splits.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Introduction
This discussion is intended to focus on certain financial information
regarding Farmers. The purpose of this discussion is to provide the reader with
a more thorough understanding of the financial statements. This discussion
should be read in conjunction with the financial statements and accompanying
notes contained elsewhere in this Proxy Statement/Prospectus.
46
<PAGE> 60
Management of Farmers is not aware of any market or institutional trends,
events or uncertainties that are expected to have a material effect on
liquidity, capital resources or operations except as discussed herein. Also,
management is not aware of any current recommendations by its regulatory
authorities that would have such effect if implemented except as discussed
herein and under the heading "Business" in "Information with Respect to
Farmers".
Overview
The reported results of Farmers are dependent on a variety of factors,
including the general interest rate environment, competitive conditions in the
industry, governmental policies and regulations and conditions in the markets
for financial assets. Net interest income is the largest component of Farmers
'net income, and consists of the difference between income generated on
interest-earning assets and interest expense incurred on interest-bearing
liabilities. Net interest income is primarily affected by the volume, interest
rates and composition of interest-earning assets and interest-bearing
liabilities.
Average Balances and Yields. The following tables present for the periods
indicated, the total amount of interest income from average interest-earning
assets and the resultant yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates, and the net
interest margin. Net interest margin refers to the net interest income divided
by total interest-earning assets and is influenced by the level and relative mix
of interest-earning assets and interest-bearing liabilities.
47
<PAGE> 61
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1996 1995
------------------------------ ------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------ -------- -------- ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans(1)(2)(3)..................... $ 52,924 $ 4,823 9.11% $ 45,801 $ 4,147 9.05%
Taxable securities(5).............. 67,826 4,378 6.34 62,338 4,087 6.36
Nontaxable securities(4)........... 15,740 880 5.59 14,451 835 5.78
Equity securities(5)............... 4,581 241 7.08 3,411 209 7.02
Federal funds sold................. 2,600 156 6.00 1,630 100 6.13
Interest-bearing deposits in other
banks........................... 1,181 93 7.87 2,296 152 6.62
-------- ------- -------- ------
Total interest-earning
assets................... 144,852 10,571 7.30% 129,927 9,530 7.25%
------- ------
Noninterest-earning assets:
Cash and due from banks............ 2,843 2,420
Office premises and equipment,
net............................. 610 547
Accrued interest receivable........ 1,590 1,423
Goodwill........................... 41 52
Other assets....................... 384 428
Less allowance for possible loan
losses.......................... (1,138) (915)
-------- --------
Total...................... $149,182 $133,882
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Savings, NOW and Money Market
deposit accounts................ $ 35,907 1,132 3.15% $ 37,234 1,223 3.28%
Time deposits...................... 92,576 5,418 5.85 79,462 4,611 5.80
Securities sold under repurchase
agreements...................... 906 45 4.97 546 30 5.49
U.S. Treasury demand notes
payable......................... 310 9 2.90 261 12 4.60
-------- ------- -------- ------
Total interest bearing
liabilities.............. 129,699 6,604 5.09% 117,503 5,876 5.00%
-------- ------- -------- ------
Noninterest-bearing liabilities:
Demand deposits.................... 4,913 4,877
Other liabilities.................. 1,451 729
-------- --------
6,364 5,606
Shareholders' equity................. 13,119 10,773
-------- --------
Total...................... $149,182 $133,882
======== ========
Net interest income.................. $ 3,967 $ 3,654
======= ======
Net yield on interest-earning
assets............................. 2.74% 2.78%
</TABLE>
- ---------------
(1) For purposes of these computations, the daily average loan amounts
outstanding are net of unearned income.
(2) Included in loan interest income are loan fees of $194,316 in 1996 and
$141,163 in 1995.
(3) Nonaccrual loans are included in loan totals and do not have a material
impact on the analysis presented.
(4) Interest income is reported on a historical basis without tax-equivalent
adjustment.
(5) Average balance is computed using the carrying value of securities. The
average yield has been computed using the historical amortized cost average
balance for available for sale securities.
Rate and Volume Variances. Net interest income is affected by changes in
the level of interest-earning assets and interest-bearing liabilities and
changes in yields earned on assets and rates paid on liabilities. The following
table sets forth, for the periods indicated, a summary of the impact on interest
income and interest
48
<PAGE> 62
expense of changes in average asset and liability balances and changes in
average rates. Changes attributable to the combined impact of volume and rate
have been allocated proportionately to change due to volume and change due to
rate.
<TABLE>
<CAPTION>
1996 COMPARED TO 1995
INCREASE (DECREASE) DUE TO
--------------------------
VOLUME RATE NET
------ ---- ------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Interest income:
Loans............................................................ $ 642 $ 34 $ 676
Taxable securities............................................... 355 (64) 291
Nontaxable securities............................................ 73 (28) 45
Equity securities................................................ 65 (33) 32
Federal funds sold............................................... 58 (2) 56
Interest-bearing deposits in other banks......................... (83) 24 (59)
------ ---- ------
Total interest-earning assets............................ $1,110 $(69) $1,041
====== ==== ======
Interest expense:
Savings, NOW and Money Market deposit accounts................... $ (43) $(48) $ (91)
Time deposits.................................................... 767 40 807
Securities sold under repurchase agreements...................... 18 (3) 15
U.S. Treasury demand notes payable............................... 2 (5) (3)
------ ---- ------
Total interest-bearing liabilities....................... $ 744 $(16) $ 728
------ ---- ------
Net interest income...................................... $ 366 $(53) $ 313
====== ==== ======
</TABLE>
Comparison of Operating Results for Nine Months Ended September 30, 1997 and
1996
Net income was $992,000 for the nine months ended September 30, 1997
compared to $1,084,000 for the comparable period in 1996. Major factors
impacting these results are discussed below.
Net interest income increased by $348,000 for the nine months ended
September 30, 1997 over the same period in 1996. The majority of this increase
comes from interest and fees on loans which increased by $826,000 and is a
direct reflection of management's continuing emphasis on increase loan volume,
primarily in the real estate mortgage area. The increase in loan income was
partly offset by a decline in interest on securities and short-term investments
as maturities of these assets were used to fund loans. Interest expense on
deposits also increased due to a slight shift from savings accounts to higher
rate certificates of deposit and a general increase in the rates being paid on
certificates of deposit.
The provision for loan losses for the first three quarters of 1997 totaled
$695,000 compared to $274,000 in 1996, an increase of $421,000. The increased
provision expense was made in recognition of the continued increase in loans and
also based on the results of an independent loan review which management
contracted to be performed in response to the MOU. See "INFORMATION WITH RESPECT
TO FARMERS -- Business." The loan review results indicated that internal
procedures for loan underwriting and documentation standards had not been
sufficient to keep pace with the rapid expansion in loan volume. As a result,
the credit quality of new loan originations in 1997 has deteriorated and
perfection of Farmers' security interest is not always well documented. Even
though the majority of new loans are secured by residential real estate, which
typically carry a lower risk of loss than other loans, management felt it
prudent to increase the provision for loan losses until the results of recent
improvements in lending procedures have time to become effective. Management has
taken aggressive action to correct lending deficiencies by adopting a new loan
policy, improving the loan approval process, contracting for the assistance of
experienced loan underwriters and by implementing a standardized loan document
preparation system. These improvements are expected to reduce the need for
future large provisions to the allowance for loan losses.
Noninterest income for the first three quarters of 1997 showed no
significant change from the comparable period in 1996.
49
<PAGE> 63
Noninterest expense increased by $131,000 in 1997 over 1996 almost entirely
related to increased professional fees for strategic planning consulting
services and acquisition related costs.
Comparison of Operating Results for the Years Ended December 31, 1996 and 1995
Net income of $1,603,000 for the year ended December 31, 1996 increased by
$7,000 or less than 1% from the net income of $1,596,000 reported in 1995. Major
factors which influenced the change from 1995 to 1996 include an increase in net
interest income of $312,000 that was largely offset by an increase in the
provision for loan losses of $285,000 as more fully discussed below.
Net interest income for 1996 was $3,967,000 compared to $3,655,000 in 1995,
an increase of 8.5%. Total interest income increased by $1,041,000, primarily
from loans and taxable investments compared to an increase of $729,000 in
interest expense, primarily interest paid on deposits. The increase in loan
income resulted from continued growth in the loan portfolio with the average
outstanding balance increasing from $45,801,000 in 1995 to $52,924,000 in 1996
while the average yield remained relatively constant at 9.11% in 1996 compared
to 9.05% in 1995. The increase in interest income on taxable investments also
resulted from an increase in the average balance outstanding which was
$67,826,000 in 1996 compared to $62,338,000 in 1995 while the average yield
showed little change. The increase in earning assets was funded by an increase
in interest bearing liabilities, primarily time deposits, which increased from
an average balance of $79,462,000 in 1995 to $92,576,000 in 1996 while overall
deposit average rates remained flat. Farmers has historically attracted deposits
by offering highly competitive rates and in the latter part of 1995 and 1996
aggressively marketed a six-month time deposit account designed to mature
shortly after the end of the year. As a result, Farmers' overall cost of funds
tends to exceed that of other local community banks, negatively impacting
Farmers' net interest margin.
Management periodically evaluates the adequacy of the allowance for loan
loss balance and makes provisions for possible loan losses by a charge to
operations. As previously discussed, Farmers' regulators have required that the
process used by management to evaluate the adequacy of the allowance for loan
losses be improved. The regulators' recommendations, as well as the results of
an independent loan review process completed in October 1997 have been
considered by management in its assessment of Farmers' 1996 and 1995 allowance
balance and related provisions for loan losses. The provision for loan losses
was $365,000 in 1996 compared to $80,000 in 1995, an increase of $285,000. The
increased provision for 1996 is a result of additional allocations of $72,000
for loans considered impaired, an increase in net charge-offs of $98,000 in 1996
and a reflection of the overall increase in the size of the loan portfolio which
increased from $48,074,000 at year end 1995 to $58,830,000 at year end 1996.
Management's evaluation of the adequacy of the allowance is based upon a review
of the existing loan portfolio considering such items as known problem loans,
past loss experience, delinquency trends, changes in the size and composition of
the loan portfolio and current economic conditions and recommendations of its
regulators and the independent loan review process previously discussed.
Statement of Financial Accounting Standards ("SFAS") Nos. 114 and 118 were
effective January 1, 1995 and require recognition of loan impairment. Loans are
considered impaired if full principal or interest payments are not anticipated.
An impaired loan is carried at the present value of expected cash flows
discounted at the loan's effective interest rate or at the fair value of
collateral if the loan is collateral dependent. A portion of the allowance for
loan losses is allocated to impaired loans. The effect of adopting these
standards did not have a material impact on the 1995 or 1996 financial
statements.
Total noninterest income reflected no significant change for 1996 compared
to 1995. Total noninterest expense increased by $23,000 for 1996 over 1995. This
was comprised of a $138,000 reduction in federal deposit insurance premiums
resulting from a change in premium rates by the FDIC which was offset by normal
salary adjustments of approximately 4.3% and modest increases in other operating
costs.
Federal income tax expense amounted to $382,000 in 1996 compared to
$403,000 in 1995 reflecting effective tax rates of 19.2% and 20.2% respectively.
The effective tax rate is less than the statutory federal income tax rate of 34%
due to Farmers' investment in nontaxable municipal investments and marketable
equity securities for which the dividends are partially excluded from tax.
50
<PAGE> 64
Asset Quality
Nonperforming loans consist of loans past due 90 days or more and loans for
which the accrual of interest has been discontinued. Nonperforming loans totaled
approximately $1,260,000 or 2.14% of total loans at December 31, 1996, as
compared to $964,000 or 2.01% of total loans at December 31, 1995. The allowance
for loan losses as a percentage of nonperforming loans was 102.6% and 101.9% at
year end 1996 and 1995, respectively.
The following table sets forth nonaccrual, past due and restructured loans
at December 31:
<TABLE>
<CAPTION>
1996 1995
------ ----
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Loans accounted for on a nonaccrual basis......................... $ 453 $101
Accruing loans which are 90 days or more past due as to interest
or principal payments........................................... 807 863
Loans which are "troubled debt restructurings" as defined in SFAS
No. 15, exclusive of loans included above....................... -- --
------ ----
Total nonperforming loans............................... $1,260 $964
====== ====
</TABLE>
Gross interest income that would have been recorded on nonaccrual loans for
the year ending December 31, 1996 if the loans had been current in accordance
with their original terms totalled approximately $42,000. The interest income
actually reflected in earnings for 1996 on nonaccrual loans was approximately
$57,000.
Management evaluates loans that are 90 days or more past due to determine
if they should be placed on nonaccrual status. Factors considered by management
include the estimated value of collateral, if any, and other resources of the
borrower that may be available to satisfy the delinquency.
Information regarding impaired loans at December 31, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Balance of impaired loans........................................ $1,233 $1,179
Less portion for which no allowance for loan losses is
allocated...................................................... (36) (40)
------ ------
Portion of impaired loan balance for which an allowance for loan
losses is allocated............................................ $1,197 $1,139
====== ======
Portion of allowance for loan losses allocated to impaired
loans.......................................................... $ 525 $ 453
------ ------
</TABLE>
Information regarding impaired loans is as follows for the years ended
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Average investment in impaired loans during the year............. $1,177 $1,143
Interest income recognized on impaired loans including interest
income recognized on cash basis................................ $ 103 $ 91
------ ------
Interest income on impaired loans recognized on a cash basis..... $ 2 $ 2
====== ======
</TABLE>
Impaired loans at December 31, 1996 and 1995 include $776,000 and $700,000,
respectively, of loans that are also included in total nonperforming loans
above.
There are no loans as of December 31, 1996 or 1995 other than those
disclosed above as either nonperforming or impaired where known information
about the borrower caused management to have serious doubts about the borrower's
ability to comply with their contractual repayment obligations. There are also
no other interest bearing assets that would be subject to disclosure as either
nonperforming or impaired if such interest bearing assets were loans.
51
<PAGE> 65
At December 31, 1996 and 1995, total loans included approximately
$7,826,000 (13.3% of total loans) and $8,282,000 (17.2% of total loans),
respectively, of loans to farmers or other businesses closely related to
agriculture. Management is not aware of any other concentration of loans to
borrowers engaged in similar activities which exceeds 10% of total loans.
Summary of Loan Loss Experience
The following schedule presents an analysis of the allowance for loan loss,
average loan data and related ratio for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
------ ----
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Balance at beginning of period.................................... $ 983 $860
Loan charge-offs:
Commercial and agriculture...................................... 56 1
Real estate mortgage............................................ -- --
Real estate construction........................................ -- --
Consumer and credit card........................................ 16 14
Leases.......................................................... 3 64
------ ----
75 79
Recoveries:
Commercial and agriculture...................................... 9 120
Real estate mortgage............................................ -- --
Real estate construction........................................ -- --
Consumer and credit card........................................ 11 2
Leases.......................................................... -- --
------ ----
20 122
Net (charge-offs)/recoveries...................................... (55) 43
Additions charged to operations................................... 365 80
------ ----
Balance at end of period.......................................... $1,293 $983
====== ====
Ratio of net (charge-offs)/recoveries during period to average
loans outstanding............................................... (.10)% .09%
</TABLE>
Comparison of September 30, 1997 to December 31, 1996 Financial Condition
Total assets as of September 30, 1997 increased by only $2,729,000 or 1.8%
over the balance at December 31, 1996. However, the composition of assets
reflects a more significant change.
Total loans increased by $9,398,000 or 16.0% for the nine months ended
September 30, 1997, reflective of management's continuing emphasis on increasing
Farmers' lending activities in its local market area. Within the various loan
categories, commercial and agricultural loans increased by $2,135,000 or 10.7%
and real estate mortgage loans increased by $8,088,000 or 23.8%. The rapid
increase in volume of loans originated over the last couple years has been
partially the result of management's application of less stringent loan
documentation and underwriting standards than some other lenders in the local
market area. As discussed earlier, a recently completed independent review of
loans originated in 1996 and 1997 indicated that credit quality and
documentation procedures have deteriorated. In recognition of this
deterioration, management elected to increase the allowance for loan losses in
September to a balance of $1,900,000. The allowance for loan losses represents
2.8% of total loans at September 30, 1997 compared to a balance of $1,293,000 or
2.2% of total loans at December 31, 1996. Management has also adopted a new loan
policy, implemented new procedures for the approval of loans and is in the
process of implementing an automated loan document preparation system, all with
the goal of improving loan underwriting and documentation standards. These new
policies and procedures may also have the effect of slowing future increases in
loan volumes.
52
<PAGE> 66
The increase in loans was funded by the sale and maturity of securities.
Securities available for sale declined to $47,661,000 at September 30 1997
compared to $54,850,000 at December 31, 1996. The change occurred primarily in
the category of U.S. government and agency securities. Securities held to
maturity also declined from $33,831,000 at December 31, 1996 to $32,178,000 at
September 30, 1997. The rapid shift from securities to loans is not expected to
continue since as noted above, loan growth is expected to slow. The portfolio of
securities available for sale includes equity securities with an original cost
of $3,508,000 and an estimated fair value of $5,844,000 at September 30, 1997,
reflecting net appreciation in value of $2,336,000. This compares to net
appreciation on equity securities of $1,654,000 at December 31, 1996. The
increase in value is attributable to the general increase in the stock market
and the value of these investments can change quickly based on factors outside
of management's control.
No significant changes occurred in the area of deposit liabilities or other
liabilities of Farmers for the period September 30, 1997 compared to December
31, 1996.
Total shareholders' equity increased by $1,694,000 from December 31,1996 to
a total of $15,955,000 at September 30, 1997. The increase reflects earnings of
$992,000 and an increase in the value of securities available for sale, net of
tax effect, of $702,000. Total shareholders' equity was 10.2% of total assets at
September 30, 1997 compared to 9.3% at December 31, 1996.
Comparison of December 31, 1996 and 1995 Financial Condition
Total assets were $153,131,000 at December 31, 1996 compared to
$142,757,000 at December 31, 1995 representing an increase of 7.3%. Those
balance sheet categories reflecting significant changes including securities
available for sale, total loans and interest bearing deposits are discussed
below.
Securities available for sale increased by $2,691,000 or 5.2% in 1996
resulting from additional purchases of U.S. Treasury and agency issues. The
category of securities available for sale includes securities issued by the U.S.
Treasury or U.S. Government agencies, mortgage backed securities issued or
guaranteed by FNMA or FHLMC and marketable equity securities representing 63.2%,
27.3% and 9.5% of the available for sale portfolio respectively. Securities
available for sale are carried on the balance sheet at estimated fair value
which exceeded amortized cost by $1,275,000 (net) at year end 1996 compared to
net appreciation of $1,120,000 at year end 1995. The increase in net
appreciation relates to increases in the estimated fair value of equity
securities.
Total loans increased by $10,756,000 or 22.4% in 1996 representing
continuing efforts of management to expand lending activities. Loans are
originated by salaried loan officers. The majority of the increase occurred in
the real estate mortgage loan category which represented primarily loans secured
by 1 to 4 family residences in Farmers' primary market area. Real estate
mortgages at December 31, 1996 represented 57.8% of total loans compared to
53.7% at year end 1995. Commercial and agriculture loans represented 33.9% of
total loans at December 31, 1996 compared to 39.5% in 1995. The remainder of the
portfolio consisted of consumer loans, real estate construction loans and other
loans. Agriculture loans including loans to farmers and other business closely
related to the agriculture industry totaled approximately $7,826,000 and
$8,282,000 at December 31, 1996 and 1995 representing 13.3% and 17.2% of total
loans, respectively. Farmers does not sell loans in the secondary market and
generally does not purchase or sell significant participations in loans.
The increase in assets discussed above was funded largely by an increase of
$9,146,000 (or 7.6%) in interest bearing time deposits in 1996. Farmers has
typically attracted deposits by offering interest rates that exceed the rates
paid by other local financial institutions. In addition, management has been
successful in marketing a six-month time deposit which is scheduled to mature
after the calendar year end. At December 31, 1996 54.6% of Farmers' total time
deposits had a maturity of one year or less.
Capital Resources
Total shareholders' equity at December 31, 1996 was $14,261,000 an increase
of $1,505,000 or 11.8% from total shareholders' equity of $12,756,000 at
December 31, 1995. The increase reflected earnings of $1,603,000, dividends paid
of $280,000 and an increase in the unrealized gain on securities available for
sale, net of tax effects, of $182,000.
53
<PAGE> 67
Banking regulations have established minimum capital requirements for banks
including riskbased capital ratios and leverage ratios. As of December 31, 1996,
these capital regulations require banks to maintain minimum total risk-based
capital ratios of 8%, Tier-1 capital (as defined) to risk weighted assets of 4%
and Tier-1 capital to average assets of 4%. To be considered well capitalized
these requirements become 10%, 6% and 5% respectively. As reflected in Note 12
of the accompanying financial statements, Farmers' actual capital ratios at
December 31, 1996 were total capital to risk weighted assets of 19.1%, Tier-1
capital to risk weighted assets of 17.8% and Tier-1 capital to average assets of
9.1%. All of these ratios were above the requirements to be considered well
capitalized.
Liquidity
Liquidity management for Farmers centers around the assurance that funds
are available to meet the loan and deposit needs of its customers, and Farmers'
other financial commitments.
Cash and noninterest bearing deposits with banks, federal funds sold and
other short-term investments totaled $4,464,000 December 31, 1996. These assets
provide the primary source of liquidity for Farmers. In addition, management has
designated a substantial portion of the investment portfolio ($54,850,000) as
available for sale to provide an additional source of liquidity.
A standard measure of liquidity is the relationship of loans to deposits.
Lower ratios indicate greater liquidity. At December 31, 1996 and 1995 the ratio
of total loans to deposits was 43.5% and 37.9% respectively, considered an
acceptable level of liquidity by management.
Asset/Liability Management
Asset/liability management is the process of monitoring Farmers' exposure
to changes in interest rates. The primary measure of interest rate risk exposure
is Farmers' "gap," or the difference between interest rate sensitive assets and
liabilities that mature of reprice within similar periods of time. A financial
institution like Farmers', with a negative interest rate sensitivity gap, has an
amount of interest-bearing liabilities maturing or otherwise repricing within
the period which exceeds the amount of interest-bearing assets maturing of
otherwise repricing within the same period. In a rising interest rate
environment, a financial institution with a negative interest sensitivity gap
generally will experience greater increases in the cost of its interest bearing
liabilities than in the yield on its earning assets. Conversely, in a falling
interest rate environment the cost of interest bearing liabilities will
generally decline more quickly than the yield on earning assets.
The table below provides a measure of Farmers' interest rate sensitivity at
December 31, 1996. The amount of assets or liabilities shown which reprice or
mature within a period were determined based on the contractual terms of the
asset or liability. Savings, NOW and money market demand deposit accounts
reprice at management's discretion and therefore are included in the amount
repricing within three months. This table may not reflect the actual impact on
Farmers of changes in interest rates because the repricing of various categories
of rate sensitive assets and liabilities are subject to other factors such as
competition, customer preference, and management influence.
54
<PAGE> 68
Period to Maturity or Repricing:
<TABLE>
<CAPTION>
WITHIN THREE TO
THREE TWELVE ONE TO FIVE AFTER FIVE
MONTHS MONTHS YEARS YEARS TOTAL
-------- -------- ----------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans, before allow........... $ 7,414 $ 46,867 $ 2,282 $ 2,267 $ 58,830
Securities.................... 5,650 3,124 28,684 51,224 88,682
Federal funds sold............ 900 -- -- -- 900
Interest bearing time
deposits.................... 194 492 347 -- 1,033
-------- -------- ------- ------- -------
Total......................... 14,158 50,483 31,313 53,491 149,445
-------- -------- ------- ------- -------
SAV, NOW & MMDA............... 35,336 -- -- -- 35,336
Time deposits................. 31,362 20,538 43,117 -- 95,017
Other borrowings.............. 1,188 -- -- -- 1,188
-------- -------- ------- ------- -------
Total......................... 67,886 20,538 43,117 -- 131,541
-------- -------- ------- ------- -------
Int. earning assets less Int.
bearing liabilities
(maturity gap).............. $(53,728) $(29,945) $ (11,804) $ 53,491 $ 17,904
======== ======== ======= ======= =======
Cumulative interest rate
sensitivity gap............. $(53,728) $(23,783) $ (35,587) $ 17,904
======== ======== ======= =======
Cumulative interest rate
sensitivity gap as a percent
of total interest earning
assets...................... (35.95)% (15.91)% (23.81)% 11.98%
======== ======== ======= =======
Cumulative interest rate
sensitivity gap as a percent
of total assets............. (35.09)% (15.53)% (23.24)% 11.69%
======== ======== ======= =======
</TABLE>
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and results of operations
primarily in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation. Unlike most
industrial companies, virtually all of the assets and liabilities of Farmers are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services.
CERTAIN STATISTICAL INFORMATION WITH RESPECT TO FARMERS
The following schedules present, for the period indicated, certain
financial and statistical information of Farmers under the Commission's Industry
Guide 3, or a specific reference as to the location of the required disclosures
elsewhere in this Proxy Statement/Prospectus.
Distribution of Assets, Liabilities and Shareholders' Equity, Interest Rates
and Interest Differential
The information required under this section is set forth under the heading
"INFORMATION WITH RESPECT TO FARMERS -- Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Investment Portfolio
The amortized cost, unrealized gains and losses and estimated fair values
are as follows at December 31:
55
<PAGE> 69
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Available for Sale U.S. Treasury
securities and obligations of U.S.
Government corporations and agencies.... $35,026,307 $ 98,764 $(440,674) $34,684,397
Mortgage backed securities................ 15,000,755 24,189 (60,881) 14,964,063
Equity Securities......................... 3,548,130 1,832,926 (179,149) 5,201,907
----------- ----------- ----------- -----------
Total securities available for sale....... $53,575,192 $1,955,879 $(680,704) $54,850,367
=========== =========== =========== ===========
Held to Maturity U.S. Treasury securities
and obligations of U.S. Government
corporations and agencies............... $14,898,233 $ 380,536 $(240,394) $15,038,375
Obligations of states and political
subdivisions............................ 15,376,100 765,457 (367) 16,141,190
Mortgage backed securities................ 512,041 24,446 (18) 536,469
Corporation Bonds......................... 3,045,011 27,585 (9,941) 3,062,655
----------- ----------- ----------- -----------
Total securities held to maturity......... $33,831,385 $1,198,024 $(250,720) $34,778,689
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Available for Sale U.S. Treasury
securities and obligations to U.S.
Government corporations and agencies.... $31,248,187 $ 314,554 $(161,906) $31,400,835
Mortgage backed securities................ 16,615,937 66,110 (20,472) 16,661,575
Equity Securities......................... 3,175,329 1,042,245 (120,428) 4,097,146
----------- ----------- ----------- -----------
Total securities available for sale....... $51,039,453 $ 1,422,909 $(302,806) $52,159,155
=========== =========== =========== ===========
Held to Maturity U.S. Treasury securities
and obligations of U.S. Government
corporations and agencies............... $14,775,510 $ 555,549 $(208,122) $15,122,937
Obligations of states and political
subdivisions............................ 15,182,035 937,006 (25,219) 16,093,822
Mortgage backed securities................ 592,504 30,548 623,052
Corporation Bonds......................... 3,193,180 58,187 (7,797) 3,243,570
----------- ----------- ----------- -----------
Total securities held to maturity......... $33,743,229 $ 1,581,290 $(241,138) $35,083,381
=========== =========== =========== ===========
</TABLE>
The following is a schedule of maturities or next rate adjustment date and
related weighted average yields of securities at December 31, 1996.
56
<PAGE> 70
MATURITY OR NEXT RATE ADJUSTMENT DATE
<TABLE>
<CAPTION>
AFTER THREE
WITHIN THREE MONTHS BUT AFTER ONE YEAR BUT AFTER FIVE BUT
MONTHS WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS
----------------- -------------------- --------------------- ---------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ----- ---------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Treasury securities and
obligations of U.S.
Government corporations and
agencies..................... $ 293,973 6.61% $12,057,332 5.51% $ 2,546,928 6.28%
Obligations of states and
political subdivisions
(1)........................ $25,019 7.40% 606,946 6.87% 4,858,365 6.26% 9,415,120 5.27%
Corporate Bonds.............. 699,849 6.82% 1,897,091 6.35% 448,071 7.13%
Other Securities(2)..........
------- ----- ---------- ----- ----------- ----- ----------- -----
Total.......................... $25,019 7.40% $1,600,768 6.80% $18,812,788 5.79% $12,410,119 5.54%
======= ===== ========== ===== =========== ===== =========== =====
AVAILABLE FOR SALE(4)
U.S. Treasury Securities and
obligations of U.S.
Government corporations and
agencies..................... $1,517,377 7.18% $ 9,882,058 6.52% $23,284,962 6.78%
Other Securities(3)..........
---------- ----- ----------- ----- ----------- -----
Total.......................... $1,517,377 7.18% $ 9,882,058 6.52% $23,284,962 6.78%
========== ===== =========== ===== =========== =====
<CAPTION>
AFTER TEN YEARS
------------------
AMOUNT YIELD TOTAL
-------- ----- -----------
<S> <C> <C> <C>
HELD TO MATURITY
U.S. Treasury securities and
obligations of U.S.
Government corporations and
agencies..................... $14,898,233
Obligations of states and
political subdivisions
(1)........................ $470,650 5.63% 15,376,100
Corporate Bonds.............. 3,045,011
Other Securities(2)..........
-------- ----- -----------
Total.......................... $470,650 5.63% $33,319,344
======== ===== ===========
AVAILABLE FOR SALE(4)
U.S. Treasury Securities and
obligations of U.S.
Government corporations and
agencies..................... $34,684,397
Other Securities(3)..........
-----------
Total.......................... $34,684,397
===========
</TABLE>
- ---------------
(1) Weighted average yields on nontaxable obligations have been computed based
on actual yields stated on the security.
(2) Excludes $512,041 of mortgage backed securities.
(3) Excludes $14,964,063 of mortgage backed securities; and $5,201,907 of equity
securities which have no stated maturity.
(4) The weighted average yield has been computed using the historical amortized
cost for available for sale securities.
Excluding holdings of the U.S. Treasury and other agencies and corporations of
the U.S. Government, there were no investments in securities of any one issuer
which exceeded 10% of shareholders' equity of Farmers at December 31, 1996.
Loan Portfolio
Types of Loans. Total loans on the balance sheet are comprised of the
following classifications at December 31:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Commercial and agricultural............................... $19,958,639 $18,991,546
Real estate-mortgage...................................... 34,018,581 25,796,200
Real estate-construction.................................. 1,368,501 443,074
Consumer.................................................. 3,009,473 2,912,948
Leases.................................................... 882,540 611,742
Other..................................................... 400,000 --
Deferred loan fees and unearned interest.................. (807,402) (681,137)
----------- -----------
$58,830,332 $48,074,373
=========== ===========
</TABLE>
Maturities and Sensitivities of Loans to Changes in Interest Rates. The
following is a schedule of maturities and sensitivities of certain loans to
changes in interest rates as of December 31, 1996:
<TABLE>
<CAPTION>
ONE YEAR ONE THROUGH OVER
OR LESS FIVE YEARS FIVE YEARS
---------- ----------- -----------
<S> <C> <C> <C>
Commercial and Agricultural................... $3,304,022 $ 4,421,343 $12,233,274
Real Estate -- construction................... 55,497 131,978 1,181,026
Other......................................... 400,000 -- --
</TABLE>
Substantially all commercial, agricultural and real estate construction loans
due after one year have variable interest rates.
57
<PAGE> 71
Risk Elements. The information required under this section is set forth
under the heading "Asset Quality" in "INFORMATION WITH RESPECT TO
FARMERS -- Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Summary of Loan Loss Experience
Analysis of Loan Loss Experience. The information required under this
section is set forth under the heading "Summary of Loan Loss Experience" in
"INFORMATION WITH RESPECT TO FARMERS -- Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Allocation of the Allowance for Loan Losses. The following table allocates
the allowance for loan losses at December 31, 1996 and 1995 to each loan
category. The allowance has been allocated according to the amount deemed to be
reasonably necessary to provide for the possibility of losses being incurred
within the following categories of loans at the dates indicated, although the
entire allowance balance is available to absorb any actual charge-offs that may
occur.
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
PERCENTAGE PERCENTAGE
OF LOANS TO OF LOANS TO
ALLOWANCE TOTAL LOANS ALLOWANCE TOTAL LOANS
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Commercial and agriculture.......................... $ 461 33.9% $ 459 39.5%
Real estate mortgage................................ 162 57.5% 116 53.3%
Real estate construction............................ 2.3% .9%
Consumer and credit card............................ 13 5.1% 5 5.1%
Leases.............................................. 35 1.2% 34 1.2%
Unallocated......................................... 622 369
------ ----- ---- -----
$ 1,293 100.0% $ 983 100.0%
====== ===== ==== =====
</TABLE>
Deposits
Average Amounts and Rates. The information required under this section is
set forth under the heading "Overview -- Average Balances and Yields" in
"INFORMATION WITH RESPECT TO FARMERS -- Management's discussion and Analysis of
Financial Condition and Results of Operations."
Foreign Deposits. There is no material amount of foreign deposits at
December 31, 1996.
Maturity of Time Deposits of $100,000 or More. The following is a schedule
of maturities of time deposits in amounts of $100,000 or more as of December 31,
1996 (in thousands):
<TABLE>
<S> <C>
Three months or less.................................. $ 5,031
Three through six months.............................. 855
Six though twelve months.............................. 2,254
Over twelve months.................................... 6,137
-------
Total................................................. $14,277
=======
</TABLE>
58
<PAGE> 72
Return on Equity and Assets
The ratio of net income to daily average total assets and average
shareholders' equity, and certain other ratios, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------ ------
<S> <C> <C>
Percentage of net income to:
Average total assets............................................. 1.07% 1.19%
Average shareholders' equity..................................... 12.22% 14.81%
Percentage of dividends declared per common share to net income
per common share............................................... 17.46% 15.04%
Percentage of average shareholders' equity to average total
assets......................................................... 8.79% 8.05%
</TABLE>
Short-Term Borrowings
This information is not required as the average amount of borrowings during
the period did not exceed 30% of shareholders' equity.
MANAGEMENT
The following table sets forth certain information concerning the current
directors and executive officers of Farmers.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH FARMERS
-------------------------- --- --------------------------------------------------------
<S> <C> <C>
Dorothy L. Robey 67 Director
William Sheaffer 62 Director, Interim President and Chief Executive Officer
Blythe A. Friedley 48 Director
Robert L. Bordner 61 Director
Richard A. Niedermier 55 Director
Luther F. Shafer 72 Director
Ronald Dentinger 43 Director
Robert M. Obringer 61 Director
</TABLE>
Set forth below is a brief description of the business experience of each
director and executive officer of Farmers:
MS. ROBEY has served as a Director of Farmers since 1982 and was President
of Farmers from 1991 to November, 1997. In addition, Ms. Robey is a Director of
Union Banking Company, Logan County, Ohio.
MR. SHEAFFER has served as Interim President and Chief Executive Officer of
Farmers since November, 1997 and as a Director of Farmers since 1993. From 1993
to 1997, Mr. Sheaffer served as Vice President of Farmers.
MS. FRIEDLEY has served as a Director of Farmers since 1986 and as
Secretary of Farmers from 1993 to November, 1997. In addition, Ms. Friedley is
the owner of Friedley Insurance, New Washington, Ohio, and a Director of Union
Banking Company, Logan County, Ohio.
MR. BORDNER has served as a Director of Farmers since 1979. In addition,
Mr. Bordner is President of Herald Printing Co., New Washington, Ohio.
MR. NIEDERMIER has served as a Director of Farmers since 1996. In addition,
Mr. Niedermier is the owner of Niedermier Sunoco, New Washington, Ohio.
MR. SHAFER has served as a Director of Farmers since 1968. Mr. Shafer is
retired from his career as a farmer.
MR. DENTINGER has served as a Director of Farmers since 1995. In addition,
Mr. Dentinger is the Manager of Country Star Co-op, New Washington, Ohio.
59
<PAGE> 73
MR. OBRINGER has served as a Director of Farmers since 1997. In addition,
Mr. Obringer is President of Studer-Obringer, Inc., a construction company
located in New Washington, Ohio.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth (i) as of December , 1997 and (ii) after
consummation of the Merger, the total number and percentage of Farmers Common
Shares beneficially owned by each director of Farmers, each executive officer of
Farmers, and each owner of more than 5% of the outstanding Farmers Common Shares
and all directors and executive officers of Farmers as a group. The number of
Farmers Common Shares shown as being beneficially owned by each director are
those over which he has either sole or shared voting or investment power. As of
December , 1997 there were 200,000 shares issued and outstanding and no shares
were held in treasury. The percent of beneficial ownership of management after
the Merger was calculated based on an exchange ratio of 6.06 First Citizens
Common Shares for each Farmers Common Share, assuming that no dissenters' rights
will be exercised by Farmers shareholders and that all 200,000 outstanding
Farmers Common Shares will be exchanged for First Citizens Common Shares in the
Merger.
<TABLE>
<CAPTION>
PERCENT OF CLASS
AMOUNT AND NATURE OF PERCENT OF CLASS AS OF AFTER
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (A) DECEMBER , 1997 THE MERGER
- --------------------------------------- ------------------------ ------------------------ ----------------
<S> <C> <C> <C>
Margaret Farrell....................... 11,400 5.70% 1.62%
E.L. Friedley(b)....................... 12,868 6.43 1.83
Dorothy L. Robey(c).................... 9,894 4.95 1.42
William Sheaffer....................... 291 * *
Robert L. Bordner(d)................... 3,182 1.59 *
Richard A. Niedermier.................. 315 * *
Blythe A. Friedley(e).................. 42,483 21.24 6.04
Luther F. Shafer....................... 3,456 1.73 *
Ronald Dentinger(f).................... 800 * *
Robert M. Obringer(g).................. 4,982 2.49 *
All directors and executive officers as
a group (8 persons).................. 64,332 32.18 9.14
</TABLE>
- ---------------
* Shares owned represent less than 1% of class.
(a) Unless otherwise indicated, the person has sole voting and investment power
as to the common shares held.
(b) Mr. Friedley is the uncle of Blythe A. Friedley.
(c) Amounts shown reflect the disposition of 200 shares pursuant to an offer of
rescission relating to an aggregate of 843 shares purchased after October
1, 1996. An additional 643 shares are subject to disposition pursuant to
such offer.
(d) Amounts shown reflect the disposition of 200 shares pursuant to an offer of
rescission relating to an aggregate of 200 shares purchased after October
1, 1996. No additional shares are subject to disposition pursuant to such
offer.
(e) 2,454 shares owned directly by Blythe A. Friedley; 3,016 shares held by the
Arlene Friedley Trust; 30,146 shares held by the R.W. Friedley Trust; and
2,289 shares owned directly by each of Scott McDougal, Keith McDougal and
Todd McDougal (college-age sons of Ms. Friedley).
(f) 700 shares owned directly by Ronald Dentinger (300 of such shares are
subject to disposition pursuant to an offer of rescission relating to an
aggregate of 300 shares purchased after October 1, 1996); 40 shares owned
directly by Alisa Dentinger (minor); and 60 shares owned directly by Arick
Dentinger (minor).
(g) 800 shares owned directly by Robert W. Obringer; 50 shares owned directly
by spouse, Marlene Obringer; and 4,132 shares owned by Studer Obringer
Construction.
60
<PAGE> 74
EXPERTS
The consolidated financial statements of First Citizens as of December 31,
1996 and 1995 and for the years then ended, and the financial statements of
Farmers as of December 31, 1996 and 1995 and for the years then ended, included
in this Proxy Statement/Prospectus have been audited by Crowe, Chizek and
Company LLP as set forth in its reports thereon. The financial statements
audited by Crowe, Chizek and Company LLP have been incorporated by reference in
reliance upon such reports given upon their authority as an expert in accounting
and auditing.
The consolidated financial statements of First Citizens as of December 31,
1994 and for the year then ended included in this Proxy Statement/Prospectus
have been audited by KPMG Peat Marwick LLP. The financial statements audited by
KPMG Peat Marwick LLP have been included in reliance on its authority as an
expert in accounting and auditing.
LEGAL OPINIONS
A legal opinion has been rendered by Squire, Sanders & Dempsey L.L.P. to
the effect that the issuance of the shares of First Citizens Common Shares
offered hereby has been duly authorized by First Citizens and that the Shares,
when issued in accordance with the Merger Agreement, will be duly issued and
outstanding and fully paid and nonassessable. A tax opinion is to be rendered
prior to the Effective Time by Werner & Blank Co., L.P.A. substantially to the
effect that (i) the Merger will constitute a "Statutory Merger" within the
meaning of Section 368(a)(1)(A) and (a)(2)(E) of the Internal Revenue Code of
1986, as amended (the "Code") and Farmers Interim Bank, Farmers and First
Citizens will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code, (ii) no gain or loss will be recognized by Farmers
as a result of the Merger, (iii) no gain or loss will be recognized by Farmers
shareholders who exchange their Farmers Common Shares solely for First Citizens
Common Shares in the Merger, (iv) the federal income tax basis of the First
Citizens Common Shares received by Farmers shareholders in the Merger will be
the same as the federal income tax basis in the Farmers Common Shares exchanged
therefor, respectively, (v) the holding period for the First Citizens Common
Shares received by each Farmers shareholders in the Merger will include the
period during which the Farmers Common Shares exchanged therefor were held,
provided that the exchanged Farmers Common Shares were held as capital assets by
such Farmers shareholder on the date of the exchange, and (vi) the payment of
cash in lieu of fractional shares for the purpose of mechanically rounding off
the fractions resulting from the exchange will, in each instance, constitute a
distribution not essentially equivalent to a dividend within the meaning of
Section 302(b)(1) of the Code, and therefore, the amount received will be
treated as a distribution in full payment in exchange for such Farmers
shareholder's fractional share of interest under Section 302(a) of the Code.
INDEMNIFICATION
The Articles of Incorporation of First Citizens provide that First Citizens
shall have the power to 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 ORC. Such Articles of Incorporation further provide that
First Citizens may, upon the affirmative vote of a majority of its Board of
Directors, purchase insurance for the purpose of indemnifying its directors,
officers, employees and agents to the extent that such indemnification is
allowed by the Articles of Incorporation.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling First Citizens
pursuant to the foregoing provisions, First Citizens has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the 1933 Act and is therefore unenforceable.
61
<PAGE> 75
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FARMERS STATE BANK OF NEW WASHINGTON, OHIO
Report of Independent Auditors...................................................... F-1
Balance Sheets
September 30, 1997 and December 31, 1996 and 1995................................ F-2
Statements of Income
Nine Months Ended September 30, 1997 and 1996 and Years Ended December 31, 1996
and 1995........................................................................ F-3
Statements of Changes in Shareholders' Equity
Nine Months Ended September 30, 1997 and Years Ended December 31, 1996 and
1995............................................................................ F-4
Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996 and Years Ended December 31, 1996
and 1995........................................................................ F-5
Notes to Financial Statements....................................................... F-6
</TABLE>
62
<PAGE> 76
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
The Farmers State Bank
New Washington, Ohio
We have audited the accompanying balance sheets of The Farmers State Bank as of
December 31, 1996 and 1995, and the related statements of income, changes in
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Farmers State Bank as of
December 31, 1996 and 1995, and the results of its operations, and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
Crowe, Chizek and Company LLP
Columbus, Ohio
September 18, 1997, except
for Note 14, the
date for which is October 31, 1997
F-1
<PAGE> 77
THE FARMERS STATE BANK
BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------------
1997 1996 1995
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks.......................... $ 3,347,227 $ 2,531,372 $ 4,161,859
Federal funds sold............................... 3,100,000 900,000 1,800,000
Interest-bearing deposits........................ 442,282 1,033,282 1,622,031
Securities available for sale.................... 47,660,573 54,850,367 52,159,556
Securities held to maturity (Estimated fair
values of $33,062,272 at September 30, 1997 and
$34,778,689 and $35,083,381 at December 31,
1996 and 1995)................................. 32,178,037 33,831,385 33,743,229
Loans
Total loans................................. 68,228,346 58,830,332 48,074,373
Allowance for loan losses................... (1,900,000) (1,293,038) (982,569)
------------ ------------ ------------
Net loans................................. 66,328,346 57,537,294 47,091,804
Office premises and equipment, net............... 566,097 602,352 512,133
Accrued interest and other assets................ 2,236,994 1,844,716 1,666,257
------------ ------------ ------------
Total assets.............................. $ 155,859,556 $153,130,768 $142,756,869
============ ============ ============
LIABILITIES
Deposits
Noninterest bearing......................... $ 6,193,804 $ 4,958,736 $ 5,691,495
Interest bearing............................ 130,303,490 130,353,188 121,207,580
------------ ------------ ------------
Total deposits............................ 136,497,294 135,311,924 126,899,075
Securities sold under repurchase agreements...... 900,000 800,000 700,000
U.S. Treasury interest-bearing demand note
payable........................................ 415,414 387,522 218,400
Accrued interest, taxes and other liabilities.... 2,091,930 2,370,292 2,183,580
------------ ------------ ------------
Total liabilities........................... 139,904,638 138,869,738 130,001,055
------------ ------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $20.00 par value:
200,000 shares authorized, issued and
outstanding at September 30, 1997 and
December 31, 1996; 150,000 shares at
December 31, 1995........................... 4,000,000 4,000,000 3,000,000
Additional paid in capital....................... 4,000,000 4,000,000 5,000,000
Retained earnings................................ 6,606,027 5,614,405 4,291,053
Unrealized gain/(loss) on securities available
for sale, net of tax........................... 1,348,891 646,625 464,761
------------ ------------ ------------
Total shareholders' equity.................. 15,954,918 14,261,030 12,755,814
------------ ------------ ------------
Total liabilities and shareholders'
equity................................. $ 155,859,556 $153,130,768 $142,756,869
============ ============ ============
</TABLE>
F-2
<PAGE> 78
THE FARMERS STATE BANK
STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND YEARS ENDED DECEMBER 31, 1996
AND 1995
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------- -------------------------
1997 1996 1996 1995
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees................. $4,323,099 $3,496,992 $4,822,646 $4,146,857
Taxable securities.................... 3,127,568 3,240,727 4,377,844 4,087,412
Nontaxable securities................. 658,250 671,414 880,366 835,087
Federal funds sold.................... 25,701 132,677 156,267 99,990
Interest bearing deposits............. 34,032 74,671 93,012 152,516
Other, including dividends............ 173,487 145,921 240,850 208,589
---------- ---------- ---------- ----------
Total interest income.............. 8,342,137 7,762,402 10,570,985 9,530,451
Interest expense
Deposits................................ 5,053,314 4,838,565 6,549,900 5,834,215
Other borrowings...................... 56,260 39,330 54,514 41,563
---------- ---------- ---------- ----------
Total interest expense............. 5,109,574 4,877,895 6,604,414 5,875,778
---------- ---------- ---------- ----------
NET INTEREST INCOME..................... 3,232,563 2,884,507 3,966,571 3,654,673
Provision for loan losses............... 694,844 273,750 365,000 80,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES........................... 2,537,719 2,610,757 3,601,571 3,574,673
---------- ---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts... 103,939 93,393 128,049 117,381
Security gains/(loss), net............ (18,939) 6,172 6,172 (1,538)
Other................................. 58,513 51,364 60,722 96,714
---------- ---------- ---------- ----------
Total noninterest income........... 143,513 150,929 194,943 212,557
NONINTEREST EXPENSE
Salaries, wages and benefits............ 823,775 841,775 1,137,062 1,090,094
Occupancy expense..................... 58,338 60,188 82,163 66,639
Equipment expense..................... 46,056 59,835 73,711 67,632
Federal deposit insurance premiums.... 12,514 2,000 2,000 140,280
State franchise tax................... 145,186 131,281 175,041 127,853
Professional fees..................... 114,573 7,693 8,613 11,456
Other operating expenses.............. 280,315 247,689 332,852 284,790
---------- ---------- ---------- ----------
Total noninterest expense.......... 1,480,757 1,350,461 1,811,442 1,788,744
Income before taxes..................... 1,200,475 1,411,225 1,985,072 1,998,486
Income tax expense...................... 208,853 327,160 381,720 402,897
---------- ---------- ---------- ----------
NET INCOME.............................. $ 991,622 $1,084,065 $1,603,352 $1,595,589
========== ========== ========== ==========
EARNINGS PER COMMON SHARE............... $ 4.96 $ 5.42 $ 8.02 $ 7.98
========== ========== ========== ==========
</TABLE>
F-3
<PAGE> 79
THE FARMERS STATE BANK
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
UNREALIZED
GAIN/(LOSS)
ADDITIONAL SECURITIES TOTAL
COMMON PAID IN RETAINED AVAILABLE SHAREHOLDERS'
STOCK CAPITAL EARNINGS FOR SALE EQUITY
---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995........... $2,000,000 $ 4,000,000 $ 4,935,464 $(2,349,693) 8,585,771
Stock split, (50,000 shares
issued).......................... 1,000,000 (1,000,000)
Retained earnings transfer......... 2,000,000 (2,000,000)
Net income......................... 1,595,589 1,595,589
Cash dividends ($1.20 per share)... (240,000) (240,000)
Change in unrealized gain on
securities available for sale.... 2,814,454 2,814,454
--------- ---------- ---------- ---------- -----------
Balance, December 31, 1995......... 3,000,000 5,000,000 4,291,053 464,761 12,755,814
Stock split, (50,000 shares
issued).......................... 1,000,000 (1,000,000)
Net income......................... 1,603,352 1,603,352
Cash dividends ($1.40 per share)... (280,000) (280,000)
Change in unrealized gain on
securities available for sale.... 181,864 181,864
--------- ---------- ---------- ---------- -----------
Balance, December 31, 1996......... 4,000,000 4,000,000 5,614,405 646,625 14,261,030
Net income (Unaudited)............. 991,622 991,622
Change in unrealized gain on
securities available for sale
(Unaudited)...................... 702,266 702,266
--------- ---------- ---------- ---------- -----------
Balance, September 30, 1997
(Unaudited)...................... $4,000,000 $ 4,000,000 $ 6,606,027 $ 1,348,891 $15,954,918
========= ========== ========== ========== ===========
</TABLE>
F-4
<PAGE> 80
THE FARMERS STATE BANK
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND YEARS ENDED DECEMBER 31, 1996
AND 1995
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------------- ----------------------------
1997 1996 1996 1995
----------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................... $ 991,622 $ 1,084,065 $ 1,603,352 $ 1,595,589
Adjustments to reconcile net income to net
cash from operating activities Security
amortization, net.......................... 26,074 21,712 32,006 25,905
Depreciation............................... 54,740 51,864 71,049 65,968
Amortization of goodwill................... 5,017 6,536 11,836 11,968
Security (gains)/losses, net............... 18,939 (6,172) (6,172) 1,538
Provision for loan losses.................. 694,844 273,750 365,000 80,000
Deferred income taxes...................... (186,597) (65,004) (86,672) 14,555
Change in
Net deferred loan fees................... 23,001 21,618 35,109 13,163
Accrued interest receivable.............. (65,076) (232,779) (129,203) (81,020)
Other assets............................. (63,622) (44,090) 25,580 8,789
Accrued interest, taxes and other
liabilities........................... (640,135) (647,505) 93,024 566,213
----------- ------------ ------------ -----------
Net cash from operating activities......... 858,807 463,995 2,014,909 2,302,668
CASH FLOWS FROM INVESTING ACTIVITIES
Securities held to maturity
Proceeds from maturities and repayments.... 1,420,419 426,149 990,789 746,342
Purchases.................................. (327,784) (895,973) (991,858) (2,352,763)
Securities available for sale
Proceeds from maturities and repayments.... 4,128,759 4,673,421 6,419,674 3,408,807
Purchases.................................. (950,600) (8,485,740) (9,106,711) (8,224,962)
Sales...................................... 5,591,374 158,857 158,857 492,386
Maturity of interest-bearing deposit......... 591,000 587,000 588,749 1,468,037
Loan originations, net of loan............... (9,590,897) (7,510,933) (10,845,599) (3,980,434)
Property and equipment
Disposals.................................. 4,160
Expenditures............................... (22,645) (160,541) (161,268) 0
Change in federal funds sold................. (2,200,000) (900,000) 900,000 (1,000,000)
----------- ------------ ------------ -----------
Net cash from investing activities......... (1,356,214) (12,107,760) (12,047,367) (9,442,587)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits....................... 1,185,370 9,452,995 8,412,849 7,867,728
Net change in securities sold under
repurchase agreements...................... 100,000 300,000 100,000 700,000
Cash dividends paid.......................... (280,000) (240,000)
Change in U.S. Treasury interest-bearing
notes payable.............................. 27,892 545,166 169,122 (104,933)
----------- ------------ ------------ -----------
Net cash from financing activities......... 1,313,262 10,298,161 8,401,971 8,222,795
----------- ------------ ------------ -----------
Net change in cash and cash equivalents........ 815,855 (1,345,604) (1,630,487) 1,082,876
Cash and cash equivalents at beginning of
period....................................... 2,531,372 4,161,859 4,161,859 3,078,983
----------- ------------ ------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..... $ 3,347,227 $ 2,816,255 $ 2,531,372 $ 4,161,859
=========== ============ ============ ===========
</TABLE>
F-5
<PAGE> 81
THE FARMERS STATE BANK
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996 AND DECEMBER 31, 1996 AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the accounting policies adopted by The
Farmers State Bank which have a significant effect on the financial statements.
All information presented as of September 30, 1997 and for the nine-month
periods ending September 30, 1997 and 1996 is unaudited.
NATURE OF OPERATIONS: The Bank is primarily engaged in the business of
commercial and retail banking in Crawford County, Ohio and the communities of
Richwood and Green Camp, Ohio. The Bank provides a broad range of banking and
financial services, including accepting demand, savings and time deposits and
granting commercial, real estate and consumer loans.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS: In preparing
financial statements, management must make estimates and assumptions. These
estimates and assumptions affect the amounts reported for assets, liabilities,
revenue, and expenses, as well as the disclosures provided. Future results could
differ from the current estimates. Estimates that are more susceptible to change
in the near term include the collectibility of loans, the fair values of
financial instruments and the status of contingencies.
CASH: For purposes of reporting cash flows, the Bank considers "cash and
cash equivalents" to include cash on hand and demand deposits with financial
institutions. The Bank reports net cash flows for federal funds sold, customer
loan transactions, deposit transactions, securities sold under agreements to
repurchase and other short-term borrowings. For the nine months ended September
30, 1997 and 1996 and the years ended December 31, 1996, and 1995, the Bank paid
interest of $5,550,348, $5,261,601, $6,521,156 and $5,319,792, respectively, and
income taxes of $339,500, $327,160, $381,720, and $402,897. Noncash transactions
included transfers from loans to other real estate owned totaling $82,000 in the
nine months ended September 30, 1997.
SECURITIES: The Bank classifies securities into held-to-maturity and
available-for-sale categories. Held-to-maturity securities are those the Bank
has the positive intent and ability to hold to maturity and are reported at
amortized cost. Available-for-sale securities are those the Bank may sell if
needed for liquidity, asset-liability management, or other reasons even if
management does not have a present intention of such a sale. Equity securities
that have a readily determinable fair value are also classified as available for
sale. Available-for-sale securities are reported at fair value, with unrealized
gains or losses included as a separate component of equity, net of tax.
Realized gains or losses are determined based on the amortized cost of the
specific security sold. Interest and dividend income, adjusted by amortization
of purchase premium or discount, is included in earnings.
LOANS RECEIVABLE: Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off are
reported at their outstanding principal balance, adjusted for any charge-offs
and any deferred fees or costs on originated loans and unamortized premiums or
discounts on purchased loans. Mortgage loans originated and intended for sale in
the secondary market are carried at the lower of cost or estimated market value
in the aggregate. Net unrealized losses are recognized through a valuation
allowance by charges to income. Effective January 1, 1996, the Bank adopted the
provisions of SFAS No. 122, "Accounting for Mortgage Servicing Rights." This
statement requires companies to recognize, as separate assets, rights to service
mortgage loans for others, however those servicing rights are acquired. A
company that acquires mortgage servicing rights through either purchase or
origination of mortgage loans and sells or securitizes those loans with
servicing rights retained should allocate the total cost of the mortgage loans
to mortgage servicing rights and to loans (without the mortgage servicing
rights) based on their relative fair values. Mortgage servicing rights recorded
as a separate asset will be amortized in proportion to, and over the period of,
estimated net servicing income. This statement has no impact on the financial
statements at the present time because the Bank is not currently involved in
selling loans with servicing rights retained.
F-6
<PAGE> 82
THE FARMERS STATE BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is increased by
charges to income and decreased by charge-offs, net of recoveries. Management's
periodic evaluation of the adequacy of the allowance is based on past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
Statement of Financial Accounting Standards Nos. 114 and 118 were effective
January 1, 1995 and required recognition of loan impairment. Loans are
considered impaired if full principal or interest payments are not anticipated.
Impaired loans are carried at the present value of expected future cash flows
discounted at the loan's effective interest rate or at the fair value of
collateral if the loan is collateral dependent. A portion of the allowance for
loan losses is allocated to impaired loans. The effect of adopting these
standards is included in the 1995 provision for loan losses and was not
material.
Management analyzes commercial and commercial real estate loans on an
individual basis and classifies a loan as impaired when an analysis of the
borrower's operating results and financial condition indicates that underlying
cash flows are not adequate to meet its debt service requirements. Often this is
associated with a delay or shortfall in payments of 30 days or more.
Smaller-balance homogeneous loans are evaluated for impairment in total. Such
loans include residential first mortgage loans secured by one- to four-family
residences, residential construction loans, consumer automobile, boat, home
equity and credit card loans with balances less than $200,000. In addition,
loans held for sale and leases are excluded from consideration as impaired.
Loans are generally moved to nonaccrual status when 90 days or more past due.
These loans are often also considered impaired. Impaired loans, or portions
thereof, are charged off when deemed uncollectible. The nature of disclosures
for impaired loans is considered generally comparable to prior nonaccrual loans
and nonperforming and past due asset disclosures.
INTEREST AND FEES ON LOANS: Interest on loans is accrued over the term of
the loan based on the principal outstanding. Management reviews loans delinquent
90 days or more to determine if interest accrual should be discontinued. Under
SFAS No. 114, as amended by SFAS No. 118, the carrying value of impaired loans
is periodically adjusted to reflect cash payments, revised estimates of future
cash flows, and increases in the present value of expected cash flows due to the
passage of time. Cash payments representing interest income are reported as such
and other cash payments are reported as reductions in carrying value. Increases
or decreases in carrying value due to changes in estimates of future payments or
the passage of time are reported as reductions or increases in bad debt expense.
Loan fees and certain direct costs in the origination of loans are deferred
and amortized over the contractual lives of the related loans as an adjustment
of yield using the interest method.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using both straight-line and
accelerated methods over the estimated useful life of the asset. These assets
are reviewed for impairment under SFAS No. 121 when events indicate the carrying
amount may not be recoverable. Maintenance and repairs are expensed and major
improvements are capitalized.
OTHER REAL ESTATE: Real estate owned, other than that used in the normal
course of business, is included in other assets at fair value less estimated
costs to sell. Any reduction from carrying value of the related loan to fair
value at the time of acquisition is accounted for as a loan loss. Any subsequent
reduction in fair value is recognized in a valuation allowance by charges to
income. Other real estate owned included in other assets totaled approximately
$82,000 at September 30, 1997. The Bank did not own any other real estate at
December 31, 1996 and 1995.
INCOME TAXES: The Bank follows the liability method in accounting for
income taxes. The liability method provides that deferred tax assets and
liabilities are recorded at enacted tax rates based on the difference
F-7
<PAGE> 83
THE FARMERS STATE BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
between the tax basis of assets and liabilities and their carrying amounts for
financial reporting purposes, referred to as "temporary differences."
CONCENTRATIONS OF CREDIT RISK: Most of the business activity of the Bank
is with customers located within Crawford County, Ohio and the communities of
Richwood and Green Camp, Ohio. Loans secured by one-to four-family residential
properties approximated $39,666,000, $33,607,000 and $25,364,000 at the nine
months ended September 30, 1997 and the years ended December 31, 1996 and 1995.
Agricultural loans approximated $8,900,000, $7,826,000 and $8,282,000 at the
nine months ended September 30, 1997 and the years ended December 31, 1996 and
1995. Other than agricultural loans, the Bank had no significant concentrations
of loans in any one industry as of September 30, 1997 and December 31, 1996 and
1995. The Bank has not experienced any unusual losses in any type of loan
category or industry.
EARNINGS PER SHARE: Earnings per share is computed based on the weighted
average number of shares of capital stock outstanding during each period which
totaled 200,000 shares in the nine months ended September 30, 1997 and 1996 and
the years ended December 31, 1996, and 1995. Dividends per share are based on
the number of shares outstanding at the declaration date giving retroactive
effect to stock splits.
NOTE 2 -- SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of investment securities at September 30, 1997 and
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies............................... $27,331,306 $ 111,573 $ (169,035) $27,273,844
Mortgage-backed securities............... 14,571,998 14,611 (44,342) 14,542,267
Equity security.......................... 3,508,415 2,463,406 (127,359) 5,844,462
----------- ----------- --------- -----------
Total securities available for
sale......................... $45,411,719 $2,589,590 $ (340,736) $47,660,573
=========== =========== ========= ===========
</TABLE>
F-8
<PAGE> 84
THE FARMERS STATE BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SECURITIES -- (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies............................... $14,390,617 $ 282,629 $ (120,467) $14,552,779
Obligations of state and political
subdivisions........................... 15,404,549 686,711 (1,113) 16,090,147
Mortgage-backed securities............... 436,533 20,274 456,807
Corporate bonds.......................... 1,946,338 21,148 (4,947) 1,962,539
----------- ----------- --------- -----------
Total securities held to
maturity..................... $32,178,037 $1,010,762 $ (126,527) $33,062,272
=========== =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies............................... $35,026,307 $ 98,764 $ (440,674) $34,684,397
Mortgage-backed securities............... 15,000,755 24,189 (60,881) 14,964,063
Equity securities........................ 3,548,130 1,832,926 (179,149) 5,201,907
----------- ----------- --------- -----------
Total securities available for
sale......................... $53,575,192 $1,955,879 $ (680,704) $54,850,367
=========== =========== ========= ===========
HELD TO MATURITY
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies............................... $14,898,233 $ 380,536 $ (240,394) $15,038,375
Obligations of state and political
subdivisions........................... 15,376,100 765,457 (367) 16,141,190
Mortgage-backed securities............... 512,041 24,446 (18) 536,469
Corporate bonds.......................... 3,045,011 27,585 (9,941) 3,062,655
----------- ----------- --------- -----------
Total securities held to
maturity..................... $33,831,385 $1,198,024 $ (250,720) $34,778,689
=========== =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies............................... $31,248,187 $ 314,554 $ (161,906) $31,400,835
Mortgage-backed securities............... 16,615,937 66,110 (20,472) 16,661,575
Equity securities........................ 3,175,329 1,042,245 (120,428) 4,097,146
----------- ----------- --------- -----------
Total securities available for
sale......................... $51,039,453 $1,422,909 $ (302,806) $52,159,556
=========== =========== ========= ===========
</TABLE>
F-9
<PAGE> 85
THE FARMERS STATE BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
</TABLE>
NOTE 2 -- SECURITIES -- (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies............................................... $14,775,510 $ 555,549 $ (208,122) $15,122,937
Obligations of state and political
subdivisions........................................... 15,182,035 937,006 (25,219) 16,093,822
Mortgage-backed securities............................... 592,504 30,548 623,052
Corporate bonds.......................................... 3,193,180 58,187 (7,797) 3,243,570
----------- ---------- --------- -----------
Total securities held to
maturity..................................... $33,743,229 $1,581,290 $ (241,138) $35,083,381
=========== ========== ========== ===========
</TABLE>
The following table sets forth the amortized cost and estimated fair values
of mortgage-backed securities by issuing agency as of December 31, 1996 and
1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------- ---------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
AGENCY COST FAIR VALUE COST FAIR VALUE
------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Collateralized mortgage obligations
issued or guaranteed by:
FHLMC............................... $ 5,935,124 $ 5,927,968 $ 6,432,989 $ 6,455,877
FNMA................................ 9,065,631 9,036,095 10,182,948 10,205,698
----------- ----------- ----------- -----------
Total available for sale.... $15,000,755 $14,964,063 $16,615,937 $16,661,575
=========== =========== =========== ===========
HELD TO MATURITY
Mortgage-backed securities issued or
guaranteed by:
FNMA................................ $ 176,941 $ 176,941 $ 200,502 $ 200,503
GNMA................................ 335,100 359,528 392,002 422,549
----------- ----------- ----------- -----------
Total held to maturity...... $ 512,041 $ 536,469 $ 592,504 $ 623,052
=========== =========== =========== ===========
</TABLE>
F-10
<PAGE> 86
THE FARMERS STATE BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SECURITIES -- (CONTINUED)
The amortized cost and estimated fair value of securities at September 30,
1997 and December 31, 1996, by contractual maturity, are shown below. Actual
maturities may differ from contractual maturities because issuers may have the
right to call or prepay obligations.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
----------- -----------
(UNAUDITED)
<S> <C> <C>
AVAILABLE FOR SALE
Due in one year or less.......................................... $ 998,505 $ 1,002,047
Due after one year through five years............................ 10,144,165 10,209,649
Due after five years through ten years........................... 16,188,636 16,062,148
Mortgage-backed securities....................................... 14,571,998 14,542,267
Other securities................................................. 3,508,415 5,844,462
------------ ------------
Total securities available for sale........................... $45,411,719 $47,660,573
============ ============
HELD TO MATURITY
Due in one year or less.......................................... $ 5,248,169 $ 5,234,096
Due after one year through five years............................ 14,745,815 15,233,697
Due after five years through ten years........................... 11,396,918 11,773,490
Due after ten years.............................................. 350,602 364,182
Mortgage-backed securities....................................... 436,533 456,807
------------ ------------
Total securities held to maturity............................. $32,178,037 $33,062,272
============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
AVAILABLE FOR SALE
Due in one year or less.......................................... $ 1,499,946 $ 1,517,377
Due after one year through five years............................ 9,893,677 9,882,058
Due after five years through ten years........................... 23,632,684 23,284,962
Mortgage-backed securities....................................... 15,000,755 14,964,063
Equity securities................................................ 3,548,130 5,201,907
------------ ------------
Total securities available for sale........................... $53,575,192 $54,850,367
============ ============
HELD TO MATURITY
Due in one year or less.......................................... $ 1,625,787 $ 1,653,138
Due after one year through five years............................ 18,812,788 19,247,251
Due after five years through ten years........................... 12,410,119 12,856,992
After ten years.................................................. 470,650 484,839
Mortgage-backed securities....................................... 512,041 536,469
------------ ------------
Total securities held to maturity............................. $33,831,385 $34,778,689
============ ============
</TABLE>
F-11
<PAGE> 87
THE FARMERS STATE BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SECURITIES -- (CONTINUED)
Proceeds from the sales of securities available for sale including the
gross gains and losses, for the nine months ended September 30, 1997 and 1996
and the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
GROSS GROSS
SALES PROCEEDS GAINS LOSSES
-------------- ------- -------
<S> <C> <C> <C>
Nine months ended September 30, 1997 (Unaudited)............ $5,591,000 $29,000 $48,000
Nine months ended September 30, 1996 (Unaudited)............ 159,000 6,000
Year ended December 31, 1996................................ 159,000 6,000
Year ended December 31, 1995................................ 492,000 18,000 20,000
</TABLE>
Securities with a carrying value of approximately $12,155,000 (unaudited),
$8,660,000 and $6,316,000 were pledged as of the nine months ended September 30,
1997 and the years ended December 31, 1996 and 1995 to secure public deposits,
and other deposits and liabilities as required or permitted by law.
NOTE 3 -- LOANS
Loans as presented on the balance sheet are comprised of the following
classifications at September 30, 1997 and December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------
1997 1996 1995
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Commercial and agricultural.......................... $ 22,093,253 $19,958,639 $18,991,546
Real estate -- mortgage.............................. 42,106,671 34,018,581 25,796,200
Real estate -- construction.......................... 1,223,918 1,368,501 443,074
Consumer............................................. 2,790,177 3,009,473 2,912,948
Other................................................ 0 400,000 0
Leases............................................... 777,019 882,540 611,742
Deferred loan fees................................... (223,267) (200,267) (165,157)
Unearned Interest.................................... (539,425) (607,135) (515,980)
----------- ----------- -----------
Total loans........................................ $ 68,228,346 $58,830,332 $48,074,373
=========== =========== ===========
</TABLE>
Certain directors and executive officers, including their immediate
families and companies in which they are principal owners, are loan customers of
the Bank. The following is a summary of activity during the nine months ended
September 30, 1997 and the year ended December 31, 1996 for such loans.
<TABLE>
<S> <C>
Balance -- January 1, 1996.............................................. $ 948,704
New loans and advances.................................................. 151,011
Repayments.............................................................. (278,425)
---------
Balance -- December 31, 1996............................................ 821,290
New loans and advances.................................................. 220,328
Repayments.............................................................. (246,919)
---------
Balance -- September 30, 1997 (unaudited)............................... $ 794,699
=========
</TABLE>
F-12
<PAGE> 88
THE FARMERS STATE BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------ ------------------------
1997 1996 1996 1995
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance, beginning of period................ $1,293,038 $ 982,569 $ 982,569 $ 859,760
Provision for loan losses................... 694,844 273,750 365,000 80,000
Loans charged off........................... (123,226) (63,208) (75,125) (79,495)
Recoveries.................................. 35,344 10,869 20,594 122,304
----------- ----------- ----------- -----------
Balance, end of period...................... $1,900,000 $1,203,980 $1,293,038 $ 982,569
----------- ----------- ----------- -----------
</TABLE>
Information with respect to impaired loans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------
1997 1996 1995
------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Balance of impaired loans for which no allowance for
loss has been allocated............................... $ 36,000 $ 36,000 $ 40,000
========== ========== ==========
Balance of impaired loans for which an allowance for
loss has been allocated............................... $ 1,170,000 $1,197,000 $1,139,000
========== ========== ==========
Portion of allowance for loan loss allocated to impaired
loans................................................. $ 427,000 $ 525,000 $ 453,000
========== ========== ==========
Average balance of impaired loans during year........... $ 1,220,000 $1,177,000 $1,143,000
========== ========== ==========
Interest income recognized during impairment............ $ 94,000 $ 103,000 $ 91,000
========== ========== ==========
Interest income recognized on a cash basis.............. $ 49,000 $ 2,000 $ 2,000
========== ========== ==========
</TABLE>
NOTE 5 -- PREMISES AND EQUIPMENT
Premises and equipment, at cost, and accumulated depreciation as of
September 30, 1997 and December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------
1997 1996 1995
------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Land.................................................... $ 13,938 $ 13,938 $ 13,938
Buildings and improvements.............................. 696,225 696,225 541,649
Furniture and equipment................................. 445,709 427,224 421,501
---------- ---------- ----------
Total......................................... 1,155,872 1,137,387 977,088
Accumulated depreciation................................ 589,775 535,035 464,955
---------- ---------- ----------
Premises and equipment, net................... $ 566,097 $ 602,352 $ 512,133
========== ========== ==========
</TABLE>
F-13
<PAGE> 89
THE FARMERS STATE BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- INTEREST-BEARING DEPOSITS
Interest-bearing deposits as of September 30, 1997 and December 31, 1996
and 1995 are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------------
1997 1996 1995
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Demand............................................. $ 10,590,905 $ 10,466,616 $ 9,311,309
Statement and passbook savings..................... 23,182,226 24,869,027 26,136,710
Certificates of deposit:
$100,000 and greater............................. 14,297,677 14,276,885 10,727,912
Other............................................ 82,232,682 80,740,660 75,031,649
------------ ------------ ------------
Total.................................... $ 130,303,490 $130,353,188 $121,207,580
============ ============ ============
</TABLE>
At September 30, 1997, the scheduled maturities of certificates of deposit
are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
1997 (Three Months)......................................... $11,511,232
1998........................................................ 50,018,364
1999........................................................ 21,544,889
2000........................................................ 12,036,805
2001 and thereafter......................................... 1,419,069
-----------
Total............................................. $96,530,359
===========
</TABLE>
At December 31, 1996, the scheduled maturities of certificates of deposit
are as follows:
<TABLE>
<S> <C>
1997........................................................ $51,900,578
1998........................................................ 22,455,912
1999........................................................ 15,159,385
2000........................................................ 5,301,670
2001 and thereafter......................................... 200,000
-----------
Total............................................. $95,017,545
===========
</TABLE>
NOTE 7 -- OTHER BORROWINGS
Securities sold under agreements to repurchase and treasury tax and loan
deposits are financing arrangements. Physical control is maintained for all
securities sold under repurchase agreements. Information concerning securities
sold under agreements to repurchase and treasury tax and loan deposits is
summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1996 1995
NINE MONTHS ENDED ---------- ----------
SEPTEMBER 30,
1997
-----------------
(UNAUDITED)
<S> <C> <C> <C>
Average balance during the year........... $ 1,085,245 $1,215,381 $ 807,879
Average interest rate during the year..... 4.03% 4.49% 5.14%
Maximum month-end balance during the
year.................................... $ 1,479,339 $1,763,565 $1,816,906
</TABLE>
Securities underlying repurchase agreements were as follows:
F-14
<PAGE> 90
THE FARMERS STATE BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- OTHER BORROWINGS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------
1997 1996 1995
----------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Carrying value of securities.............. $ 999,841 $ 999,778 $ 998,681
Fair Value................................ $ 1,028,906 $1,036,045 $1,038,437
</TABLE>
NOTE 8 -- INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------- ---------------------
1997 1996 1996 1995
--------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current................................... $ 395,450 $392,164 $468,392 $388,842
Deferred.................................. (186,597) (65,004) (86,672) 14,055
--------- -------- -------- --------
Total provision for income taxes........ $ 208,853 $327,160 $381,720 $402,897
========= ======== ======== ========
</TABLE>
The differences between the financial statement provision and amounts
computed by applying the statutory federal income tax rate of 34% to income
before income taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------- ---------------------
1997 1996 1996 1995
--------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Income taxes computed at the statutory
federal tax rate........................ $ 408,161 $479,817 $674,924 $679,485
Add (subtract) tax effect of Nontaxable
interest income, less related
nondeductible interest expense.......... (188,711) (192,400) (251,579) (243,819)
Dividends received deduction......... (31,657) (30,652) (41,625) (37,493)
Other................................ 21,060 70,395 4,724
--------- -------- -------- --------
Total income tax provision......... $ 208,853 $327,160 $381,720 $402,897
========= ======== ======== ========
</TABLE>
The tax effects of principal temporary differences and the resulting
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------
1997 1996 1995
----------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Allowance for loan losses................. $ 590,894 $ 384,527 $ 278,967
Deferred loan fees........................ 11,779 15,705 20,940
Book depreciation in excess of tax........ 11,115 33,852
Non accrual loan interest................. 8,875 7,713 --
----------- ---------- ----------
Deferred tax asset...................... 611,548 419,060 333,759
----------- ---------- ----------
Leases.................................... (57,341) (61,057) (64,876)
Federal Home Loan Bank stock dividends.... (9,996) (2,448)
Tax depreciation in excess of book........ (2,059)
Unrealized gain on securities available
for sale................................ (771,281) (415,043) (239,423)
----------- ---------- ----------
Deferred tax liability.................. (840,677) (478,548) (304,299)
----------- ---------- ----------
Net deferred tax..................... $ (229,129) $ (59,488) $ 29,460
=========== ========== ==========
</TABLE>
F-15
<PAGE> 91
THE FARMERS STATE BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- PENSION PLANS
The Bank maintains a fully insured defined benefit pension plan covering
substantially all employees. Participants are fully vested after 7 years of
participation. The normal retirement benefit is equal to 20% of the average
monthly compensation. Monthly benefits are reduced proportionately for each
month of service less than 300 at the normal retirement date.
The Bank funds all pension costs through the purchase of retirement income
insurance and retirement annuity policies.
NOTE 10 -- COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK
The Bank is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet financing needs of their customers. These
include commitments to make or purchase loans, undisbursed lines of credit and
letters of credit. The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument is represented by
the contractual amount of those instruments. The Bank follows the same credit
policy to make such commitments as is used for loans recorded on the balance
sheet. Since many commitments to make loans expire without being used, the
amount does not necessarily represent future cash commitments. Collateral
obtained relating to the commitments is determined using management's credit
evaluation of the borrower and may include real estate, vehicles, business
assets, deposits and other items. The Bank does make fixed rate loan commitments
for short periods of time. However, such commitments were immaterial as of and
for the nine months ending September 30, 1997 and the years ending December 31,
1996 and 1995.
Commitments to extend credit and letters of credit approximated the
following amounts at September 30, 1997, December 31, 1996 and 1995:
<TABLE>
<CAPTION>
CONTRACT AMOUNT
-----------------------------------------------
DECEMBER 31,
SEPTEMBER 30, ------------------------------
1997 1996 1995
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Commitments to extend credit:
Lines of credit and construction loans.............. $ 3,313,000 $ 3,153,000 $ 3,043,000
Letters of credit..................................... 232,000 331,000 434,000
----------- ----------- -----------
$ 3,545,000 $ 3,484,000 $ 3,477,000
=========== =========== ===========
</TABLE>
In the normal course of business, the Bank is involved in various legal
actions but, in the opinion of management and its legal counsel, ultimate
disposition of such matters is not expected to have a material adverse effect on
the financial statements.
NOTE 11 -- RESTRICTIONS ON RETAINED EARNINGS
Payment of dividends by the Bank is subject to restrictions by its
regulatory agencies. These restrictions generally limit dividends to the current
and prior two years retained earnings as defined by the regulations, and
dividends may not reduce capital levels below minimum regulatory requirements.
In addition, as more fully discussed below, the Bank must obtain prior approval
of its regulators before declaring any dividend that would reduce the Tier-1
leverage ratio (as defined) below 7.5%. Under the most restrictive of these
requirements, the Bank estimates that retained earnings available for payment of
dividends approximates $2,386,000 at December 31, 1996.
F-16
<PAGE> 92
THE FARMERS STATE BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered
by the federal 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
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the 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 Bank's 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 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 (as defined) to average
assets (as defined).
As of September 30, 1997, the most recent notification from its primary
regulator categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as "well capitalized,"
the Bank must maintain minimum total risk-based, Tier-I risk-based, and Tier-I
leverage ratios as set forth in the table below. Management believes that no
conditions or events since that notification have changed the institution's
category.
At September 30, 1997, December 31, 1996 and 1995, the Bank's actual
capital levels and minimum required levels were (dollar amounts in thousands):
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER
PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS
----------------- --------------- ---------------
(UNAUDITED) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- --------------------------------------- ------- ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1997
Total capital (to risk weighted
assets).............................. $15,860 22.01% $5,770 8.0% $7,210 10.0%
Tier-I capital (to risk weighted
assets).............................. $14,960 20.76% $2,880 4.0% $4,320 6.0%
Tier-I capital (to average assets)..... $14,960 9.59% $6,240 4.0% $7,800 5.0%
DECEMBER 31, 1996
Total capital (to risk weighted
assets).............................. $14,530 19.08% $6,090 8.0% $7,620 10.0%
Tier-I capital (to risk weighted
assets).............................. $13,580 17.83% $3,050 4.0% $4,570 6.0%
Tier-I capital (to average assets)..... $13,580 9.10% $5,970 4.0% $7,460 5.0%
DECEMBER 31, 1995
Total capital (to risk weighted
assets).............................. $13,130 18.63% $5,640 8.0% $7,050 10.0%
Tier-I capital (to risk weighted
assets).............................. $12,250 17.38% $2,820 4.0% $4,230 6.0%
Tier-I capital (to average assets)..... $12,250 9.15% $5,360 4.0% $6,690 5.0%
</TABLE>
F-17
<PAGE> 93
THE FARMERS STATE BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair values of financial instruments are
as follows at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------ ------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks........ $ 2,531,372 $ 2,531,000 $ 4,161,859 $ 4,162,000
Interest-bearing deposits...... 1,033,282 1,033,000 1,622,031 1,622,000
Federal funds sold............. 900,000 900,000 1,800,000 1,800,000
Securities available for
sale........................ 54,850,367 54,850,000 52,159,556 52,160,000
Securities held to maturity.... 33,831,385 34,779,000 33,743,229 35,083,000
Loans, net of allowance for
loan losses................. 57,537,294 58,626,000 47,091,804 48,026,000
Accrued interest receivable.... 1,420,902 1,421,000 1,291,699 1,292,000
Financial liabilities:
Deposits....................... (135,311,924) (135,811,000) (126,899,075) (127,376,000)
Securities sold under
repurchase agreements and
other borrowings............ (1,187,522) (1,188,000) (918,400) (918,000)
Accrued interest payable....... (1,667,315) (1,667,000) (1,584,057) (1,584,000)
</TABLE>
For purposes of the above disclosures of estimated fair value, the
following assumptions were used. Estimated fair value for cash and due from
banks and federal funds sold is considered to approximate cost. Estimated fair
value of securities is based on quoted market values for the individual
securities or equivalent securities. Fair value for loans was estimated for
portfolios of loans with similar financial characteristics. For adjustable rate
loans which reprice at least annually and for fixed rate commercial loans with
maturities of six months or less which possess normal risk characteristics,
carrying value is determined to be fair value. Fair value of other types of
loans (including adjustable rate loans which reprice less frequently than
annually and fixed rate term loans or loans which possess higher risk
characteristics) is estimated by discounting future cash flows using the current
rates at which similar loans would be made to borrowers with similar credit
ratings and for similar anticipated maturities. Fair value for nonaccrual loans
is based on recent appraisals of the collateral or, if appropriate, using
estimated discounted cash flows. Fair value of core deposits, including demand
deposits, savings accounts and certain money market deposits, is the amount
payable on demand. Fair value of fixed-maturity certificates of deposit is
estimated using the rates offered at December 31, 1996 and 1995 for deposits of
similar remaining maturities. Estimated fair value does not include the benefit
that results from low-cost funding provided by the deposit liabilities compared
to the cost of borrowing funds in the market. Fair value of accrued interest and
other borrowings, consisting of securities sold under agreements to repurchase
and U.S. Treasury interest-bearing demand notes payable, is determined to be the
carrying amount since these financial instruments generally represent
obligations which are due on demand. The fair value of unrecorded commitments
at, December 31, 1996 and December 31, 1995 is not material.
While the estimates of fair value are based on management's judgment of the
most appropriate factors, no assurance can be made that were the Bank to have
disposed of such items at December 31, 1996 or December 31, 1995, estimated fair
values would necessarily have been achieved at these dates, since market values
may differ depending on various circumstances. Estimated fair values at,
December 31, 1996 and December 31, 1995 should not necessarily be considered to
apply at subsequent dates.
Other assets and liabilities of the Bank may have value but are not
included in the above disclosures. Also, nonfinancial instruments typically not
recognized in these financial statements nevertheless may have value, but
F-18
<PAGE> 94
THE FARMERS STATE BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- FAIR VALUES OF FINANCIAL INSTRUMENTS -- (CONTINUED)
are not included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the value of a trained work
force, customer goodwill and similar items.
NOTE 14 -- SUBSEQUENT EVENTS, OTHER REGULATORY MATTERS
Farmers is subject to regulation by the Ohio Division of Financial
Institutions (ODFI) and the Federal Deposit Insurance Corporation (FDIC).
Pursuant to a Memorandum of Understanding dated October 31, 1997 by and among
Farmers, the ODFI and the FDIC (the "MOU"), Farmers has agreed to comply with
certain directives which are intended to correct operational deficiencies
identified in the ODFI's March 14, 1997 Examination Report (the "Examination
Report") and improve Farmers' overall financial condition. The MOU specifies
various deadlines (generally ranging from 10 to 90 days from the date of the
MOU) for the implementation of certain corrective measures and requires that
such measures be maintained until such time as the MOU is stayed, modified,
terminated or suspended by the ODFI and the FDIC.
The MOU requires Farmers to, among other things:
Achieve and maintain an adequate valuation reserve for loan losses;
conduct a quarterly assessment of the loan loss reserve and nonperforming
loans; refile Reports of Condition and Income for December 31, 1996 and the
first three quarters of 1997 to reflect an appropriate level of Allowance
for Loan and Lease Losses; maintain documentation in support of the
foregoing; and, submit to the ODFI and the FDIC a record of the methodology
used for determining loan loss reserves.
Develop a written plan designed to improve Farmers' position on
certain loans in excess of $100,000 which are past due on principal or
interest by 90 days or more.
Prepare and submit to the ODFI and the FDIC for review and approval
(A) a management plan describing actions to be taken by Farmers' Board of
Directors to strengthen management and improve the Board's supervision of
Farmers' affairs, (B) an amended written loan policy including the
recommendations detailed in the Examination Report, (C) written loan review
procedures designed to identify and categorize problem credit and assess
the overall quality of the loan portfolio, (D) an amended approval policy
and procedures consistent with the Examination Report and regulatory
guidelines, (E) an amended written investment policy consistent with
regulatory guidelines, (F) an amended interest risk policy and procedures
consistent with the Examination Report and regulatory guidelines, and (G)
quarterly progress reports detailing the actions taken to secure compliance
with the MOU and the results thereof.
Establish procedures to ensure that (A) Farmers' officers and
employees are aware of, have access to, and adhere to Farmers' loan policy,
(B) exceptions to Farmers' loan policy are approved in advanced by the
Board of Directors, and (C) the reasons for any such exceptions are noted
in the Board minutes and maintained in the obligor's file.
Refrain from (A) declaring or paying dividends without the prior
written approval of the ODFI and the FDIC when Farmers' Tier-1 leverage
ratio is below 7.5% or (B) extending any additional credit to any borrower
who is an obligor to Farmers on any extension of credit or portion thereof
that has been charged-off or classified "substandard," "doubtful" or "loss"
in the Examination Report or in any subsequent examination report so long
as such credit remains uncollected, unless the addition extension of credit
has been authorized in advanced by the Farmers Board of Directors in
accordance with certain standards and supported by certain documentation.
Take all necessary steps consistent with sound banking practices to
(A) address all violations described in the Examination Report and refrain
from engaging in such violations in the future, (B) eliminate and/or
correct problems relating to credit information and collateral
documentation and ensure proper collection and maintenance of such
information and documentation in the future, and (C) ensure all
deficiencies in
F-19
<PAGE> 95
THE FARMERS STATE BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- SUBSEQUENT EVENTS, OTHER REGULATORY MATTERS -- (CONTINUED)
internal routine and controls, as identified in the Examination Report, are
eliminated and/or corrected and procedures are implemented to maintain a
sound system of internal controls.
Establish a Compliance Committee comprised of outside directors to
monitor compliance with the MOU and written policies and procedures.
Adopt all plans, policies and procedures required by the MOU and fully
comply with all of the terms thereof.
Management is in the process of implementing corrective actions to comply
with provisions of the MOU. The evaluation of the adequacy of the allowance for
loan losses has been completed and the results have been considered in the
preparation of these accompanying financial statements. Management therefore
believes that the Allowance for Loan Losses at December 31, 1996 and 1995 is
adequate to provide for known and inherent risk of loss.
F-20
<PAGE> 96
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION, AS AMENDED
<PAGE> 97
SECOND AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
This Second Amendment to Agreement and Plan of Reorganization is made and
entered into this 26th day of November, 1997 by and between First Citizens Banc
Corp ("First Citizens") and The Farmers State Bank of New Washington, Ohio
("Farmers").
WHEREAS, First Citizens and Farmers have entered into an Agreement and Plan
of Reorganization dated July 3, 1997 ("Reorganization Agreement"), providing for
the merger ("Merger") of Farmers Interim Bank, a wholly-owned subsidiary of
First Citizens, with and into Farmers; and
WHEREAS, the Reorganization Agreement (i) provides for an exchange ratio of
6.5 shares of First Citizens Common Stock for each share of Farmers Common Stock
(the "Exchange Ratio"), (ii) requires the Merger to be consummated within a
specified period after the occurrence of certain events ("Consummation
Deadline") and (iii) is terminable by either party upon written notice to the
other party in the event that the Merger is not consummated by February 1, 1998
("Right of Termination Date");
WHEREAS, the parties desire to amend the Reorganization Agreement to (i)
change the Exchange Ratio to 6.06, (ii) eliminate the Consummation Deadline and
(iii) extend the Right of Termination Date to February 28, 1998.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein, the parties agree as follows:
1. The last sentence of Section 1 of the Reorganization Agreement is hereby
amended to read as follows:
"Upon consummation of the Merger, each share of Farmers Common Stock (other
than Dissenter Shares, as defined in Section 5) shall be converted into the
right to receive 6.06 duly authorized, validly issued, fully paid and
non-assessable First Citizens Common Shares, in accordance with the
provisions regarding the exchange of shares set forth in the Merger
Agreement."
2. The last sentence of Section 4(e) of the Reorganization Agreement is
hereby deleted in its entirety.
3. The last sentence of Section 17(a) of the Reorganization Agreement is
hereby amended to read as follows:
"In addition to the other grounds for termination of this Agreement set
forth herein, this Agreement can be terminated by written notice by either
party to the other, in each case authorized by its Board of Directors, if
the Merger shall not have been consummated by February 28, 1998, or the
date of such notice, whichever is later."
4. Notwithstanding anything to the contrary in the Reorganization Agreement
or in any other instrument or agreement executed and delivered by First Citizens
or Farmers, the Right of Termination Date shall be February 28, 1998.
5. Except as provided herein, the Reorganization Agreement shall remain in
full force and effect and the remaining provisions thereof are hereby ratified
and confirmed.
6. Each of the parties shall execute such documents and take such further
actions as may be reasonably required or desirable to carry out the provisions
of this Amendment to Agreement and Plan of Reorganization.
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<PAGE> 98
IN WITNESS WHEREOF, the parties have executed this Amendment to Agreement
and Plan of Reorganization as of the date and year first above written.
FIRST CITIZENS BANC CORP
/s/ DAVID A. VOIGHT
----------------------------------------
David A. Voight, President
THE FARMERS STATE BANK OF NEW
WASHINGTON, OHIO
/s/ WILLIAM SHEAFFER
----------------------------------------
William Sheaffer, Executive Vice
President
and Chief Executive Officer
A-2
<PAGE> 99
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION dated July 3, 1997
between First Citizens Banc Corp (hereinafter called "First Citizens") and The
Farmers State Bank (hereinafter called "Farmers"), dated November 25, 1997;
WITNESSETH:
First Citizens and Farmers have determined that it will be in their mutual
best interests to amend Agreement to provide that the effective date of the
Merger, provided for in said Agreement, shall be not earlier than February 28,
1998.
THEREFORE, in consideration of the mutual covenants and agreements herein
contained, First Citizens and Farmers hereby agree as follows:
(1) Paragraph 4.(e) of Agreement shall be amended to read as follows:
"(e) After (i) receipt of the Board's prior approval of First Citizens'
acquisition of Farmers; (ii) the approval of the Stockholders of
Farmers and First Citizens; and (iii) the regulatory waiting period(s)
have expired, First Citizens shall designate the date as of which
First Citizens desires the Merger to become effective and the time the
Merger shall become effective shall occur at the time and on the date
so designated. However, any date so specified unless otherwise agreed
to by Farmers and First Citizens, shall not be later than either (a)
the first of the month immediately following the month in which the
last of the events described above (i-iii) occurs if said event occurs
before the twenty first day of such month or (b) the first day of the
second month immediately following such month if the last of the
events described above occurs after the twentieth day of such month;
provided, however, that in no event, shall such date so specified be
earlier than February 28, 1998."
(2) In all respects, Agreement is hereby ratified and confirmed.
IN WITNESS WHEREOF, the Amendment to Agreement has been executed the day
and year first above written.
<TABLE>
<S> <C>
SIGNED IN THE PRESENCE OF: FIRST CITIZENS BANC CORP
[illegible] By: /s/ DAVID VOIGHT
- --------------------------------------------- ------------------------------------------
Witness David Voight, President
[illegible]
- ---------------------------------------------
Witness
THE FARMERS STATE BANK
[illegible] By: /s/ WILLIAM SHEAFFER
- --------------------------------------------- ------------------------------------------
Witness William Sheaffer,
Executive Vice President
[illegible]
- ---------------------------------------------
Witness
</TABLE>
A-3
<PAGE> 100
AGREEMENT AND PLAN OF REORGANIZATION
This is an AGREEMENT dated July 3, 1997, between First Citizens Banc Corp.
(hereinafter called "First Citizens") and The Farmers State Bank (hereinafter
called "Farmers").
WITNESSETH:
First Citizens is a corporation duly organized under the laws of the State
of Ohio. Its principal office is located at 100 East Water St., Sandusky, Ohio.
As of the date hereof, First Citizens had authorized capital stock consisting of
10,000,000 shares of common stock, without par value ("First Citizens Common
Shares") of which a total of 3,051,504 shares are issued and outstanding and
none are shares of treasury stock owned by First Citizens. First Citizens owns
all of the outstanding capital stock of The Castalia Banking Company, The
Citizens Banking Company, R. A. Reynolds Appraisal Service, Inc. and SCC
Resources, Inc. (hereinafter referred to as the "Subsidiaries").
Farmers is an Ohio state banking corporation duly organized under the laws
of the State of Ohio. Its principal office is located at 102 S. Kibler St., New
Washington, Crawford County, Ohio. As of the date hereof, Farmers has authorized
capital stock consisting of 200,000 authorized shares of common stock, $20 par
value per share ("Farmers Common Stock"), all of which shares are issued and
outstanding and none are shares of treasury stock owned by Farmers.
At least a majority of the entire Board of Directors of First Citizens and
at least a majority of the entire Board of Directors of Farmers, respectively,
have approved the entering into of this Agreement and have authorized the
execution and delivery of this Agreement. The Boards of Directors of First
Citizens and Farmers have determined that it is in the best interests of their
respective corporations and Stockholders that Farmers become a wholly owned
subsidiary corporation of First Citizens. After the execution of this Agreement,
First Citizens will undertake to cause the formation of a new banking
corporation to be organized under the laws of the State of Ohio ("New Bank"),
and thereafter First Citizens and Farmers will cause, subject to the terms and
conditions set forth in this Agreement, the merger of New Bank with and into
Farmers, in accordance with the terms set forth in the Merger Agreement attached
hereto and designated Appendix A (the "Merger Agreement"). From and after the
time the merger of Farmers and New Bank shall become effective, (the "Merger")
and as and when required by this Agreement and the Merger Agreement, First
Citizens will issue its Common Shares in exchange for all of the issued and
outstanding shares of Farmers Common Stock.
In consideration of mutual covenants and agreements herein contained, First
Citizens and Farmers hereby make this Agreement and prescribe the terms and
conditions of the Merger and the mode of carrying the Merger into effect as
follows:
1. Formation of New Bank. As soon as practicable after the date
hereof, First Citizens shall commence and proceed with due diligence in the
formation of the New Bank, all of the outstanding shares of which will be
acquired by First Citizens prior to the merger of Farmers and the New Bank.
The New Bank will merge with and into Farmers as the surviving bank
corporation thereof, pursuant to the Merger Agreement. Upon consummation of
the Merger, each share of Farmers Common Stock, (other than Dissenter
Shares, as defined in Section 5) shall be converted into the right to
receive 6.5 duly authorized, validly issued, fully paid and non-assessable
First Citizens Common Shares, in accordance with the provisions regarding
the exchange of shares set forth in the Merger Agreement.
2. The Merger Agreement. Promptly following the commencement of the
corporate existence of the New Bank, Farmers and First Citizens shall enter
into, and First Citizens shall cause the New Bank to enter into, the Merger
Agreement.
3. Discussions with Others; Other Offers. On and after the date
hereof, except with the written consent of First Citizens, Farmers shall
not directly or indirectly solicit or encourage (nor shall Farmers permit
any of its officers, directors, employees or agents directly or indirectly
to solicit or encourage), including by way of furnishing information, any
inquiries or proposals for a merger, consolidation, share exchange or
similar transaction involving Farmers or for the acquisition of the stock
or all or substantially all
A-4
<PAGE> 101
of the assets or business of Farmers, or discuss with or enter into
conversations with any person, other than Farmers stockholders or
employees, concerning any such merger, consolidation, share exchange,
acquisition or other transaction, other than the share exchange with First
Citizens; provided, however, that Farmers may communicate information about
any such proposals or inquiries to its stockholders if and to the extent
that it is required to do so in order to reasonably comply with its legal
obligations. Farmers will promptly notify First Citizens orally (to be
confirmed in writing as soon as practicable thereafter) of all of the
relevant details relating to any inquiries or proposals that it may receive
relating to any such matters, including actions it intends to take with
respect to such matters.
In order to induce First Citizens to enter into this Agreement and
incur the substantial expenses involved in effectuating the transactions
contemplated herein, Farmers agrees and does hereby promise to pay to First
Citizens the sum of $500,000, upon First Citizens' demand therefor, in the
event that the Farmers stockholders fail to approve this Agreement or the
Merger Agreement as a result of Farmer's decision to entertain offers from
and negotiate with a bona fide offeree other than First Citizens.
4. Undertakings of the Parties. First Citizens and Farmers further
covenant and agree as follows:
(a) As soon as the Registration Statement referenced in (c) below
shall become effective, this Agreement and the Merger Agreement shall be
submitted to the Stockholders of Farmers for approval and adoption at a
special meeting of Stockholders to be called and held in accordance with
law and the Articles of Incorporation and Code of Regulations of
Farmers.
(b) As promptly as possible after the date hereof, each of First
Citizens and Farmers shall use its best efforts, separately and jointly
with the other party, in good faith to take or cause to be taken all
such steps as shall be necessary or advisable to obtain all consents and
approvals of governmental authorities as are required by law or
otherwise to effect the share exchange, including without limitation the
approval of the Federal Reserve Board (the "Board"), the approval of the
Ohio Department of Commerce (Division of Financial Institutions Office
of Banks and Savings & Loans) and the approval of the Federal Deposit
Insurance Corporation, and shall do any and all acts and things
reasonably necessary or advisable in order to cause the share exchange
to be consummated on the terms provided in this Agreement and the Merger
Agreement as promptly as practicable. First Citizens and Farmers will
cooperate in complying with and in the preparation of proxy and
registration statements under federal and state securities laws so as to
facilitate the exchange of shares as contemplated by this Agreement and
the Merger Agreement.
(c) Each party will assume and pay all of its fees and expenses
incurred by it incident to the negotiation, preparation and execution of
this Agreement, obtaining of the requisite regulatory and shareholder
consents and approvals and all other acts incidental to, contemplated by
or in pursuance of this Agreement. First Citizens shall be responsible
for preparing and filing at no expense to Farmers: (i) any and all
required regulatory applications necessary in connection with the
transactions contemplated by this Agreement; and (ii) an S-4
Registration Statement to be filed with the Securities and Exchange
Commission to register the First Citizens Common Shares to be issued in
connection with the transactions contemplated by this Agreement;
provided, however, that such registration statement will not cover
resales by any persons who may be considered "underwriters" under Rule
145(c) of the Securities Act of 1933, as amended (the "1933 Act") and
(iii) any documents to be filed or action required to be taken under any
applicable state securities or "Blue Sky" laws in connection with the
Merger.
(d) Between the date of this Agreement and the effective time of
the Merger, Farmers will afford to the representatives of First
Citizens, including its counsel and auditors, during normal business
hours, full access to any and all assets of, or information with respect
to, Farmers to the end that First Citizens may have full opportunity to
make an investigation, in advance of the effective time as it shall
reasonably desire in order to effectuate the purposes of this Agreement.
To the extent reasonable under the circumstances, the officers of
Farmers will confer with the representatives of First Citizens and will
furnish to First Citizens either orally or by means of such records,
documents, and memoranda as are reasonably available or capable of
preparation (all of which First Citizens will be permitted to make
A-5
<PAGE> 102
copies of) and such other information as First Citizens may reasonably
request. All information furnished by one party to another party in
connection with this Agreement and the transactions contemplated hereby
will be kept confidential by such other party and will be used only in
connection with this Agreement and the transactions contemplated hereby,
except to the extent that such information: (i) is already known to such
other party when received; (ii) thereafter becomes lawfully obtainable
from other sources; or (iii) is required to be disclosed in any document
filed with the Securities and Exchange Commission, the Board, or any
other governmental agency or authority. In the event that this Agreement
is terminated, each party will return to the other party or destroy any
documents received by it from the other party that contain any such
confidential information.
(e) After (i) receipt of the Board's prior approval of First
Citizens' acquisition of Farmers; (ii) the approval of the Stockholders
of Farmers and First Citizens; and (iii) the regulatory waiting
period(s) have expired, First Citizens shall designate the date as of
which First Citizens desires the Merger to become effective and the time
the Merger shall become effective shall occur at the time and on the
date so designated. However, any date so specified unless otherwise
agreed to by Farmers and First Citizens, shall not be later than either
(a) the first of the month immediately following the month in which the
last of the events described above (i-iii) occurs if said event occurs
before the twenty-first day of such month or (b) the first day of the
second month immediately following such month if the last of the events
described above occurs after the twentieth day of such month.
(f) Subject to the terms and conditions of this Agreement, First
Citizens and Farmers each agree that, subject to applicable laws and to
the fiduciary duties of its respective directors, each will promptly
take or cause to be taken all action, and promptly do or cause to be
done all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the Merger and other
transactions contemplated by this Agreement.
(g) First Citizens shall offer the existing employees of Farmers
the opportunity to become employees of Farmers (i.e. the surviving
corporation under the Merger Agreement) following consummation of the
Merger; provided, however, that nothing in this section or elsewhere in
this Agreement shall be deemed to be a contract of employment or be
construed to give said employees any rights other than as employees at
will under Ohio law and said employees shall not be deemed to be
third-party beneficiaries of this provision. Farmers' employees who
become employees of Farmers after the Merger will have their years of
service credited toward eligibility and vesting in Pension Plan for the
Employees of First Citizens Banc Corp. and its Affiliates and the
Savings and Retirement Plan for First Citizens Banc Corp. and its
Affiliates and will be entitled to participate in a variety of on-going
educational and training programs offered by First Citizens and its
Subsidiaries.
(h) Farmers shall, prior to the time the Merger shall become
effective, take such actions, in consultation with First Citizens, as
shall be necessary or desirable to cause termination of any qualified
retirement plans of Farmers at or after the effective date of Merger.
(i) Two (2) member(s) of Farmers' current Board of Directors shall
have the right to serve on the Board of Directors of First Citizens.
Farmers hereby agrees to cause its Board of Directors to provide First
Citizens, at least seventy-five (75) days prior to the annual meeting of
First Citizens, with nominees, subject to First Citizens' approval, to
serve as directors of First Citizens effective at or prior to First
Citizens' 1998 annual shareholder meeting. Pursuant to the Merger
Agreement, all of the current directors of Farmers shall continue as
directors thereof after the Merger.
(j) First Citizens and Farmers acknowledge that the transactions
contemplated hereby are subject to the provisions of the Securities Act
of 1933, as amended (the "Act") and Rule 145 thereunder. First Citizens
agrees to prepare and file, as soon as practicable after the execution
of this Agreement, the Registration Statement under and pursuant to the
provisions of the Act for the purposes of registering the First Citizens
Common Shares to be issued in connection with the transactions
contemplated hereby. Farmers agrees to provide promptly to First
Citizens information concerning the business and financial condition and
affairs of Farmers as may be required or appropriate for inclusion in
the Registration Statement and to cause its counsel and auditors to
cooperate with First Citizens counsel
A-6
<PAGE> 103
and auditors in the preparation of such Registration Statement. First
Citizens agrees to use its best efforts to have such Registration
Statement declared effective under the Act as soon as may be
practicable, and Farmers agrees to distribute the prospectus/proxy
statement (to be prepared by and furnished at First Citizen's expense)
contained in such Registration Statement (the Farmers "Prospectus/Proxy
Statement") to Farmers stockholders not less than ten (10) days prior to
the scheduled meeting of Farmers stockholders that will be held to
consider approval of this Agreement and the Merger Agreement. Except to
the extent permitted by Rule 145(b), First Citizens and Farmers agree
not to publish any communication other than the Prospectus/Proxy
Statement, in respect of this Agreement, the Merger Agreement, or the
transactions contemplated therein. Any communication by either party
under Rule 145(b) will be made only upon the written approval of the
other. First Citizens and Farmers agree that, between the date the
Registration Statement becomes effective and the effective time of the
Merger, they will keep each other advised on a current basis of material
developments concerning their respective businesses, including any event
which would cause the Prospectus/proxy Statement to contain an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading. First Citizens
shall not be required to maintain the effectiveness of the Registration
Statement for the purpose of resale of First Citizens Common Shares by
Farmers stockholders who may be deemed to be affiliates of Farmers, as
such term is defined in Rule 144 promulgated under the Act (the
"Affiliates").
(k) Each Affiliate of Farmers shall furnish to First Citizens a
certificate representing that such Affiliate will not sell, assign, or
transfer any of the First Citizens Common Shares received by such
Affiliate as a result of the transactions contemplated by this
Agreement, except pursuant to (a) registration under the act or (b) a
transaction permitted by Rule 145 under the Act, or (c) a transaction in
which, in the opinion of Squire, Sanders & Dempsey or other counsel
satisfactory to First Citizens, or in accordance with a "no action"
letter from the staff of the Securities and Exchange Commission, the
First Citizens Common Shares are not required to be registered under the
Act; and in the event of sale or other disposition pursuant to Rule 145
such Affiliate will supply satisfactory evidence of compliance with such
Rule to First Citizens. With respect to such representations, each
Affiliate shall agree to hold harmless and indemnify First Citizens and
First Citizens' officers and directors from and against any losses,
claims, damages, expenses (including reasonable attorneys' fees), or
liabilities to which First Citizens or any officer or director of First
Citizens may become subject under the Act or otherwise as a result of
the untruth, breach, or failure of such representations. Each Affiliate
shall further agree that the certificate or certificates representing
the First Citizens Common Shares issued to such Affiliate upon the
consummation of the Share Exchange may bear the following restrictive
legend:
"The shares represented by this certificate have been
issued or transferred to the registered holder as a
result of a transaction to which Rule 145 under the
Securities Act of 1933, as amended (the "Act"), applies.
The shares represented by this certificate may not be
sold, transferred or assigned, and the issuer shall not
be required to give effect to any attempted sale,
transfer or assignment, except pursuant to (i) current
registration under the Act, (ii) a transaction permitted
by Rule 145 and as to which the issuer has received
reasonable and satisfactory evidence of compliance with
the provisions of Rule 145, or (iii) a transaction in
which, in the opinion of Squire, Sanders & Dempsey or
other counsel satisfactory to the issuer or in accordance
with a "no action" letter from the staff of the
Securities and Exchange Commission, such shares are not
required to be registered under the Act."
First Citizens covenants and agrees to remove the foregoing
restrictive legend from the certificate or certificates representing the
First Citizens Common Shares issued to an Affiliate and to cancel any
stop order instructions with respect thereto upon (i) receipt of advice
from its counsel that such actions are appropriate under the then
existing circumstances, or (ii) upon request of the holder thereof at
anytime after that period ending two years following the Merger,
provided that the holder thereof is not,
A-7
<PAGE> 104
and has not for at least the thirty day period ending prior to the
request been an affiliate of First Citizens.
(l) First Citizens shall, to the extent required by applicable
state securities or "blue sky" laws, as promptly as practicable after
the furnishing by Farmers of all information regarding Farmers required
or desirable to be reflected therein file with applicable state
securities or blue sky administrators, use its best efforts to cause to
become effective or be approved, all registration statements or
applications required to be so filed with respect to the issuance of the
First Citizens Common Shares in connection with the Agreement of Merger.
(m) On the date the Registration Statement becomes effective and at
the effective time of the Merger, Farmers shall deliver to First
Citizens a certificate signed by the principal executive officer and by
the principal financial officer of Farmers to the effect that the
information contained in the Registration Statement relating to the
business and financial condition and affairs of Farmers does not contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading. On the date the Registration Statement becomes
effective and at the effective time of the Merger, First Citizens shall
deliver to Farmers a certificate signed by the chief executive officer
and by the chief financial officer of First Citizens to the effect that
the Registration Statement (other than the information contained therein
relating to the business and financial condition and affairs of Farmers)
does not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
(n) First Citizens will maintain "current public information"
within the meaning of Rule 144 of the Securities and Exchange Commission
for two (2) years following the effective date.
5. Dissenting Stockholders. Holders of Farmers Common Stock, who do
not vote their shares in favor of the Merger and otherwise comply in all
respects to perfect dissenters' rights, will be entitled to dissenters' or
appraisal rights, if any, pursuant to and solely upon strict compliance
with, the applicable provisions of Ohio law (collectively, the "Dissenting
Shares").
6. Tax Opinion. Farmers, for the benefit of its Stockholders, shall
obtain a written opinion of it's counsel, to the effect that:
(a) The statutory merger of New Bank with and into Farmers will
constitute a reorganization within the meaning of Section 368(a)(1)(A)
and (a)(2)(E) of the Internal Revenue Code;
(b) No gain or loss will be recognized by Farmers as a consequence
of the transactions herein contemplated;
(c) No gain or loss will be recognized by the Stockholders of
Farmers on the exchange of their shares of Farmers Common Stock for
First Citizens Common Shares (disregarding for this purpose any cash
received for fractional share interests to which they may be entitled);
(d) The federal income tax basis of the First Citizens Common
Shares received by the Stockholders of Farmers for their shares of
Farmers Common Stock will be the same as the federal income tax basis of
the Farmers Common Stock surrendered in exchange therefor; and
(e) The holding period of the First Citizens Common Shares received
by a shareholder of Farmers in exchange for shares of Farmers Common
Stock will include the period for which the Farmers Common Stock
exchanged therefor was held, provided the exchanged Farmers Common Stock
was held as a capital asset by such shareholder on the date of the
exchange.
7. Representations and Warranties of First Citizens. First Citizens
represents and warrants to Farmers as follows:
(a) First Citizens is a corporation duly organized and validly
existing under the laws of the State of Ohio, is a registered bank
holding company under the Bank Holding Company Act of 1956, as amended,
and is qualified to do business in the State of Ohio, together with all
other jurisdictions where
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it is both required to so qualify and the failure to so qualify would
have material and adverse consequences to First Citizens. First Citizens
has full power and authority (including all licenses, franchises,
permits and other governmental authorizations which are legally
required) to engage in the businesses and activities now conducted by
it. As of March 31, 1997, the authorized capital stock of First Citizens
consisted of 10,000,000 shares of common stock, without par value, of
which a total of 3,051,504 shares were issued and outstanding and no
shares were held by First Citizens as treasury stock. All of said shares
of capital stock are fully paid and nonassessable and are not issued in
violation of the preemptive rights of any shareholder.
(b) First Citizens has furnished to Farmers copies of the following
financial statements relating to First Citizens and its consolidated
subsidiaries: (i) the audited Consolidated Balance Sheets of First
Citizens as of December 31, 1996, and 1995, and the Consolidated
Statements of Income, Stockholders' Equity and Statements of Cash Flows
for the three years ended December 31, 1996, 1995 and 1994, together
with the notes thereto; and (ii) the unaudited Consolidated Balance
Sheet of First Citizens as of March 31, 1997, and the unaudited
Consolidated Statements of Income and Stockholders' equity for the
period then ended. Each of the aforementioned financial statements was
prepared in accordance with Generally Accepted Accounting Principles,
consistently applied and is true and correct in all material respects
and together present fairly the consolidated financial position and
results of operations of First Citizens as of the dates and for the
periods therein set forth (subject, in the case of such interim
financial statements, to normal year-end audit adjustments). Such
financial statements do not, as of the dates thereof, include any
material asset or omit any material liability, absolute or contingent,
or other fact, the inclusion or omission of which renders such financial
statements, in light of the circumstances under which they were made,
misleading in any material respect. Since December 31, 1996, there has
not been any material adverse change in the financial condition, results
of operations, business or prospects of First Citizens and the
Subsidiaries on a consolidated basis.
(c) The Board of Directors of First Citizens has authorized
execution of this Agreement and the Merger Agreement and approved the
merger of the New Bank and Farmers as contemplated herein and therein.
First Citizens has all requisite power and authority to enter into this
Agreement and the Merger Agreement and First Citizens has the authority
to consummate the transactions contemplated hereby. This Agreement
constitutes the valid and legally binding obligation of First Citizens
and this Agreement and the consummation of the transactions contemplated
herein have been duly authorized and approved on behalf of First
Citizens by all requisite corporate action. Provided the required
approvals are obtained from the Board, neither the execution and
delivery of this Agreement or the Merger Agreement nor the consummation
of the Merger will conflict with, result in the breach of, constitute a
default under or accelerate the performance provided by the terms of any
law, or any rule or regulation of any governmental agency or authority
or any judgment, order or decree of any court or other governmental
agency to which First Citizens may be subject, any contract, agreement
or instrument to which First Citizens is a party or by which First
Citizens is bound or committed, or the Articles of Incorporation or Code
of Regulations of First Citizens, or constitute an event which with the
lapse of time or action by a third party, could, to the best of First
Citizens' knowledge, result in the default under any of the foregoing or
result in the creation of any lien, charge or encumbrance upon any of
the assets or properties of First Citizens or upon any of the stock of
First Citizens; except, however, in the case of contracts, agreements or
instruments, such defaults, conflicts or breaches which either (i) will
be cured or waived prior to the time the Merger becomes effective, or
(ii) if not so cured or waived would not, in the aggregate, have any
material adverse effect on the financial condition, results of
operations or business of First Citizens on a consolidated basis.
(d) There is no litigation, action, suit, investigation or
proceeding pending or, to the best of the knowledge after due inquiry of
First Citizens and its executive officers, threatened, against or
affecting First Citizens and/or the Subsidiaries or involving any of
their respective properties or assets, at law or in equity, before any
federal, state, municipal, local or other governmental authority,
involving a material amount which, if resolved adversely to the interest
of First Citizens and the Subsidiaries, would materially affect the
financial conditions or operations of First Citizens and the
Subsidiaries
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and/or its ability to perform under this Merger Agreement, and to the
best of the knowledge and belief after due inquiry of First Citizens and
its executive officers, no one has asserted and no one has reasonable or
valid grounds on which it reasonably can be expected that anyone will
assert any such claims against First Citizens and the Subsidiaries based
upon the wrongful action or inaction of First Citizens and the
Subsidiaries or any of their respective officers, directors or
employees.
(e) At the time the Merger shall become effective and on such
subsequent date when the former Stockholders of Farmers surrender their
Farmers share certificates for cancellation, the First Citizens Common
Shares to be received by Stockholders of Farmers will have been duly
authorized and validly issued by First Citizens and will be fully paid
and nonassessable.
(f) Except for a fee to McDonald & Company Securities, Inc., First
Citizens has not incurred and will not incur directly or indirectly any
liability for brokerage, finders', agents' or investment bankers' fees
or commissions in connection with this Agreement or the transactions
contemplated thereby.
(g) The Pension Plan for the Employees of First Citizens Banc Corp.
and its Affiliates and the Savings and Retirement Plan for First
Citizens Banc and its Affiliates (hereinafter referred to collectively
as the "plans") which purport to be qualified plans under Section 401(a)
of the Internal Revenue Code is so qualified and is in compliance in all
material respects with the applicable requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). All
material notices, reports and other filings required under applicable
law to be given or made to or with any governmental agency with respect
to the plans have been timely filed or delivered where failure to file
will result in a penalty or result in disqualification of the plan.
First Citizens has no knowledge either of any circumstances which would
adversely affect the qualifications of the plans or their compliance
with the applicable requirements of ERISA, or of any "reportable event"
(as such term is defined in Section 4043(b) of ERISA) or any "prohibited
transaction" (as such term is defined in Section 406 of ERISA and
Section 4975(c) of the Internal Revenue Code) which has occurred since
the date on which said section became applicable to the plans. With
respect to those plans which are defined benefit plans within the
meaning of ERISA, such plans meet the minimum funding standards set
forth in the Internal Revenue Code and ERISA.
(h) First Citizens has delivered to Farmers copies of the Annual
Report on Form 10-K filed with the Securities and Exchange Commission by
First Citizens for its fiscal years ended December 31, 1996, 1995, and
1994 including exhibits and all documents incorporated by reference
therein, and the proxy materials disseminated by First Citizens to its
Shareholders in connection with the 1997 Annual Meeting of Shareholders
of First Citizens. Such Annual Report and proxy materials do not
misstate a material fact or omit to state a material fact necessary in
order to make the statements contained therein, in light of the
circumstances under which they are made, not misleading.
(i) Since December 31, 1996, each of First Citizens and the
Subsidiaries has conducted business only in the ordinary course, and has
preserved its corporate existence, business and goodwill intact.
(j) First Citizens and the Subsidiaries each have good and
marketable title to all assets and properties, whether real or personal,
tangible or intangible, including without limitation the capital stock
of the Subsidiary Banks and all other assets and properties reflected in
First Citizens' Balance Sheet of December 31, 1996 or acquired
subsequent thereto (except to the extent that such assets and properties
have been disposed of for fair value in the ordinary course of business
since December 31, 1996) subject to no liens, mortgages, security
interests, encumbrances, pledges or charges of any kind, except: (i)
those items that secure liabilities that are reflected in said Balance
Sheet; (ii) statutory liens for taxes not yet delinquent; and (iii)
minor defects and irregularities in title and encumbrances which do not
materially impair the use thereof for the purposes for which they are
held; and such liens, mortgages, security interests, encumbrances and
charges are not in the aggregate, material to the assets and properties
of First Citizens. First Citizens or one of the Subsidiaries as lessee
has the contractual right under valid leases to occupy, use, possess and
control all material property leased by First Citizens or one of the
Subsidiaries.
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(k) To the best of the knowledge after due inquiry of First
Citizens and its executive officers, First Citizens and the Subsidiaries
have complied with all laws, regulations and orders applicable to them
and to the conduct of their respective businesses, including without
limitation, all statutes, rules and regulations pertaining to the
conduct of banking activities except for possible technical violations
which together with any penalty which results therefrom are or will be
of no material consequence to either First Citizens or the Subsidiaries.
Neither First Citizens nor any of the Subsidiaries is the subject of,
nor a party to, any regulatory action or agreement such as letter
agreements, memorandum of understanding, cease and desist orders or like
agreements. Neither First Citizens nor the Subsidiaries are in default
under, and no event has occurred which, with the lapse of time or action
by a third party, could, to the best of First Citizens' knowledge after
due inquiry, result in the default under the terms of any judgment,
decree, order, writ, rule or regulation of any governmental authority or
court, whether federal, state or local and whether at law or in equity,
where the default(s) could reasonably be expected to have a material
adverse effect on the financial conditions, results of operations or
business of First Citizens and the Subsidiaries on a consolidated basis.
(l) First Citizens has duly filed all federal, state, county and
local income, excise, real and personal property and other tax returns
and reports (including, but not limited to, social security,
withholding, unemployment insurance, and sales and use taxes) required
to have been filed by First Citizens up to the date hereof. To the best
of the knowledge and belief of First Citizens all such returns are true
and correct in all material respects, and First Citizens has paid or,
prior to the time the Merger shall become effective, will pay all taxes,
interest and penalties shown on such return or reports or claimed (other
than those claims being contested in good faith and which have been
disclosed to Farmers) to be due to any federal, state, county, local or
other taxing authority, and there is, and at the time the Merger shall
become effective will be, no basis for any additional claim or
assessment which might materially and adversely affect First Citizens or
the Subsidiaries, and for which an adequate reserve has not been
established. To the best of its knowledge and belief, First Citizens has
paid or made adequate provision in its financial statements or its books
and records for all taxes payable in respect of all periods ending as of
the date thereof. To the best of its knowledge and belief First Citizens
has, or at the time the Merger shall become effective will have, no
material liability for any taxes, interest or penalties of any nature
whatsoever, except for those taxes which may have arisen up to the time
the Merger shall become effective in the ordinary course of business and
are properly accrued on the books of First Citizens as of the time the
Merger shall become effective.
(m) To the best of its knowledge and belief, but without having
undertaken an environmental audit, First Citizens has no knowledge of
any underground storage tanks, any hazardous substances, hazardous
waste, pollutant or contaminant, including, but not limited to, asbestos
(except as previously disclosed to Farmers in a letter of even date
herewith), PCB's or urea formaldehyde, having been generated, released
into, stored or deposited over, upon or below (in storage tanks or
otherwise) First Citizens' premises or any other real property owned or
leased by First Citizens other than other real estate owned, for which
no investigation was conducted by First Citizens, but for which First
Citizens has no knowledge of such, or into any water systems on or below
the surface of the First Citizens premises or any other real property
owned or leased by First Citizens other than other real estate owned,
for which no investigation was conducted by First Citizens, but for
which First Citizens has no knowledge of such from any source
whatsoever. As used in this Agreement, the terms "hazardous substance,"
"hazardous waste," pollutant" and "contaminant" mean any substance,
waste, pollutant or contaminant included within such terms under any
applicable Federal, state or local statute or regulation.
8. Representations and Warranties of Farmers. Farmers represents and
warrants to First Citizens that, except as set forth in the disclosure
letter dated of even date herewith (the "Disclosure Letter") and attached
hereto and made a part hereof, as follows:
(a) Farmers is a banking corporation duly organized and validly
existing in good standing under the laws of the State of Ohio. Farmers
has full power and authority (including all licenses, franchises,
permits and other governmental authorizations which are legally
required) to engage in the businesses
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and activities now conducted by it. As of the date of this Agreement,
the authorized capital stock of Farmers consists of 200,000 shares of
common stock with $20 par value, all of which shares are issued and
outstanding and none are shares of treasury stock owned by Farmers. All
of said shares of capital stock are fully paid and nonassessable and are
not issued in violation of the preemptive rights of any shareholder.
There are no outstanding options, warrants or commitments of any kind
relating to Farmer's capital stock.
(b) Farmers has furnished to First Citizens copies of all financial
statements relating to Farmers, as filed with the appropriate regulatory
agencies, as of and for the years ended December 31, 1996 and 1995.
Farmers has furnished to First Citizens copies of all financial
statements relating to Farmers, as filed with the appropriate regulatory
agencies, as of and for the period ended March 31, 1997 and will furnish
to First Citizens monthly financial statements for the period thereafter
through the effective time of the Merger. Each of the aforementioned
financial statements is and shall be prepared in accordance with
Generally Accepted Accounting Principles or applicable regulatory
accounting principles applicable to Farmers consistently applied and is
and shall be true and correct in all material respects and together
present fairly the consolidated financial position and results of
operations of Farmers as of the dates and for the periods therein set
forth (subject, in the case of such interim financial statements, to
normal year-end adjustments). Farmers financial statements do not and
will not, as of the dates thereof, include any asset in excess of $5,000
or omit any liability in excess of $5,000, absolute or contingent, or
other fact, the inclusion or omission of which renders such financial
statements, in light of the circumstances under which they were made,
misleading in any material respect. Since December 31, 1996, there has
not been any change in the financial condition, results of operations,
business or prospects of Farmers (including, without limitation, any
adverse trend in the loan loss experience of Farmers) which in the
aggregate, has had a material adverse effect on Farmer's condition.
(c) The Board of Directors of Farmers has authorized execution of
this Agreement. Subject to the approval by the Stockholders of Farmers,
Farmers has all requisite power and authority to enter in this Agreement
and the Merger Agreement. Farmers has the authority to consummate the
transactions contemplated hereby so that, provided all required
corporate and regulatory approvals are obtained, neither the execution
and delivery of this Agreement, the Merger Agreement nor the
consummation of the Merger will conflict with, result in the breach of,
constitute a default under or accelerate the performance provided by the
terms of any law, or any rule or regulation of any governmental agency
or authority or any judgment, order or decree of any court or other
governmental agency to which Farmers may be subject, any contract,
agreement or instrument to which Farmers is a party or by which Farmers
is bound or committed, or the Articles of Incorporation or Code of
Regulations of Farmers, or constitute an event which with the lapse of
time or action by a third party, could, to the best of Farmer's
knowledge, result in the default under any of the foregoing or result in
the creation of any lien, charge, encumbrance upon any of the assets,
property or capital stock of Farmers, except, however, in the case of
contracts, agreements or instruments, such defaults, conflicts or
breaches which either (i) will be cured or waived prior to the time the
Merger becomes effective, or (ii) if not so cured or waived would not,
in the aggregate, have any material adverse effect on the financial
condition, results of operations or business of Farmers.
(d) Except as disclosed in Subsection (d) of the Disclosure Letter,
there is no litigation, action, suit, investigation or proceeding
pending or, to the best of their knowledge after due inquiry of Farmers
and its executive officers, overtly threatened, against or affecting
Farmers or involving any of their respective properties or assets, at
law or in equity, before any federal, state, municipal, local or other
governmental authority, involving in excess of $5,000, and to the best
of the knowledge and belief after due inquiry of Farmers and its
executive officers, no one has asserted and no one has reasonable or
valid ground on which it reasonably can be expected that anyone will
assert any such claims against Farmers based upon the wrongful action or
inaction of Farmers or its respective officers, directors or employees.
(e) Farmers has good and marketable title to all assets and
properties, whether real or personal, tangible or intangible reflected
in Farmer's Balance Sheet of December 31, 1996 or acquired subsequent
thereto (except to the extent that such assets and properties have been
disposed of for fair
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value in the ordinary course of business since December 31, 1996)
subject to no liens, mortgages, security interests, encumbrances,
pledges or charges of any kind, except: (i) those items that secure
liabilities that are reflected in said Balance Sheet; (ii) statutory
liens for taxes not yet delinquent; and (iii) minor defects and
irregularities in title and encumbrances which do not impair the use
thereof for the purposes for which they are held; and such liens,
mortgages, security interests, encumbrances and charges are not in the
aggregate, material to the assets and properties of Farmers. Farmers as
lessee has the contractual right under valid leases to occupy, use,
possess and control all material property leased by Farmers.
(f) To the best of the knowledge after due inquiry of Farmers and
its executive officers, Farmers has complied with all laws, regulations
and orders applicable to it and to the conduct of its business,
including without limitation, all statutes, rules and regulations
pertaining to the conduct of its banking activities except for possible
technical violations which together with any penalty which results
therefrom are or will be of no material consequence to Farmers. Except
as disclosed in Subsection (f) of the Disclosure Letter, Farmers is not
the subject of, nor is a party to, any regulatory actions or agreement
such as letter agreements, memorandum of understanding, cease and desist
order or like agreements. Farmers is not in default under, and no event
has occurred which, with the lapse of time or action by a third party,
could, to the best of Farmer's knowledge after due inquiry, result in
the default under the terms of any judgment, decree, order, writ, rule
or regulation of any governmental authority or court, whether federal,
state or local and whether at law or in equity.
(g) Except as disclosed in Subsection (g) of the Disclosure Letter,
Farmers has not, since December 31, 1996 to the date hereof: (i) issued
or sold any of its capital stock or any corporate debt securities; (ii)
granted any option for the purchase of capital stock; (iii) declared or
set aside or paid any dividend or other distribution in respect of its
capital stock except as permitted pursuant to Section 9(a) hereof or,
directly or indirectly, purchased, redeemed or otherwise acquired any
shares of such stock; (iv) incurred any obligation or liability
(absolute or contingent), except for obligations reflected in this
Agreement or the Merger Agreement, and except for obligations or
liabilities incurred in the ordinary course of business, or mortgaged,
pledged or subjected to lien or encumbrance (other than statutory liens
for taxes not yet delinquent) any of its assets or properties; (v)
discharged or satisfied any lien or encumbrance or paid any obligation
or liability (absolute or contingent), other than the current portion of
any long term liabilities which become due after December 31, 1996,
current liabilities included in its financial statements as of December
31, 1996, current liabilities incurred since the date thereof in the
ordinary course of business and liabilities incurred in carrying out the
transactions contemplated by this Agreement or the Merger Agreement;
(vi) sold, exchanged or otherwise disposed of any of its capital assets
worth in excess of $5,000 outside the ordinary course of business; (vii)
made any officers' salary increase or wage increase other than in the
ordinary course of business, entered into any employment contract with
any officer or salaried employee or, instituted any employee welfare,
bonus, stock option, profit-sharing, retirement or similar plan or
arrangement; (viii) suffered any damage, destruction or loss, whether or
not covered by insurance, involving in excess of $5,000, affecting its
business, property or assets or waived (except for fair consideration)
any rights of value which are material in the aggregate, considering its
business taken as a whole; or (ix) entered or agreed to enter into any
agreement or arrangement granting any preferential right to purchase any
of its assets, properties or rights or requiring the consent of any
party to the transfer and assignment of any such assets, properties or
rights.
(h) Except as disclosed in Subsection (h) of the Disclosure Letter,
Farmers is not a party to or bound by any written or oral: (i)
employment or consulting contract which is not terminable by it on 60
days or less notice, (ii) employee bonus, deferred compensation,
pension, stock bonus or purchase, profit-sharing, retirement or stock
option plan, (iii) other employee benefit or welfare plan, or (iv) other
executory material agreements which in any case obligate Farmers to make
any payment(s) which in the aggregate exceed $5,000 per year except for
contracts terminable on 60 days notice. All such pension, stock bonus or
purchase, profit-sharing, defined benefit and retirement plans set forth
under the caption "Qualified Plans" in the Farmers Document List
(hereinafter referred to collectively as the
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"plan") are qualified plans under Section 401(a) of the Internal Revenue
Code and in compliance in all material respects with ERISA. All material
notices, reports and other filings required under applicable law to be
given or made to or with any governmental agency with respect to the
plans have been timely filed or delivered where failure to file would
result in a penalty and/or result in disqualification of the plan.
Farmers has no knowledge either of any circumstances which would
adversely affect the qualification of the plans or their compliance with
ERISA, or of any unreported "reportable event" (as such term is defined
in Section 4043(b) of ERISA) or, any "prohibited transaction" (as such
term is defined in Section 406 of ERISA and Section 4975(c) of the
Internal Revenue Code) which has occurred since the date on which said
sections became applicable to the plans. The plans meet the minimum
funding standards set forth in the Internal Revenue Code and ERISA.
(i) Farmers has duly filed all federal, state, county and local
income, excise, real and personal property and other tax returns and
reports (including, but not limited to, social security, withholding,
unemployment insurance, and sales and use taxes) required to have been
filed by Farmers up to the date hereof. Except as set forth in
Subsection (i) of the Disclosure Letter, to the best of the knowledge
and belief of Farmers all such returns are true, are correct in all
material respects, and Farmers has paid or, prior to the time the Merger
shall become effective, will pay all taxes, interest and penalties shown
on such return or reports or claimed together than those claims being
contested in good faith and which have been disclosed to First Citizens
to be due to any federal, state, county, local or other taxing
authority, and there is, and at the time the Merger shall become
effective will be, no basis for any additional claim or assessment in
excess of $5,000 and for which an adequate reserve has not been
established. To the best of its knowledge and belief, Farmers has paid,
made or will make adequate provision in its financial statements or its
books and records for all taxes payable in respect of all periods ending
as of the date thereof. To the best of its knowledge and belief, Farmers
has, or at the time the Merger shall become effective will have, no
liability for any taxes, interest or penalties of any nature whatsoever,
in excess of $5,000 except for those taxes which may have arisen up to
the time the Merger shall become effective in the ordinary course of
business and are properly accrued on the books of Farmers as of the time
the Merger shall become effective.
(j) To the best of its knowledge and belief, but without having
undertaken an environmental audit, Farmers has no knowledge of any
underground storage tanks, any hazardous substances, hazardous waste,
pollutant or contaminant, including, but not limited to, asbestos
(except as disclosed in Subsection (j) of the Disclosure Letter), PCB's
or urea formaldehyde, having been generated, released into, stored or
deposited over, upon or below (in storage tanks or otherwise) Farmer's
premises or any other real property owned or leased by Farmers other
than other real estate owned, for which no investigation was conducted
by Farmers, but for which Farmers has no knowledge of such, or into any
water systems on or below the surface of the Farmers premises or any
other real property owned or leased by Farmers other than other real
estate owned, for which no investigation was conducted by Farmers, but
for which Farmers has no knowledge of such from any source whatsoever.
As used in this Agreement, the terms "hazardous substance," "hazardous
waste," pollutant" and "contaminant" mean any substance, waste,
pollutant or contaminant included within such terms under any applicable
Federal, state or local statute or regulation.
(k) Except for its obligation to its financial advisor Austin
Associates, Inc., as previously disclosed to First Citizens, Farmers has
not incurred and will not incur any liability for brokerage, finders',
agents', or investment bankers' fees or commissions in connection with
this Agreement or the Merger Agreement or the transactions contemplated
hereby and thereby.
(l) Subject to their fiduciary duties, the directors of Farmers
executing this Agreement shall vote the shares of Farmers held directly
by them in favor of adoption of the Agreement.
(m) All contracts and commitments (whether written or oral) that
may have a material effect on the business of Farmers are disclosed in
subsection (m) of the Disclosure Letter and copies of any such written
contracts or commitments have been provided to First Citizens. All
contracts and commitments for the lease or purchase of equipment or
services have been entered into on an arm's length basis.
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(n) The deposits of Farmers are insured by the Federal Deposit
Insurance Corporation in accordance with the Federal Deposit Insurance
Act ("FDIA"). Farmers has paid all assessments and filed all reports
required under the FDIA and is in compliance, in all material respects,
with all regulatory requirements imposed in connection with the
insurance of its deposits.
(o) To the best of Farmer's knowledge and belief, the reserves for
possible loan losses on the outstanding loans of Farmers (if any, as
reflected in the balance sheet of Farmers as of December 31, 1996 (the
"1996 Balance Sheet") are adequate to absorb all known and anticipated
loan losses in the loan portfolio of Farmers, net of recoveries relating
to loans previously charged off. Except as set forth in subsection (o)
of the Disclosure Letter, there are no loans of Farmers the present
principal balance of which is in excess of $5,000 that have been
classified orally or in writing by bank examiners (regulatory or
internal) as "Other Loans Specifically Mentioned," "Substandard,"
"Doubtful," or "Loss," as of the last examination date (which shall
include the date on which any examination prior to the effective time is
concluded). To the best of Farmer's knowledge and belief, each loan in
the principal amount of $5,000 or greater reflected as an asset of
Farmers in the 1996 Balance Sheet or acquired by Farmers since December
31, 1996, is the legal, valid and binding obligation of the obligor and
any guarantor named therein, and no such loan is subject to any defense,
offset or counterclaim. Except for pledges to secure public and trust
deposits, to the best of Farmer's knowledge and belief, none of the
investments reflected in the 1996 Balance Sheet under the heading
"Investment Securities," and none of the investments made by Farmers
since December 31, 1996, is subject to any restriction, whether
contractual or statutory, which impairs the ability of Farmers freely to
dispose of such investment at any time. Farmers is not a party to any
repurchase agreements. Except as set forth in subsection (o) of the
Disclosure Letter, and except for transactions aggregating less than
$5,000, Farmers has not sold or otherwise disposed of any assets in a
transaction in which the acquirer of such assets or any other person has
the right, either conditionally or absolutely, to require Farmers to
repurchase or otherwise re acquire any such assets.
(p) Prior to the Closing, Farmers will have provided First Citizens
with a list of all certificates of deposit or checking, savings or other
deposits and a list of all certificates of deposit or checking, savings
or other deposits owned by directors and officers of Farmers and their
affiliates as of the last day of the calendar month immediately prior to
the Closing. In addition, Farmers shall provide First Citizens with a
list of (i) all certificates of deposit, checking, savings or other
deposits in excess of $100,000 and (ii) all customers with aggregate
deposits in excess of $100,000.
(q) Subsection (q) of the Disclosure Letter contains a list and a
brief description of all insurance policies currently in force with
respect to Farmers. All premiums due on such policies have been paid,
and such policies will continue to remain in force through the Effective
Time. Subsection (q) the disclosure letter also contains a description
of all claims in excess of $1,000 currently pending under such insurance
policies, together with a list of all other claims in excess of $1,000
which have been filed during the last three (3) years and a description
of the disposition thereof.
(r) Except to the extent reflected or reserved against in the 1996
Balance Sheet or in the notes thereto, as of the date of such Balance
Sheet, Farmers has no liabilities or obligations, secured or unsecured,
whether accrued, absolute, contingent or otherwise, which would
materially and adversely affect the financial condition, results of
operations, assets, or business of Farmers.
(s) Except for loans made in the ordinary course of business,
Farmers has no business relationships, business transactions or
indebtedness with or to any of its officers and directors.
9. Action by Farmers Pending Effective Time. Farmers agrees that from
the date of this Agreement until the time the Merger shall become
effective, except with prior written permission of First Citizens:
(a) Beginning with the date hereof and until such time as the
Merger shall become effective, Farmers will not declare or pay any
dividends or make any distributions other than regular cash dividends,
payable at such times and in amounts consistent with past practice and
not to exceed the per share rate paid in the prior calendar year,
provided that if the merger shall occur prior to the payment of
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the regular annual cash dividend of Farmers, Farmers may pay a cash
dividend in an amount equal to the per share rate paid in the prior
calendar year, prorated to the date of the Merger. If, prior to the
consummation of the Merger, Farmers shall declare a stock dividend or
make distributions upon or subdivide, split up, reclassify or combine
its shares of common stock in any security convertible into its common
stock, appropriate adjustment or adjustments will be made in the
foregoing per share dividend rate.
(b) Farmers will not issue, sell, grant any option for, or acquire
for value any shares of its capital stock or otherwise effect any change
in connection with its capitalization.
(c) Except as otherwise set forth in or contemplated by this
Agreement or the Merger Agreement, Farmers will carry on its businesses
in substantially the same manner as heretofore, keep in full force and
effect insurance comparable in amount and scope of coverage to that now
maintained by it and use its best efforts to maintain and preserve its
business organization intact.
(d) Farmers will not: (i) enter into any transaction other than in
the ordinary course of business or incur or agree to incur any
obligation or liability except liabilities incurred and obligations
entered into in the ordinary course of business; (ii) change its
lending, investment, liability management and other policies in any
respect; (iii) except as committed for adjustment as of the date hereof
and consistent with prior practice, grant any general or uniform
increase in the rates of pay of employees; (iv) incur or commit to any
capital expenditures other than in the ordinary course of business, or
(v) merge into, consolidate with or sell its assets to any other
corporation or person, or permit any other corporation to be merged or
consolidated with it or acquire all of the assets of any other
corporation or person.
(e) Farmers will not change its method of accounting in effect at
December 31, 1996 except as required by changes in generally accepted
accounting principles and concurred in by Farmer's independent auditors,
or change any of its methods of reporting income and deductions for
Federal income tax purposes from those employed in the preparation of
Farmer's Federal income tax returns for the taxable year ending December
31, 1996, except for changes required by law.
(f) Farmers will promptly advise First Citizens in writing of all
material actions taken by the directors and Stockholders of Farmers,
furnish First Citizens with copies of all minutes of such action and
monthly interim financial statements of Farmers as they become
available, commencing with the April 1997 statements, and keep First
Citizens fully informed concerning all developments which in the opinion
of Farmers may have a material effect upon the business, properties or
condition (either financial or otherwise) of Farmers.
10. Action by First Citizens Pending Effective Time. First Citizens
agrees that from the date of this Agreement until the time the Merger shall
become effective:
(a) First Citizens will carry on its business in substantially the
same manner as heretofore except as otherwise set forth in or
contemplated by this Agreement, and First Citizens will keep in full
force and effect insurance comparable in amount and scope of coverage to
that now maintained by it and use its best efforts to maintain and
preserve its business organization intact.
(b) First Citizens will not change its methods of accounting in
effect at December 31, 1996, except as required by changes in generally
accepted accounting principles as concurred in by First Citizens'
independent auditors, or change any of its methods of reporting income
and deductions for Federal income tax purposes from those employed in
the preparation of the Federal income tax returns of First Citizens'
Subsidiaries for the taxable year ended December 31, 1996, except for
changes required by law or take any action which could jeopardize the
tax free nature of the Merger or the pooling of interests accounting
treatment for the Merger.
(c) First Citizens will furnish Farmers with copies of interim
financial statements of First Citizens and all reports, schedules and
statements filed by or delivered for First Citizens pursuant to the
Securities and Exchange Act of 1934 and the rules and regulations
promulgated thereunder, as they become available, and keep Farmers fully
informed concerning all developments which in the opinion
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of First Citizens may have a material effect upon the business,
properties or condition (either financial or otherwise) of First
Citizens.
11. Conditions to Obligations of First Citizens. The obligations of
First Citizens under this Agreement and the Merger Agreement are subject,
unless waived by First Citizens, to the satisfaction of the following
conditions on or prior to the time the Merger shall become effective:
(a) There shall not have been any material adverse change or
discovery of a condition or the occurrence of an event which has or is
likely to result in such a change, in the financial condition, aggregate
net assets, Stockholders' equity, business or operating results of
Farmers from December 31, 1996 to the time the Merger shall become
effective.
(b) Farmers shall not have paid cash dividends from the date hereof
to the time the Merger shall become effective except as permitted under
this Agreement.
(c) All representations by Farmers contained in this Agreement and
the Merger Agreement shall be true in all material respects at, or as
of, the time the Merger shall become effective as though such
representations were made at and as of said date, except for changes
contemplated by this Agreement or the Merger Agreement and except also
for representations as of a specified time other than the time the
Merger shall become effective, which shall be true in all material
respects at such specified time. In addition, all amendments to the
Disclosure Letter shall have been approved by First Citizens in
accordance with Section 19.
(d) First Citizens shall have received the opinion of legal counsel
for Farmers, dated the time the Merger shall become effective,
substantially to the effect set forth in Exhibit A hereto.
(e) Farmers shall have performed or satisfied in all material
respects all undertakings, agreements and conditions required by this
Agreement or the Merger Agreement to be performed or satisfied by it at
or prior to the time the Merger shall become effective.
(f) At the time the Merger shall become effective, no suit, action
or proceeding shall be pending or overtly threatened before any court or
other governmental agency by the federal or state government in which it
is sought to restrain or prohibit the consummation of the Merger, and no
other suit, action or proceeding shall be pending or overtly threatened
and no liability or claim shall have been asserted against Farmers which
First Citizens shall in good faith determine, with advice of counsel:
(i) has a reasonable likelihood of being successfully prosecuted and
(ii) if successfully prosecuted, would materially and adversely affect
the benefits hereunder intended for First Citizens.
(g) Prior to the time the Merger shall become effective, First
Citizens shall not have been deprived of adequate opportunity to conduct
such review and examination of the business, properties, and condition
(financial or otherwise) of Farmers as First Citizens shall have deemed
prudent. In the event Farmers receives a written examination report or
written agreement with a state or federal banking regulatory agency,
First Citizens shall have an opportunity to review such examination
report or written agreement for a period of thirty days and may, at its
option, elect to terminate its obligations under this Agreement during
such review period.
(h) Holders of Farmers Common Stock who are entitled to exercise in
the aggregate not more than 10% of the voting power of the issued and
outstanding Farmers Common Stock as of the time the Merger shall become
effective shall have taken steps to perfect their rights as dissenting
Stockholders pursuant to the provisions the Sections 1115.19 and 1701.85
of the Ohio Revised Code so that if, at the time the Merger shall become
effective, holders of more than 10% of such shares shall have taken such
steps, First Citizens may, at its option, refuse to consummate the
Merger.
(i) Farmers shall have furnished First Citizens certificates,
signed on its behalf by the Chairman or President and the Secretary or
an Assistant Secretary of Farmers and dated the time the Merger shall
become effective, to the effect that to the best of their knowledge,
after due inquiry, the conditions described in Paragraphs (a), (b), (c),
and (f) of this Section 11 have been fully satisfied.
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(j) First Citizens shall have received from each Affiliate a
certificate in the form specified by First Citizens.
(k) First Citizens shall have received from Farmers the officers'
certificates required pursuant to Section 4 (m) hereof.
(l) Each of (i) the Board of Directors of Farmers, (ii) Farmers'
stockholders and (iii) First Citizens' shareholders shall have approved
this Agreement and the Agreement of Merger.
(m) First Citizens shall have received from Crowe, Chizek and
Company, a letter dated the effective time, in substance reasonably
acceptable to First Citizens, stating its opinion that based upon the
information furnished that the transactions contemplated by this
Agreement should be accounted for by First Citizens as a "pooling of
interests" for financial statement reporting purposes and that such
accounting treatment is in accordance with generally accepted accounting
principles.
(n) Pursuant to Section 4(1) hereof, First Citizens shall have
filed such registration statements or applications as may be required
under applicable blue sky laws and such registration statements or
applications shall have become effective or approved and no stop order
shall be threatened or in effect with respect thereto.
12. Conditions to Obligations of Farmers. The obligations of Farmers
under this Agreement or the Merger Agreement are subject, unless waived by
Farmers, to the satisfaction on or prior to the time the Merger shall
become effective of the following conditions:
(a) There shall not have been any material adverse change or
discovery of a condition or the occurrence of an event which has or is
likely to result in such a change, in the financial condition, aggregate
net assets, Stockholders' equity, business, or operating results of
First Citizens from December 31, 1996, to the time the Merger shall
become effective.
(b) All representations by First Citizens contained in this
Agreement and the Merger Agreement shall be true in all material
respects at, or as of, the time the Merger shall become effective as
though such representations were made at and as of said date, except for
changes contemplated by this Agreement and the Merger Agreement, and
except also for representations as of a specified time other than the
time the Merger shall become effective, which shall be true in all
material respects at such specified time.
(c) Farmers shall have received the opinion of Counsel for First
Citizens dated the time the Merger shall become effective substantially
to the effect set forth in Exhibit B hereto.
(d) First Citizens shall have performed or satisfied in all
material respects all undertakings, agreements and conditions required
by this Agreement and the Merger Agreement to be performed or satisfied
by it at or prior to the time the Merger shall become effective.
(e) At the time the Merger shall become effective, no suit, action
or proceeding shall be pending or overtly threatened before any court or
other governmental agency of the federal or state government in which it
is sought to restrain, prohibit or set aside consummation of the Merger
and no other suit, action or proceeding shall be pending or overtly
threatened and no liability or claim shall have been asserted against
First Citizens which Farmers shall in good faith determine, with advice
of counsel: (i) has a reasonable likelihood of being successfully
prosecuted and (ii) if successfully prosecuted, would materially and
adversely affect the benefits hereunder intended for Farmers and its
Stockholders.
(f) First Citizens shall have furnished Farmers a certificate,
signed by the Chairman or President and by the Secretary or Assistant
Secretary of First Citizens and dated the time the Merger shall become
effective to the effect that to the best of their knowledge after due
inquiry the conditions described in Paragraphs (a), (b), and (e) of this
Section 12 have been fully satisfied.
(g) First Citizens and Farmers shall have received the opinion
called for pursuant to Section 6 of this Agreement and there shall exist
as of, at or immediately prior to the time the Merger shall become
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effective no facts or circumstances which would render such opinion
inapplicable in any respect to the transactions to be consummated
hereunder.
13. Conditions to Obligations of All Parties. In addition to the
provisions of Sections 11 and 12 hereof, the obligations of First Citizens
and Farmers to cause the transactions contemplated herein to be consummated
shall be subject to the satisfaction of the following conditions on or
prior to the time the Merger shall become effective:
(a) The parties hereto shall have received all necessary approvals
of governmental agencies and authorities of the transactions
contemplated by this Agreement and each of such approvals shall remain
in full force and effect at the time the Merger shall become effective
and such approvals and the transactions contemplated thereby shall not
have been contested by any federal or state governmental authority by
formal proceeding, or contested by any other third party by formal
proceeding which the Board of Directors or the party asserting a failure
of a condition under this Section 13(a) shall in good faith determine,
with the advice of counsel: (i) has a reasonable likelihood of being
successfully prosecuted and (ii) if successfully prosecuted, would
materially and adversely affect the benefits hereunder intended for such
party. It is understood that, if any contest as aforesaid is brought by
formal proceedings, First Citizens may, but shall not be obligated to,
answer and defend such contest. First Citizens shall notify Farmers
promptly upon receipt of all necessary governmental approvals.
(b) The registration statement required to be filed by First
Citizens pursuant to Section 4(c) of this Agreement shall have become
effective by an order of the Securities and Exchange Commission, the
shares of First Citizens Common Shares to be exchanged in the Merger
shall have been qualified or exempted under all applicable state
securities laws, and there shall have been no stop order issued or
threatened by the Securities and Exchange Commission that suspends or
would suspend the effectiveness of the registration statement, and no
proceeding shall have been commenced, pending or overtly threatened for
such purpose.
(c) This Agreement and the Merger Agreement shall have been duly
adopted, ratified and confirmed by the requisite affirmative votes of
the Stockholders of Farmers.
14. Non-survival of Representations and Warranties. The respective
representations and warranties of First Citizens and Farmers set forth
shall expire at the effective time of the Merger.
15. Governing Law. This Agreement shall be construed and interpreted
according to the applicable laws of the State of Ohio.
16. Assignment. This Agreement and the Merger Agreement and all of
the provisions hereof and thereof shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns, but neither this Agreement nor the Merger Agreement nor any of the
rights, interest, or obligations hereunder or thereunder shall be assigned
by either of the parties hereto without the prior written consent of the
other party.
17. Satisfaction of Conditions; Termination.
(a) First Citizens agrees to use its best effort to obtain
satisfaction of the conditions insofar as they relate to First Citizens,
and Farmers agrees to use its best efforts to obtain the satisfaction of
the conditions insofar as they relate to Farmers. If any material
condition to the obligations of First Citizens set forth in Section 11
or 13 is not substantially satisfied at the time or times contemplated
thereby and such condition is not waived by First Citizens, or if any
material condition to the obligations of Farmers set forth in Section 12
or 13 is not substantially satisfied at the time or times contemplated
thereby and such condition is not waived by Farmers, or if at any time
prior to the time the Merger shall become effective, it shall become
reasonably certain that such condition will not be substantially
satisfied and such condition is not waived by First Citizens or Farmers,
as the case may be, either First Citizens or Farmers may terminate this
Agreement by written notice to the other party after the expiration of
fifteen (15) days written notice to the other party during which time
such other party shall have an opportunity to cure such defect in said
condition. This Agreement may be terminated and abandoned (either before
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or after the meetings of Stockholders contemplated hereby) by mutual
written consent of First Citizens and Farmers authorized by their
respective Boards of Directors. In the event of such termination caused
otherwise than by breach of this Agreement by any of the parties hereto,
this Agreement shall cease and terminate, the acquisition of Farmers as
provided herein shall not be consummated, and neither First Citizens nor
Farmers shall have any further liability under this Agreement of any
nature whatever, including any liability for damages. In the event this
Agreement is terminated, the duties of both parties with respect to
confidential information set forth in Sections 4(d) shall survive any
such termination. In addition to the other grounds for termination of
this Agreement set forth herein, this Agreement can be terminated by
written notice by either party to the other, in each case authorized by
its Board of Directors, if the Merger shall not have been consummated by
February 1, 1998, or the date of such notice, whichever is later.
(b) If termination of this Agreement shall be judicially determined
to have been caused by breach of this Agreement, then, in addition to
other remedies at law or equity for breach of this Agreement, the party
so found to have breached this Agreement shall indemnify the other
parties for their respective costs, fees and expenses of its counsel,
accountants and other experts and advisors as well as fees and expenses
incident to negotiation, preparation and execution of this Agreement and
related actions and its Stockholders' meetings and actions.
18. Waivers, Amendments Any of the provisions of this Agreement may
be waived at any time by the party which is, or the Stockholders of which
are, entitled to the benefit thereof, by resolution of the Board of
Directors of such party. This Agreement may be amended or modified in whole
or in part by an agreement in writing executed in the same manner (but not
necessarily by the same person) as this Agreement and which makes reference
to this Agreement, pursuant to a resolution, adopted by the Boards of
Directors of the respective parties, provided, however, such amendment or
modification may be made in this manner by the respective Boards of
Directors of First Citizens and Farmers at anytime prior to a favorable
vote of such party's Stockholders, but may be made after a favorable vote
by the Stockholders of such party, only if, in the opinion of its Board of
Directors, such amendment or modification will not have any material
adverse effect on the benefits intended under this Agreement for the
Stockholders of such party and will not require resolicitation of any
proxies from such Stockholders.
19. Entire Agreement. This Agreement supersedes any other agreement,
whether written or oral, that may have been made or entered into by First
Citizens and Farmers or by any officer or officers of such parties relating
to the acquisition of the business or the capital stock of Farmers by First
Citizens. This Agreement, including the exhibits and schedules hereto
(which shall include the Disclosure Letter and the Merger Agreement)
together constitute the entire agreement of the parties, and there are no
agreements or commitments except as set forth herein and therein. This
Agreement and the Merger Agreement may only be amended in a writing signed
by the parties hereto and thereto. The Disclosure Letter may be amended by
Farmers from time to time after the date hereof upon the prior written
consent of First Citizens.
20. Captions; Counterparts. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. This
Agreement may be executed in several counterparts, each of which shall
constitute one and the same instrument.
21. Notices. All notices and other communications hereunder shall be
deemed to have been duly given if forwarded by regular First Class United
States Mail, postage prepaid, or a nationally recognized overnight courier
service. All notices and other communications hereunder given to any party
shall be communicated to the remaining party to this Agreement by mail in
the same manner as herein provided.
a) If to First Citizens, to:
David Voight, President
First Citizens Banc Corp.
100 East Water Street
Sandusky, OH 44870
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With copies to:
Dean S. Lucal, Esq.
Lucal & McGookey
502 West Washington St.
Sandusky, OH 44870
and
M. Patricia Oliver, Esq.
Squire, Sanders & Dempsey, LLP
4490 Key Tower
127 Public Square
Cleveland, OH 44414-1304
(b) If to Farmers, to:
Ms. Dorothy L. Robey
The Farmers State Bank
102 S. Kibler
New Washington, OH 44854-9401
With copies to:
Martin D. Werner, Esq.
Werner & Blank Co., L.P.A.
7205 W. Central Avenue
Toledo, Ohio 43617
22. Publicity. First Citizens and Farmers agree to consult with and
obtain the consent of the other, prior to any media release or other public
disclosures as to the matters covered by this Agreement, except as may be
required by law.
24. Whenever a representation or warranty is made herein as being "to
the knowledge of" a party hereto or the officers or directors thereof, it
is understood that an officer has made or caused to be made by personnel or
representatives competent to determine the accuracy thereof (and the
results thereof reported to him) an investigation which is appropriate to
determine the accuracy of such representation or warranty.
25. The corporate trust department of Fifth Third Bank, as transfer
agent for the First Citizens Common Shares (or such other bank or trust
company as First Citizens selects) shall act as exchange agent in respect
of the conversion of Farmers common stock into First Citizens common
shares.
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IN WITNESS WHEREOF, this Agreement has been executed the day and year first
above written.
<TABLE>
<S> <C>
ATTEST: First Citizens Banc Corp.
- ----------------------------------------- By: /s/ DAVID VOIGHT
By: /s/ JAMES MILLER -------------------------------------
- ----------------------------------------- David Voight, President
Its: Senior Vice President
- ----------------------------------------- The Farmers State Bank
ATTEST: By: /s/ DOROTHY ROBEY
- ----------------------------------------- -------------------------------------
By: /s/ WILLIAM SHEAFFER Dorothy Robey, President
- -----------------------------------------
Its: Vice President
- -----------------------------------------
</TABLE>
As individuals and with respect solely to the understanding made in Section 8(l)
of this Agreement.
<TABLE>
<S> <C>
/s/ DOROTHY ROBEY /s/ RONALD DENTINGER
- ----------------------------------------- -----------------------------------------
/s/ ROBERT L. BORDNER /s/ ROBERT M. OBRINGER
- ----------------------------------------- -----------------------------------------
/s/ RICHARD NIEDERMIER
- ----------------------------------------- -----------------------------------------
/s/ BLYTHE FRIEDLEY
- ----------------------------------------- -----------------------------------------
/s/ WILLIAM SHEAFFER
- ----------------------------------------- -----------------------------------------
/s/ LUTHER SHAFER
- ----------------------------------------- -----------------------------------------
</TABLE>
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<PAGE> 119
APPENDIX B
MERGER AGREEMENT
THIS MERGER AGREEMENT (this "Agreement") dated as of November 26, 1997, is
by and between Farmers Interim Bank ("New Bank"), an Ohio state banking
corporation and wholly owned subsidiary of First Citizens Banc Corp., ("First
Citizens") and The Farmers State Bank of New Washington, Ohio ("Farmers"), an
Ohio state banking corporation and is joined in by First Citizens, the sole
shareholder of New Bank.
WITNESSETH:
WHEREAS, the Board of Directors of the New Bank and the Board of Directors
of Farmers have determined that it is in the best interests of the New Bank and
Farmers to merge New Bank with and into Farmers in accordance with the
provisions of the laws of the State of Ohio (the "Merger"); and
WHEREAS, the Board of Directors of Farmers and the Board of Directors of
New Bank have each adopted a resolution approving this Agreement and have
directed that the Merger Agreement be submitted to the shareholders of Farmers
and New Bank entitled to vote in respect thereof for adoption and approval;
NOW, THEREFORE, the parties hereto, subject to the terms and conditions
contained herein, agrees as follows:
ARTICLE I
CONSTITUENT CORPORATIONS
Farmers and New Bank shall be the constituent banking corporations with
respect to the Merger.
ARTICLE II
MERGER
Effective as of the date set forth in the Certificate of Merger filed in
accordance with Section 1115.11 (F) of the Ohio Revised Code with the Secretary
of State of the State of Ohio (the "Effective Time"), New Bank shall be merged
into Farmers and Farmers shall be the surviving banking corporation (the
"Surviving Corporation"), which after the effective time of the Merger shall be
known as "The Farmers State Bank of New Washington, Ohio."
ARTICLE III
ARTICLES OF INCORPORATION, ETC.
1. At the Effective Time, the Articles of Incorporation and Code of
Regulations of Farmers shall constitute the Articles of Incorporation and Code
of Regulations of the Surviving Corporation.
2. The Surviving Corporation's main office shall be located at 102 S.
Kibler St., New Washington, Ohio, until otherwise changed in accordance with
law.
3. Officers of Farmers immediately prior to the Effective Time shall be the
officers of the Surviving Corporation, each to hold office until his respective
successor is duly elected or appointed and qualified in accordance with the
provisions of the Articles of Incorporation and Code of Regulations of the
Surviving Corporation and of applicable law, or until his earlier death,
resignation or removal. At the Effective Time, the directors of the Surviving
Corporation shall be as follows:
<TABLE>
<S> <C>
Robert L. Bordner Robert M. Obringer
Ronald Dentinger Dorothy L. Robey
Blythe Friedley Luther Shafer
Dean S. Lucal, Esq. William Sheaffer
Richard Niedermier David A. Voight
</TABLE>
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ARTICLE IV
MANNER OF CONVERTING AND EXCHANGING STOCK AND CAPITAL STRUCTURE
1. Subject to the provisions of this Article IV, the manner of converting
and exchanging the shares of the constituent corporation's stock at the
Effective Time shall be as follows.
Conversion and Exchange of Shares.
(a) At the time the Merger shall become effective;
(i) All of the outstanding certificates for shares of Farmers
Common Stock shall, subject to statutory dissenters rights as
provided Ohio Revised Code Section 1115.19 and 1701.85, be converted
into the right to receive 6.06 duly authorized, validly issued, fully
paid and non-assessable First Citizens Common Shares.
(ii) The shares of Farmers Common Stock issued and outstanding
immediately prior to the time the Merger shall become effective shall
continue to be issued and outstanding shares of the Surviving
Corporation and shall be held by First Citizens.
(iii) The shares of New Bank issued and outstanding immediately
prior to the effective time of the Merger and held by First Citizens
shall be deemed canceled.
(b) No fractional shares or scrip representing fractional First
Citizens Common Shares will be issued by First Citizens in connection
with the Merger, but in lieu thereof, any holder of Farmers Common Stock
entitled to such a fractional share shall, upon surrender of the
certificate or certificates formerly representing such Farmers Common
Stock, be paid cash, without interest, by First Citizens for such
fractional share(s). The cash paid for fractional shares shall be based
upon $33.50 per share of First Citizens Common Shares.
(c) As soon as practicable after the time the Merger shall become
effective, and subject to the provisions set forth above relating to the
fractional shares, the corporate trust department of Fifth Third Bank,
First Citizens' exchange agent, will distribute to the former holders of
Farmers Common Stock in exchange for and upon surrender for cancellation
by such holders of a certificate or certificates formerly representing
shares of Farmers Common Stock the certificate(s) for First Citizens
Common Shares in accordance with the provisions regarding the exchange
of shares of Farmers Common Stock set forth in paragraph 1(a)(i) of this
Merger Agreement. Each certificate formerly representing Farmers Common
Stock (other than certificates representing shares of Farmers Common
Stock subject to the rights of dissenting shareholders) shall be deemed
for all purposes to evidence the ownership of the number of whole First
Citizens Common Shares and cash for fractional share interests in First
Citizens Common Shares into which such shares have been converted.
Certificates representing shares of Farmers Common Stock held by a
stockholder of Farmers, shall be aggregated together in determining the
number of fractional shares for which such shareholder shall receive
cash as provided for herein. Until surrender of the certificate or
certificates formerly representing shares of Farmers Common Stock, the
holder thereof shall not be entitled to receive any dividend or other
payment or distribution payable to holders of First Citizens Common
Shares. Upon such surrender (or in lieu of surrender other provisions
reasonably satisfactory to First Citizens as are made as set forth in
the next following paragraph), there shall be paid to the person
entitled thereto the aggregate amount of dividends or other payments or
distributions (in each case without interest) which became payable after
the time the Merger shall become effective on the whole First Citizens
Common Shares represented by the certificates issued upon such surrender
and exchange or in accordance with such other provisions, as the case
may be. After the time the Merger shall become effective, the holders of
certificates formerly representing shares of Farmers Common Stock shall
cease to have rights with respect to such shares except such rights, if
any, as a holder of certificates formerly representing shares of Farmers
Common Stock may have as dissenting shareholders pursuant to Ohio law
and except as aforesaid, their sole rights shall be to exchange said
certificates for certificates for First Citizens Common Shares in
accordance with this Merger Agreement.
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Certificates formerly representing shares of Farmers Common Stock
surrendered for cancellation by each shareholder entitled to exchange
shares of Farmers Common Stock for First Citizens Common Shares by
reason of the Merger shall be accompanied by such appropriate
instruments of transfer as First Citizens may reasonably require,
provided, however, that if there be delivered to First Citizens by any
person who is unable to produce any such certificate formerly
representing shares of Farmers Common Stock for transfer (i) evidence to
the reasonable satisfaction of First Citizens that any such certificate
has been lost, wrongfully taken or destroyed, and (ii) such indemnity
agreement as reasonably may be requested by First Citizens to save it
harmless, and (iii) evidence to the reasonable satisfaction of First
Citizens that such person is the owner of the shares theretofore
represented by each certificate claimed by him to be lost, wrongfully
taken or destroyed and that he is the person who would be entitled to
present each such certificate and to receive First Citizens Common
Shares pursuant to this Merger Agreement, then First Citizens (or an
Exchange Agent, as the case may be), in the absence of actual notice to
it that any shares theretofore represented by any such certificate have
been acquired by a bona fide purchaser, shall deliver to such person the
certificate(s) representing First Citizens Common Shares which such
person would have been entitled to receive upon surrender of each such
lost, wrongfully taken or destroyed certificate representing shares of
Farmers Common Stock.
2. After the Effective Time, there shall be no transfers of the stock
transfer books of New Bank of any certificates representing shares of New Bank
Common Stock. After the Effective Time, upon presentation to the Surviving
Corporation of certificates formerly representing capital stock of New Bank,
such certificates shall be canceled.
3. The Resulting Corporation shall have a capital structure equal to the
following:
(a) Common stock of $4,000,000.00, consisting of 200,000 shares of $20
par value all of which will be issued and outstanding immediately following
the Effective Time of the Merger; and
(b) Surplus of $4,000,000.00; and
(c) Undivided profits, including capital reserves, of $5,877,000,
adjusted for all earnings and losses between January, 1997, and the
Effective Time of the Merger.
ARTICLE V
EFFECT OF MERGER
From and after the Effective Time, the Surviving Corporation shall have all
of the rights, interests, privileges, powers, immunities and franchises (public
and private) of each of the constituent corporations, and all property (real,
personal and mixed), all debts due on whatever account, and all other chooses in
action, of each of the constituent corporations. All interests of or belonging
to or due to either of the constituent corporations shall thereupon be deemed to
be transferred to and vested in the Surviving Corporation without act or deed
and no title to any real estate or any interest therein vested in either of the
constituent corporations shall revert or be in any way impaired because of the
Merger.
ARTICLE VI
SURVIVING CORPORATION
From and after the Effective Time, the Surviving Corporation shall be
responsible for all obligations of each of the constituent corporations and each
claim existing and each action or proceeding pending by or against either of the
constituent corporations may be prosecuted as if the Merger had not taken place,
and the Surviving Corporation may be substituted in the place of such
constituent corporation. No right of any creditor of either constituent
corporation and no lien upon the property of either constituent corporation
shall be impaired by the Merger.
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ARTICLE VII
FURTHER DOCUMENTS
If at any time the Surviving Corporation shall consider or be advised that
any further assignments, conveyances or assurances in law are necessary or
desirable to vest, perfect or confirm of record in the Surviving Corporation the
title to any property or rights of the constituent corporations, or otherwise to
carry out the provisions hereof, the persons who were the proper officers and
directors of the constituent corporations immediately prior to the Effective
Time (or their successors in office) shall execute and deliver any and all
proper deeds, assignments and assurances in law, and do all things necessary or
proper, to vest, perfect or confirm title to such property or rights in the
Surviving Corporation, including, but not limited to, filing with each court or
other public tribunal, agency or officer by which Farmers or New Bank have been
appointed in the capacity of fiduciary or agent, and in the court file of each
estate, suit or proceeding in which any of them has been acting, a statement
setting forth the information required by law or otherwise to carry out the
provisions hereof.
ARTICLE VIII
TERMINATION
Notwithstanding the adoption and approval of this Agreement and the Merger
by the shareholders of Farmers and New Bank, this Agreement and the Merger may
be terminated:
(a) At any time prior to the Effective Time, by the mutual consent of
the Boards of Directors of Farmers and New Bank; or
(b) This Merger Agreement shall automatically terminate in the event
of the termination of the Agreement and Plan of Reorganization dated July
3, 1997, as amended as of the date hereof, by and between Farmers and First
Citizens to which it relates.
(c) At any time prior to the Effective Time, by Farmers or New Bank if
there shall have been a final judicial determination (as to which all
periods for appeal shall have expired and no appeal shall be pending) that
any material provision of this Agreement or of the Merger is illegal,
invalid or unenforceable;
(d) By Farmers if the average closing sale price of First Citizens
Common Shares for the ten consecutive trading days ending on the third
trading day prior to the Effective Time is $26.80 or less. As used in this
Agreement, "trading days" shall mean days on which actual trades of First
Citizens Common Shares occur as reported by SNL Securities of
Charlottesville, Virginia.
In the event that this Agreement is terminated pursuant to this Article
VIII, the Merger provided for herein shall be abandoned automatically and
without any further act or deed by the parties hereto.
ARTICLE IX
CONDITIONS TO CONSUMMATION OF THE MERGER
The consummation of the Merger pursuant to this Merger Agreement and the
obligations of the parties hereto is subject to the satisfaction of the
provisions and conditions of the Agreement and Plan of Reorganization by and
between Farmers and First Citizens dated July 3, 1997, as amended as of the date
hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and attested to on their behalf by the following officers thereunto
duly authorized as of the day and year first written above.
<TABLE>
<S> <C>
THE FARMERS STATE BANK OF
NEW WASHINGTON, OHIO FARMERS INTERIM BANK
By: /s/ WILLIAM SHEAFFER By: /s/ DAVID A. VOIGHT
----------------------------------------- -----------------------------------------
William Sheaffer, President David A. Voight, President
and Chief Executive Officer
Attest: Attest:
- --------------------------------------------- ---------------------------------------------
By: /s/ WANDA J. WHITE By: /s/ JAMES MILLER
----------------------------------------- -----------------------------------------
Its: Secretary Its: Secretary
----------------------------------------- -----------------------------------------
FIRST CITIZENS BANC CORP.
By: /s/ DAVID A. VOIGHT
-----------------------------------------
David A. Voight, President
Attest:
--------------------------------------
By: /s/ JAMES MILLER
-----------------------------------------
Its: Senior Vice President
------------------------------------------
</TABLE>
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APPENDIX C
DISSENTERS' RIGHTS UNDER SECTIONS 1115.19 AND 1701.85 OF
THE OHIO REVISED CODE
1115.19 DISSENTING SHAREHOLDERS
Unless the articles of incorporation of the state bank otherwise provide,
any shareholder of a state bank that has been consolidated or merged with, or
whose assets have been transferred to, another state bank or a national bank,
savings bank or savings association pursuant to any provision of this chapter
other than section 1115.15 of the Revised Code, who did not vote in favor of the
consolidation, merger, or transfer, shall be paid the fair cash value, as of the
day before the vote was taken authorizing any such action, of the shares held,
excluding from any such fair cash value any appreciation or depreciation in
consequence of the consolidation, merger, or transfer which entitled the
shareholder to this relief. Section 1701.85 of the Revised Code shall govern
with respect to the shareholder's rights and any limitations on those rights.
Any shareholder who does not object and demand in writing the payment of the
fair cash value of the shares in the manner and at the time provided in section
1701.85 of the Revised Code, shall be bound by the vote of the board of
directors or the assenting shareholders of the state bank.
1701.85 QUALIFICATIONS OF AND PROCEDURES FOR DISSENTING SHAREHOLDERS
(A)(l) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 of the Revised Code shall be a record holder
of the shares of the corporation as to which he seeks relief as of the date on
which the agreement of merger was adopted by the directors of that corporation.
Within twenty days after he has been sent the notice provided in section 1701.80
or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same information as that
provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each new certificate
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issued for them shall bear a similar legend, together with the name of the
original dissenting holder of such shares. Upon receiving a demand for payment
from a dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of the demand for
payment in its shareholder records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities as provided in
this paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with interest at
such rate and from such date as the court considers equitable. The costs of the
proceeding, including reasonable compensation to the appraisers to be fixed by
the court, shall be assessed or apportioned as the court considers equitable.
The proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505. of the
Revised Code. If, during the pendency of any proceeding instituted under this
section, a suit or proceeding is or has been instituted to enjoin or otherwise
to prevent the carrying out of the action as to which the shareholder has
dissented, the proceeding instituted under this section shall be stayed until
the final determination of the other suit or proceeding. Unless any provision in
division (D) of this section is applicable, the fair cash value of the shares
that is agreed upon by the parties or fixed under this section shall be paid
within thirty days after the date of final determination of such value under
this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken and, in
the case of a merger pursuant to section 1701.80 or 1701.801 of the Revised
Code, fair cash value as to shareholders of a constituent subsidiary corporation
shall be determined as of the day before the adoption of the agreement of merger
by the directors of the particular subsidiary corporation. The fair cash value
of a share for the purposes of this section is the amount that a willing seller
who is under no compulsion to sell would be willing to accept and that a willing
buyer who is under no compulsion to purchase would be willing to pay, but in
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no event shall the fair cash value of a share exceed the amount specified in the
demand of the particular shareholder. In computing such fair cash value, any
appreciation or depreciation in market value resulting from the proposal
submitted to the directors or to the shareholders shall be excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive such
fair cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay the
fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind
their adoption of the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder
nor the corporation has filed or joined in a complaint under division (B)
of this section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
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APPENDIX D
FAIRNESS OPINION OF MCDONALD & COMPANY
<PAGE> 128
, 1997
Board of Directors
First Citizens Banc Corp.
100 East Water Street
Sandusky, OH 44871
Gentlemen and Madam:
You have requested our opinion with respect to the fairness, from a
financial point of view, as of the date hereof, to the holders of common stock,
no par value ("First Citizens Common Stock"), of First Citizens Banc Corp.
("First Citizens") of the exchange ratio as set forth in Article IV, Section 1
of the Merger Agreement, which is Appendix A to the Agreement and Plan of
Reorganization dated July 3, 1997, as amended November 25, 1997 and November 26,
1997, (collectively, the "Agreements"), by and among First Citizens, Farmers
Interim Bank ("Interim Bank"), and The Farmers State Bank of New Washington,
Ohio ("Farmers").
The Agreements provide for the merger (the "Merger") of Farmers with and
into Interim Bank, a newly formed wholly owned subsidiary of First Citizens,
pursuant to which, among other things, at the Effective Time (as defined in the
Agreements), outstanding shares of Farmers common stock, par value $20.00 per
share ("Farmers Common Stock"), will be exchanged for 6.06 shares of First
Citizens Common Stock as set forth in Article IV, Section 1 of the Agreements
(the "Exchange Ratio"). The terms and conditions of the Merger are more fully
set forth in the Agreements.
McDonald & Company Securities, Inc., as part of its investment banking
business, is customarily engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
We have acted as First Citizens' financial advisor in connection with, and
have participated in certain negotiations leading to, the execution of the
Agreements. In connection with rendering our opinion set forth herein, we have
among other things:
(i) Reviewed First Citizens' Annual Reports to Shareholders and Annual
Reports on Form 10-K for each of the years ended December 31, 1996, December 31,
1995 and December 31, 1994, including the audited financial statements contained
therein; and First Citizens' Quarterly Reports on Form 10-Q for the three month
periods ended September 30, 1997; June 30, 1997 and March 31, 1997.
(ii) Reviewed Farmers' Consolidated Report of Income and Consolidated
Report of Condition for Insured Commercial and State-Chartered Savings Banks for
the fiscal years ended December 31, 1996, December 31, 1995 and December 31,
1994; and Farmers' Consolidated Report of Income and Consolidated Report of
Condition for Insured Commercial and State-Chartered Savings Banks, as amended,
for the three month period ended September 30, 1997, June 30, 1997 March 31,
1997.
(iii) Reviewed certain other public and nonpublic information, primarily
financial in nature, relating to the respective businesses, earnings, assets and
prospects of First Citizens and Farmers provided to us or publicly available;
(iv) Participated in meetings and telephone conferences with members of
senior management of First Citizens and Farmers concerning the financial
condition, business, assets, financial forecasts and prospects of the respective
companies, as well as other matters we believed relevant to our inquiry;
(v) Reviewed certain stock market information for First Citizens Common
Stock and Farmers Common Stock and compared it with similar information for
certain companies, the securities of which are publicly traded;
(vi) Compared the results of operations and financial condition of First
Citizens and Farmers with that of certain companies which we deemed to be
relevant for purposes of this opinion;
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Board of Directors
, 1997
Page Two
(vii) Reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions which we deemed to be relevant for purposes of
this opinion;
(viii) Reviewed the Agreements and their schedules and exhibits and certain
related documents; and
(ix) Performed such other reviews and analyses as we have deemed
appropriate.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information reviewed by us and have relied upon the accuracy and completeness of
the representations, warranties and covenants of First Citizens and Farmers
contained in the Agreements. We have not been engaged to undertake, and have not
assumed any responsibility for, nor have we conducted, an independent
investigation or verification of such matters. We have not been engaged to and
we did not conduct a physical inspection of any of the assets, properties or
facilities of either First Citizens or Farmers, nor have we made or obtained or
been furnished with any independent evaluation or appraisal of any of such
assets, properties or facilities or any of the liabilities of either First
Citizens or Farmers. With respect to financial forecasts used in our analysis,
we have assumed that such forecasts have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of First Citizens and Farmers as to the future performance of First
Citizens, Farmers, and First Citizens and Farmers combined, as the case may be.
We have not been engaged to and we have not assumed any responsibility for, nor
have we conducted any independent investigation or verification of such matters,
and we express no view as to such financial forecasts or the assumptions on
which they are based. We have also assumed that all of the conditions to the
consummation of the Merger, as set forth in the Agreements, including the
tax-free treatment of the merger to the holders of Farmers Common Stock, would
be satisfied and that the Merger would be consummated on a timely basis in the
manner contemplated by the Agreements.
We will receive a fee for our services as financial advisor to First
Citizens, a substantial portion of which is contingent upon closing of the
Merger. We will also receive a fee for our services in rendering this opinion.
In the ordinary course of business, we may trade securities of First
Citizens and Farmers for our own account and for the accounts of customers and,
accordingly, we may at any time hold a long or short position in such
securities. In addition, McDonald & Company has provided investment banking
services to First Citizens in the past (including financial advisory services
with respect to prior acquisition transactions) and may provide such services in
the future.
This opinion is based on economic and market conditions and other
circumstances existing on, and information made available as of, the date
hereof. In addition, our opinion is, in any event, limited to the fairness, as
of the date hereof, from a financial point of view, of the Exchange Ratio, to
the holders of First Citizens Common Stock, and does not address the underlying
business decision by First Citizens' Board of Directors to effect the Merger,
does not compare or discuss the relative merits of any competing proposal or any
other terms of the Merger, and does not constitute a recommendation to any First
Citizens shareholder as to how such shareholder should vote with respect to the
Merger. This opinion does not represent our opinion as to what the value of
First Citizens Common Stock or Farmers Common Stock may be at the effective date
of the Merger or as to the prospects of First Citizens' business or Farmers'
business.
This opinion is directed to and has been prepared solely for the
confidential use of the Board of Directors of First Citizens. We do not believe
that we are acting as agents of the First Citizens Board of Directors nor the
holders of the First Citizens Common Stock, and we do not believe that any
person other than the First Citizens Board of Directors has any legal right
under state law to rely on this opinion. This opinion shall not be reproduced,
summarized, described or referred to or given to any other person without our
prior written consent. Notwithstanding the foregoing, this opinion may be
included in a proxy statement to be mailed to the holders of First Citizens
Common Stock in connection with the Merger, provided that this opinion will be
reproduced in
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Board of Directors
, 1997
Page Three
such proxy statement in full, and any description of or reference to us or our
actions, or any summary of the opinion in such proxy statement will be in a form
acceptable to us and our counsel.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to the holders of First Citizens Common
Stock from a financial point of view.
Very truly yours,
McDONALD & COMPANY SECURITIES, INC.
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APPENDIX E
FAIRNESS OPINION OF AUSTIN ASSOCIATES
<PAGE> 132
, 1997
Board of Directors
The Farmers State Bank of New Washington
102 South Kibler Street
New Washington, OH 44854-9401
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to The Farmers State Bank of New Washington ("Farmers") and its
shareholders of the terms of the Agreement and Plan of Reorganization dated as
of July 3, 1997, as amended November 25, 1997 and November 26, 1997, and the
related Merger Agreement dated as of November 26, 1997 (together, the
"Agreement") between Farmers and First Citizens Banc Corp, Sandusky, Ohio
("First Citizens"). The terms of the Agreement provide for the acquisition of
Farmers by First Citizens (the "Merger"). The Merger will be completed through a
merger of Farmers with Farmers Interim Bank, a wholly owned subsidiary of First
Citizens, formed for the limited purpose of effecting the Merger. As a result of
the Merger, Farmers will become a wholly-owned subsidiary of First Citizens.
The terms of the Agreement provide for each outstanding share of Farmers
common stock to be converted into the right to receive 6.06 shares of First
Citizens common stock. Based on 200,000 shares of Farmers stock issued and
outstanding, a total of 1,212,000 shares of First Citizens stock shall be issued
in the Merger.
In carrying out our engagement, we have reviewed and analyzed material
bearing upon the financial and operating condition of Farmers and First
Citizens, including but not limited to the following: (i) the Proxy
Statement/Prospectus; (ii) the financial statements of Farmers and First
Citizens for the period 1992 through September, 1997; (iii) certain other
publicly available information regarding Farmers and First Citizens; (iv)
publicly available information regarding the performance of certain other
companies whose business activities were believed by Austin Associates to be
generally comparable to those of Farmers and First Citizens; (v) the financial
terms, to the extent publicly available, of certain comparable transactions; and
(vi) such other analysis and information as we deemed relevant.
In our review and analysis, we relied upon and assumed the accuracy and
completeness of the financial and other information provided to us or publicly
available, and have not attempted to verify the same. We have made no
independent verification as to the status of individual loans made by Farmers or
First Citizens, and have instead relied upon representations and information
concerning loans of Farmers and First Citizens in the aggregate. In rendering
our opinion, we have assumed that the transaction will be a tax-free
reorganization with no material adverse tax consequences to Farmers or First
Citizens, or to Farmers shareholders receiving First Citizens stock. In
addition, we have assumed in the course of obtaining the necessary regulatory
approvals for the transaction, no condition will be imposed that will have a
material adverse effect on the contemplated benefits of the transaction to
Farmers and its shareholders.
Based upon our analysis and subject to the qualifications described herein,
we believe that as of the date of this letter, the terms of the Agreement are
fair, from a financial point of view, to Farmers and its shareholders.
For our services in rendering this opinion, Farmers will pay us a fee and
indemnify us against certain liabilities.
Austin Associates, Inc.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1701.13(E) of the Ohio Revised Code grants corporations broad
powers to indemnify directors, officers, employees and agents. Section
1701.13(E) provides:
(E)(1) A corporation may indemnify or agree to indemnify any person
who was or is a party or is threatened to be made a party, to any
threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, other than an action by
or in the right of the corporation, by reason of the fact that he is or was
a director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, officer,
employee, member, manager, or agent of another corporation, domestic or
foreign, nonprofit or for profit, a limited liability company, or a
partnership, joint venture, trust, or other enterprise, against expenses,
including attorney's fees, judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action,
suit, or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, if he
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order,
settlement, or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, he had reasonable cause to believe that
his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party, to any threatened,
pending, or completed action or suit by or in the right of the corporation
to procure a judgment in its favor, by reason of the fact that he is or was
a director, officer, employee, member, manager, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, employee, member, manager, or agent of another
corporation, domestic or foreign, nonprofit or for profit, a limited
liability company, or a partnership, joint venture, trust, or other
enterprise, against expenses, including attorney's fees, actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
of the following:
(a) Any claim, issue, or matter as to which such person is adjudged to
be liable for negligence or misconduct in the performance of his duty to
the corporation unless, and only to the extent that, the court of common
pleas or the court in which such action or suit was brought determines,
upon application, that, despite the adjudication of liability, but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court of common pleas or
such other court shall deem proper;
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee,
member, manager, or agent has been successful on the merits or otherwise in
defense of any action, suit, or proceeding referred to in division (E)(1)
or (2) of this section, or in defense of any claim, issue, or matter
therein, he shall be indemnified against expenses, including attorney's
fees, actually and reasonably incurred by him in connection with the
action, suit, or proceeding.
(4) Any indemnification under division (E)(1) or (2) of this
section, unless ordered by a court, shall be made by the corporation only
as authorized in the specific case, upon a determination that
indemnification of the director, trustee, officer, employee, member,
manager, or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in division (E)(1) or (2) of this
section. Such determination shall be made as follows:
II-1
<PAGE> 134
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or threatened
with the action, suit, or proceeding referred to in division (E)(1) or (2)
of this section;
(b) If the quorum described in division (E)(4)(a) of this section is
not obtainable or if a majority vote of a quorum of disinterested directors
so directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been
retained by or who has performed services for the corporation or any person
to be indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which the action,
suit, or proceeding referred to in division (E)(1)(2) of this section was
brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or
brought the action or suit by or in the right of the corporation under
division (E)(2) of this section, and, within ten days after receipt of such
notification, such person shall have the right to petition the court of
common pleas or the court in which such action or suit was brought to
review the reasonableness of such determination.
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit, or proceeding referred to in division (E)(1) or
(2) of this section, the articles or the regulations of a corporation
state, by specific reference to this division, that the provisions of this
division do not apply to the corporation and unless the only liability
asserted against a director in an action, suit, or proceeding referred to
in division (E)(1) or (2) of this section is pursuant to section 1701.95 of
the Revised Code, expenses, including attorney's fees, incurred by a
director in defending the action, suit, or proceeding shall be paid by the
corporation as they are incurred, in advance of the final disposition of
the action, suit, or proceeding upon receipt of an undertaking by or on
behalf of the director in which he agrees to do both of the following:
(i) Repay such amount if it is proved by clear and convincing evidence
in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause
injury to the corporation or undertaken with reckless disregard for the
best interests of the corporation;
(ii) Reasonably cooperate with the corporation concerning the action,
suit, or proceeding.
(b) Expenses, including attorney's fees, incurred by a director,
trustee, officer, employee, member, manager, or agent in defending any
action, suit, or proceeding referred to in division (E)(1) or (2) of this
section, may be paid by the corporation as they are incurred, in advance of
the final disposition of the action, suit, or proceeding, as authorized by
the directors in the specific case, upon receipt of an undertaking by or on
behalf of the director, trustee, officer, member, manager, employee, or
agent to repay such amount, if it ultimately is determined that he is not
entitled to be indemnified by the corporation.
(6) The indemnification authorized by this section shall not be
exclusive of, and shall be in addition to, any other rights granted to
those seeking indemnification under the articles, the regulations, any
agreement, a vote of shareholders or disinterested directors, or otherwise,
both as to action in their official capacities and as to action in another
capacity while holding their offices or positions, and shall continue as to
a person who has ceased to be a director, trustee, officer, employee,
member, manager, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish
similar protection, including, but not limited to trust funds, letters of
credit, or self-insurance, on behalf of or for any person who is or was a
director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, officer,
employee, member, manager, or agent of another corporation, domestic or
foreign, nonprofit or for profit, a limited liability company, or a
partnership, joint venture, trust, or other enterprise, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would
have the power to indemnify him against such
II-2
<PAGE> 135
liability under this section. Insurance may be purchased from or maintained
with a person in which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
division (E)(1) or (2) of this section does not limit the payment of
expenses as they are incurred, indemnification, insurance, or other
protection that may be provided pursuant to divisions (E)(5), (6), and (7)
of this section. Divisions (E)(1) and (2) of this section do not create any
obligation to repay or return payments made by the corporation pursuant to
division (E)(5), (6), or (7).
(9) As used in division (E) of this section, "corporation" includes
all constituent entities in a consolidation or merger and the new or
surviving bank, so that any person who is or was a director, officer,
employee, trustee, member, manager, or agent of such a constituent entity,
or is or was serving at the request of such constituent entity as a
director, trustee, officer, employee, member, manager, or agent of another
corporation, domestic or foreign, nonprofit or for profit, a limited
liability company, or a partnership, joint venture, trust, or other
enterprise, shall stand in the same position under this section with
respect to the new or surviving bank as he would if he had served the new
or surviving bank in the same capacity.
II-3
<PAGE> 136
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are being filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- ---------------------------------------------------------------------------------
<S> <C>
(2.1) Agreement and Plan of Reorganization dated July 3, 1997, as amended November 25,
1997 and November 26, 1997 (included as Appendix A to the Prospectus)
(2.2) Merger Agreement dated November 26, 1997 (included as Appendix B to the
Prospectus)
(3.1) Registrant's Articles of Incorporation (incorporated by reference in Exhibit
(3)(i) to the Form 10-K of the Registrant for the year ended December 31, 1996)
(3.2) Registrant's Code of Regulations (incorporated by reference in Exhibit 2 to the
Form 10, Application for Registration of Registrant)
(5) Opinion of Squire, Sanders & Dempsey L.L.P. regarding legality
(8) Opinion of Werner & Blank Co., L.P.A. regarding tax matters
(10) Material Contracts (incorporated by reference to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996)
(21) Subsidiaries of the Registrant (incorporated by reference in Exhibit 5 to the
Form 10, Application for Registration of Registrant)
(23.1) Consent of Squire, Sanders & Dempsey L.L.P. (included in Exhibit (5))
(23.2) Consent of Crowe, Chizek and Company LLP
(23.3) Consent of Werner & Blank Co., L.P.A. regarding tax matters (included in Exhibit
(8))
(23.4) Consent of KPMG Peat Marwick LLP
(23.5) Consent of McDonald & Company Securities, Inc.
(23.6) Consent of Austin Associates, Inc.
(27) Financial Data Schedule (incorporated by reference in Exhibit 27 to the
Registrant's quarterly report on Form 10-Q for the nine months ended September
30, 1997)
(99.1) First Citizens' Form of Proxy
(99.2) Farmers' Form of Proxy
(99.3) Fairness opinion dated , 1997 delivered by McDonald & Company
(included as Appendix D to the Prospectus
(99.4) Fairness opinion dated , 1997 delivered by Austin Associates, Inc.
(included as Appendix E to the Prospectus
(99.5) Administrative Services Agreement dated as of September 18, 1997
</TABLE>
II-4
<PAGE> 137
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim information.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the 1933 Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Sandusky, Ohio, on December 12, 1997.
FIRST CITIZENS BANC CORP
By: /s/ DAVID A. VOIGHT
----------------------------------
David A. Voight, President
(Principal Executive Officer)
By: /s/ JAMES O. MILLER
----------------------------------
James O. Miller, Senior Vice
President and
Controller
(Principal Financial Officer)
Pursuant to the requirements of the 1933 Act, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<S> <C>
/s/ LOWELL W. LEECH December 12, 1997
- -------------------------------------------- --------------------------------------------
Lowell W. Leech Date
Director
/s/ JOHN L. BACON December 12, 1997
- -------------------------------------------- --------------------------------------------
John L. Bacon Date
Director
/s/ MARY LEE G. CLOSE December 12, 1997
- -------------------------------------------- --------------------------------------------
Mary Lee G. Close Date
Director
/s/ RICHARD B. FULLER December 12, 1997
- -------------------------------------------- --------------------------------------------
Richard B. Fuller Date
Director
/s/ H. LOWELL HOFFMAN, M.D. December 12, 1997
- -------------------------------------------- --------------------------------------------
H. Lowell Hoffman, M.D. Date
Director
/s/ DEAN S. LUCAL December 12, 1997
- -------------------------------------------- --------------------------------------------
Dean S. Lucal Date
Director
/s/ DAVID A. VOIGHT December 12, 1997
- -------------------------------------------- --------------------------------------------
David A. Voight Date
President, Director
/s/ W. PATRICK MURRAY December 12, 1997
- -------------------------------------------- --------------------------------------------
W. Patrick Murray Date
Director
/s/ GEORGE S. MYLANDER December 12, 1997
- -------------------------------------------- --------------------------------------------
George S. Mylander Date
Director
/s/ PAUL H. PHEIFFER December 12, 1997
- -------------------------------------------- --------------------------------------------
Paul H. Pheiffer Date
Director
/s/ RICHARD O. WAGNER December 12, 1997
- -------------------------------------------- --------------------------------------------
Richard O. Wagner Date
Director
</TABLE>
II-6
<PAGE> 139
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- ---------------------------------------------------------------------------------
<S> <C>
(2.1) Agreement and Plan of Reorganization dated July 3,1997, as amended November 25,
1997 and November 26, 1997 (included as Appendix A to the Prospectus)
(2.2) Merger Agreement dated November 26, 1997 (included as Appendix B to the
Prospectus)
(3.1) Registrant's Articles of Incorporation (incorporated by reference in Exhibit
(3)(i) to the Form 10-K the Registrant for the year ended December 31, 1996)
(3.2) Registrant's Code of Regulations (incorporated by reference in Exhibit 2 to the
Form 10, Application for Registration of Registrant)
(5) Opinion of Squire, Sanders & Dempsey L.L.P. regarding legality
(8) Opinion of Werner & Blank Co. L.P.A. regarding tax matters
(10) Material Contracts (incorporated by reference to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996)
(21) Subsidiaries of the Registrant (incorporated by reference in Exhibit 5 to the
Form 10, Application for Registration of Registrant)
(23.1) Consent of Squire, Sanders & Dempsey L.L.P. (included in Exhibit (5))
(23.2) Consent of Crowe, Chizek and Company LLP
(23.3) Consent of Werner & Blank Co., L.P.A. (included in Exhibit (8))
(23.4) Consent of KPMG Peat Marwick LLP
(23.5) Consent of McDonald & Company Securities, Inc.
(23.6) Consent of Austin Associates, Inc.
(27) Financial Data Schedule (incorporated by reference in Exhibit 27 to the
Registrant's quarterly report on Form 10-Q for the nine months ended September
30, 1997)
(99.1) First Citizens' Form of Proxy
(99.2) Farmers' Form of Proxy
(99.3) Fairness opinion dated , 1997 delivered by McDonald & Company
Securities, Inc. (included as Appendix D to the Prospectus)
(99.4) Fairness opinion dated , 1997 delivered by Austin Associates, Inc.
(included as Appendix E to the Prospectus)
(99.5) Administrative Services Agreement dated as of September 18, 1997
</TABLE>
E-1
<PAGE> 1
EXHIBIT 5
[SQUIRE, SANDERS & DEMPSEY L.L.P. LETTERHEAD]
December 10, 1997
First Citizens Banc Corp
100 East Water Street
Sandusky, Ohio 44870
Ladies and Gentlemen:
Reference is made to the Registration Statement on Form S-4
("Registration Statement") to be filed by First Citizens Banc Corp ("First
Citizens") in connection with the issuance of up to 1,212,000 of its common
shares, no par value (the "First Citizens Common Shares"), upon the terms and
conditions set forth in the Merger Agreement dated November 26, 1997 by and
among First Citizens, Farmers Interim Bank ("FIB") and The Farmers State Bank of
New Washington, Ohio ("Farmers") (the "Merger Agreement"), relating to the
merger of FIB with and into Farmers. We have examined such documents and matters
of law as we have deemed necessary or appropriate for the purpose of rendering
this opinion.
Based upon the foregoing, we are of the opinion that the First Citizens
Common Shares, when issued by First Citizens as contemplated in the Merger
Agreement and the Registration Statement, will be legally issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference of our firm under the caption "Legal
Opinions" in the prospectus/proxy statement contained therein.
Respectfully submitted,
SQUIRE, SANDERS & DEMPSEY L.L.P.
<PAGE> 1
EXHIBIT 8
[WERNER & BLANK CO., L.P.A. LETTERHEAD]
December 1, 1997
Board of Directors
The Farmers State Bank of New Washington, Ohio
102 S. Kibler Street
New Washington, OH
Members of the Board:
You have requested our opinion as to the federal income tax consequences of the
transactions contemplated by a certain Agreement and Plan of Reorganization
dated July 3, 1997, by and between The Farmers State Bank of New Washington
("Farmers") and First Citizens Banc Corp. ("First Citizens"), hereinafter
referred to as the "Agreement." Our opinion is made in reliance upon and is
limited to the following facts and circumstances:
FACTS
-----
Farmers is an Ohio chartered state banking corporation located in New
Washington, Ohio.
First Citizens is an Ohio corporation and a registered bank holding company
located in Sandusky, Ohio. First Citizens is a multi-bank holding company.
First Citizens and Farmers have only common shares outstanding. Farmers is to be
merged (the "Merger") with a newly formed wholly owned subsidiary of First
Citizens ("New Bank"), formed solely for the purpose of facilitating the
reorganization, under the charter and title of Farmers in compliance with
applicable Ohio law.
Each share of Farmers outstanding on the effective date of the Merger will be
converted into shares of common stock of First Citizens as provided by the
Agreement. The effect of the consummation of the Merger and the exchange of
shares will be that shareholders of Farmers will become shareholders of First
Citizens, and First Citizens will own, in addition to its current banking
affiliates, all of the outstanding common stock of Farmers.
The business of Farmers and First Citizens (and affiliates) will continue
substantially unchanged after the effective date of the transaction.
<PAGE> 2
Board of Directors
The Farmers State Bank of New Washington, Ohio
Page 2
No fractional shares will be issued in the transaction. In lieu thereof, holders
otherwise entitled to receive such fractional shares will be issued cash.
We are not aware and have been advised by the management of Farmers that they
have no knowledge of any plan or intention on the part of shareholders of
Farmers to sell or otherwise dispose of an amount of the First Citizens shares
to be received in the transaction, which could reduce Farmers' shareholders'
ownership of First Citizens shares after the Merger to shares having an
aggregate value as of the date of the transaction, of less than eighty percent
(80%) of the value of all the formerly outstanding shares of Farmers as of the
same date.
The Merger will be carried out pursuant to and in accordance with all applicable
corporate and banking laws relating to the transaction. On the effective date
Farmers will succeed to all assets of, and will be liable for the liabilities
of, New Bank, then existing or arising as a result of the transactions and First
Citizens will operate Farmers as a wholly owned subsidiary.
Following the consummation of the Merger, First Citizens will continue to
operate the business of Farmers in substantially the same manner.
Arms-length negotiations were carried on between the management of First
Citizens and management of Farmers which led to the Agreement and fixed the
terms of the transactions. Consideration was given to both financial and
nonfinancial factors involved in the transaction and the business benefits from
the transaction were discussed and considered by the parties.
In the opinion of the management of First Citizens and Farmers, Farmers'
employees and customers will benefit from the affiliation. It is also expected
that the transaction will better enable the resulting corporation to compete
with other financial institutions.
OPINION
-------
Based upon the above, it is our opinion that the Agreement will have the
following federal income tax consequences:
1. The merger of New Bank with and into Farmers will constitute a
"Statutory Merger" within the meaning of Section 368(a)(1)(A) and
(a)(2)(E) of the Internal Revenue Code of 1986, as amended, (the
"Code") and New Bank, Farmers and First Citizens will each be a "party
to a reorganization" within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by Farmers as a result of the Merger
of New Bank with and into Farmers. Section 361(a) and 357(a) of the
Code.
3. No gain or loss will be recognized by Farmers' shareholders who
exchanged their respective shares solely for First Citizens shares.
Section 354(a) of the Code.
<PAGE> 3
Board of Directors
The Farmers State Bank of New Washington, Ohio
Page 3
4. The basis of the First Citizens shares received by Farmers'
shareholders in exchange for their shares will be the same as the basis
for federal income tax purposes in the shares exchanged therefor,
respectively. Section 358(a) of the Code.
5. The holding period of the First Citizens shares received by Farmers'
shareholders will include the period during which shares exchanged
therefor were held, provided such shares were held as a capital asset
by such shareholders as of the date of the exchange.
Section 1223(1) of the Code.
6. The payment of cash in lieu of fractional shares for the purpose of
mechanically rounding off the fractions resulting from the exchange,
will, in each instance, constitute a distribution not essentially
equivalent to a dividend within the meaning of Section 302(b)(1) of the
Code. The amount received will be treated as a distribution in full
payment in exchange for the shareholders' fractional share of interest
under Section 302(a) of the Code.
This letter is solely for your information and use, and except: (i) for its
reliance upon by Farmers and its stockholders; and (ii) to the extent that such
may be referred to in the Registration Statement and filed with the Securities
and Exchange Commission as an exhibit to same, it is not to be used, circulated,
quoted or otherwise referred to for any other purpose, or relied upon by any
other person, for whatever reason without our prior written consent.
Very truly yours,
/s/ Werner & Blank Co., L.P.A.
Werner & Blank Co., L.P.A.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation in this registration statement of First Citizens
Banc Corp on Form S-4, of our report dated September 18, 1997, except for Note
14, the date for which is October 31, 1997 on the financial statements of The
Farmers State Bank as of December 31, 1996 and 1995 and for each of the years
then ended. We also consent to the reference to our firm under the heading
"Expert" in the prospectus, which is part of this registration statement.
Crowe, Chizek and Company LLP
Columbus, Ohio
December 10, 1997
<PAGE> 2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation in this registration statement of First
Citizens Banc Corp. on Form S-4 of our report dated January 31, 1997 on the
consolidated financial statements of First Citizens Banc Corp. as of December
31, 1996 and 1995 and for each of the years then ended. We also consent to the
reference to our firm under the heading "Expert" in the prospectus, which is
part of this registration statement.
Crowe, Chizek and Company LLP
Columbus, Ohio
December 10, 1997
<PAGE> 1
Exhibit 23.4
[PEAT LOGO] PEAT MARWICK LLP
Suite 1200
150 West Jefferson
Detroit, MI 48226-4429
December 15, 1997
The Board of Directors
First Citizens Banc Corp
We consent to the inclusion of our report dated January 13, 1995, and to the
reference of our firm under the heading "Experts" in the S-4 registration
statement to be filed by First Citizens Banc Corp as a result of the Farmers
State Bank of New Washington, Ohio acquisition.
Very truly yours,
/s/ KPMG Peat Marwick LLP
<PAGE> 1
EXHIBIT 23.5
CONSENT OF McDONALD & COMPANY SECURITIES, INC.
We consent to the inclusion in the Proxy Statement/Prospectus of First
Citizens Banc Corp and The Farmers State Bank of New Washington of the use of
the form of our opinion and to the summarization of our opinion in the Proxy
Statement/Prospectus under the caption "Opinion of McDonald & Company." Further,
we consent to all references to our firm in such Proxy Statement/Prospectus.
McDONALD & COMPANY SECURITIES, INC.
Cleveland, Ohio
December 9, 1997
<PAGE> 1
EXHIBIT 23.6
CONSENT
We hereby consent to the discussion relative to our opinion delivered to the
Board of Directors of The Farmers State Bank of New Washington, Ohio, in
connection with its proposed acquisition by First Citizens Banc Corp in the
Proxy Statement/Prospectus included in the First Citizens Banc Corp Registration
Statement on Form S-4 under the heading "Opinion of Financial Advisor," to the
references to our firm in such Proxy Statement/Prospectus and to the inclusion
of such opinion as an Appendix to the Proxy Statement/Prospectus.
Austin Associates, Inc.
By: /s/ Craig J. Mancinotti
------------------------------------------
Craig J. Mancinotti
Executive Vice President and Principal
December 9, 1997
<PAGE> 1
EXHIBIT 99.1
[FRONT OF PROXY CARD]
FIRST CITIZENS BANC CORP OF SANDUSKY, OHIO
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
AND UNLESS OTHERWISE MARKED WILL BE VOTED FOR THE PROPOSAL.
---
KNOW ALL MEN BY THESE PRESENTS, that the undersigned shareholder(s) of
First Citizens Banc Corp (hereinafter called "Corporation") hereby constitute(s)
and appoint(s) Richard O. Wagner, Paul H. Pheiffer and Leland J. Welty, or each
of them, proxies and attorneys of the undersigned, with full power of
substitution, for and in the name of the undersigned, to attend the Special
Meeting of the Shareholders of said Corporation to be held January __, 1998, at
2:00 P.M. E.S.T. and any adjournment or adjournments thereof, and thereat to
vote as specified below:
1. PROPOSAL to adopt the Agreement and Plan of Reorganization dated as of
July 3, 1997, as amended November 25, 1997 and November 26, 1997, by and
between the Corporation and The Farmers State Bank of New Washington,
Ohio ("Farmers") and the related Merger Agreement by and among the
Corporation, Farmers and Farmers Interim Bank, a wholly-owned interim
bank subsidiary of First Citizens ("Interim Bank"), and to approve the
transactions contemplated thereby, including the merger of Interim Bank
with and into Farmers.
[ ] FOR [ ] AGAINST
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
A VOTE FOR THE PROPOSAL IS RECOMMENDED BY THE BOARD OF DIRECTORS.
---
- -------------------------------------------------------------------------------
[BACK OF PROXY CARD]
All shares represented by properly executed proxies will be voted as
directed. IF NO SPECIFIC VOTE IS GIVEN, THIS PROXY WILL BE VOTED IN FAVOR OF THE
PROPOSAL. If any other business is presented at said meeting, the proxy shall be
voted in accordance with the recommendations of management. All Proxies
previously given are hereby revoked. This proxy is solicited on behalf of the
Board of Directors and may be revoked prior to its exercise by either written
notice or notice in person at the meeting, or by subsequently dated proxy.
Receipt of the accompanying Proxy Statement/Prospectus is hereby acknowledged.
Signature
---------------------------------------
Print Name
----------------------------------------
Date
---------------------------------------------
Please sign exactly as your name appears on the label above and return
this Proxy promptly in the accompanying envelope. If the shares are issued in
the names of two or more persons, all persons should sign the Proxy. If the
shares are issued in the name of a corporation or partnership, please sign in
the corporate name, by the president or other authorized officer, or in the
partnership name, by an authorized person. When signing as attorney, executor,
administrator, trustee, guardian or in any other representative capacity, please
give your full title as such.
[ ] Please check this box if you are planning to attend the Special Meeting of
Shareholders.
<PAGE> 1
EXHIBIT 99.2
[FRONT OF PROXY CARD]
THE FARMERS STATE BANK OF NEW WASHINGTON, OHIO
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND UNLESS OTHERWISE
MARKED WILL BE VOTED FOR THE PROPOSAL.
---
KNOW ALL MEN BY THESE PRESENTS, that the undersigned shareholder(s) of
The Farmers State Bank of New Washington, Ohio (hereinafter called
"Corporation") hereby constitute(s) and appoint(s) Dorothy L. Robey and Blythe
A. Friedley, or each of them, proxies and attorneys of the undersigned, with
full power of substitution, for and in the name of the undersigned, to attend
the Special Meeting of the Shareholders of said Corporation to be held
January __, 1998, at 2:00 P.M. E.S.T. and any adjournment or adjournments
thereof, and thereat to vote as specified below:
1. PROPOSAL to adopt the Agreement and Plan of Reorganization dated as of
July 3, 1997, as amended November 25, 1997 and November 26, 1997, by and
between the Corporation and First Citizens Banc Corp ("First Citizens")
and the related Merger Agreement by and among the Corporation, First
Citizens and Farmers Interim Bank, a wholly-owned interim bank subsidiary
of First Citizens ("Interim Bank"), and to approve the transactions
contemplated thereby, including the merger of Interim Bank with and into
Farmers.
[ ] FOR [ ] AGAINST
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
A VOTE FOR THE PROPOSAL IS RECOMMENDED BY THE BOARD OF DIRECTORS.
---
- ------------------------------------------------------------------------------
[BACK OF PROXY CARD]
All shares represented by properly executed proxies will be voted as
directed. IF NO SPECIFIC VOTE IS GIVEN, THIS PROXY WILL BE VOTED IN FAVOR OF THE
PROPOSAL. If any other business is presented at said meeting, the proxy shall be
voted in accordance with the recommendations of management. All Proxies
previously given are hereby revoked. This proxy is solicited on behalf of the
Board of Directors and may be revoked prior to its exercise by either written
notice or notice in person at the meeting, or by subsequently dated proxy.
Receipt of the accompanying Proxy Statement/Prospectus is hereby acknowledged.
Signature
-------------------------------
Print Name
-------------------------------
Date
------------------------------------
Please sign exactly as your name appears on the label above and return
this Proxy promptly in the accompanying envelope. If the shares are issued in
the names of two or more persons, all persons should sign the Proxy. If the
shares are issued in the name of a corporation or partnership, please sign in
the corporate name, by the president or other authorized officer, or in the
partnership name, by an authorized person. When signing as attorney, executor,
administrator, trustee, guardian or in any other representative capacity, please
give your full title as such.
[ ] Please check this box if you are planning to attend the
Special Meeting of Shareholders.
<PAGE> 1
EXHIBIT 99.5
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement (the "Agreement") is
made and entered into this 18th day of September, 1997, by and between FIRST
CITIZENS BANC CORP, an Ohio corporation ("First Citizens"), and THE FARMERS
STATE BANK, an Ohio bank located in New Washington, Ohio ("Farmers").
R E C I T A L S
---------------
In connection with the transactions contemplated by that
certain Agreement and Plan of Reorganization dated July 3, 1997 (the
"Reorganization Agreement" and the "Reorganization") by and between First
Citizens and Farmers and as an inducement for the parties to perform thereunder
and to consummate the Reorganization, it was determined that First Citizens
would provide certain advisory and administrative services for Farmers. This
Agreement memorializes such pre-existing agreement with respect to the rendering
of such services and the anticipated range of services to be provided by First
Citizens.
1. RETENTION OF FIRST CITIZENS. Farmers hereby retains First
Citizens to provide certain administrative, operational, and other support
services to Farmers (as enumerated more fully below and collectively referred to
herein as the "Services") and First Citizens hereby agrees to provide, or cause
to be provided, such Services on the terms set forth in this Agreement.
2. RANGE OF SERVICES TO BE PROVIDED. The Services to be
provided to Farmers shall include assistance in the following areas of Farmers'
business, all as more particularly identified by the parties from time to time:
(a) Loan administration and processing;
(b) Review of the process employed in the portfolio
analysis and investment management;
(c) Operational matters;
(d) Review of appraisal process and procedures;
(e) Review of data processing for banking applications;
(f) Compliance matters arising out of requirements,
reports and examinations by regulators of Farmers'
business; and
(g) Other administrative and support services as may be
mutually agreed upon from time to time.
It is understood and agreed that the specific Services to be
provided hereunder shall be approved in advance by Farmers' Board of Directors.
It is also understood and agreed that such Services to be provided by First
Citizens are advisory only, and any actions taken by Farmers in implementing any
recommendations made will be taken by Farmers only upon specific authority
granted, or actions taken, by Farmers' Board of Directors.
<PAGE> 2
3. INDEPENDENT CONTRACTOR; USE OF FIRST CITIZENS PERSONNEL. It
is understood and agreed that First Citizens shall be rendering the Services to
Farmers as an independent contractor and that none of its directors, officers or
employees shall be deemed or construed to be an employee of Farmers. This
Agreement does not constitute or involve a joint venture, a partnership or a
profit-sharing arrangement between the parties hereto. All personnel used in
rendering the Services shall be employed by and compensated by First Citizens.
4. EQUIPMENT. First Citizens will provide, or contract for,
all the equipment necessary to perform the Services under this Agreement.
5. COMPENSATION. Farmers shall pay to First Citizens, as and
for the Services to be rendered hereunder, the sum of $1,739.40 per week during
the term of this Agreement.
6. TERM AND TERMINATION. The term of this Agreement shall
extend from the date hereof until the earlier of (1) the consummation of the
Reorganization, or (ii) the termination of the Reorganization Agreement, at
which time this Agreement shall terminate automatically without any action
required by either of the parties and shall have no further force or effect.
7. LIABILITY. Subject to the provisions of Section 10(d)
hereof, First Citizens shall be liable to Farmers for, and shall defend,
indemnify and hold Farmers harmless from and against any loss or liability
caused by First Citizens' negligence or failure to comply with its respective
obligations hereunder. Farmers shall be liable to First Citizens and shall
defend, indemnify and hold First citizens harmless from and against any loss or
liability caused by Farmers' negligence or failure to comply with its
obligations hereunder.
8. CONFIDENTIALITY. First Citizens understands that in the
performance of the Services under this Agreement, it must conduct its activities
in a manner designated to protect information of a proprietary nature and
information regarding Farmers', business, from improper use or disclosure.
9. DESIGNATION OF LIAISON. First Citizens and Farmers will
each designate a liaison for the purposes of facilitating the rendering of the
Services contemplated by this Agreement.
10. EFFECT OF TERMINATION. Within thirty (30) days after
termination of this Agreement, First Citizens shall turn over to Farmers all
funds, books and records which are the property of Farmers. Termination of this
Agreement shall not affect the claims of any of the parties for obligations
accruing, or alleged defaults occurring, prior to termination.
11. MISCELLANEOUS.
(a) COMPLETE AGREEMENT. This document contains the entire
agreement between the parties and memorializes and
supersedes any prior discussions, negotiations,
representations or agreements between them relating
to the matters described herein. No additions or
other changes to
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<PAGE> 3
this Agreement shall be made or be binding on a party
unless made in writing and signed by each party to
this Agreement.
(b) ASSIGNMENT; SUCCESSOR. This Agreement shall not be
assignable by either of the parties hereto. This
Agreement shall be binding upon and inure to the
benefit of the successors and assigns of each party
to this Agreement.
(c) NOTICES. All statements, notices and other
communications to be given under this Agreement will
be in writing and will be deemed to have been duly
given when delivered in person or via facsimile or
mail by registered or certified mail, return receipt
requested, to the address set forth below.
David Voight, President
First Citizens Banc Corp
100 E. Water Street
Sandusky, Ohio 44870
Dorothy L. Robey, President
Farmers State Bank
102 S. Kibler Street
New Washington, Ohio 44854-9401
(d) CONSEQUENTIAL DAMAGES. Notwithstanding any provision
of this Agreement to the contrary, First Citizens
shall not, under any circumstances, be responsible or
liable to Farmers, for any consequential damages
(including, but not limited to, loss of customers,
deposits, income, profits, attorneys' fees, etc.)
(e) GOVERNING LAW. This Agreement shall be deemed to be
an agreement made under the laws of the State of
Ohio, and for all purposes shall be construed and
enforced in accordance with and governed by the laws
of the State of Ohio.
(f) COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed
an original, but all of which together shall
constitute one and the same instrument.
(g) WAIVERS. The failure of a party to exercise any of
its rights under this agreement on one occasion shall
not waive such party's right to exercise the exercise
on another occasion.
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<PAGE> 4
IN WITNESS WHEREOF, the parties, by their duly authorized
officers, have executed this Agreement as of the date first above written.
FIRST CITIZENS BANC CORP
By: /s/ David Voight
------------------------------------
David Voight, President
THE FARMERS STATE BANK
By: /s/ Dorothy L. Robey
------------------------------------
Dorothy L. Robey, President
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