-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wj5hgiuYeeBNfGAqRTUBuUU7HxuaKlnXRSvmyQ6iJH0TvXx0k6IcLYiN/uoP2ZzG Uv6Bt1ZPlAVAJ9JaeVWqLA== 0000950124-96-005615.txt : 19961231 0000950124-96-005615.hdr.sgml : 19961231 ACCESSION NUMBER: 0000950124-96-005615 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19961227 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DCB FINANCIAL CORP CENTRAL INDEX KEY: 0001025877 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 311469837 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15579 FILM NUMBER: 96686741 BUSINESS ADDRESS: STREET 1: 41 N SANDUSKY ST CITY: DELAWARE STATE: OH ZIP: 43015 BUSINESS PHONE: 6143631133 MAIL ADDRESS: STREET 1: 41 N SANDUSKY ST CITY: DELAWARE STATE: OH ZIP: 43015 S-4/A 1 PROXY PROSPECTUS 1 filed with the Securities and Exchange Commission on December 27, 1996 Registration No. 333-15579 _________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 DCB FINANCIAL CORP.. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OHIO 6710 31-1469837 (State or Other Jurisdiction (Primary Standard Industrial (IRS Employer of Incorporation or Organization) Classification Code Number) Identification No.)
41 N. SANDUSKY STREET DELAWARE, OHIO 43015 (614) 363-1133 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) MR. LARRY D. COBURN COPIES OF COMMUNICATIONS TO: PRESIDENT THOMAS C. BLANK, ESQ. DCB FINANCIAL CORP. WERNER & BLANK CO., L.P.A. 41 N. SANDUSKY STREET 7205 W. CENTRAL AVE. DELAWARE, OHIO 43015 TOLEDO, OHIO 43617 (614) 363-1133 (419) 841-8051 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) Approximate date of commencement of proposed sale of the securities to the public: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. 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: [ ] 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 Statment shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. 2 DCB FINANCIAL CORP. CROSS-REFERENCE SHEET FORM S-4
Heading in Item of Form S-4 Prospectus and Proxy Statement ---------------- ------------------------------ 1. Forepart of Registration Statement and Outside "NOTICE OF SPECIAL MEETING OF Front Cover Page of Prospectus SHAREHOLDERS"; "PROXY STATE- MENT - GENERAL INFORMATION"; "SUMMARY"; "TABLE OF CONTENTS" 2. Inside Front and Outside Back Cover Pages of "TABLE OF CONTENTS"; "FINANCIAL Prospectus STATEMENTS"; DESCRIPTION OF COMMON STOCK - COMPARATIVE RIGHTS - Reports" 3. Risk Factors, Ratio of Earnings to Fixed Charges, Outside Front Cover Page of Prospectus; and Other Information "THE PROPOSED REORGANIZATION"; "CAPITALIZATION"; HISTORY AND BUSINESS OF THE COMPANY"; "HISTORY AND BUSINESS OF THE BANK"; "DESCRIPTION OF COMMON STOCK - COMPARATIVE RIGHTS"; 4. Terms of the Transaction "SUMMARY - Terms of the Merger Agree- ment"; "THE PROPOSED REORGANIZA- TION - Reasons for the Proposed Trans- action, Description of the Reorganization, Federal Tax Consequences"; "DESCRIP- TION OF COMMON STOCK - COM- PARATIVE RIGHTS" 5. Pro Forma Financial Information Not Applicable 6. Material Contracts with the Company Being Acquired "THE PROPOSED REORGANIZATION - Description of the Reorganization"; "MERGER AGREEMENT" 7. Additional Information Required for Reoffering by Not Applicable Persons and Parties Deemed to be Underwriters 8. Interests of Named Experts and Counsel "Legal Opinion" 9. Disclosure of Commission Position on Indemnification "HISTORY AND BUSINESS OF THE for Securities Act Liabilities COMPANY - Indemnification"; "HISTORY AND BUSINESS OF THE BANK - Indemnification" 10. Information with Respect to S-3 Registrants Not Applicable 11. Incorporation of Certain Information by Reference Not Applicable
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Heading in Item of Form S-4 Prospectus and Proxy Statement -------------------------------------------------- ------------------------------ 12. Information with Respect to S-2 or S-3 Registrants Not Applicable 13. Incorporation of Certain Information by Reference Not Applicable 14. Information with Respect to Registrants Other Than "HISTORY AND BUSINESS OF THE S-3 or S-2 Registrants COMPANY - Competition"; "HISTORY AND BUSINESS OF THE BANK - Competition"; "MARKET PRICES OF STOCK - The Company - The Bank"; "FINANCIAL STATEMENTS"; "HISTORY AND BUSINESS OF THE COMPANY - Property"; "HISTORY AND BUSINESS OF THE BANK - Property" 15. Information with Respect to S-3 Companies Not Applicable 16. Information with Respect to S-2 or S-3 Companies Not Applicable 17. Information with Respect to Companies Other Than "THE PROPOSED REORGANIZATION"; S-2 or S-3 Companies "HISTORY AND BUSINESS OF THE BANK - Competition"; "HISTORY AND BUSINESS OF THE COMPANY"; "VOTING AT THE MEETING"; "DESCRIPTION OF COMMON STOCK - COMPARATIVE RIGHTS - Dividend Rights"; "MARKET PRICES OF STOCK - The Bank" 18. Information if Proxies, Consents or Authorizations "VOTING AT THE MEETING - are to be Solicited REVOCATION OF PROXY"; "THE PROPOSED REORGANIZATION - Appraisal Right of Dissenting Share- holders"; "SUMMARY - Management"; "THE PROPOSED REORGANIZATION - Conditions of Consummation"; "HISTORY AND BUSINESS OF THE COMPANY - Board of Directors"; "HISTORY AND BUSINESS OF THE COMPANY - Remuneration of Directors and Officers" 19. Information if Proxies, Consents or Authorizations Not Applicable are Not to be Solicited, or in an Exchange Offer
3 4 THE DELAWARE COUNTY BANK & TRUST COMPANY 41 N. Sandusky Street Delaware, Ohio 43015 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD February 19, 1997 TO THE SHAREHOLDERS OF THE DELAWARE COUNTY BANK & TRUST COMPANY: You are hereby notified that a special meeting of the shareholders of The Delaware County Bank & Trust Company (the "Bank") will be held on February 19, 1997 at 7:00 p.m. (local time), at _______________________ Delaware, Ohio 43015, for the purpose of considering and acting upon the following: 1. To consider and vote upon the formation of a holding company by the adoption of a Merger Agreement (the "Agreement") which provides for the merger of Delaware Interim Bank, a subsidiary of DCB Fianancial Corp., an Ohio corporation (the "Company") with and into the Bank under the name and charter of The Delaware County Bank & Trust Company with shareholders of the Bank receiving three (3) shares of Company stock for each share of Bank stock held by them. 2. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. The Board of Directors has fixed January 6, 1997 as the record date for the determination of shareholders entitled to notice of and to vote at the meeting. By order of the Board of Directors Larry D. Coburn, President The affirmative vote of the holders of two-thirds (2/3) of the outstanding common stock of The Delaware County Bank & Trust Company is required for approval of the Agreement. Directors of the Bank beneficially owned 79,630 shares, or 5.6 percent of the outstanding common stock of the Bank as of December 31, 1996. YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. YOU MAY REVOKE YOUR EXECUTED PROXY AT ANY TIME BEFORE IT IS EXERCISED AT THE SPECIAL MEETING OF SHAREHOLDERS BY NOTIFYING THE CHAIRMAN OF THE MEETING OR THE SECRETARY OF THE BANK AT, OR PRIOR TO THE MEETING, OF YOUR INTENTION. IF YOUR STOCK IS HELD IN MORE THAN ONE (1) NAME, ALL PARTIES MUST SIGN THE PROXY FORM. 4 5 PROXY STATEMENT/PROSPECTUS GENERAL INFORMATION OFFERING OF 4,273,200 COMMON VOTING SHARES OF DCB FINANCIAL CORP. This Proxy Statement/Prospectus and the accompanying form of proxy is furnished in connection with the solicitation, by the Board of Directors of The Delaware County Bank & Trust Company, 41 N. Sandusky Street, Delaware, Ohio 43015, (614) 363-1133, of proxies to be voted at the special meeting of shareholders of The Delaware County Bank & Trust Company to be held on February 19, 1997 at 7:00 p.m. (local time), at, ____________________, Delaware, Ohio 43015. This Proxy Statement has been mailed to all holders of record of the common stock of The Delaware County Bank & Trust Company as of the close of business on January 6, 1997 The cost of soliciting proxies will be borne by the Company. DCB Financial Corp., 41 N. Sandusky Street, Delaware, Ohio 43015, (614) 363-1133, has filed a Registration Statement with the Securities and Exchange Commission concerning the securities to be issued by it in connection with a plan of reorganization described in this Proxy Statement. This Proxy Statement also constitutes a "prospectus" and has been filed with the Securities and Exchange Commission as part of the Registration Statement. Please see page "Risk Factors" for a descriptions of certain risks in connection with the shares of the Company. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR THE STATE OF OHIO DIVISION FINANCIAL INSTITUTIONS, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR THE STATE OF OHIO DIVISION OF FINANCIAL INSTITUTIONS PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES OF STOCK OF DCB FINANCIAL CORP., OFFERED HEREBY, ARE NOT BANK DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY OR COMPANY. THE SECURITIES ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL INVESTED. ADDITIONAL INFORMATION This Prospectus and Proxy Statement constitutes part of the Registration Statement covering the shares to be offered pursuant to the merger transaction by the Company, as filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended. This Prospectus and Proxy Statement does not contain all the information set forth in such Registration Statement and the exhibits thereto, certain portions of which have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Such Registration Statement may be inspected, without charge, at the principal office of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C., and copies of all or part thereof may be obtained from the Securities and Exchange Commission upon payment of its prescribed fees. The Securities and Exchange Commission also maintains a Web Site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including the Company. THE BANK'S COMMON STOCK IS REGISTERED UNDER SECTION 12g OF THE SECURITIES AND EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT"), PURSUANT TO WHICH IT FILES ANNUAL AND QUARTERLY FINANCIAL REPORTS WITH THE FEDERAL DEPOSIT INSURANCE CORPORATION, REGISTRATION AND DISCLOSURE SECTION. THE BANK'S FORM F-2 ANNUAL REPORT WHICH INCLUDES FINANCIAL STATEMENTS AND SCHEDULES, BY REFERENCE, IS FILED WITH THE FEDERAL DEPOSIT INSURANCE CORPORATION IN WASHINGTON, D.C. THIS REPORT ALSO FULFILLS THE REQUIREMENTS OF PART 350 OF THE FDIC RULES AND REGULATIONS. A COPY OF THIS REPORT IS AVAILABLE TO SHAREHOLDERS UPON REQUEST TO THE SECRETARY, DELAWARE COUNTY BANK & TRUST COMPANY, 41 N. SANDUSKY STREET, DELAWARE, OHIO 43105, (614) 363-1133 THE FIRST COPY WILL BE PROVIDED WITHOUT CHARGE. NEITHER THE ANNUAL REPORT TO SHAREHOLDERS NOR THE FORM F-2 ARE TO BE TREATED AS PART OF THE PROXY SOLICITATION MATERIAL, NOR AS HAVING BEEN INCORPORATED HEREIN BY REFERENCE. ADDITIONALLY SUCH FORM F-2 ANNUAL REPORT MAY BE INSPECTED AND COPIED AT THE OFFICES OF THE FEDERAL DEPOSIT INSURANCE CORPORATION, REGISTRATION AND DISCLOSURE SECTION, 550 17TH STREET, NW, WASHINGTON D.C., 20429. The date of this Proxy Statement is January ___, 1997. 1 6 TABLE OF CONTENTS
Page ---- GENERAL 6 REVOCATION OF PROXIES 6 VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF 7 THE PROPOSED REORGANIZATION TO FORM A ONE-BANK HOLDING COMPANY 7 SUMMARY 7 General 7 Terms of the Merger Agreement 8 The Exchange Ratio and Market Value 8 Business of the Company, the Bank, and the New Bank 9 Management 9 Shareholders' Approval 9 Regulatory Approval 9 Dissenters' Rights 10 Differences Between Company Stock and Bank Stock 10 Tax Consequences 11 Antitakeover Measures 11 Risk Factors 11 Per Share Summary of the Bank and Pro Forma Per Share Summary of the Company 13 PURPOSE OF THE MEETING 13 THE PROPOSED REORGANIZATION 13 Reasons for the Proposed Transaction 14 Description of the Reorganization 14 Conversion and Exchange of Stock 14 Negotiation of Terms of the Agreement 15 Affiliate Restrictions 15 Conditions of Consummation 16 Other Considerations 16 Expenses 17 Federal Tax Consequences 17 State Tax Consequences 17 Appraisal Rights of Dissenting Shareholders 18 Accounting Treatment 18 MARKET PRICES OF STOCK 18 The Company 18 The Bank 19 DIVIDENDS 19 The Company 19 The Bank 20
2 7 TABLE OF CONTENTS (CONT.) CAPITALIZATION 21 FINANCIAL STATEMENTS 21 HISTORY AND BUSINESS OF THE COMPANY 23 General 23 Competition 23 Employees 23 Property 23 Board of Directors 24 Remuneration of Directors and Officers 24 Indemnification 24 HISTORY AND BUSINESS OF THE BANK 25 General 25 Competition 25 Employees 26 Property 26 Litigation 26 Board of Directors 26 MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS 28 EXECUTIVE COMPENSATION AND OTHER INFORMATION 29 Summary of Cash and Certain Other Compensation 29 Employment Contracts 30 Directors' Compensation 31 401(k) Retirement Plan 31 Employee Vesting Schedule 32 Stock Option Plans 32 CERTAIN TRANSACTIONS 32 SUPERVISION AND REGULATION 33 The Company 33 Bank 34 Capital 34 Additional Regulation 35 Dividend Regulation 35 Government Policies and Legislation 35 Recent Legislation 36 Proposed Legislation 39
3 8 TABLE OF CONTENTS (CONT.) DESCRIPTION OF COMMON STOCK--COMPARATIVE RIGHTS 39 General 39 Voting Rights 40 Antitakeover Measures 40 Right of Redemption 41 Liquidation Rights 41 Preemptive Rights 41 Dissenters' Rights 41 Cumulative Voting 42 Indemnification 42 Dividend Rights 43 Transfer and Assessability 43 ANTITAKEOVER MEASURES 43 REPORTS 49 LEGAL OPINION 50 OTHER MATTERS 50 ADDITIONAL INFORMATION 50 MERGER AGREEMENT Appendix I AMENDED ARTICLES OF INCORPORATION OF THE COMPANY Appendix II
4 9 NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON. THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED BY THIS PROXY STATEMENT-PROSPECTUS IN ANY STATE TO ANY PERSON TO WHOM IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. THE DELIVERY OF THIS PROXY STATEMENT-PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR THE STATE OF OHIO DIVISION OF FINANCIAL INSTITUTIONS NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR THE STATE OF OHIO DIVISION OF FINANCIAL INSTITUTIONS PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 5 10 GENERAL This Proxy Statement is furnished to the shareholders of The Delaware County Bank & Trust Company ("Bank") in connection with the solicitation of proxies to be used in voting at a special meeting of shareholders to be held on February 19, 1997 at ____________________________ located at ________________, Delaware, Ohio 43015, at 7:00 p.m. ("Meeting"). THE ENCLOSED PROXY IS SOLICITED BY THE BOARD OF DIRECTORS (HEREINAFTER SOMETIMES REFERRED TO AS "MANAGEMENT") OF THE BANK. This Proxy Statement and the enclosed form of proxy are first sent or delivered to the Bank's shareholders on January ___, 1997. The Meeting has been called for the purpose of: (i) acting on a proposal to form a holding company; and (ii) considering such other matters as may properly come before the Meeting. REVOCATION OF PROXIES The names and addresses of Management's designated Proxy Committee are:
NAME ADDRESS ---- ------- F. Frances Hutchinson 255 Partridge Bend Powell, OH 43065 Terry Kramer 170 W. Lincoln Avenue Delaware, OH 43015 William R. Oberfield 280 River Road P.O. Box 362 Delaware, OH 43015 Thomas T. Porter 2690 Stratford Road Delaware, OH 43015
All shareholders who execute proxies retain the right to revoke them at any time. Unless so revoked, the shares represented by such proxies will be voted at the Meeting and all adjournments thereof. Proxies may be revoked at any time before they are exercised at the special meeting by filing a written notice with the Secretary of the Bank or by delivering to the Secretary of the Bank a subsequently dated proxy prior to the commencement of the meeting. A written notice of revocation of a proxy should be sent to the Secretary of The Delaware County Bank & Trust Company, 41 N. Sandusky Street, Delaware, Ohio 43015. A previously submitted proxy will also be revoked if a shareholder attends the Meeting and votes in person. In the event a shareholder attends the special meeting and does not wish to have his/her proxy used, he/she should notify the Secretary of the Bank prior to the start of the business meeting. Proxies 6 11 solicited by the Board of Directors of the Bank will be voted in accordance with the directions given therein. Where no instructions are indicated, proxies will be voted in favor of each proposal set forth in this Proxy Statement for consideration at the Meeting. VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF Shareholders of record as of the close of business on January 6, 1997 are entitled to one vote for each share then held. As of January 6, 1997 the Bank had 1,424,400 shares of common stock authorized, issued, outstanding and entitled to vote. Management of the Bank is not aware of any person who owns, beneficially or of record, more than five percent (5%) of the Bank's outstanding common stock. Management is not aware of any changes in control of the Bank which have occurred or of any arrangement which may, at a subsequent date, result in a change in control of the Bank. THE PROPOSED REORGANIZATION TO FORM A ONE-BANK HOLDING COMPANY SUMMARY This summary contains a brief description of the proposed reorganization. This summary is not a complete statement of all the information contained in the Proxy Statement or the Merger Agreement. A thorough reading of both documents is recommended. General If this proposal is adopted, shareholders of the Bank would exchange their current stock in the Bank for stock of the Company on a three-for-one basis; three shares of the Company's stock will be exchanged for each one share of Bank stock. The three-for-one exchange ratio was established by the Boards of Directors of the Bank and the Company so as to attempt to maintain a market price for shares of the Company after the consummation of the transaction in the range of $10.00 per share. The Boards of Directors believe that such a price will make the shares affordable for a larger group of potential shareholders thus increasing the liquidity of the shares. Please see page ____ "Average Trading Price During Quarter" for the effect of such exchange ratio on the average selling price for shares of the Bank. The terms of the transaction and the method of carrying it into effect are more fully described below. Shareholders of The Delaware County Bank & Trust Company (the "Bank") are being asked to vote on a proposal to reorganize the Bank into a one-bank holding company. This section describes the proposal for the merger of Delaware Interim Bank (the "New Bank"), a new state-chartered bank to be organized solely for the purpose of this transaction, with and into the Bank under the charter of the Bank. At or immediately prior to the merger, DCB Financial Corp. (the "Company") will own all of the capital stock of the New Bank other than a nominal number of shares issued to Directors as qualifying shares as required by applicable state law. Following the merger of the Bank with the New Bank, the Company will own all of the outstanding shares of common stock of the Bank and the New Bank combined, and the Bank will continue to do business under the name of "The Delaware County Bank & Trust Company" (the "Resulting Bank"). As of the effective date of the Merger, the shares of New Bank will be redeemed and canceled with the effect that the capital stock of the Resulting Bank at and after the effective date 7 12 of the Merger will be equal to the capital structure of the Bank immediately prior to the effective date of the Merger. Assuming the Merger is approved, all shareholders of the Bank, except those shareholders who properly exercise dissenters' rights, will become shareholders of the Company. The Bank's Board of Directors determined by resolution that an affiliation with the Company will permit the Company and the Bank greater financial and corporate flexibility in such areas as acquisitions and debt financing as well as the possibility that the Company and the Bank may be able to offer new services, provide them access to new markets, and provide them an opportunity to participate in activities which are not permissible for the Bank to engage in directly. (See "THE PROPOSED REORGANIZATION--Reasons for the Proposed Transaction" and "SUPERVISION AND REGULATION--The Company.") Terms of the Merger Agreement The Bank, the New Bank, and the Company have entered into a Merger Agreement (the "Agreement"). The Agreement provides for the merger of the New Bank with and into the Bank under the name and charter of the Bank, and for the conversion of each share of the Bank's common stock outstanding on the effective date of the merger into three (3) shares of common stock of the Company. A copy of the Agreement is included as Appendix I of this Proxy Statement. The Exchange Ratio and Market Value Each share of the common stock of the Bank outstanding on the effective date of the proposed merger will be converted into three (3) shares of common stock of the Company. Stock of the Company has not been publicly traded as the Company is a new company and has not engaged in any business activity prior to its intended acquisition of the outstanding shares of the Bank. There is, therefore, no published information as to the market price of Company stock. Because no meaningful market can be said to exist for Company stock at this time, there can be no assurance that an established market will develop for Company stock after the merger. (See "MARKET PRICE OF STOCK--The Company.") Bank stock is traded among Bank shareholders and customers in the Delaware County area. Trading, however, has not been sufficient to support an established "over-the-counter" market. (See "MARKET PRICE OF STOCK--The Bank.") There is no established market for the New Bank's stock as it is a nonoperating bank, formed solely for the purpose of this transaction, nor is there any information about its market price. (See "MARKET PRICE OF STOCK--The Bank.") Further, as a result of the proposed merger, no market will exist for the Resulting Bank's stock as the Company will be its sole shareholder. 8 13 Business of the Company, the Bank, and the New Bank The Company is a business corporation formed under the laws of the State of Ohio on June 13, 1996. Since its incorporation, it has not engaged in any business. Upon consummation of the reorganization, the Company will become a registered bank holding company, whose principal asset will be its shareholdings in the Resulting Bank. (See "HISTORY AND BUSINESS OF THE COMPANY.") The Bank is a state-chartered bank incorporated under the banking laws of the State of Ohio. The Bank engages in the commercial banking business in the City of Delaware, Ohio, and in the surrounding area. (See "HISTORY AND BUSINESS OF THE BANK.") The New Bank is a newly formed bank, chartered under the banking laws of the State of Ohio solely for the purpose of this transaction. Prior to the consummation of the transaction, the New Bank will not conduct any business. At or prior to the merger, the Company and the New Bank Directors will own all of the capital stock of the New Bank. (See "THE PROPOSED REORGANIZATION--Description of the Reorganization.") Management Under the terms of the Agreement, the Directors and officers of the Bank, immediately prior to the effective date of the proposed merger, will continue to be Directors and officers of the Resulting Bank following the merger. It is also anticipated that, upon completion of the reorganization, the present directors of the Bank will constitute the first Board of Directors of the Company. Thereafter, the Board of Directors of the Company whose terms have expired, will be elected by shareholders of the Company each year. Shareholders' Approval The banking laws of the State of Ohio require that the Agreement be ratified and confirmed by the holders of at least two-thirds (2/3) of the issued and outstanding shares of common stock of the Bank. All of the Directors of the Bank have signed the Agreement and therefore have agreed to vote the shares of Bank stock owned by them, personally, in favor of the reorganization. (See "THE PROPOSED REORGANIZATION--Conditions of Consummation" and "Appraisal Rights of Dissenting Shareholders.") Regulatory Approval The proposed transaction is subject to regulatory approval. An application to charter the New Bank and merge the New Bank with and into the Bank has been filed with the Ohio Division of Financial Institutions. The application to charter the New Bank has been approved but the merger application is still awaiting approval from the Ohio Division of Financial Institutions. The Bank and the Company expect to receive such approval to consummate the transaction. In addition, applications have been filed with the Federal Deposit Insurance Corporation for permission to merge the New Bank with and into the Bank and with the Board of Governors of the Federal 9 14 Reserve System for the acquisition of the Bank by the Company. Both the FDIC and the Federal Reserve have approved the proposed transaction. Dissenters' Rights Under the provisions of Ohio Revised Code ("ORC") Sections 1115.19 and 1701.85, any shareholder of a bank organized under the laws of the State of Ohio who does not vote in favor of the merger at the meeting at which an Agreement is adopted, shall be entitled to the fair cash value of his shares, provided that such shareholder gives written notice of their exercise of dissenters' rights within ten (10) days of the date of the shareholders meeting at which the transaction was approved. Failure to follow the procedures enumerated in the Ohio Revised Code, Section 1701.85, "Qualifications of and Procedures for Dissenting Shareholders," attached as Exhibit B to the Agreement, which is Appendix I of this Proxy Statement (the Dissenters Statute), will waive the shareholder's right of appraisal. (See "THE PROPOSED REORGANIZATION--Appraisal Rights of Dissenting Shareholders.") Differences Between Company Stock and Bank Stock Shareholders of the common stock of the Company will have rights generally comparable to those rights which they now have as shareholders of the common stock of the Bank. However, shareholders of the Company will not have preemptive rights whereas shareholders of the Bank currently do have preemptive rights. Preemptive rights permit a shareholder to subscribe to a sufficient number of shares so as to maintain their relative pro rata ownership upon the issuance of additional shares by a corporation, except in certain circumstances. The loss of preemptive rights will remove the ability of a shareholder to assure themselves that they will continue to own the same percentage of the outstanding shares of the Company after an issuance of additional shares by the Company. Shareholders of the Bank currently do not have the right to cumulate their shares in the election of directors. Shareholders of the Company do have the right to vote cumulatively in the election of directors as provided by Ohio law. A shareholder voting cumulatively may cast the number of shares he owns times the number of Directors to be elected in favor of one nominee or allocate such votes among the nominees as he determines. For a more complete discussion regarding preemptive rights and cumulative voting, see DESCRIPTION OF COMMON STOCK-COMPARATIVE RIGHTS-"Preemptive Rights" and "Cumulative Voting" below. Shareholders will also be affected by certain differences between Ohio law governing corporations and Ohio law governing banks. Shareholders will also be affected by differing provisions of the Articles of Incorporation and Code of Regulations of the Company and the Articles of Incorporation and Code of Regulations of the Bank. The Company's Articles of Incorporation and Code of Regulations contain certain antitakeover measures as discussed below. (See "DESCRIPTION OF COMMON STOCK--COMPARATIVE RIGHTS." and "ANTITAKEOVER MEASURES.") There also are differences as to the availability of funds for the payment of dividends by a bank and corporation under Ohio law. (See "DIVIDENDS"). 10 15 Tax Consequences An opinion of special legal counsel, Werner & Blank Co., L.P.A., has been obtained that states, among other things, that no gains or losses will be recognized by either the Bank or the Company or their respective shareholders as a result of the merger, except for those shareholders who perfect their dissenters' rights and receive cash for their shares. (See "THE PROPOSED REORGANIZATION-- Federal Tax Consequences.") EACH BANK SHAREHOLDER SHOULD RELY UPON HIS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE AND LOCAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION. Reports The Bank currently files periodic reports with the FDIC pursuant to Section 12g of the Securities Exchange Act of 1934 (the "1934 Act") as a "reporting company." Subsequent to the consummation of the transaction, the Company as "successor" to the Bank will file similar annual and quarterly reports with the Securities and Exchange Commission ("SEC"). The Company will deliver to the shareholders of the Company an annual report containing audited financial information as required under the 1934 Act. While the Company will file quarterly reports with the SEC, copies of which may be obtained from the SEC, the Company is not obligated and does not currently intend to provide quarterly reports to shareholders. Antitakeover Measures The Company's Amended Articles of Incorporation contain a "fair price and super vote" provision. If the transaction is approved, such provisions will require the affirmative vote of the holders of Eighty percent (80%) of the shares of the Company entitled to vote to approve certain business combination transactions, unless the transaction is authorized and approved by the "Continuing Directors" as defined in the Company's Amended Articles of Incorporation and certain other conditions are met which result in a "fair price" being paid to all shareholders. The Board of Directors of the Bank believes that the inclusion of this provision in the corporate structure of the Company will aid in assuring that shareholders are treated fairly in any offer for their investment in the Company. The Company has certain other provisions which are also "antitakeover" in nature such as a classified election system for the election of directors and a supermajority provision for removal of one or all of the directors. The Board of Directors of the Company and the Bank believe that the conversion to a holding company form of ownership is the appropriate time to implement such antitakeover provisions. The adoption of such provisions is not in response to any attempted takeover of the Bank or the Company. The Bank has not been the target of an attempted takeover in the past. The further reasons behind the adoption of the antitakeover provisions are discussed below. (See "ANTITAKEOVER MEASURES.") The presence of these "antitakeover" provisions may have the effect of discouraging outside offers for the shares of the Company and may also give management more control over the acceptance or rejection of these business combination transactions, than otherwise. Such provisions may have certain negative effects. One such negative effect could be protecting the incumbent Board of Directors and management by discouraging takeover attempts which are not supported by the Board but which may be supported by the majority of shareholders. (See "ANTITAKEOVER MEASURES.") Risk Factors The transactions contemplated by the Agreement are principally designed to reorganize the corporate structure of the Bank in order to conduct the business of the Bank as a wholly 11 16 owned subsidiary of a registered bank holding company. The transaction, if consummated, does not represent any material change in the nature of the business conducted by the Bank. Presented below are certain "risk factors" associated with the combined business of the Company and the Bank which may be present as a result of the Bank's reorganizing its business structure, through the consummation of the transaction contemplated by the Agreement, into a subsidiary of the Company. These risk factors represent those identified by the Board of Directors of the Bank and may not represent all of the risk factors associated with the transaction contemplated by the Agreement. COMPANY'S FINANCIAL CONDITION. Shareholders electing to receive Company stock for Bank stock do so without the ability of analyzing the historical financial performance of the Company. The Company is a newly formed Ohio corporation and has no history of financial performance. The Company's financial condition immediately following the effective date of the merger contemplated by the Agreement will depend on the operation and profitability of the Bank at the time of and after the effective date of the reorganization. As the Company continues to operate in the future, additional factors may affect its profitability including, among others: (i) businesses started or acquired by the Company other than the Bank; (ii) the nature of federal or state laws and regulations applicable to the Company; and (iii) the effect of management. While the Company intends to operate the Bank in substantially the same manner that it has been operated to date, changes to the operations of the Bank and/or commencing additional businesses could have an impact upon the financial performance and condition of the Company as a whole and the return to shareholders of the Company. BANKING INSTITUTIONS. The financial services industry and banking in particular has undergone a complex deregulation process. Interest rate limitations on what banks may pay to depositors have been phased out; "regional" interstate banking pacts and "true interstate" banking, allowing financial institutions to cross state lines have been and will continue to be enacted nationally and in many states; and competition has increased among banks and other companies to provide traditional banking services. These changes have resulted in increased competition for a market share of the financial services industry. The Company and the Bank will continue to be affected by these changes in the future. The conduct of the Bank's business as a subsidiary of the Company may increase the ability to compete in this newly deregulated environment, but there can be no assurance that the organization of the holding company will shelter the Company and the Bank from such increased competition. ANTITAKEOVER PROVISIONS. The Company's Articles of Incorporation and Code of Regulations contain provisions intended to be "antitakeover" in nature as discussed above, including a supermajority vote provision, fair price provision, staggered terms for the Board of Directors, supermajority removal clause for the Board of Directors and additional items. In addition, as an "issuing public corporation" under Ohio law, the Company will be subject to the Ohio Control Share Acquisition Statute requiring the approval of a majority of the shareholders and unaffiliated shareholders before certain levels of voting power of the Company may be acquired. The presence of all of these provisions may have the effect of discouraging outside offers for the shares of the Company and may also give management more control over the acceptance or rejection of business combination transactions, than otherwise. Such provisions may have certain negative effects. One such negative effect could be protecting the incumbent Board of Directors and management by discouraging takeover attempts which are not supported by the Board but which may be supported by the majority of shareholders. Such antitakeover provisions also may have the effect of reducing the likelihood of an acquisition of the Company by another entity and thus restraining the price of the shares of the Company. (See 12 17 "DESCRIPTION OF COMMON STOCK--COMPARATIVE RIGHTS and "ANTITAKEOVER MEASURES.") Per Share Summary of the Bank and Pro Forma Per Share Summary of the Company Presented below is certain per share financial information of the Bank. Certain pro forma per share information is provided for the Company, assuming there are no dissenters to the transaction and each share of the Bank's common stock is exchanged for three (3) shares of the Company's common stock.
PER SHARE DATA YEAR ENDED DECEMBER 31 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- THE DELAWARE BANK AND TRUST COMPANY (1) NET INCOME (LOSS) $2.52 $1.68 $2.08 $1.54 $0.59 CASH DIVIDEND DECLARED $0.51 $0.49 $0.45 $0.41 $0.43 BOOK VALUE (AT PERIOD END) $20.15 $18.02 $16.82 $15.17 $14.02 - ------------------------------------------------------------------------------------------------------------------------------------ PRO FORMA DCB FINANCIAL CORP. (2) NET INCOME (LOSS) $0.84 $0.56 $0.69 $0.51 $0.20 CASH DIVIDENDS DECLARED $0.17 $0.16 $0.15 $0.14 $0.14 BOOK VALUE (AT PERIOD END) $6.71 $6.01 $5.61 $5.06 $4.67
(1) BASED ON 1,424,400 SHARES OUTSTANDING (2) BASED ON 4,273,200 SHARES OUTSTANDING PURPOSE OF THE MEETING The purpose of the meeting, as set forth in the notice of the special meeting, is to vote upon a proposed reorganization by which the New Bank, a subsidiary of the Company, will merge with and into the Bank under the name and charter of the Bank. The effect of approving the reorganization would be the exchange of each share of the Bank's stock for three (3) shares of the Company's stock, and the acquisition of control of the Bank by the Company. The Bank would then continue to do business as a wholly owned subsidiary of the Company, and shareholders of the Bank would become shareholders of the Company. The Board of Directors of the Bank unanimously approved the Agreement and recommends that shareholders vote in favor of the Agreement. This Proxy Statement/Prospectus is being solicited by the Board of Directors of the Bank. THE PROPOSED REORGANIZATION The Board of Directors of the Bank approved a plan of reorganization under which the business of the Bank would be conducted as a wholly owned subsidiary of Company. 13 18 Reasons for the Proposed Transaction A bank holding company form of organization will increase the corporate and financial flexibility of the business operated by the Bank through the combined business of the Bank and the Company, such as increased structural alternatives in the area of acquisitions, the ability to augment capital by means of the incurrence of debt and the ability of the Company to redeem its own stock, subject to, in certain instances, notice to and approval by the Board of Governors of the Federal Reserve. A bank holding company can engage in certain bank-related activities in which the Bank cannot presently engage; thus this reorganization would broaden the scope of services which could be offered to the public. The Company has not made any specific determination as to which of these types of activities it may engage in after consummation of the proposed transaction. Furthermore, a bank holding company is not subject to the same geographical limitations as to where it may carry on its business whereas the Bank is currently limited. (See "SUPERVISION AND REGULATION--The Company.") Description of the Reorganization The Company and the New Bank Directors will subscribe for and will hold all of the One Thousand (1,000) authorized shares of common stock of the New Bank, an interim bank, to be chartered under the laws of the State of Ohio, solely for the purpose of this transaction. The Bank will merge with the New Bank under the name and charter of the Bank, pursuant to the terms of the Agreement. (See Appendix I of this Proxy Statement.) Upon consummation of the transaction, the merged banks (the "Resulting Bank") will redeem and cancel the shares used to capitalize the New Bank. After the merger, the business of the Bank will be conducted by the Resulting Bank under the name "The Delaware County Bank & Trust Company." All of the outstanding shares of stock of the Resulting Bank will be owned by the Company. The Resulting Bank will have the same directors, officers, interests and properties as those of the Bank immediately prior to the merger. The Resulting Bank will continue to be subject to regulation and supervision by the Ohio Division of Financial Institutions and the Federal Deposit Insurance Corporation, to the same extent as the Bank and, in addition, as a subsidiary of the Company, will be subject to examination and regulation by the Board of Governors of the Federal Reserve System. (See "SUPERVISION AND REGULATION.") Conversion and Exchange of Stock Upon consummation of the reorganization, each outstanding share of the Bank's common stock will be converted into three (3) shares of the Company's common stock. Each holder of Bank stock certificates, which immediately prior to the reorganization represented shares of the Bank's common stock, upon surrender of such certificates for cancellation, will be entitled to receive certificates representing the number of shares of the Company's common stock into which such shares shall have been converted. The Company anticipates that the stock certificates representing shares of the Company's common stock will be distributed to shareholders of the Bank by approximately March 31, 1997, assuming approval of the organization of the holding company at the special meeting. However, the distribution of stock certificates to a particular shareholder will be dependent upon the date of receipt by the Company of such shareholder's Bank stock certificate for exchange and, therefore, there is no final date by which all Company stock certificates will be mailed. Shareholders of the Bank will continue to be entitled to sell or transfer their common stock in the Bank through the date of consummation of the Merger, which is expected to occur as of February 28, 1997. Further, sales of stock in the Company may be made after the effective date of the Merger but before receipt of certificates representing shares in the Company. Such sales or transfers will require presentation of the shareholder's Bank stock certificate(s). 14 19 Until so surrendered, certificates nominally representing the Bank's common stock will be deemed, for all corporate purposes, to evidence the number of shares of the Company's common stock which the holder thereof would be entitled to receive upon surrender. AT THE DIRECTION OF THE BOARD OF DIRECTORS OF THE COMPANY, NO DIVIDENDS WILL BE PAID UPON THE CERTIFICATES NOMINALLY REPRESENTING THE BANK'S COMMON STOCK AFTER CONSUMMATION OF THE REORGANIZATION, BUT SUCH DIVIDENDS WILL BE ACCUMULATED AND PAID, WITHOUT INTEREST, AT THE TIME OF SURRENDER OF SUCH CERTIFICATES FOR CERTIFICATES REPRESENTING THE COMPANY STOCK. Negotiation of Terms of the Agreement The terms of the Agreement were agreed upon by the Boards of Directors of the Bank, the New Bank and the Company. Since the management and Boards of Directors of these three (3) organizations are substantially the same, the terms of the Agreement were not a result of arms length negotiations. Affiliate Restrictions The shares of stock to be issued upon consummation of the Agreement by the Company will be registered pursuant to the 1933 Securities Act ("Act"). However, the resale of such shares by the Directors, principal officers and principal shareholders of the Bank presently and of the Company upon consummation of the Agreement may be restricted by the Act and by the rules promulgated by the Securities and Exchange Commission if such Directors, principal officers and principal shareholders are deemed to be "affiliates" as that term is defined by the Act and appropriate SEC rules. Persons considered to be in control of an issuer are known as "affiliates" and may include officers, Directors and shareholders who own 10 percent or more of the outstanding stock. Shares of common stock of the Company received after the transaction by "affiliates" of the Bank or the Company will be "control stock," which can only be sold if they are registered or in a transaction exempt from registration under the Act, such as pursuant to Rules 144 and 145, or pursuant to a private placement. Rules 144 and 145 generally require that before an affiliate can sell his "control stock": (1) There must be on file with the Securities and Exchange Commission public information filed by the issuer; (2) The affiliate must sell his stock in a routine unsolicited broker's transaction or directly to a market maker in the stock; (3) During any three-month period, the amount of the securities that can be sold is limited to the greater of one percent of the outstanding stock of the company or the average weekly 15 20 trading volume during the four calendar weeks preceding the receipt of an order to sell by the broker or the sale to a market maker; and (4) In some cases, the stock must be held for two years prior to sale. It may be advisable for those shareholders of the Bank who may be "affiliates" of the Company to confer with legal counsel of their own choosing prior to the sale of any Company stock received as a result of this transaction. Conditions of Consummation Ohio Banking Law provides that a merger of a bank with another bank requires the approval of a merger agreement by a majority of both banks' Boards of Directors and by shareholders holding two-thirds (2/3) of the outstanding common stock of each bank. Acquisition of the voting shares of the Bank by the Company must be approved by the Board of Governors of the Federal Reserve System. The reorganization must also be approved by the Ohio Superintendent of Banks and the Federal Deposit Insurance Corporation. The obligation of the Bank and the Company to consummate the reorganization is conditioned further upon the following: (i) the absence of any action, suit, proceeding or claim, made or threatened, related to the proposed merger, or any other reason which makes consummation of the merger inadvisable in the opinion of the Board of Directors of the Bank or the New Bank; (ii) receipt of a favorable opinion of counsel with respect to the tax consequences of the merger (see "THE PROPOSED REORGANIZATION--Federal Tax Consequences"); (iii) the receipt of all necessary regulatory approvals and the expiration of all required waiting periods; and (iv) the performance of all covenants and agreements. The Boards of Directors of the Bank, the New Bank and the Company may, in their discretion, terminate the Agreement before or after approval by the shareholders of the Bank if they deem such termination advisable. Other Considerations The Company is a business corporation formed under the general corporation laws of the State of Ohio. As a general "for profit" corporation, the Company will have greater flexibility in certain corporate procedures than the Bank (which is subject to Ohio Banking Laws and is regulated by the Ohio Division of Financial Institutions) including, but not limited to, the ability to incur debt for leveraged growth, redeem its own common stock to create greater flexibility for trading of such common stock, and operate related financially oriented businesses. Upon consummation of the reorganization, the Company will become a registered bank holding company and will become subject to the Federal Bank Holding Company Act of 1956, as amended. As a bank holding company under federal law, the Company will be permitted to carry on a wider range of business activities than the Bank presently can under state and federal law. (See "SUPERVISION AND REGULATION.") 16 21 Expenses Expenses to be incurred in implementing the reorganization are estimated at $60,000, of which approximately $30,000 can be attributed to legal fees paid in connection with the transaction. The remaining amount of expenses can be attributed to application fees, printing costs and other miscellaneous expenses. The Company has paid the costs associated with the transaction and borrowed the funds to do so from an unaffiliated third party bank, the repayment of which loan has been personally guaranteed by certain persons, each of whom is Director of the Company and the Bank. In the event the transaction is approved and consummates, the Bank will pay a special dividend to the Company which will be used by the Company to retire the debt incurred to pay such expenses. Federal Tax Consequences An opinion of special legal counsel, Werner & Blank Co., L.P.A., has been obtained to the following effect: (i) the transaction will qualify as a reorganization within the meaning of Internal Revenue Code Section 368(a)(1)(A) and (a)(2)(E); (ii) no gain or loss will be recognized for federal income tax purposes by shareholders of the Bank upon conversion of the common stock of the Bank into common stock of the Company, except for those shareholders of the Bank who dissent from the plan of reorganization and perfect their appraisal rights (see "THE PROPOSED REORGANIZATION--Appraisal Rights of Dissenting Shareholders"); (iii) the tax basis of the common stock of the Company received by the shareholders of the Bank will be the same as the tax basis of the common stock of the Bank surrendered by the shareholders; and (iv) the holding period of the common stock of the Company received by shareholders of the Bank will include the holding period of the common stock of the Bank surrendered by shareholders, provided that the stock of the Bank is held as a capital asset by shareholders on the date of consummation of the merger. Shareholders who dissent from the transaction and receive cash in exchange for their Bank shares will recognize taxable gain or loss on the exchange of the shares in an amount equal to the difference between their basis in the shares held by them and the amount of cash received for such shares. Gain or loss for federal and other income tax purposes may be recognized upon the receipt of cash by dissenting shareholders, if any. THE TAX TREATMENT OF SUCH GAIN OR LOSS MAY VARY WITH THE PARTICULAR CIRCUMSTANCES OF EACH DISSENTING SHAREHOLDER. State Tax Consequences Depending upon the state of residence of a Bank shareholder, the transaction may be subject to certain state law provisions relating to capital gains tax. Shares of the common stock of the Bank may in some jurisdictions have certain advantages not available to shares of common stock of the Company, such as exemption from personal property taxes, exemption from taxation on dividend income, and qualification as a legal investment for various categories of investors. For shareholders who are residents of the State of Ohio, there are no differences in the state tax treatment of gains, losses and distributions from the Bank or the Company nor are there any other significant differences as to the tax treatment of shares of the Bank or the Company. SHAREHOLDERS ARE URGED TO REVIEW THEIR TAX STATUS UNDER ANY STATE OR LOCAL TAX LAWS WITH THEIR OWN TAX ADVISORS. 17 22 Appraisal Rights of Dissenting Shareholders Under the provisions of Ohio Revised Code, Section 1115.19 and 1701.85, any shareholder of the Bank who does not vote in favor of the Agreement at the special meeting of shareholders is entitled to receive the fair cash value of his shares, upon perfecting his right of appraisal. Not later than ten (10) days after the date upon which the shareholders voted upon the merger, any shareholder seeking to perfect his appraisal right must make a written demand upon the Bank for the fair cash value of those shares so held by him. Such written demand should be sent to the Secretary of the Bank at 41 N. Sandusky Street, Delaware, Ohio 43015. A negative vote alone is not sufficient to perfect rights as a dissenter. No notice of the results of the meeting will be given to shareholders. If the Bank or Resulting Bank and the shareholder have not come to an agreement within three (3) months of the shareholder's written demand, the shareholder, Bank or Resulting Bank may file a petition in court for a formal judicial appraisal. Failure to follow the procedures enumerated in the Ohio Revised Code, Section 1701.85, Qualifications of and Procedures for Dissenting Shareholders, attached as Exhibit B to the Agreement, which is Appendix I of this Proxy Statement (the "Dissenters Statute"), will waive the shareholder's right of appraisal. Shareholders are urged to read the Dissenters Statute, and should consult with their own legal advisors regarding their rights in the event they desire to dissent. Accounting Treatment The merger of Bank and New Bank will be accounted for in an method similar to a pooling of interest. MARKET PRICES OF STOCK The Company DCB Financial Corp. was incorporated on June 13, 1996. No shares of the Company have been publicly traded since the date of its incorporation to the present time. Therefore, no meaningful market exists at this time for the Company's stock. Bank shareholders will exchange their Bank stock for Company stock. Currently, no established "over-the-counter" market exists for Bank stock. Assuming the market for Company stock will be the same as for Bank stock, it is not anticipated that an established "over-the-counter" market will develop for Company stock. 18 23 The Bank There has been only a limited over-the-counter market for the Bank's common stock. The Bank's common stock is not listed on the National Association of Securities Dealers' Automated Quotation System ("NASDAQ") or any other exchange. The Bank had approximately 1,200 shareholders as of December 31, 1996. The Bank is aware of only one securities dealer which is appropriate to classify as a "market maker" in shares of the Bank, that being Sweney Cartwright & Co., Columbus, Ohio. The latest trade known to management was for ___ shares at a price of $__ per share on December ___, 1996. As of December 31, 1996, the Bid and Ask Price quoted by Sweney Cartwright & Co. was ___ and ___, respectively. The average trading price of shares of the Bank's Common Stock of which the Bank is aware over the past three (3) years is as follows:
Average Trading Price Pro Forma Effect of 3 for 1 Exchange Quarter Ended: During Quarter: Ratio on Average Trading Price During Quarter - -------------- -------------------------- --------------------------------------------- September 30, 1993 $21.83* 7.28* December 31, 1993 21.83* 7.28* March 31, 1994 23.33* 7.78* June 30, 1994 23.66* 7.89* September 30, 1994 23.66* 7.89* December 31, 1994 22.50* 7.50* March 31, 1995 21.00* 7.00* June 30, 1995 22.00 7.33 September 30, 1995 23.50 7.83 December 31, 1995 24.50 8.17 March 31, 1996 28.50 9.50 June 30, 1996 32.66 10.89 September 30, 1996 36.25 12.98
- -------------------------------------------------------------------------------- * Adjusted to give effect to the 3 for 1 stock split which was effective June 15, 1995. DIVIDENDS The Company Since the date of its incorporation, the Company has paid no dividends. After consummation of the reorganization, the amount and timing of future dividends will be determined by its Board of Directors and will substantially depend upon the earnings and financial condition of its principal subsidiary, the Resulting Bank. At the present time, the Company has no established dividend policy. The ability of the Company to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends which may be declared by its subsidiary, the Bank. Generally, an Ohio state-chartered bank may not declare a dividend, without the approval of the Ohio Division of Financial Institutions if the total of dividends declared by such bank in a calendar year exceeds the total of its net profits for that year combined with its retained profits of the preceding two years. The amount of dividends paid to the Company by the Bank will have a direct impact upon the Company's ability to pay 19 24 dividends to its shareholders and engage in the additional activities available to a holding company. The Bank The Bank last paid a dividend to shareholders on July 15, 1996, in the amount of $0.35 per share or $498,540 in the aggregate. The Bank has adopted a policy of regularly paying dividends in January and July of each year, assuming the continued financial performance of the Bank. The history of dividends paid by the Bank to its stockholders over the last three (3) years is as follows:
Semi-Annual: Dividends Paid Semi-Annually: - ------------ ----------------------------- July 15, 1993 0.23* January 15, 1994 0.246* July 15, 1994 0.246* January 15, 1995 0.253* July 15, 1995 0.26 January 15, 1996 0.32 July 15, 1996 0.35
- ------------------------------------------------------------------------------ *Adjusted to show three-for-one stock split effective June 14, 1995. Because of the three-for-one exchange ratio in connection with the formation of the holding company, the dividends listed above would have been one-third of the amount listed per share had the transaction been consummated as of the dates noted. However, the total amount of dividends paid to an exchanging shareholder would have been the same as the amount received because each shareholder will receive three shares of stock of the Company for each share owned in the Bank. The amount and timing of future dividends will be determined by the Board of Directors of the Bank, and will depend upon the Bank's earnings and financial condition, as well as upon federal economic policies and other relevant factors. (See "SUPERVISION AND REGULATION.") 20 25 CAPITALIZATION The following table sets forth the capitalization of the Bank as of September 30, 1996 and the pro forma capitalization of the Company as of September 30, 1996, assuming that the reorganization had been consummated at such date, that no shareholder of the Bank had exercised dissenters' rights, and that the Company had redeemed and canceled the shares of New Bank issued to the Company in connection with its formation at the price paid therefore.
Bank New Bank Adjustments Company (Actual) (Actual) (Pro Forma) (Pro Forma)(2)(3) -------------- ---------- --------------- ----------------- Shareholders' Equity Common 1,424,400 125,000(1) (125,000)(1) 1,424,400 Surplus 2,355,000 125,000(1) (125,000)(1) 1,800,000 Expense Fund 62,500(1) (62,500)(1) Undivided Profits 27,467,000 (27,467,000) 0 Undistributed Profits of Subsidiary 0 27,467,000 27,467,000 Unrealized loss on Investments Securities (130,000)(4) (130,000) ---------- ------- ---------- ---------- Total Shareholders Equity 31,116,400 312,500(1) (312,500) 31,116,400
- ------------------------------------------------------------------------------ (1) Represents the capitalization of the New Bank in accordance with Ohio law which requires minimum capitalization of $312,500, of which, pursuant to Ohio law, 10% will be paid-in-capital at the effective time of the merger of the Bank and New Bank and will be immediately withdrawn through a redemption of such stock by the Bank. The capital of the Resulting Bank and the Company therefore will be equal to the capital of the Bank immediately before the transaction and will not be affected by the temporary capitalization of the New Bank. (2) Reflects that the capital stock of the Bank is the sole investment of the Company upon the consummation of the transaction. (3) Does not reflect the effect of the incurrence of debt by the Company to pay organizational costs estimated at $60,000. The Company has a line of credit which entitles the Company to borrow up to $75,000 from an unaffiliated bank for the purpose of paying expenses relating to the transaction contemplated by the Agreement. Upon consummation of the transaction, the Resulting Bank will pay a dividend to the Company which will be used to retire this debt. (4) Represents unrealized loss on Investment securities classified as "Available for Sale" under Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" which became effective January 1, 1994. FINANCIAL STATEMENTS The Bank's audited Balance Sheets as of December 31, 1994, and 1993, the related audited Statements of Income, Statements of Changes in Shareholders' Equity, and Statements of Cash Flows for each of the three years ended December 31, 1995, are included in the Bank's Annual Report, which was sent to each shareholder in connection with the annual meeting of shareholders held April 17, 1995. Financial statements of the Bank are not included herein as they are not deemed material to the exercise of prudent judgment by shareholders with respect to the matters to be acted upon at the Special Meeting. If any shareholder so desires, he may obtain an additional copy of such financial statements upon written request to Larry D. Coburn, President, The Delaware County Bank & Trust Company, 41 N. Sandusky Street, Delaware, Ohio 43015. 21 26 Provided below is a five-year summary of selected financial data of the Bank. SELECTED FINANCIAL DATA OF THE DELAWARE COUNTY BANK & TRUST COMPANY AS OF OR FOR THE PERIOD ENDED DECEMBER 31, (000'S EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA: 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- TOTAL INTEREST INCOME $20,351 $16,738 $16,076 $16,927 $19,806 TOTAL INTEREST EXPENSE $8,110 $6,168 $6,067 $7,813 $10,293 ------- ------- ------- ------- -------- NET INTEREST INCOME $12,241 $10,570 $10,009 $9,114 $9,513 PROVISION FOR LOAN LOSSES ($362) ($145) ($155) ($72) ($2,781) ------- ------- ------- ------- -------- NET INTEREST INCOME (NET PROVISION) $11,879 $10,425 $9,854 $9,042 $6,732 NONINTEREST INCOME $2,334 $2,234 $2,197 $1,857 $1,765 NONINTEREST EXPENSE (NET) $9,085 $9,351 $8,820 $8,148 $7,613 SECURITIES GAIN & (LOSS) $17 $12 $28 $33 $110 PENSION PLAN CURTAILMENT GAIN $0 $0 $0 $249 $0 TAX $1,562 $921 $861 $844 $159 ACCOUNTING CHANGE $0 $0 $560 $0 $0 NET INCOME $3,583 $2,399 $2,958 $2,189 $835 PER SHARE DATA (1): NET INCOME $2.52 $1.68 $2.08 $1.54 $0.59 BOOK VALUE $20.15 $18.02 $16.82 $15.17 $14.02 CASH DIVIDENDS $0.51 $0.49 $0.45 $0.41 $0.43 BALANCE SHEET DATA: TOTAL ASSETS $274,078 $257,693 $244,349 $232,277 $223,345 TOTAL DEPOSITS $243,856 $229,752 $217,640 $207,149 $197,793 TOTAL NET LOANS $171,599 $161,609 $133,445 $129,786 $125,541 ALLOWANCE FOR LOAN LOSSES $1,940 $1,865 $2,455 $2,786 $3,127 SHAREHOLDER'S EQUITY $28,694 $25,674 $23,962 $21,602 $19,974
(1) PER SHARE INFORMATION ADJUSTED TO ACCOUNT FOR 3 TO 1 STOCK SPLIT EFFECTIVE JUNE 14, 1995, WHICH INCREASED AUTHORIZED AND OUTSTANDING SHARES FROM 474,800 TO 1,424,400, AND DECREASED THE PAR VALUE FROM $2.50 PER SHARE TO $1.00 PER SHARE. 22 27 HISTORY AND BUSINESS OF THE COMPANY General The Company was incorporated under the laws of the State of Ohio on June 13, 1996, at the direction of management of the Bank, for the purpose of becoming a bank holding company by acquiring all of the outstanding shares of the Bank. Immediately prior to consummation of the reorganization, the Company will own all of the stock of the New Bank except for shares held by directors as qualifying shares. Thereafter, the New Bank will merge with the Bank. Shareholders of the Bank will become shareholders of the Company (subject to their dissenters' rights; see "THE PROPOSED REORGANIZATION--Appraisal Rights of Dissenting Shareholders") and the Company will become the sole shareholder of the Resulting Bank. The Resulting Bank will carry on the business of the Bank and the New Bank under the name "The Delaware County Bank & Trust Company," without interruption. The principal office of the Company is located at 41 N. Sandusky Street, Delaware, Ohio 43015. A copy of the Company's Articles of Incorporation is attached as Appendix II. Competition As the Company is a bank holding company in formation and currently controls no banking subsidiaries, it is not engaged in competition with any other bank or corporation. However, upon consummation of the reorganization, the Bank will become a wholly owned subsidiary of the Company, and the Company's competition will primarily be the same as that of the Bank's. (See "HISTORY AND BUSINESS OF THE BANK--Competition.") Employees The Company has no employees other than its officers, each of whom is also an employee and officer of the Bank and who serve in their capacity as officers of the Company without compensation. Upon consummation of the reorganization, the Company, whose sole business function will be to hold one hundred percent (100%) of the Bank's stock, does not anticipate any immediate change in the number of or status of its employee officers. The status of the Bank's current employees is not expected to be affected by the reorganization. Property The Company is not currently engaged in any business activity and currently owns no property. Upon consummation of the reorganization, the Company will conduct its business from the Bank's offices. It is anticipated that the Company will continue to operate its business from the offices of the Bank immediately following the consummation of the acquisition of the Bank by the Company. Because initially following the consummation of the transaction the Company will not conduct any business other than its ownership of the Bank's stock, the Company will not compensate the Bank for the use of office space in the Bank's main office facility. 23 28 Board of Directors The present Directors of the Company are the same individuals who are presently Directors of the Bank. (For information regarding the present Directors of the Company, See "HISTORY AND BUSINESS OF THE BANK-Board of Directors.") Directors of both the Company and the Bank are elected to staggered three-year terms. Upon consummation of the reorganization, the Directors of the Company will own the same percentage of Company stock, as they currently own of Bank stock, assuming there are no dissenters to the transaction who elect to receive the value of their shares in cash. Remuneration of Directors and Officers The Company has paid no remuneration, direct or otherwise, to its officers and/or directors since its incorporation. Furthermore, it is not anticipated that the Company's officers and Directors will initially be paid any additional compensation by the Company. Indemnification Article EIGHTH of the Company's Amended Articles of Incorporation provides as follows: ARTICLE EIGHTH The Corporation shall indemnify its present and past Directors, officers, employees and agents, and such other persons as it shall have powers to indemnify to the full extent permitted under, and subject to the limitations of, Title 17 of the Ohio Revised Code. Additionally, and subject to the limitations set forth below, the Corporation shall indemnify its present and past Directors for personal liability for monetary damages resulting from breach of their fiduciary duty as Directors. Notwithstanding the above, no indemnification for personal liability shall be provided for: (i) any breach of the Directors' duty of loyalty to the Corporation or its shareholders; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) illegal distribution of dividends; and (iv) any transaction from which the Director derived an improper personal benefit. INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS, OR PERSONS CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT, IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE SECURITIES ACT OF 1933, AND IS THEREFORE UNENFORCEABLE. Additionally, the provisions regarding indemnification may not be applicable under certain federal banking laws and regulations. For a complete description of the provisions regarding indemnification provided by the Company see "DESCRIPTION OF COMMON STOCK--COMPARATIVE RIGHTS, Indemnification" of this Proxy Statement. 24 29 The Company's provisions regarding indemnification are for the personal benefit of the directors, officers, employees and agents of the Company. The reorganization of the Bank into a subsidiary of the Company is not expected to have any effect, positive or negative, on the Bank nor the Company's ability to obtain officers and directors indemnification insurance nor the rates at which such insurance is available. HISTORY AND BUSINESS OF THE BANK General The Bank was organized on July 13, 1950 and has been headquartered at 41 N. Sandusky Street, Delaware, Ohio since its organization. The Bank provides customary retail and commercial banking services to its customers, including checking and savings accounts, time deposits, safe deposit facilities, personal loans, real estate mortgage loans, installment loans, IRAs and night depository facilities. The Bank is located in Delaware, Ohio, a community approximately 15 miles from Columbus in the heart of Delaware County. Delaware County has recently been the fastest growing county in Ohio. The area served by the Bank includes the City of Delaware and commuter/suburban and agricultural areas surrounding the City of Delaware. The Bank's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") to applicable legal limits and the Bank is supervised and regulated by the FDIC and Ohio Division of Financial Institutions. Competition The Bank operates in a highly competitive industry, due to the Ohio law permitting statewide branching by banks and savings and loan associations, and credit unions. Ohio law also permits nationwide interstate banking on a reciprocal basis. The Bank's main competition comes from other commercial banks, national or state savings and loan institutions, security dealers, mortgage bankers, financial companies and insurance companies. Banks generally compete with other financial institutions through the banking products and services offered, the pricing of services, the level of service provided, the convenience and availability of services, and the degree of expertise and personal manner in which these services are offered. The Bank encounters strong competition from most of the financial institutions in the Bank's extended market area. 25 30 Employees As of September 30, 1996, the Bank had 150 full-time employees and 19 part-time employees. The Bank provides a number of benefits for its full-time employees, including health and life insurance, workers' compensation, social security, paid vacations, numerous bank services and a 401(k) retirement plan. Property The Bank owns and operates its main office at 41 N. Sandusky Street, Delaware, Ohio 43015. In addition the Bank operates the following branches, listed in the order in which they were purchased or opened. Whether the branch is owned or leased is also noted.
COMMON NAME OF OFFICE ADDRESS OWNED OR LEASED --------------------- ------- --------------- Galena 10 Park Street, Galena, OH Owned Ostrander 10 W. North Street, Ostrander, OH Owned William Street Drive-Thru William & Franklin, Delaware Owned Green Meadows 9191 Columbus P., Westerville, OH Owned Delaware Center 199 S. Sandusky Street, Delaware Owned Ashley 2 W. High Street, Ashley, OH Owned Buehlers Central 800 W. Central Ave., Delaware Leased Marysville Plaza 1169 W. Fifth Ave. Marysville, OH Leased Powell 22 S. Liberty Street, Powell, OH Owned Sunbury 492 W. Cherry Street, Sunbury, OH Leased Marysville Downtown 108 S. Main Street, Marysville, OH Leased Central Drive Thru/ATM 554 W. Central, Ave., Delaware, OH Leased Marysville Drive-Thru/ATM 1652 W. Fifth Street, Marysville, OH Leased Willowbrook 100 Willowbrook Way, S., Delaware, OH Leased
Litigation There is no material pending litigation to which the Company, the Bank or the New Bank is a party, other than routine litigation incidental to the business of the Bank. Further, there is no material legal proceeding in which any Director, executive officer, principal shareholder, or affiliate of the Company, the Bank or the New Bank or any associate of any such Director, executive officer, or principal shareholder is a party and has a material interest adverse to the Company, the Bank or the New Bank. None of the routine litigation in which the Bank is involved is expected to have a material adverse impact upon the financial position or results of operations of the Company, the Bank or the New Bank. Board of Directors The Bank's Board of Directors is presently composed of 13 members, approximately one-third of whom stand for election each year. 26 31 The following table sets forth for each of the directors, name, age (as of September 30, 1996), principal occupation(s) during the past five years, the year they first became a director, year of expiration of the current term as a director, and the number of shares of the Bank beneficially owned by such person.
SHARES OF BANK STOCK BENEFICIALLY OWNED AS PERCENT OF TOTAL DIRECTOR PRINCIPAL NAME AGE OF 9/30/96 OUTSTANDING SINCE OCCUPATION CLASS I: (TERM EXPIRES AT ANNUAL MEETING IN 1997) Larry D. Coburn(1) 49 2,350 0.15 1995 President, CEO and Director of Bank and the Company F. Frances Hutchinson 64 1,200 0.08 1990 Owner G.F.S. Chemical William R. Oberfield 42 1,900 0.13 1993 President, Oberfield Concrete Products G. William Parker(2) 61 8,709 0.61 1976 Surgeon Gary M. Skinner(3) 53 2,193 0.16 1996 President, Hardscrabble Farms, Inc. CLASS II: (TERM EXPIRES AT ANNUAL MEETING IN 1998) C. William Bonner(4) 61 1,200 0.08 1988 Developer Merrill L. Kaufman(5) 61 4,680 0.13 1988 President, Peoples Store, Inc. Terry M. Kramer(6) 49 14,740 1.03 1992 President/Owner, Kramer Exploration Company Thomas T. Porter(7) 62 9,100 0.64 1990 President, Garth's Auction, Inc. Edward Powers 50 6,680 0.47 1985 President, R. B. Powers Company CLASS III: (TERM EXPIRES AT ANNUAL MEETING IN 1999) Jerome J. Harmeyer(8) 57 15,666 1.08 1988 CEO, Fisher Case Steel Products Rodney B. Hurl 66 10,000 0.71 1990 Doctor, General Practice G. Edwin Johnson 59 1,212 0.08 1993 President, AGRI Communications
(1) 2,350 shares owned by CEDE & Co., Custodian. 27 32 (2) 8,231 shares owned by G. William Parker individually and 478 shares owned by G. William Trust. (3) 1,212 shares owned by Gary and Carolyn Skinner jointly, 24 shares owned by Carolyn Skinner individually, and 957 shares owned by Gary Skinner IRA. (4) 600 shares owned by Charles W. Bonner individually and 600 shares owned by Charles or Barbara Bonner jointly. (5) 600 shares owned by Merrill Kaufman individually, 2,880 shares owned by Merrill & Charlotte Kaufman jointly, and 1,200 shares owned by CEDE & Co., Custodian. (6) 7,600 shares owned by Terry Kramer Trust and 7,140 shares owned by Sandra Kramer Trust. (7) 600 shares owned by Thomas Porter individually, 150 shares owned by Carolyn Porter individually, and 8,350 shares owned by Garth's Auctions.Inc. (8) 600 shares owned by Jerome Harmeyer individually, 648 shares owned by Jerome or Madelyn Harmeyer jointly, and 14,418 shares owned by Madelyn Harmeyer individually. The following is a list of executive officers of the Bank other than Larry D. Coburn, who is listed above, together with share ownership information:
NO. OF SHARES BENEFICIALLY OWNED IN OFFICERS TITLE BANK AS OF 9/30/96 % OWNERSHIP -------- ----- --------------------- ----------- Mary Ellen Basbagill Controller of the Bank 303 0.02 David G. Bernon Senior Vice 942 0.06 President-Loans of the Bank Donald R. Blackburn Vice President-Retail 1,622 0.11 Banking-Customer Relations of the Bank Richard L. Bump Senior Vice President 2,400 0.16 and Secretary to the Board of Directors of the Bank/ Secretary of the Company Nancy H. Niendam Vice President-Credit 247 0.01 Administration of the Bank Donna R. Warbel Human Resources 52 0.01 Director of the Bank Larry E. Westbrook Senior Vice President 5,938 0.42 and Cashier of the Bank/ Treasurer of the Company Thomas R. Whitney Vice President and 2,562 0.18 Senior Trust Officer of the Bank
As of November 30, 1996, The Board of Directors and executive officers of the Bank owned in the aggregate 93,696 shares or 6.6% of the outstanding shares of the Bank. MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors of the Bank conducts its business through meetings of the Board. During the fiscal year ended December 31, 1995, the Board of Directors of the Bank held a total of fifteen (15) regular and special meetings. Each director of the Bank attended at least 75 28 33 percent of the total meetings of the Board and committees on which such Board member served during this period. The following table describes the standing committees of the Board of Directors and identifies the directors serving on each committee as of September 30, 1996.
Number of Meetings Board Committee Function Held-1995 Directors Serving - --------------- -------------------- -------------------- ----------------- Audit Responsible for 7 Terry M. Kramer Audit of the Bank G. William Parker and monitoring Thomas T. Porter follow-through on Edward Powers any corrective measures deemed necessary. All serving must be outside Directors. Salary Establishes 11 Larry D. Coburn compensation G. Edwin Johnson levels, fringe Terry M. Kramer benefits and G. William Parker personnel policies Thomas T. Porter for officers and employees. Nominating Reviews 2 C. William Bonner qualifications and Larry D. Coburn nominates persons F. Frances Hutchinson to serve on the Merrill Kaufman Banks Board of Thomas T. Porter Directors. Trust Oversees all 12 Larry D. Coburn activities of the Jerome J. Harmeyer Trust Division to Rodney B. Hurl assure that all F. Frances Hutchinson fiduciary William R. Oberfield obligations are fulfilled ethically, professionally and prudently.
EXECUTIVE COMPENSATION AND OTHER INFORMATION Summary of Cash and Certain Other Compensation The following table provides certain summary information concerning compensation paid or accrued by the Corporation and/or its subsidiaries, to or on behalf of the Bank's Chief Executive Officer for the fiscal years ended December 31, 1995, 1994 and 1993, and to all executive officers as a group during 1995: 29 34 SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION
All Other Name and Principal Position Year(1) Salary($) Bonus($) Compensation($)(2) - -------------------------------- ---- ------ ------ ------------ Larry D. Coburn, President 1995 $ 43,018 $0 $2,761 The Delaware County Bank & Trust Company Roy L. Rushing, Former Pres. (3) The Delaware County Bank & Trust Company 1995 $177,840 $0 $9,476 1994 $120,615 $30,000 $4,700 1993 $116,365 $30,000 $5,580 All Executive Officers as a Group (Nine (9) in number) 1995 $497,332(4)
____________________________________________________________________ (1) Mr. Coburn joined the Bank effective August 14, 1995. (2) The Bank pays no "fringe benefits" for its Executive Officers except for use of an automobile by the President, the total value of which is less than $5,000. Includes compensation for attendance at Board meetings while serving as a Director and the Bank's contribution to the 401(k) Plan. (3) Mr. Rushing entered into an employment contract on December 31, 1993 with the Bank. Mr. Rushing's employment with the Bank was terminated on May 31, 1995. Under the terms of his employment contract, Mr. Rushing was to be paid one year's salary by the Bank upon his termination in addition to his salary and compensation from January 1 to May 31, 1995. The information set forth above for 1995 includes such payment. (4) Includes Mr. Coburn, and Mary Ellen Basbagill, Controller, David G. Bernon, Senior Vice President-Loans, Donald R. Blackburn, Vice President-Retail Banking and Customer Relations, Richard L. Bump, Senior Vice President and Secretary to the Board, Marcy H. Niendam, Vice President-Credit Administration, Donna Warbel, Human Resources Director, Larry E. Westbrook, Senior Vice President and Cashier, and R. Baker who served as Vice President and Senior Trust Officer for all of 1995. Employment Contracts The Bank has employment contracts currently in place with Larry D. Coburn, President and CEO of the Bank, Richard L. Bump, Senior Vice President of the Bank and Secretary to the Board of Directors, and Larry E. Westbrook, Senior Vice President and Cashier of the Bank. The contract with Mr. Coburn was entered for the period from August 14, 1995, the effective date of his employment with the Bank, until December 31, 1995. The contract is renewed for successive one year terms after a performance evaluation upon the written consent of the Bank and Mr. Coburn. The contract provides for a base salary of $115,000, subject to 30 35 adjustment upward at the discretion of the Board of Directors of the Bank. The contract also provides for a bonus at the sole discretion of the Board of Directors. Fringe benefits are provided that are comparable to other executive employees except that Mr. Coburn is granted the use of an automobile unlike any other employee. The contact also provides for a severance payment in the event that the Bank terminates Mr. Coburn for other than: (i) "Just Cause" (as defined in the contract); (ii) Mr. Coburn reaching retirement age; or (iii) the Bank's decision not to renew the contract. In such a termination, the Bank is obligated under the contact to pay to Mr. Coburn an amount equal to his monthly salary for up to 12 months or until he accepts other employment. In the event the Bank is the subject of an acquisition to which Mr. Coburn does not consent, and his position with the Bank is changed significantly, Mr. Coburn may voluntarily terminate the contract and receive as severance an amount equal to the average annual salary he has received from the Bank for the past 5 years. The contracts for Mr. Bump and Mr. Westbrook are nearly identical. Both contracts were entered into on April 12, 1990 with an initial term ending December 31, 1990. The contracts automatically renew for annual periods unless the Bank gives not less than 10 nor more than 20 days' notice that the Bank chooses not to renew the contract. The contracts also provide for termination "for cause" (as defined in the contracts). The contracts can be terminated by the employee at any time, upon 90 days' written notice. Each of Mr. Bump's and Mr. Westbrook's contracts also contain a "change of control" provision providing for payment to the employee if, in connection with any acquisition of the Bank or for one year thereafter, the employee is terminated or exercises his right to terminate the agreement for "Good Reason" (as defined in the contracts) because his position with the Bank is changed significantly. In the event of such termination, the employee is entitled to receive as severance an amount equal to the average annual salary he has received from the Bank for the past 5 years. The contracts for Mr. Bump and Mr. Westbrook are silent as to compensation and such amounts are set by the Board of Directors on an annual basis. There is no intent by the Company or the Bank to materially change the compensation received by the officers as a result of the formation of the holding company. Directors' Compensation Directors are paid a monthly retainer of $75.00 for serving on the Board, except for the Chairman of the Board who receives a retainer of $300.00 per month. In addition, the Directors receive $150.00 per board meeting attended and $100.00 for each committee meeting attended. There is no intent by the Company or the Bank to materially change the compensation received by the Directors as a result of the formation of the holding company. 401(k) Retirement Plan The Bank has a 401(k) Retirement Plan (the "401K Plan") which covers substantially all of its employees. The 401K Plan was originally adopted effective January 1, 1991. The purpose of the 401K Plan is to allow the employees of the Bank the opportunity to provide for their retirement through a tax deferred program to which the Bank also may contribute. An employee may participate in the 401K Plan after having worked for the Bank for one year and after having reached the age of 20. The contributions to the 401K Plan are made by the employee and are limited to the greater of 10% of the employees' income or $9,500. The Bank may, but is not required to, "match" contributions made by the employees. During 1995, the Bank contributed $0.50 for each $1.00 contributed by the employee on the first 6% of the employee's income. The 31 36 Bank also has the right under the 401K Plan to make additional discretionary contributions on behalf of employees. The employees have the option of investing in various funds to met their investment objectives, including the Bank's stock. The employee is entitled to the full value of their 401K Plan at the time of retirement, death or permanent disability. An employee is entitled to receive the full "vested" portion of his or her account upon other termination from the Bank but forfeits the unvested portion. Employee Vesting Schedule
Number of Years of Service Percentage - -------------------------- ---------- Less than one year 0% One to two years 33% Two to three years 66% More than three years 100%
As of December 31, 1995, 115 employees were participating in the 401K Plan. During 1995, the Bank contributed $153,000 to the Plan. Stock Option Plans The Board of Directors has not adopted, nor have the shareholders authorized, stock options to any Bank officer, director, or key employee as of the date of this Proxy Statement. CERTAIN TRANSACTIONS There are no existing or proposed material transactions between the Bank and any of the Bank's officers, directors, or the immediate family or associates of any of the foregoing persons, except as indicated below. C. William Bonner, one of the Directors of the Bank, is in the process of purchasing land and constructing an office complex located at 3C Highway and Highland Lake Avenue, Westerville, Ohio. The Bank intends to enter into a lease of 10 years with two renewal options at an initial rent of $85,000 per year. The Board of Directors approved the lease transaction with Mr. Bonner abstaining from consideration of the matter. The Board believes that the rent to be paid to Mr. Bonner and the other terms and conditions of the lease transaction are comparable to those which would be available from an unrelated party. Mr. Rodney B. Hurl, a Director of the Bank and Ms. Marcy H. Niendam are father and daughter. This statement is made to comply with securities disclosures and has no bearing upon the operation of the business of the Bank. Some of the directors of the Bank, as well as the companies with which such directors are associated, are customers of, and have had banking transactions with the Bank in the ordinary course of the Bank's business and the Bank expects to have such ordinary banking transactions with such persons in the future. In the opinion of management of the Bank, all loans and 32 37 commitments to lend included in such transactions were made in compliance with applicable laws on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with other persons of similar creditworthiness and did not involve more than a normal risk of collectability or present other unfavorable features. During 1995, none of the Bank's directors or principal officers had outstanding indebtedness that exceeded ten percent (10%) of the Bank's equity capital accounts. The Bank expects to have in the future, banking transactions, in the ordinary course of its business with directors, officers, principal shareholders, and their associates, on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with others and which do not involve more than the normal risk of collectability or present other unfavorable features. SUPERVISION AND REGULATION The following is a summary of certain statutes and regulations affecting the Company. This summary is qualified in its entirety by such statutes and regulations. The Company The Company is a registered bank holding company under the Bank Holding Company Act of 1956 (the "Banking Act") as amended, and as such is subject to regulation by the Federal Reserve Board (FRB). A bank holding company is required to file with the FRB annual reports and other information regarding its business operations and those of its subsidiaries. A bank holding company and its subsidiary banks are also subject to examination by the FRB. The Banking Act requires every bank holding company to obtain the prior approval of the FRB before acquiring substantially all the assets of any bank or bank holding company or ownership or control of any voting shares of any bank or bank holding company, if, after such acquisition, it would own or control, directly or indirectly, more than five percent (5%) of the voting shares of such bank or bank holding company. In approving acquisitions by bank holding companies of companies engaged in banking-related activities, the FRB considers whether the performance of any such activity by a subsidiary of the holding company reasonably can be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, which outweigh possible adverse effects, such as overconcentration of resources, decrease of competition, conflicts of interest, or unsound banking practices. Bank holding companies are restricted in, and subject to, limitations regarding transactions with subsidiaries and other affiliates. In addition, bank holding companies and their subsidiaries are prohibited from engaging in certain "tie in" arrangements in connection with any extensions of credit, leases, sales of property, or furnishing of services. 33 38 Bank The Bank is regulated by the Ohio Division of Financial Institutions ("ODFI") as a state banking corporation organized under the laws of the State of Ohio. Additionally, the Bank is regulated by the Federal Deposit Insurance Corporation ("FDIC"). The regulatory agencies have the authority to regularly examine the Bank and the Bank is subject to the regulations promulgated by its supervisory agencies. In addition, the deposits of the Bank are insured by the FDIC. Capital The FRB, ODFI, and FDIC require banks and holding companies to maintain minimum capital ratios. In December 1988, the FRB approved final "risk-adjusted" capital guidelines for bank holding companies. The new guidelines became fully implemented as of December 31, 1992. The FDIC has adopted substantially similar risk-based capital guidelines. These ratios involve a mathematical process of assigning various risk weights to different classes of assets, then evaluating the sum of the risk-weighted balance sheet structure against the Company's capital base. The rules set the minimum guidelines for the ratio of capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) at 8%. At least half of the total capital is to be composed of common equity, retained earnings, and a limited amount of perpetual preferred stock less certain goodwill items ("Tier 1 Capital"). The remainder may consist of a limited amount of subordinated debt, other preferred stock, or a limited amount of loan loss reserves. At September 30, 1996, on a pro forma basis as if the transaction had been consummated on such date, the Company's consolidated risk-adjusted Tier 1 Capital and total capital, as defined by the regulatory agencies based on the fully phased in 1992 guidelines, were 14.48% and 16.36% of risk-weighted assets, respectively, well above the 4% and 8% minimum standards mandated by the regulatory agencies. In addition, the federal banking regulatory agencies have adopted leverage capital guidelines for banks and bank holding companies. Under these guidelines, banks and bank holding companies must maintain a minimum ratio of three percent (3%), Tier 1 Capital (as defined for purposes of the year-end 1992 risk-based capital guidelines) to total assets. However, most banking organizations are expected to maintain capital ratios well in excess of the minimum levels and generally must keep such Tier 1 ratio at or above 5%. As of September 30, 1996, on a pro forma basis as if the transaction had been consummated on such date, the Company's core leverage ratio was 10.23%, well above the regulatory minimum. Regulatory authorities may increase such minimum requirements for all banks and bank holding companies or for specified banks or bank holding companies. Increases in the minimum required ratios could adversely affect the Bank and the Company, including their ability to pay dividends. 34 39 Additional Regulation The Bank is also subject to federal regulation as to such matters as required reserves, limitation as to the nature and amount of its loans and investments, regulatory approval of any merger or consolidation, issuance or retirement by the Bank of its own securities, limitations upon the payment of dividends and other aspects of banking operations. In addition, the activities and operations of the Bank are subject to a number of additional detailed, complex and sometimes overlapping laws and regulations. These include state usury and consumer credit laws, state laws relating to fiduciaries, the Federal Truth-in-Lending Act and Regulation Z, the Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Truth in Savings Act, the Community Reinvestment Act, antiredlining legislation and antitrust laws. Dividend Regulation The ability of the Company to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends which may be declared by its subsidiary, the Bank. Generally, a state-chartered bank may not declare a dividend, without the approval of its state-chartering agency if the total of dividends declared by such bank in a calendar year exceeds the total of its net profits for that year combined with its retained profits of the preceding two years. In addition state-chartered Banks are subject to dividend regulation by their primary federal bank regulatory agency in connection with general supervisory authority as it relates to a bank's requirement to maintain adequate capital. See SUPERVISION AND REGULATION-"Capital" above. Government Policies and Legislation The policies of regulatory authorities, including the ODFI, FRB, FDIC and the Depository Institutions Deregulation Committee, have had a significant effect on the operating results of commercial banks in the past and are expected to do so in the future. An important function of the Federal Reserve System is to regulate aggregate national credit and money supply through such means as open market dealings in securities, establishment of the discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits. Policies of these agencies may be influenced by many factors, including inflation, unemployment, short-term and long-term changes in the international trade balance and fiscal policies of the United States government. The United States Congress has periodically considered and adopted legislation which has resulted in further deregulation of both banks and other financial institutions, including mutual funds, securities brokerage firms and investment banking firms. No assurance can be given as to whether any additional legislation will be adopted or as to the effect such legislation would have on the business of the Bank or the Company. In addition to the relaxation or elimination of geographic restrictions on banks and bank holding companies, a number of regulatory and legislative initiatives have the potential for eliminating many of the product line barriers presently separating the services offered by 35 40 commercial banks from those offered by nonbanking institutions. For example, Congress recently has considered legislation which would expand the scope of permissible business activities for bank holding companies (and in some cases banks) to include securities underwriting, insurance services and various real estate-related activities as well as allowing interstate branching. Recent Legislation The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was enacted in 1991. Among other things, FDICIA, requires federal bank regulatory authorities to take "prompt corrective action" with respect to banks that do not meet minimum capital requirements. For these purposes, FDICIA establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. The FRB and the FDIC have adopted regulations to implement the prompt corrective action provisions of FDICIA. Among other things, the regulations define the relevant capital measures for the five capital categories. An institution is deemed to be "well capitalized" if it has a total risk-based capital ratio (total capital to risk-weighted assets) of 10 percent or greater, a Tier 1 risk-based capital ratio (Tier 1 Capital to risk-weighted assets) of 6 percent or greater, and a Tier 1 leverage capital ratio (Tier 1 Capital to total assets) of 5 percent or greater, and is not subject to a regulatory order, agreement or directive to meet and maintain a specific capital level for any capital measure. An institution is deemed to be "adequately capitalized" if it has a total risk-based capital ratio of 8 percent or greater, a Tier 1 risk-based capital of 4 percent or greater, and (generally) a Tier 1 leverage capital ratio of 4 percent or greater, and the institution does not meet the definition of a "well capitalized" institution. An institution is deemed to be "critically undercapitalized" if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2 percent. "Undercapitalized" banks are subject to growth limitations and are required to submit a capital restoration plan. If an "undercapitalized" bank fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. "Significantly undercapitalized" banks may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. "Critically undercapitalized" institutions may not, beginning 60 days after becoming "critically undercapitalized," make any payment of principal or interest on their subordinated debt. The Bank currently meets the regulatory definition of a "well capitalized" financial institution. FDICIA directs that each federal banking agency prescribe standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value for publicly traded shares and such other standards as the agency deems appropriate. Such standards 36 41 have not yet been promulgated and, therefore, their impact on the Company cannot be ascertained. On September 29, 1994, the Reigle/Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") was signed into law. This Interstate Act effectively permits nationwide banking. The Interstate Act provides that one year after enactment, adequately capitalized and adequately managed bank holding companies may acquire banks in any state, even in those jurisdictions that currently bar acquisitions by out-of-state institutions, subject to deposit concentration limits. The deposit concentration limits provide that regulatory approval by the Federal Reserve Board may not be granted for a proposed interstate acquisition if after the acquisition, the acquiror on a consolidated basis would control more than 10% of the total deposits nationwide or would control more than 30% of deposits in the state where the acquiring institution is located. The deposit concentration state limit does not apply for initial acquisitions in a state and may be waived by the state regulatory authority. Interstate acquisitions are subject to compliance with the Community Reinvestment Act ("CRA"). States are permitted to impose age requirements not to exceed five years on target banks for interstate acquisitions. States are not allowed to opt-out of interstate banking. Ohio still has not adopted legislation to adopt or opt-out of the Interstate Act, although legislation was adopted effective October 1, 1996, to apply state law equally to all banks, state or national and in- or out-of-state, regarding acquisitions, as required by the Interstate Act. Branching between states may be accomplished either by merging separate banks located in different states into one legal entity, or by establishing de novo branches in another state. Consolidation of banks is not permitted until June 1, 1997 provided that the state has not passed legislation "opting-out" of interstate branching. If a state opts-out prior to June 1, 1997, then banks located in that state may not participate in interstate branching. A state may opt-in to interstate branching by bank consolidation or by de novo branching by passing appropriate legislation earlier than June 1, 1997. Interstate branching is also subject to a 30% statewide deposit concentration limit on a consolidated basis, and a 10% nationwide deposit concentration limit. The laws of the host state regarding community reinvestment, fair lending, consumer protection (including usury limits) and establishment of branches shall apply to the interstate branches. Ohio still has not adopted legislation concerning this issue. De novo branching by an out-of-state bank is not permitted unless the host state expressly permits de novo branching by banks from out-of-state. The establishment of an initial de novo branch in a state is subject to the same conditions as apply to initial acquisition of a bank in the host state other than the deposit concentration limits. Effective one year after enactment, the Interstate Act permits bank subsidiaries of a bank holding company to act as agents for affiliated depository institutions in receiving deposits, renewing time deposits, closing loans, servicing loans and receiving payments on loans and other obligations. A bank acting as agent for an affiliate shall not be considered a branch of the affiliate. Any agency relationship between affiliates must be on terms that are consistent with safe and sound banking practices. The authority for an agency relationship for receiving deposits includes the taking of deposits for an existing account but is not meant to include the opening or 37 42 origination of new deposit accounts. Subject to certain conditions, insured saving associations which were affiliated with banks as of June 1, 1994, may act as agents for such banks. An affiliate bank or saving association may not conduct any activity as an agent which such institution is prohibited from conducting as a principal. If an interstate bank decides to close a branch located in a low- or moderate-income area, it must comply with additional branch closing notice requirements. The appropriate regulatory agency is authorized to consult with community organizations to explore options to maintain banking services in the affected community where the branch is to be closed. To ensure that interstate branching does not result in taking deposits without regard to a community's credit needs, the regulatory agencies are directed to implement regulations prohibiting interstate branches from being used as "deposit production offices." The regulations to implement its provisions are due by June 1, 1997. The regulations must include a provision to the effect that if loans made by an interstate branch are less than fifty percent of the average of all depository institutions in the state, then the regulator must review the loan portfolio of the branch. If the regulator determines that the branch is not meeting the credit needs of the community, it has the authority to close the branch and to prohibit the bank from opening new branches in that state. On November 18, 1993, the FDIC, together with the Federal Reserve, the OCC and the Office of Thrift Supervision (the "OTS"), published for comment proposed rules implementing the FDICIA requirement that the federal banking agencies establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions. The proposal would establish standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees and benefits. In general, the standards set forth in the proposal consist of the goals to be achieved in each area, and each institution would be responsible for establishing its own procedures to achieve those goals. Additionally, the proposal would establish a maximum permissible ratio of classified assets to capital and a minimum required earnings ratio. If an institution failed to comply with any of the standards set forth in the proposal, the institution would be required to submit to its primary federal regulator a plan for achieving and maintaining compliance. Failure to submit an acceptable plan, or failure to comply with a plan that has been accepted by the appropriate regulator, would constitute grounds for further enforcement action. Based upon a review of the proposal, management of the Bank believes that the proposal, if adopted in substantially the form proposed, will not have a material adverse effect on the Bank Pursuant to FDICIA, on August 4, 1995, the FDIC, together with the Federal Reserve and the Office of the Comptroller of the Currency (the "OCC"), issued a proposal to amend their risk-based capital standards to take into account interest rate risk ("IRR") exposure. The rule generally requires banks to quantify their level of IRR exposure using a measurement system developed by the regulators that weights a bank's assets, liabilities and off-balance sheet positions by risk factors designed to reflect the approximate change in each instrument's value that would result from specified changes in interest rates (a 200 basis point increase and decline in rates). Any bank with a level of IRR exposure in excess of a specified threshold (1% of total assets) would be required to maintain additional capital against its IRR exposure. The IRR 38 43 capital requirement, if adopted in its current form, will be effective for the quarter ended March 31, 1996, although the new requirement may be applied on an advisory basis in examinations beginning after December 31, 1994, to the extent the necessary data are available. Management of the Bank does not anticipate that the IRR capital rules, if adopted in their current form, will have a material adverse effect on the Bank's ability to maintain compliance with applicable capital requirements. On May 17, 1995, the FDIC, together with the Federal Reserve, the OCC and the OTS issued new regulations under the Community Reinvestment Act ("CRA"). Under the regulations, an institution's performance in meeting the credit needs of its entire community, including low-and moderate income areas, as required by the CRA, is generally to be evaluated under three tests: the "lending test," which would consider the extent to which the institution makes loans in the low- and moderate-income areas of its market; the "service test," which considers the extent to which the institution makes branches accessible to low- and moderate-income areas of its market and provides other services that promote credit availability; and the "investment test," which considers the extent to which the institution invests in community and economic development activities. The new regulations will be used to evaluate CRA compliance commencing July 1, 1995 and were fully phased in for the Bank on January 1, 1996. Management of the Bank does not anticipate that the regulations will adversely affect the Bank. On September 30, 1996, legislation was signed by the President to combine the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF") of the FDIC. The legislation known as the Deposit Insurance Funds Act of 1996, provides for a special assessment of .657% (65.7 basis points) on institutions that pay assessments to the SAIF. The Bank does not pay assessments to the SAIF. The legislation also provides for the payment of interest on bonds issued in connection with the clean up of the savings and loan crisis by both banks and savings associations. Beginning in 2000 banks and thrifts will pay deposit insurance of $0.0243 per $100 in deposits which is an increase from that currently paid by banks. Because of the recent adoption of the law, it is not possible to accurately predict what impact if any this will have upon the Bank or the Company in the future. Legislation modifying the Ohio Banking laws was adopted in June of 1996. This legislation is the first significant modification to the Ohio Banking Laws since 1968. The intent of the legislation was to modernize the Ohio law to allow banks to remain competitive in the ever changing financial services industry and a reduction in the regulatory burden of operating the Bank, consistent with safety and soundness principles. The new law became effective on January 1, 1997. Because of the recent adoption of the new law, it is not yet possible to determine the effect that the changes will have upon the Bank. Proposed Legislation There have been proposed a number of legislative and regulatory proposals designed to strengthen the federal deposit insurance system and to improve the overall financial stability of the U.S. banking system. It is impossible to predict whether or in what form these proposals may be adopted in the future, and if adopted, what their effect would be on the Company. DESCRIPTION OF COMMON STOCK--COMPARATIVE RIGHTS General The authorized common stock of the Company consists of seven million five hundred thousand (7,500,000) shares of voting common stock, without par value. The authorized capital stock of the Bank consists of one million, four hundred twenty four thousand four hundred (1,424,400) shares of One Dollar ($1.00) par value per share, all of which are outstanding. Upon the merger of the Bank and the New Bank becoming effective, 4,273,200 shares of the Company 39 44 stock will be exchanged for all of the outstanding shares of Bank stock, subject to the exercise of dissenters' rights of appraisal. Assuming the consummation of the transaction contemplated by the Agreement, the Company will issue 4,273,200 shares of its no par value common stock to existing shareholders of the Bank on the basis of three(3) shares of Company common stock for each share of $1.00 par value common stock of the Bank. Assuming no dissenters to the transaction, the Company will, immediately upon the effective date of the transaction contemplated by the Agreement, have a capital structure of seven million five hundred thousand (7,500,000) authorized shares of no par value common stock of which four million two hundred seventy three thousand two hundred (4,273,200) shares would then be issued and outstanding. Voting Rights Each share of common stock of the Company and the Bank entitles the holder thereof to one (1) vote on all matters including the election of directors. Under Ohio banking laws, shareholders of the Bank do not have the right to cumulate votes in the election of Directors, whereas shareholders of the Company will have cumulative voting rights. (See "DESCRIPTION OF COMMON STOCK COMPARATIVE RIGHTS--Cumulative Voting.") Pursuant to the Company's Code of Regulations, the affirmative vote of 75% of the shares represented at a duly called meeting for such purpose may remove any one or all of the directors of the Company. Pursuant to the Bank's Code of Regulations, the affirmative vote of a majority (greater than 50%) of the shares represented at a duly called meeting for such purpose may remove any one or all of the directors. A special meeting of shareholders of the Bank may be called by shareholders of the Bank who own not less than twenty-five percent (25%) of the voting power of the Bank. Similarly a special meeting of shareholders of the Company may be called by shareholders who own in the aggregate not less than twenty-five percent (25%) of the stock of the Company. Antitakeover Measures A vote of the holders of at least two-thirds (2/3) of the issued and outstanding common shares of capital stock of the Bank is required to effectuate a voluntary liquidation of the Bank, reorganization of the Bank, merger or consolidation of the Bank with another bank, or the increase or decrease of the Bank's authorized or outstanding capital stock. A two-thirds (2/3) vote of the issued and outstanding stock is also required for such transactions of the Company, unless a higher or lower voting requirement is established in the Company's Articles of Incorporation. Pursuant to the Articles of Incorporation of the Company, a majority vote of the issued and outstanding shares is sufficient to amend the Articles of Incorporation of the Company, other than Article Sixth. In accordance with Article Sixth of the Articles of Incorporation of the Company a "business combination" (which includes any merger or consolidation; sale, lease exchange, mortgage, pledge or other disposition of greater than 10 percent of the assets of the Company; issuance or sale of any securities of the Company; adoption of a plan of liquidation by the Company) requires the approval of eighty percent (80%) of the total outstanding shares of common stock and sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of common stock held by the Independent Shareholders (as defined in 40 45 Article Sixth), unless such "Business Combination" has been approved by the "Continuing Directors." In addition, amendment of Article Sixth of the Company's Articles of Incorporation may also require the vote of eighty percent (80%) of the Company's outstanding shares and shares held by sixty-six and two-thirds percent (66 2/3%) of the Independent Shareholders if such amendment is not approved by the Continuing Directors as defined by Article Sixth. Because the Executive officers and Directors of the Company will own approximately 6.79% percent of the shares of the Company (assuming consummation of the proposed merger and assuming there are no dissenting shareholders to the transaction), a "Business Combination" with an Interested Shareholder may be difficult to approve without the consent of the Continuing Directors (as such term is defined by Article Sixth) and Management. The Bank currently has no antitakeover provision which is substantially similar to Article Sixth of the Company's Articles of Incorporation. (See "ANTITAKEOVER MEASURES.") Right of Redemption The Bank has limited ability to buy its outstanding shares (redeem its shares) from its shareholders. The Company is specifically empowered by its Articles of Incorporation to buy its shares of outstanding common stock from its shareholders, at the mutual accord of the shareholder and Company. The Company can, therefore, participate in the marketplace of its stock. Liquidation Rights In the event of liquidation, holders of common stock of the Company and the Bank are entitled to similar rights as to assets distributable to shareholders on a pro rata basis. Preemptive Rights Holders of common stock of the Company will not have the preemptive right to subscribe for or to purchase any additional securities which may be issued by the Company as provided by the Ohio General Business Corporation Law; Ohio Revised Code Section 1701.15. Holders of common stock of the Bank currently do have preemptive rights to subscribe for or to purchase additional securities issued by the Bank as provided by Ohio Bank law, Ohio Revised Code 1105.09. Preemptive rights permit a shareholder to subscribe to a sufficient number of shares so as to maintain their relative pro rata ownership upon the issuance of additional shares by a corporation, except in certain circumstances. Dissenters' Rights Shareholders of the Corporation and the Bank have similar dissenters' rights in certain transactions pursuant to Ohio law. Under ORC Sections 1115.19 and 1701.85, shareholders of the Bank and the Company may elect to dissent from a merger, consolidation or sale of 41 46 substantially all of the assets of an Ohio state-chartered bank and an Ohio corporation and receive the fair cash value of their shares. Cumulative Voting Each share of common stock of the Company and Bank entitles the holder thereof to one vote on all matters. The shareholders of the Bank do not have the right to cumulate their shares in the election of Directors. Shareholders of the Company will have cumulative voting rights as required by Ohio law. The Company may, as permitted by Section 1701.69 of the Ohio Revised Code, propose to shareholders that the Articles of Incorporation of the Company be amended to delete the right to vote cumulatively in the election of Directors. In the event the Company would propose such an amendment to shareholders, all shareholders would be entitled to notice of the proposed amendment as provided by law and such an amendment would be subject to other requirements as to the number of shares which could be voted against the proposed amendment. The adoption of such amendment would require the affirmative vote of the holders of a majority of the stock entitled to vote in the election of Directors. A shareholder voting cumulatively may cast the number of shares he owns times the number of Directors to be elected in favor of one nominee or allocate such votes among the nominees as he determines. Indemnification The Company's Articles of Incorporation provide for mandatory indemnification of officers, directors, employees and agents to the fullest extent permitted by Ohio law. Similarly the Code of Regulations of the Bank provides for mandatory indemnification of directors and officers of the Bank to the fullest extent permitted by law. Ohio law provides for indemnification in both derivative and nonderivative actions. Ohio law generally provides for the payment of expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the indemnitee provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and with respect to any criminal action or proceeding if he had no reasonable cause to believe his conduct was unlawful. However, in derivative suits, if the suit is lost, no indemnification is permitted in respect of any claim, issue or matter as to which the prospective indemnitee 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, a court of competent jurisdiction determines upon view of all the circumstances of the case, the prospective indemnitee is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. Further, this indemnity in derivative suits is limited to expenses incurred in defending the suit, not the amount of any judgment, fine or other penalty levied against the prospective indemnitee. Finally, no indemnification may be provided in any action or suit in which the only liability asserted against a director is pursuant to a statutory provision outlawing loans, dividends, and distribution of assets under certain circumstances. 42 47 The Articles of Incorporation of the Company provide that the Company shall indemnify its past and present directors for personal liability for monetary damages resulting from breach of their fiduciary duty as directors, except in certain instances involving a breach of a director's duty of loyalty to the Company, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, liability based upon illegal distribution of dividends and liability based upon a transaction from which the Director derived an improper personal benefit. The Bank does not have a similar provision regarding indemnification of past and present directors for monetary liability resulting from the breach of their fiduciary duties. The provisions regarding indemnification may not be applicable under certain federal and state banking and securities laws and regulations. Dividend Rights Dividends may be paid on common stock of the Company as are declared by the Board of Directors out of funds legally available therefor. Dividends may not exceed the surplus of the Company, as defined by the Ohio Business Corporation Act, and may not be declared if the Company is insolvent or would thereby be made insolvent. (See "SUPERVISION, REGULATION AND LEGISLATION--The Company.") Dividends may be paid on common stock of the Bank as are declared by the Board of Directors out of funds legally available therefor. Dividends paid by the Bank on its common stock must be declared out of the net profits of the Bank. Transfer and Assessability Transfer of common stock of the Company may not be restricted by the Company and, when issued, common stock of the Company is fully paid and nonassessable. The transfer of common stock of the Bank may not be restricted, except as is reasonably calculated by the Bank to simplify the work of the Bank with respect to stock transfers, voting at shareholders' meetings and related matters, and to protect it against fraudulent transfers. The common stock of the Bank is subject to assessment by the Board of Directors in order to restore capital impaired by losses or otherwise, and shares owned by public shareholders who fail to pay any assessment may be sold at public or private sale. ANTITAKEOVER MEASURES Discussion of Fair Price and Supermajority Vote Provisions The Company's Amended Articles of Incorporation contain a "Fair Price" and "Supermajority Vote" provision. Such provision has been included in the Company's Articles of Incorporation based on the fact that certain tactics have become relatively common in corporate takeover practice, including the accumulation of a substantial block of stock as a prelude to an 43 48 attempted takeover or proxy fight or the use of a partial tender offer followed by a second step merger or Business Combination involving less favorable considerations than were offered in the partial tender offer. The Board considers that such tactics can be highly disruptive and can result in dissimilar and unfair treatment of shareholders. The Fair Price and Supermajority Vote provisions are designed to encourage potential takeover bidders to negotiate at arms length with the Board of Directors. In the absence of such negotiations, the provisions are intended to achieve a measure of assurance that any multistep attempt to take over the Company is made on terms that offer similar treatment to all shareholders. Neither the proposed fair price provision nor the supermajority vote provision will impede a takeover that is approved by a majority of the directors of the Company who are unaffiliated with a 10 percent or more shareholder. The Board of Directors is not aware of any current efforts to obtain control of the Bank or to effect substantial accumulations of its common shares. The provisions are proposed in order to have in place appropriate safeguards to protect the shareholders in light of numerous two-step takeover attempts for public corporations and in light of developments in legislation regarding interstate banking. An effect of the Fair Price provision and the Supermajority Vote provision is to make more difficult the consummation of a Business Combination with a 10 percent or more shareholder in the absence of the approval of the Board of Directors of the Company. Accordingly, the provisions may discourage takeover attempts which are not supported by the Board of Directors even in transactions which may be supported by a majority of shareholders. (See "Purpose and Effect of Amendments to Articles of Incorporation Concerning Fair Price and Supermajority Vote Provisions.") Reasons for Fair Price and Supermajority Vote Provisions The Board of Directors of the Bank and the Company (which Boards are comprised of the same individuals and, therefore, the Agreement was not the result of any arms-length negotiation) unanimously approved the Agreement (the law requires a simple majority of the Bank's Board of Directors approve such an agreement), which Agreement provides for the exchange of Company common shares for Bank common shares. Company common shares are subject to the provisions of its Articles of Incorporation, including Article Sixth, which Articles of Incorporation were adopted at the direction of and with the approval of the Bank's and Company's Boards of Directors. The so-called "Fair Price" and "Supermajority Vote" provision would be applicable in the case of certain Business Combinations with a shareholder owning ten percent (10%) or more of the voting stock of the Company. The Board of Directors determined that the provisions are desirable to assure all shareholders fair and equitable treatment in the event of certain types of "two-step" acquisition transactions. There have been a number of takeovers of publicly owned corporations accomplished by the purchase of a control block of stock by means of open market purchases or by means of a tender offer made directly to a target corporation's shareholders at a price above the prevailing 44 49 market price, followed by a second-step merger or other Business Combination. The value of the consideration given for the acquired corporation's shares in the second step of such an acquisition may be, and frequently is, less than the value paid in the first step and/or the form of the consideration in the first step. The Board of Directors is concerned that the interest of all shareholders may not be adequately protected in such a two-step acquisition. The Bank has a large number of long-term shareholders who individually hold a small number of Bank common shares. The Board believes that sophisticated arbitrageurs and other market professionals are generally in a better position to take advantage of the more lucrative first step transaction, while long-term shareholders will often, as a practical matter, be compelled to accept the less favorable consideration payable in the second step merger or other Business Combination. Although the remaining shareholders subject to the second step may have available certain legal remedies in such a situation, including the right to dissent under Ohio law in a merger and certain other Business Combinations, the enforcement of such rights or remedies by a minority shareholder may involve significant expense, delay and uncertainty. The Board of Directors has also observed that there have been significant developments in the area of interstate banking. Under the Bank Holding Company Act, a bank holding company is generally prohibited from acquiring the voting stock or assets of a bank or bank holding company located outside the state where the principal operations of the acquiring bank holding company are conducted, unless statutes of the state where the bank or the bank holding company to be acquired is located expressly authorize such an acquisition. Several states, including Ohio (effective January 1, 1991), have adopted, in various forms, statutes authorizing out-of-state bank holding companies to acquire banks and bank holding companies located in their states. Such statutes increase the number of potential acquirors of the Bank. In addition, the impact of the Reigle/Neal Act discussed in "Recent Legislation" above likely will accelerate such out of state transactions. The potential for future use of the two-step acquisition and further expansion of interstate banking have convinced the Board of Directors of the Bank and the Company that these provisions are desirable in order to preserve for the shareholders the benefits which will accrue to the Company and its subsidiary, the Bank, including its increased ability to compete in the significantly deregulated banking industry. Summary of Fair Price and Supermajority Vote Provisions The following summary is qualified by reference to the full text of the Amended Articles of Incorporation (attached hereto as Appendix II). Capitalized terms used throughout this discussion of Article Sixth shall have the meaning given to such terms in Article Sixth of the Company's Articles of Incorporation. Article Sixth contains both a "Fair Price" and "Supermajority Vote" provision. Under the "Fair Price" provision, no Business Combination may be effected without the approval of the Continuing Directors, unless either: 45 50 (i) Approved by holders of not less than 66 2/3 percent of the Voting Stock held by all Independent Shareholders voting together as a class; or (ii) The minimum price and other requirements and conditions set forth in Article VI (D.) are complied with It is possible that, if the Interested Shareholder has not made a recent purchase of Corporation stock, the "Fair Price" might be a price paid by the Interested Shareholder several years ago. That price may have no relation to the present market value of the stock, particularly if the stock has declined in value during the interim period. As the fair price is an aggregate of the cash and Fair Market Value of property paid plus interest paid on such property from the date the Interested Shareholder became such to the date of consummation, a determination of whether the price paid satisfies the Fair Price provision may conceivably not be made until the date of consummation. Due to this uncertainty of whether the Fair Price provision has been satisfied, the actual vote required at the meeting of shareholders may not be determinable until consummation. This uncertainty may preclude an Interested Shareholder from actually determining the price required to satisfy the Fair Price provision, even if the Interested Shareholder had every intention of doing so. The uncertainty associated with the Fair Price provision may have the effect of encouraging an Interested Shareholder who is not assured of the eighty percent (80%) Supermajority Vote to negotiate any proposed Business Combination with the Board of Directors, and more specifically, negotiate with the Continuing Directors. The purpose of the foregoing conditions is to require, in the absence of the approval of the Continuing Directors or holders of at least 66 2/3 percent of all Voting Stock held by the Independent Shareholders, that the Independent Shareholders receive in a Business Combination the "minimum price" specified in Article Sixth (D.), which is the highest price per share paid by the Interested Shareholder in acquiring shares of such class or series or, if greater, in the case of preferred stock, the amount of the per share redemption price, plus interest, less cash dividends received. The form of the consideration would be the same as previously paid by the Interested Shareholder to acquire the largest number of shares of such class or series. The conditions in Article Sixth (D)(3) are to deter the Interested Shareholder from self-dealing or taking advantage of its equity position in the Corporation. Article Sixth also contains a "Supermajority Vote" provision. The vote required by the Supermajority Vote provision is in addition to any vote required by the Fair Price Provision. Under the Supermajority Vote provision, no Business Combination with an Interested Shareholder may be effected without the approval of the Continuing Directors, unless approved by holders of not less than eighty percent (80%) of the outstanding Voting Stock voting together as a single class. (This 80 percent Supermajority Vote requirement includes the vote of the Interested Shareholder.) 46 51 Any vote of Shareholders of the Corporation under Article Sixth is in addition to any required vote of the holders of any class of shares of capital stock of the Corporation and is required notwithstanding that no shareholder vote or a lesser percentage shareholder vote may be required by law or other provisions of the Articles of Incorporation. All actions required to be taken by the Continuing Directors under Article Sixth shall be taken by the vote or written consent of two-thirds (2/3) of the Continuing Directors. In the event that the number of Continuing Directors is at any time less than five (5), all power and authority of the Continuing Directors under Article Sixth shall cease, including the authority to approve Business Combinations and successor Continuing Directors and filling director vacancies. The Continuing Directors are given authority under Article Sixth to determine, consistent with their fiduciary obligations, such matters as whether any person is an Interested Shareholder; Fair Market Value of property, securities and other noncash considerations; and other matters. Provisions of Article Sixth (H) restrict the manner in which the Article may be repealed, amended, supplemented or otherwise modified. Comparison with Current Requirements Under Ohio law, the following transactions or actions generally require shareholder approval: (i) To effect a merger or consolidation; (ii) To sell or otherwise dispose of all or substantially all the assets of the Corporation; (iii) To dissolve the Corporation; and (iv) To adopt amendments to its Articles of Incorporation. The Shareholder vote required by Ohio law to authorize any of the foregoing is two-thirds (2/3) of the voting power of the Bank on such proposals. It should be noted, however, that certain transactions are included within the definition of Business Combinations which would not, in absence of the proposed Fair Price and Supermajority Vote provisions, require any shareholder approval. In addition, under the Fair Price provision, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the Voting Stock held by the Independent Shareholders voting as a single class is required to approve a Business Combination with an Interested Shareholder in the absence of the approval of the Continuing Directors or in the absence of compliance with the minimum price and other conditions and requirements of the Fair Price provision. The Board of Directors has determined that encouraging a prospective purchaser to negotiate directly with the Board and Management will be beneficial to all shareholders. The Board has determined that it and Management, in consultation with their professional advisors, are in the best position to assess the business and prospects of the Company. Accordingly, the 47 52 Board is of the opinion that negotiations between the Company and a potential acquiror will increase the likelihood that shareholders will receive a higher price for their shares. The fair price and supermajority vote provisions may have the effect of protecting the incumbent Board of Directors and management by discouraging takeover attempts which are not supported by the Board and management. As a result, shareholders may not have the opportunity to sell some or all of their shares in such a takeover attempt. Tender offers for control usually involve a purchase price higher than the prevailing market price and may result in a bidding contest between competing takeover bidders. In addition, these "antitakeover" provisions could affect the price of the Company's common shares by making it less attractive to persons who invest in securities in anticipation of an increase in price if a takeover attempt occurs. On the other hand, defeating undesirable tender offers can be expensive and disruptive. The fair price and supermajority vote provisions may also deter an Interested Shareholder from proceeding with a second-step business combination unless approved by the Continuing Directors, especially if the market price of the Company shares had declined from the highest price paid by the interested shareholder in acquiring shares of such class. Furthermore, unless the Continuing Directors approve a business combination, these "antitakeover" provisions would give the holder of a minority of the total outstanding shares a veto power over a business combination with an Interested Shareholder notwithstanding that the other shareholders, including the Interested Shareholder, may believe the business combination to be desirable or beneficial. Classified Board of Directors and Supermajority Vote Required to Remove Directors The Company's Board of Directors is divided into three classes and each class will be elected for a three-year term. The classified election system for Directors provides continuity of Directors and also serves as a defense against unwanted takeovers. Shareholders desiring to change a majority of the Board would have to wait two years, in that one class of the Directors are elected annually. This may discourage potential acquirors of the Company's shares from making acquisitions of the Company's shares. The Bank's Articles of Incorporation currently provide for a classified system for the election of Directors. At the effective date of the merger, all of the Directors of the Bank will be Directors of the Company and will be subject to reelection as Directors of the Company at the same time, according to the expiration of their term, as they are currently subject to reelection as Directors of the Bank. Additional Considerations Federal law requires prior approval by the Board of Governors of the Federal Reserve System before any company acquires control of a bank or bank holding company. In addition, pursuant to Ohio Revised Code 1125.18, no person or entity shall directly or indirectly, acquire a controlling interest in a bank without the prior written approval of the Ohio Superintendent of Banks. Independent of any provision of the Company's Articles of Incorporation or Bylaws, the requirement for such regulatory approval may delay efforts to obtain control over the Company. 48 53 The Company is an Ohio-chartered corporation and, as an "issuing public corporation" under the laws of Ohio, is subject to the provisions of the Ohio Control Share Acquisition Statute (ORC Section 1701.831) and the Merger Moratorium Act (ORC Section 1704). Pursuant to the Ohio Control Share Acquisition Statute, the purchase of certain levels of voting power of the Company (one-fifth or more, one-third or more, or a majority) can be made only with the prior authorization of at least a majority of the total voting power of the Company and a separate prior authorization of the holders of at least a majority of the voting power held by shareholders other than the proposed purchaser, officers of the Company and Directors of the Company who are also employees. This law has the potential effect of deterring certain potential acquisitions of the Company which might be beneficial to shareholders. The Merger Moratorium Act, enacted in 1990, prohibits certain Ohio corporations from engaging in specified types of transactions with an "interested shareholder" for a period of three years after the shareholder becomes an "interested shareholder" unless the shareholder receives the approval of the Corporation's Board of Directors prior to the acquisition of shares or the consummation of the specified type of transaction. The anticipated effect of the Merger Moratorium Act is to encourage a potential acquiror to negotiate with a target Corporation's Board of Directors prior to obtaining a 10 percent or greater block of shares in the Corporation. The Company has 7,500,000 shares of authorized common stock of which, after consummation of the proposed reorganization, there will be 4,273,200 issued and outstanding. Therefore the Company will have 3,226,800 shares of its authorized common stock available for future issuance, without further action by the shareholders of the Company, by the Board of Directors for any proper corporate purpose. These shares could be issued into "friendly" hands by the Board of Directors of the Company in the event of an attempt to gain control of the Company without the approval of the incumbent members of the Board of Directors. Because the Company's excess authorized shares could be utilized in this manner, they represent a potential "antitakeover" device. The Company's Articles of Incorporation and Code of Regulations currently contain no other provisions that were intended to be or could fairly be considered as antitakeover in nature or effect. The Board of Directors has no present intention to amend further the Articles of Incorporation to add any antitakeover provisions. These antitakeover provisions are not the result of Management's knowledge of any effort to obtain control of the Company by any means. REPORTS The Bank currently files periodic reports with the FDIC pursuant to Section 12g of the Securities Exchange Act of 1934 (the "1934 Act") as a "reporting company." Subsequent to the consummation of the transaction, the Company as "successor" to the Bank will file similar annual and quarterly reports with the Securities and Exchange Commission ("SEC"). The Company will deliver to the shareholders of the Company an annual report containing audited financial information as required under the 1934 Act. While the Company will file quarterly reports with the SEC, copies of which may be obtained from the SEC, the Company is not obligated and does not currently intend to provide quarterly reports to shareholders. 49 54 LEGAL OPINION Legal matters in connection with the issuance of common stock of the Company in the merger will be passed upon by special counsel in connection with the reorganization, Werner & Blank Co., L.P.A., Toledo, Ohio. OTHER MATTERS The management of the Bank is not aware of any other matters to be presented for consideration at the meeting or any adjournments thereof. If any other matters should properly come before the meeting, it is intended that the persons' names in the enclosed proxy will vote the shares represented thereby in accordance with their judgment, pursuant to the discretionary authority granted therein. ADDITIONAL INFORMATION This Prospectus and Proxy Statement constitutes part of the Registration Statement covering the shares to be offered pursuant to the merger transaction by the Company, as filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended. This Prospectus and Proxy Statement does not contain all the information set forth in such Registration Statement and the exhibits thereto, certain portions of which have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Such Registration Statement may be inspected, without charge, at the principal office of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C., and copies of all or part thereof may be obtained from the Securities and Exchange Commission upon payment of its prescribed fees. The Securities and Exchange Commission also maintains a Web Site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including the Company. THE BANK'S COMMON STOCK IS REGISTERED UNDER SECTION 12g OF THE SECURITIES AND EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT"), PURSUANT TO WHICH IT FILES ANNUAL AND QUARTERLY FINANCIAL REPORTS WITH THE FEDERAL DEPOSIT INSURANCE CORPORATION, REGISTRATION AND DISCLOSURE SECTION. THE BANK'S FORM F-2 ANNUAL REPORT WHICH INCLUDES FINANCIAL STATEMENTS AND SCHEDULES, BY REFERENCE, IS FILED WITH THE FEDERAL DEPOSIT INSURANCE CORPORATION IN WASHINGTON, DC. THIS REPORT ALSO FULFILLS THE REQUIREMENTS OF PART 350 OF THE FDIC RULES AND REGULATIONS. A COPY OF THIS REPORT IS AVAILABLE TO SHAREHOLDERS UPON REQUEST TO THE SECRETARY, DELAWARE COUNTY BANK & TRUST COMPANY, 41 N. SANDUSKY STREET, DELAWARE, OHIO 43015, (614) 363-1133. THE FIRST COPY WILL BE PROVIDED WITHOUT CHARGE. NEITHER THE ANNUAL REPORT TO SHAREHOLDERS NOR THE FORM F-2 ARE TO BE TREATED AS PART OF THE PROXY SOLICITATION MATERIAL, NOR AS HAVING BEEN INCORPORATED HEREIN BY REFERENCE. ADDITIONALLY SUCH FORM F-2 ANNUAL REPORT MAY BE INSPECTED AND COPIED AT THE OFFICES OF THE FEDERAL DEPOSIT INSURANCE CORPORATION, REGISTRATION AND DISCLOSURE SECTION, 550 17TH STREET, NW, WASHINGTON D.C., 20429. By Order of the Board of Directors of The Delaware County Bank & Trust Company Larry D. Coburn, President 50 55 APPENDIX I MERGER AGREEMENT 56 MERGER AGREEMENT This MERGER AGREEMENT (hereinafter called the "Agreement") dated as of _________, 1997 between The Delaware County Bank & Trust Company, Delaware, Ohio (hereinafter called the "Bank") and Delaware Interim Bank (IN ORGANIZATION) (hereinafter called the "New Bank") joined in by DCB Financial Corp. (hereinafter called the "Corporation"), as the parent corporation of New Bank. WITNESSETH: WHEREAS, the Bank and the New Bank are each state banking corporations duly organized under the laws of the State of Ohio, each with its principal office in the City of Delaware, County of Delaware, State of Ohio. The Bank is a banking corporation engaged in the business of banking. The New Bank is a banking corporation which is not engaged in the business of banking and will not be engaged in the business of banking prior to the merger as provided herein. WHEREAS, as of September 30, 1996, the capital funds of the Bank consisted of capital stock of $1,424,400, divided into 1,424,400 shares of common stock of a par value of $1.00 per share, surplus of $2,355,000, and undivided profits, including capital reserves, and less losses on investment securities, of $27,337,000, for total equity capital of $31,116,400. WHEREAS, an application for the New Bank was submitted to the Ohio Superintendent of Financial Institutions, Division of Financial Institutions, and upon the effective date hereof the New Bank will have capital stock of $125,000, divided into 1,000 shares of common stock of the par value of $125.00 per share, surplus of $125,000 and an expense fund of $62,500 for total capital funds of $312,500. WHEREAS, all of the shares of the Bank and the New Bank outstanding immediately prior to the merger of New Bank into Bank (the "Merger") will be owned by the Corporation immediately following the Merger, and such shares of the New Bank will be retired and canceled by the Corporation immediately subsequent to the Merger. 57 WHEREAS, Corporation is a for-profit corporation duly organized under the laws of the State of Ohio and has its registered office in the City of Delaware, County of Delaware, State of Ohio. As of the date hereof, Corporation has 7,500,000 common shares without par value authorized, one (1) organizational share of which is currently issued and outstanding, which share will be canceled in connection with the Merger. WHEREAS, from and after the time the Merger becomes effective, and as and when required by the provisions of this Agreement, the Corporation will issue shares of its common stock as hereinafter provided. WHEREAS, a majority of the Board of Directors of the Bank and a majority of the Board of Directors of the New Bank, respectively, approved this Agreement and authorized its execution, and a majority of the Board of Directors of the Corporation has approved this Agreement, undertaken that the Corporation shall join in and be bound by it, and authorized the undertaking hereinafter made by the Corporation. NOW, THEREFORE, in consideration of the premises, covenants and conditions contained herein, the Bank and the New Bank hereby enter into this Agreement and prescribe the terms and conditions set forth herein. Section 1. The New Bank shall be merged into and under the Charter of the Bank pursuant to the provisions of, and with the effect provided under Chapter 1115 of the Ohio Revised Code. Section 2. Upon the Merger becoming effective, the name of the Bank (hereinafter called the "Resulting Bank" whenever reference is made to it as of the time of Merger or thereafter) shall be "The Delaware County Bank & Trust Company," its Articles of Incorporation and Code of Regulations shall be the Articles of Incorporation and Code of Regulations of the Bank upon the effective date of the merger. The principal office of the Resulting Bank shall be the currently existing principal office of the Bank. Section 3. Upon the Merger becoming effective, the corporate existence of the Bank and the New Bank shall be merged into and continued in the Resulting Bank, as provided by the aforementioned Ohio Revised Code, and the Resulting Bank shall be deemed to be the same 2 58 corporation as the Bank and the New Bank combined, possessing all the rights, interests, privileges, powers and franchises and being subject to all restrictions, liabilities and duties of each. All and each of the rights, interests, privileges and franchises of the Bank and New Bank and all property, real, personal and mixed, and all debts due to the Bank and New Bank on whatever account, shall be transferred to and vested in the Resulting Bank without any deed or other transfer and without any order or other action on the part of any court or otherwise; and, all property, rights, privileges, powers, franchises and interests and each and every other interest of the Bank or New Bank shall be thereafter the property of the Resulting Bank. The Resulting Bank, by virtue of the Merger, and without any order or other action on the part of any court or otherwise, shall hold and enjoy the same and all rights of property, franchises and interests, including appointments, designations and nominations and all other rights and interests as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, guardian of mentally incompetent persons and in every other fiduciary capacity, in the same manner and to the same extent as such rights, franchises and interests were held or enjoyed by the Bank and New Bank immediately prior to the merger of the Bank and the New Bank. Section 4. Upon the Merger becoming effective, the Resulting Bank shall be liable for all deposits, debts, liabilities, obligations and contracts of the Bank and of the New Bank, respectively, matured or unmatured, whether accrued, absolute, contingent or otherwise; and whether or not reflected or reserved against on balance sheets, books of account, or records of the Bank or the New Bank, as the case may be, shall be those of the Resulting Bank, and shall not be released or impaired by the Merger; and, all rights of creditors and other obligees and all liens on property of either the Bank or the New Bank shall be preserved unimpaired. Section 5. Upon the Merger becoming effective: (a) The shareholders of the Bank of record at the time the Merger becomes effective shall be allocated and entitled to receive shares of the common stock of the Corporation, without par value, at the rate of three (3) such shares of the Corporation for each one (1) share of the common stock of the Bank. 3 59 (b) Each share of the common stock of the Bank shall, be exchanged for three (3) shares of the common stock of the Corporation, and outstanding certificates representing shares of the common stock of the Bank so exchanged shall thereafter be owned by the Corporation; such Bank stock certificates may be exchanged by the holders thereof after the Merger becomes effective for the new certificates for the appropriate number of shares bearing the name of the Corporation. (c) The amount and number of shares of capital stock of the Bank outstanding immediately before the Merger becomes effective (specifically, $1,424,400, divided into 1,424,400 shares of common stock of a par value of $1.00 each, such figures being adjusted to reflect all increases, if any, in the capital stock of the Bank between the date hereof and immediately prior to the Merger) shall be increased in the amount and the number of shares of the capital stock of the New Bank outstanding immediately before the Merger becomes effective (specifically, $125,000, divided into 1,000 shares of the par value of $125.00 each). Upon the effective date of the Merger, the capital stock of the New Bank will be retired and canceled. (d) Upon and by reason of the Merger becoming effective, stock shall be allocated as follows: (i) To shareholders of the Bank of record at the time the Merger becomes effective there shall be allocated three (3) shares of common stock of the Corporation for each one (1) share of common stock of the Bank held of record at the time of the Merger and (ii) To the Corporation there shall be allocated the amount and the number of shares of capital stock of the Resulting Bank of the par value of $1.00 each, which shall be equal to the amount and the number of shares of capital stock of the Bank outstanding immediately before the Merger. 4 60 (e) No dividend, except if and to the extent permitted by the Board of Directors of the Corporation payable by the Corporation as of any date subsequent to the date the Merger becomes effective, shall be payable to any holder of shares of the Corporation evidenced by any certificate for stock of the Bank outstanding on the effective date of the Merger, unless and until such outstanding certificate for Bank stock shall have been surrendered to the Corporation in exchange for a certificate or certificates evidencing shares of the common stock of the Corporation. Upon the surrender of any such Bank certificate for a new certificate or certificates evidencing shares of the common stock of the Corporation, there shall be paid to the holder of the certificate the amount of dividends payable by the Corporation as of a date subsequent to the effective date of the Merger and not theretofore paid on such shares of its common stock. Section 6. Any employee benefit plan of Bank shall not be terminated upon consummation of the Merger, but shall continue thereafter as the plan of the Resulting Bank. If necessary, the parties hereto may enter into a succession agreement relating to such plans to reflect such continuation, to adapt such plans to the corporate structure existing from and after the Merger becomes effective, and to make provisions for the employees of the Corporation to participate therein, all in such manner as the Boards of Directors of the respective parties may deem necessary or desirable. Section 7. The Board of Directors of the Resulting Bank, upon the Merger becoming effective, shall consist of all persons who are directors of the Bank immediately before the Merger becomes effective, which directors are set forth on Exhibit A attached hereto and made a part hereof. Section 8. This Agreement shall be submitted to the shareholders of the Bank and the New Bank for ratification and confirmation at meetings to be called and held in accordance with the applicable provisions of law and the respective Articles of Incorporation and Code of Regulations of the Bank and the New Bank. The Bank and the New Bank shall proceed expeditiously and cooperate fully in the procurement of any other consents and approvals and in 5 61 the taking of any other action, and the satisfaction of all other requirements prescribed by law or otherwise, necessary for consummation of the Merger on the terms herein provided; including, without being limited to, the preparation and submission of any application to the Superintendent of Banks of the Ohio Division of Financial Institutions for approval under the provisions of Chapter 1115 of the Ohio Revised Code and application for approval under the provisions of Section 18(c) of the Federal Deposit Insurance Act, as amended for prior approval to effect a merger or other transaction, and, incident thereto, to establish a branch or branches under Section 9 of the Federal Reserve Act (12 USC 321). Section 9. A shareholder of the Bank who votes against the Merger, abstains or who does not vote and who has given notice in writing to the Bank within ten (10) days after the meeting called to consider the Merger, and demands his fair cash value of his shares, shall be entitled to receive in cash from the Resulting Bank the fair value of all shares held by him, in accordance with Ohio Revised Code Sections 1115.19 and 1701.85 attached hereto as Exhibit B. Section 10. Effectuation of the Merger herein provided is conditioned upon the following: (a) Ratification and confirmation of this Agreement by vote of the shareholders of the Bank and the New Bank, as required by law; and (b) Procurement of the consent of the Ohio Division of Financial Institutions, Board of Governors of the Federal Reserve, The Federal Deposit Insurance Corporation and all other necessary consents and approvals, and satisfaction of all other requirements prescribed by law which are necessary for consummation of the Merger. Section 11. If any of the following shall occur then this Agreement may be terminated at any time before the Merger becomes effective, by the written notice by either the Bank or the New Bank to the other of them, authorized or approved by resolution adopted by the Board of Directors of one of them giving such notice: (a) The number of shares of capital stock of the Bank voted against the Merger, or in respect of which written notice is given purporting to dissent from the Merger, shall exceed five percent (5%) of the outstanding shares; or 6 62 (b) Any action, suit, proceeding or claim has been instituted, made or threatened relating to the proposed Merger; or (c) Any action, consent or approval, governmental or otherwise, which is, or in the opinion of counsel for the Bank, may be necessary to permit or enable the Resulting Bank, upon and after the Merger, to conduct all or any part of the business activities of the Bank up to the time of the Merger, in the manner in which such activities and businesses are then conducted, shall not have been obtained; or (d) Rulings from the Internal Revenue Service, or any opinion of counsel in lieu thereof, satisfactory in form and substance to the Bank and counsel for the Bank with respect to tax consequences of the Merger and transactions referred to herein shall not have been obtained and remain in effect; or (e) In the event of the mutual agreement to terminate the transactions contemplated by this Agreement, rendered by a resolution electing to terminate, and adopted by the Boards of Directors of the Bank and the New Bank. Upon termination by written notice, as provided in this Section 11, this Agreement shall be void and of no further effect, and there shall be no liability by reason of this Agreement or the termination thereof on the part of any of the Bank, the New Bank, the Corporation or the directors, officers, employees, agents or shareholders of any of them. Section 12. Subject to the terms of this Agreement and upon satisfaction of all requirements of law and the conditions specified in this Agreement, the Merger shall become effective upon the filing of a certified copy of this Agreement, with the Ohio Secretary of State, by the Superintendent of Financial Institutions. Section 13. Each of the natural persons whose signature is appended to this Agreement as a Director of the Bank hereby covenants and agrees with each of the other natural persons whose signature is appended to this Agreement as a Director of the Bank and New Bank, and with each of the corporate parties to the Agreement, that he will vote any and all shares of the capital stock of the Bank now owned, held, or standing in his name in his individual, fiduciary, 7 63 or other capacity that he may or shall be or become entitled to vote, in favor of the adoption of this Agreement in any meeting of shareholders of the Bank called for the purpose of voting on this Agreement. Section 14. The Bank shall obtain agreements in the form set forth as Exhibit C attached hereto, executed by each person, who is identified as an "affiliate" (as such term is defined in Rule 144 under the Securities Act of 1933) of the Bank. Section 15. (a) Any of the terms or conditions of this Agreement may be waived at any time by any party hereto, by action of its Board of Directors, evidenced by a certificate signed by its President or other duly authorized person. (b) To the extent permitted by law, this Agreement may be amended or supplemented at any time, whether before or after the vote of shareholders of the Bank or New Bank, by written amendment authorized by the Boards of Directors of each of the parties and executed by a majority of members of the Boards of Directors of each party; provided, however, that no amendment to this Agreement may be made that materially and adversely affects the interests of the shareholders without the consent of the shareholders as provided by law. (c) This Agreement and the instruments referred to herein constitute the entire contract among the parties and supersede all other understandings with respect to the subject matter hereof. (d) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall be deemed one and the same Agreement, and shall become binding on the parties hereto when one or more counterparts have been signed by each of the parties and delivered to the other parties. (e) Any notices or other communications required or permitted hereunder shall be sufficiently given if hand delivered or sent by registered mail or certified mail, postage prepaid, addressed, if to Corporation, Interim Bank, or Resulting Bank, 41 N. Sandusky Street, Delaware, Ohio 43015 or such other address as shall be furnished in writing by any party, and any such notice or communication shall be 8 64 deemed to have been given as of the date so mailed (except that a notice of change of address shall not be deemed to have been given until received by the addressee). (f) This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. (g) The descriptive headings of the several articles, sections and paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. (h) Nothing in this Agreement shall restrict or prohibit the amendment of the Resulting Bank's Articles of Incorporation or Code of Regulations in a manner designed to eliminate any provisions in said Articles of Incorporation or Code of Regulations that would require directors of Resulting Bank to own Resulting Bank common stock. IN WITNESS WHEREOF, the Bank and the New Bank have caused this Merger Agreement to be executed in counterpart by their duly authorized officers and their corporate seals to be hereunto affixed as of the date first above written, and directors constituting a majority of the Board of Directors of each such bank have hereunto subscribed their names. (SEAL OF BANK) DELAWARE INTERIM BANK By: By: ---------------------------- ---------------------------- Larry D. Coburn, President Richard L. Bump, Secretary and its Directors: ---------------------------- ---------------------------- Larry D. Coburn David Bernon ---------------------------- ---------------------------- Richard L. Bump Terry M. Kramer ---------------------------- Larry Westbrook 9 65 STATE OF OHIO ) ) SS: COUNTY OF DELAWARE ) On this _____ day of _____________, 1997, before me, the undersigned, a Notary Public in and for the State of Ohio, personally appeared Delaware Interim Bank, by and through Larry D. Coburn and Richard L. Bump, to me personally known, who, being by me duly sworn, did say that they are the President and Secretary, respectively, of the Corporation executing the foregoing instrument; that the seal affixed thereto is the seal of the Corporation; that the instrument was signed on behalf of the Corporation by authority of its Board of Directors; that said Larry D. Coburn and Richard L. Bump acknowledged the execution of the instrument to be the voluntary act and deed of the Corporation, by it and by them voluntarily executed. (SEAL) ____________________________________ Notary Public in and for the State of Ohio THE DELAWARE COUNTY BANK & TRUST COMPANY By: By: ---------------------------- ---------------------------- Larry D. Coburn, President Richard L. Bump, Secretary and its Directors: - ------------------------------- ----------------------------- C. William Bonner Merrill L. Kaufman - ------------------------------- ----------------------------- Larry D. Coburn Terry M. Kramer - ------------------------------- ----------------------------- Joseph W. Conklin William R. Oberfield - ------------------------------- ----------------------------- Rodney B. Hurl Thomas T. Porter - ------------------------------- ----------------------------- F. Frances Hutchinson Edward Powers - ------------------------------- ----------------------------- G. Edwin Johnson Gary M. Skinner 10 66 STATE OF OHIO ) ) SS: COUNTY OF DELAWARE ) On this _____ day of _____________, 1997, before me, the undersigned, a Notary Public in and for the State of Ohio, personally appeared The Delaware County Bank & Trust Company, Delaware, Ohio by and through Larry D. Coburn and Richard L. Bump, to me personally known, who, being by me duly sworn, did say that they are the President and Secretary, respectively, of the Corporation executing the foregoing instrument; that the seal affixed thereto is the seal of the Corporation; that the instrument was signed and sealed on behalf of the Corporation by authority of its Board of Directors; that said Larry D. Coburn and Richard L. Bump acknowledged the execution of the instrument to be the voluntary act and deed of the Corporation, by it and by them voluntarily executed. (SEAL) ____________________________ Notary Public in and for the State of Ohio WE AGREE TO THE ABOVE TERMS AND CONDITIONS: DCB Financial Corp. By: ------------------------------------ Larry D. Coburn, President And: ------------------------------------ Richard L. Bump, Secretary 11 67 STATE OF OHIO ) ) SS: COUNTY OF DELAWARE ) On this _____ day of _____________, 1997, before me, the undersigned, a Notary Public in and for the State of Ohio, personally appeared DCB Financial Corp. by and through Larry D. Coburn and Richard L. Bump, to me personally known, who, being by me duly sworn, did say that they are the President and Secretary, respectively, of the Corporation executing the foregoing instrument; that the seal affixed thereto is the seal of the Corporation; that the instrument was signed and sealed on behalf of the Corporation by authority of its Board of Directors; that said Larry D. Coburn and Richard L. Bump acknowledged the execution of the instrument to be the voluntary act and deed of the Corporation, by it and by them voluntarily executed. (SEAL) __________________________________ Notary Public in and for the State of Ohio 12 68 EXHIBIT A First Directors of the Resulting Bank: The Delaware County Bank & Trust Company C. William Bonner Merrill L. Kaufman 1420 Sherbourne Lane 311 Westwood Ave. Powell, Ohio 43065 Delaware, Ohio 43015 Larry D. Coburn Terry M. Kramer 5969 Dublin Road 170 West Lincoln Ave. Delaware, OH 43015 Delaware, Ohio 43015 Joseph W. Conklin William R. Oberfield 10401 Marysville Road 280 River Road Ostrander, Ohio 43061 Delaware, Ohio 43015 Jerome J. Harmeyer G. William Parker 1420 Bean Oller Road 150 W. Winter Street Delaware, Ohio 43015 Delaware, Ohio 43015 Rodney B. Hurl Thomas T. Porter 381 Hickory Drive 2690 Stratford Road Marysville, Ohio 43040 Delaware, Ohio 43015 F. Frances Hutchinson Edward Powers 255 Partridge Bend 665 Congress Court Powell, Ohio 43065 Delaware, Ohio 43015 G. Edwin Johnson Gary M. Skinner 8134 Concord Road 2514 Skinner Road Delaware, Ohio 43015 Delaware, Ohio 43015 13 69 EXHIBIT B Ohio Revised Code Section 1115.19 Dissenting Shareholders Ohio Revised Code Section 1701.85 Qualifications of and Procedures for Dissenting Shareholders Section 1701.85 - Qualifications of and Procedures for Dissenting Shareholders. (A) (1) A shareholder of a domestic corporation is entitled to relief as a dissenting shareholder in respect of the proposals 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 10 days after the date on which the vote on such proposal was taken at the meeting of the shareholders, the 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, stating 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 1701.801 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 20 days after he has been sent the notice provided in Section 1701.80 or 1701.801 of the Revised Code, the 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 corporation, whether 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, he, within 15 days from the date of the sending of such request, shall deliver to the corporation the certificates requested, in order 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 shareholder. Failure on the part of the shareholder to deliver such certificates terminates his rights as a dissenting shareholder, at the option of the corporation, exercised by written notice sent to him within 20 days after the lapse of the 15 day period, unless a court for good cause shown otherwise directs. If shares represented by a certificate on which such a legend has been endorsed are transferred, each new certificate issued for them shall bear a similar legend, together with the name of the original dissenting holder of such shares. Upon receiving a demand for payment from a dissenting shareholder who is the record holder of uncertificated securities, the corporation shall make an appropriate notation of the demand for payment in its shareholder records. If uncertificated shares for which payment has been demanded are to be transferred, any new certificate issued for the shares shall bear the legend required for certificate 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. Such request by the 14 70 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 shall have come to an agreement on the fair cash value per share of the shares as to which he seeks relief, the shareholder or the corporation, which in case of a merger or consolidation may be the surviving or the new corporation, within three months after the service of the demand by the shareholder, may file a complaint in the court of common pleas of the county in which the principal office of the corporation which issued such shares is located, or was located at the time 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 the period of three months, 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 complaint is required. Upon the filing of the 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 the 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 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 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 as agreed upon by the parties or as 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 such 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 that 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, under no compulsion to sell, would be willing to accept, and that a willing buyer, under no compulsion to purchase, would be willing to pay, but in no event shall the fair cash value of it 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) 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: (1) Such shareholder has not complied with this section, unless the corporation by its directors waives such failure; 15 71 (2) The corporation abandons, or is finally enjoined or prevented from carrying out, or the shareholders rescind their adoption, of the action involved; (3) The shareholder withdraws his demand, with the consent of the corporation by its directors; (4) The corporation and the dissenting shareholder shall not have come to an agreement as to the fair cash value per share, and neither the shareholder nor the corporation shall have filed or joined in a complaint under Division (B) of this section within the period provided. (E) From the time of giving 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 otherwise 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. 16 72 EXHIBIT C Affiliate Letter DCB Financial Corp. 41 N. Sandusky Street Delaware, Ohio 43015 Gentlemen: I have been advised that I may be deemed an "affiliate," within the meaning of Paragraph (c) of Rule 145 of the Rules and Regulations of the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 (the "Act"), of The Delaware County Bank & Trust Company, Delaware, Ohio, an Ohio banking corporation (the "Bank"), and may be deemed such at the time of the Merger ("Merger") of the Bank with and into Delaware Interim Bank, a newly chartered state bank organized by DCB Financial Corp. (the "Company") for the sole purpose of effecting the affiliation of the Company and the Bank. Pursuant to the Merger, I will acquire _______ (___) shares of the Common Stock of the Company ("Company Common Stock") in exchange for each share of the Bank stock held by me and elected for such exchange. I agree that I will not make any sale, transfer or other disposition of the Company Common Stock in violation of the Act or the rules and regulations promulgated thereunder by the SEC. I have been advised that the issuance of the Company Common Stock to me pursuant to the Merger has been registered under the Act by the Company by the filing of a Registration Statement with the SEC. I have also been advised that such registration does not apply to any distribution by me of the Company Common Stock received by me in the Merger. I also have been advised that, since at the effective time of the Merger, I may be deemed to have been an "affiliate" of the Bank, any offering or sale by me of any of the Company Common Stock will, under current law, require either: (i) the further registration under the Act of the Company Common Stock to be sold; (ii) compliance with Rule 145 promulgated under the Act; or (iii) the availability of another exemption from such registration. In addition, I have been advised that any transferee in a private offering or other similar disposition will be subject to the same limitations as those imposed on me. I represent and warrant to the Company that: 1. I have carefully read this letter and discussed its requirements and other applicable limitations upon the sale, transfer or other disposition of the Company Common Stock and to the extent I felt necessary, with my counsel or counsel for the Bank. 2. I have been informed by the Company that the Company Common Stock must be held by me indefinitely unless: (i) any of the Company Common Stock received by me in the Merger and to be distributed by me has been registered under the Act other than by the registration by the Company referred to above; (ii) a sale of the Company Common Stock is made in conformity with the volume and other applicable limitations of Rule 144; or (iii) some other exemption from registration is available with respect to any such proposed sale, transfer or other disposition of the Company Common Stock. I will be required to deliver to the Company evidence of compliance with such requirements in connection with any proposed sale, transfer or other disposition by me which may include, in the case of a distribution under some other exemption from registration, an opinion of counsel satisfactory to counsel for the Company that such exemption is available. 3. I understand that the Company is under no obligation to register the Company Common Stock that I may wish to sell, transfer, or otherwise dispose of or to take any other action necessary in order to make compliance with an exemption from registration available. 4. If I rely on the exemption from the registration provisions contained in Section 4 of the Act (other than that contained in Rule 144 and 145), I will obtain and deliver to the Company a copy of a letter from any prospective transferee which will contain: (a) representations reasonably satisfactory to the Company as to the nondistributive intent, sophistication, ability to bear risk, and access to information of such transfer of 17 73 the Company Common Stock; and (b) an assumption of the obligations of the undersigned under this Paragraph 4. 5. I also understand that to enforce the foregoing commitments, stop transfer instructions will be given to the Company's transfer agent with respect to the Company Common Stock and that there will be placed on the certificates for the Company Common Stock, or any substitutions therefor, a legend stating in substance: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IN COMPLIANCE WITH THE REQUIREMENTS OF RULE 145 OR PURSUANT TO A REGISTRATION STATEMENT UNDER SAID ACT OR AN EXEMPTION FROM SUCH REGISTRATION. Very truly yours, ________________________________ 18 74 APPENDIX II AMENDED ARTICLES OF INCORPORATION OF DCB FINANCIAL CORP. 75 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF DCB FINANCIAL CORP. ***** THE UNDERSIGNED, under Sections 1701.01 et seq. of the Revised Code of Ohio, do hereby certify: FIRST: The name of said Corporation shall be: DCB Financial Corp. SECOND: The place in the State of Ohio where its principal office is to be located is Delaware in Delaware County. THIRD: The purposes for which it is formed are: To engage in any lawful act or activity for which corporations may be formed under Sections 1701.01 to 1701.98 inclusive of the Ohio Revised Code. FOURTH: The authorized number of shares of the Corporation is Seven Million Five Hundred Thousand (7,500,000), all of which shall be without par value. FIFTH: The following provisions are hereby agreed to for the purpose of defining, limiting and regulating the exercise of the authority of the Corporation, or of the Directors, or of all of the shareholders: The Board of Directors is expressly authorized to set apart, out of any of the funds of the Corporation available for dividends, a reserve or reserves for any proper purpose or to abolish any such reserve in the manner in which it was created, and to purchase on behalf of the Corporation any shares issued by it to the extent permitted under Sections 1701.01 et seq. of the Revised Code of Ohio. The Corporation may in its regulations confer powers upon its Board of Directors in addition to the powers and authorities conferred upon it expressly by Sections 1701.01 et seq. of the Revised Code of Ohio. Subject to Article SIXTH, any amendments to the Articles of Incorporation may be made from time to time, and any proposal or proposition requiring the action of shareholders may be 76 authorized from time to time by the affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of the Corporation. Any meeting of the shareholders or the Board of Directors may be held at any place within or without the State of Ohio in the manner provided for in the regulations of the Corporation. SIXTH: FAIR PRICE AND SUPER VOTE REQUIREMENT A. Definitions as used in this Article Sixth (1) "Affiliate" or "Associate" shall have the respective meanings given to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. (2) A person shall be a "beneficial owner" of any Voting Stock: (i) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or (ii) which such person or any of its Affiliates or Associates has by itself or with others (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) which is beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. (3) "Business Combination" shall include: (i) any merger or consolidation of the Corporation or any of its subsidiaries with or into an Interested Shareholder, regardless of which person is the surviving entity; 2 77 (ii) any sale, lease, exchange, mortgage, pledge, or other disposition (in one transaction or a series of transactions) from the Corporation or any of its subsidiaries to an Interested Shareholder, or from an Interested Shareholder to the Corporation or any of its subsidiaries, of assets having an aggregate Fair Market Value of twenty percent (20%) or more of the Corporation's total stockholders' equity; (iii) the issuance, sale or other transfer by the Corporation or any subsidiary thereof of any securities of the Corporation or any subsidiary thereof to an Interested Shareholder (other than an issuance or transfer of securities which is effected on a pro rata basis to all shareholders of the Corporation); (iv) the acquisition by the Corporation or any of its subsidiaries of any securities of an Interested Shareholder; (v) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Shareholder; (vi) any reclassification or recapitalization of securities of the Corporation if the effect, directly or indirectly, of such transaction is to increase the relative voting power of an Interested Shareholder; or (vii) any agreement, contract or other arrangement providing for or resulting in any of the transactions described in this definition of Business Combination. (4) "Continuing Director" shall mean any member of the Board of Directors of the Corporation who is unaffiliated with the Interested Shareholder and was a member of the Board of Directors prior to the time that the Interested Shareholder became an Interested Shareholder; any successor of a Continuing Director who is unaffiliated with the Interested Shareholder and is approved to succeed a Continuing Director by the Continuing Directors; any member of the Board of Directors who is appointed to fill a vacancy on the Board of Directors who is unaffiliated with the Interested Shareholder and is approved by the Continuing Directors. 3 78 (5) "Fair Market Value" shall mean: (i) in the case of securities listed on a national securities exchange or quoted in the National Association of Securities Dealers Automated Quotations System (or any successor thereof), the highest sales price or bid quotation, as the case may be, reported for securities of the same class or series traded on a national securities exchange or in the over-the-counter market during the 30-day period immediately prior to the date in question, or if no such report or quotation is available, the fair market value as determined by the Continuing Directors; and (ii) in the case of other securities and of other property or consideration (other than cash), the Fair Market Value as determined by the Continuing Directors; provided, however, in the event the power and authority of the Continuing Directors ceases and terminates pursuant to Subdivision F of this Article SIXTH as a result of there being less than five Continuing Directors at any time, then (a) for purposes of clause (ii) of the definition of "Business Combination," any sale, lease, exchange, mortgage, pledge, or other disposition of assets from the Corporation or any of its subsidiaries to an Interested Shareholder or from an Interested Shareholder to the Corporation or any of its subsidiaries, regardless of the Fair Market Value thereof, shall constitute a Business Combination, and (b) for purposes of paragraph 1 of Subdivision D of this Article SIXTH, in determining the amount of consideration received or to be received per share by the Independent Shareholders in a Business Combination, there shall be excluded all consideration other than cash and the Fair Market Value of securities listed on a national securities exchange or quoted in the National Association of Securities Dealers Automated Quotations System (or any successor thereof) for which there is a reported sales price or bid quotation, as the case may be, during the 30-day period immediately prior to the date in question. (6) "Independent Shareholder" shall mean shareholders of the Corporation other than the Interested Shareholder engaged in or proposing the Business Combination. 4 79 (7) "Interested Shareholder" shall mean: (a) any person (other than the Corporation or any of its subsidiaries), and (b) the Affiliates and Associates of such person, who, or which together, are: (i) the beneficial owner, directly or indirectly, of 10% or more of the outstanding Voting Stock or were within the two-year period immediately prior to the date in question the beneficial owner, directly or indirectly, of 10% or more of the then outstanding Voting Stock; or (ii) an assignee of or other person who has succeeded to any shares of the Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by an Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. Notwithstanding the foregoing, no Trust Department, or designated fiduciary or other trustee of such Trust Department of the Corporation or a subsidiary of the Corporation, or other similar fiduciary capacity of the Corporation with direct voting control of the outstanding Voting Stock shall be included or considered as an Interested Shareholder. Further, no profit-sharing, employee stock ownership, employee stock purchase and savings, employee pension, or other employee benefit plan of the Corporation or any of it subsidiaries, and no trustee of any such plan in its capacity as such trustee, shall be included or considered as an Interested Shareholder. (8) A "Person" shall mean an individual, partnership, trust, corporation, or other entity and includes any two or more of the foregoing acting in concert. (9) "Voting Stock" shall mean all outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors of the Corporation. B. Supermajority Vote to Effect Business Combination. No Business Combination shall be effected or consummated unless: (1) Authorized and approved by the Continuing Directors and, if otherwise required by law to authorize or approve the transaction, the approval or authorization of 5 80 shareholders of the Corporation, by the affirmative vote of the holders of such number of shares as is mandated by the Ohio Revised Code; or (2) Authorized and approved by the affirmative vote of holders of not less than 80% of the outstanding Voting Stock voting together as a single class. The authorization and approval required by this Subdivision B is in addition to any authorization and approval required by Subdivision C of this Article SIXTH. C. Fair Price Required to Effect Business Combination. No Business Combination shall be effected or consummated unless: (1) All the conditions and requirements set forth in Subdivision D of this Article SIXTH have been satisfied; or (2) Authorized and approved by the Continuing Directors; or (3) Authorized and approved by the affirmative vote of holders of not less than 66 2/3% of the outstanding Voting Stock held by all Independent Shareholders voting together as a single class. Any authorization and approval required by this Subdivision C is in addition to any authorization and approval required by Subdivision B of this Article SIXTH. D. Conditions and Requirements to Fair Price. All the following conditions and requirements must be satisfied in order for clause (1) of Subdivision C of this Article SIXTH to be applicable. (1) The cash and Fair Market Value of the property, securities or other consideration to be received by the Independent Shareholders in the Business Combination per share for each class or series of capital stock of the Corporation must not be less than the sum of: (i) the highest per share price (including brokerage commissions, transfer taxes, soliciting dealer's fees and similar payments) paid by the Interested Shareholder in acquiring any shares of such class or series, respectively, and, in the case of Preferred Stock, if greater, the amount of the per share redemption price; and (ii) the amount, if any, by which interest on the per share price, calculated at the Treasury Bill Rate from time to time in effect, from the date the Interested Shareholder first 6 81 became an Interested Shareholder until the Business Combination has been consummated, exceeds the per share amount of cash dividends received by the Independent Shareholders during such period. The "Treasury Bill Rate" means for each calendar quarter, or part thereof, the interest rate of the last auction in the preceding calendar of 91-day United States Treasury Bills expressed as a bond equivalent yield. For purposes of this paragraph (1) per share amounts shall be appropriately adjusted for any recapitalization, reclassification, stock dividend, stock split, reserve split, or other similar transaction. Any Business Combination which does not result in the Independent Shareholders receiving consideration for or in respect of their shares of capital stock of the Corporation shall not be treated as complying with the requirements of this paragraph (1). (2) The form of the consideration to be received by the Independent Shareholders owning the Corporation's shares must be the same as was previously paid by the Interested Shareholder(s) for shares of the same class or series; provided, however, if the Interested Shareholder previously paid for shares of such class or series with different forms of consideration, the form of the consideration to be received by the Independent Shareholders owning shares of such class or series must be in the form as was previously paid by the Interested Shareholder in acquiring the largest number of shares of such class or series previously acquired by the Interested Shareholder, provided, further, in the event no shares of the same class or series had been previously acquired by the Interested Shareholder, the form of consideration must be cash. The provisions of this paragraph (2) are not intended to diminish the aggregate amount of cash and Fair Market Value of any other consideration that any holder of the Corporation's shares is otherwise entitled to receive upon the liquidation or dissolution of the Corporation, under the terms of any contract with the Corporation or an Interested Shareholder, or otherwise. (3) From the date the Interested Shareholder first became an Interested Shareholder until the Business Combination has been consummated, the following requirements must be complied with unless the Continuing Directors otherwise approve: 7 82 (i) the Interested Shareholder has not received, directly or indirectly, the benefit (except proportionately as a shareholder) of any loan, advance, guaranty, pledge, or other financial assistance, tax credit or deduction, or other benefit from the Corporation or any of its subsidiaries; (ii) there shall have been no failure to declare and pay in full, when and as due or scheduled, any dividends required to be paid on any class or series of the Corporation's shares; (iii) there shall have been (a) no reduction in the annual rate of dividends paid on Common Shares of the Corporation (except as necessary to reflect any split of such shares), and (b) an increase in the annual rate of dividends as necessary to reflect reclassification (including a reverse split), recapitalization or any similar transaction which has the effect of reducing the number of outstanding Common Shares; and (iv) there shall have been no amendment or other modification to any profit-sharing, employee stock ownership; employee stock purchase and savings, employee pension or other employee benefit plan of the Corporation or any of its subsidiaries, the effect of which is to change in any manner the provisions governing the voting of any shares of capital stock of the Corporation in or covered by such plan. (4) A proxy or information statement describing the Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations under it (or any subsequent provisions replacing that Act and the rules and regulations under it) has been mailed at least 30 days prior to the completion of the Business Combination to the holders of all outstanding Voting Stock. If deemed advisable by the Continuing Directors, the proxy or information statement shall contain a recommendation by the Continuing Directors as to the advisability (or inadvisability) of the Business Combination and/or an opinion by an investment banking firm, selected by the Continuing Directors and retained at the expense of the Corporation, as to the fairness (or unfairness) of the Business Combination to the Independent Shareholders. 8 83 E. Other Applicable Voting Requirement. The affirmative votes or approvals required to be received from shareholders of the Corporation under Subdivisions B, C and H of this Article SIXTH are in addition to the vote of the holders of any class of shares of capital stock of the Corporation otherwise required by law, or by other provisions of these Articles of Incorporation, or by the express terms of the shares of such class. The affirmative votes or approvals required to be received from shareholders of the Corporation under Subdivisions B, C and H of this Article SIXTH shall apply even though no vote or a lesser percentage vote, may be required by law, or by other provisions of these Articles of Incorporation, or otherwise. Any authorization, approval or other action of the Continuing Directors under this Article SIXTH is in addition to any required authorization, approval or other action of the Board of Directors. F. Continuing Directors. All actions required or permitted to be taken by the Continuing Directors shall be taken with or without a meeting by the vote or written consent of two-thirds of the Continuing Directors, regardless of whether the Continuing Directors constitute a quorum of the members of the Board of Directors then in office. In the event that the number of Continuing Directors is at any time less than five, all power and authority of the Continuing Directors under this Article SIXTH shall thereupon cease and terminate, including, without limitation, the authority of the Continuing Directors to authorize and approve a Business Combination under Subdivisions B and C of this Article SIXTH and to approve a successor Continuing Director. Two-thirds of the Continuing Directors shall have the power and duty, consistent with their fiduciary obligations, to determine for the purpose of this Article SIXTH, on the basis of information known to them: (1) Whether any person is an Interested Shareholder; (2) Whether any person is an Affiliate or Associate of another; (3) Whether any person has an agreement, arrangement, or understanding with another or is acting in concert with another; and (4) The Fair Market Value of property, securities or other consideration (other than cash). 9 84 The good faith determination of the Continuing Directors on such matters shall be binding and conclusive for purposes of this Article SIXTH. G. Effect on Fiduciary Obligations of Interested Shareholders. Nothing contained in this Article SIXTH shall be construed to relieve any Interested Shareholder from any fiduciary obligations imposed by law. H. Repeal. Notwithstanding any other provisions of these Articles of Incorporation (and notwithstanding the fact that a lesser percentage vote may be required by law or other provision of these Articles of Incorporation), the provisions of this Article SIXTH may not be repealed, amended, supplemented or otherwise modified, unless: (1) The Continuing Directors (or, if there is no Interested Shareholder, a majority vote of the whole Board of Directors of the Corporation) recommend such repeal, amendment, supplement or modification and such repeal, amendment or modification is approved by the affirmative vote of the holders of not less than a simple majority of the outstanding Voting Stock; or (2) Such repeal, amendment, supplement or modification is approved by the affirmative vote of holders of (a) not less than 80% of the outstanding Voting Stock voting together as a single class, and (b) not less than 66 2/3% of the outstanding Voting Stock held by all shareholders other than Interested Shareholders voting together as a single class. I. Further Considerations to Effect Business Combination. No Business Combination shall be effected or consummated unless, in addition to the consideration set forth in Subdivisions B, C, D and E of this Article SIXTH, the Board of Directors of the Corporation, including the Continuing Directors shall consider all of the following factors and any other factors which it (they) deem relevant: (1) The Social and economic effects of the transaction on the Corporation and its subsidiaries, employees, depositors, loan and other customers, creditors and other elements of the communities in which the Corporation and its subsidiaries operate or are located; (2) The business and financial conditions and earnings prospects of the Interested Shareholder, including, but not limited to, debt service and other existing or likely 10 85 financial obligations of the Interested Shareholder, and the possible effect on other elements of the communities in which the Corporation and its subsidiaries operate or are located, and (3) The competence, experience and integrity of the Interested Shareholder and his (its) or their management. SEVENTH: Shareholders of the Corporation shall have no preemptive right to purchase shares when issued by the Corporation. EIGHTH: The Corporation shall indemnify its present and past Directors, officers, employees and agents, and such other persons as it shall have powers to indemnify, to the full extent permitted under, and subject to the limitations of, Title 17 of the Ohio Revised Code. Additionally, and subject to the limitations set forth below, the Corporation shall indemnify its present and past Directors for personal liability for monetary damages resulting from breach of their fiduciary duty as Directors. Notwithstanding the above, no indemnification for personal liability shall be provided for: (i) any breach of the Directors' duty of loyalty to the Corporation or its stockholder; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) illegal distribution of dividends; and (iv) any transaction from which the Director derived an improper personal benefit. 11 86 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Chapter 17 of the Ohio General Corporation Law provides that Ohio corporations may indemnify an individual made a party to any threatened, pending, or completed action, suit or proceeding whether civil, criminal, administrative or investigative, because the individual is or was a director, officer, employee or agent of the corporation, against liability incurred in the proceeding if the person: (i) acted in good faith and (ii) the individual believes his conduct was in the corporation's best interest or was not opposed to the corporation's best interest. Chapter 17 further provides that a corporation shall indemnify an individual who was fully successful on the merits or otherwise in any proceeding to which the director, officer, employee or agent was a party because the individual was or is a director, officer, employee or agent of the corporation, for reasonable expenses incurred by the director in connection with the proceeding. Chapter 17 also provides that a corporation may purchase and maintain insurance on behalf of the individual who is or was a director, officer, employee or agent of the corporation or who, while a director, officer, employee or agent of the corporation is or was serving at the request of the corporation as a director, officer, partner, trustee, employer or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprises, against liability asserted against or incurred by the individual in that capacity or arising from the individual status as a director, officer, employee, or agent. Registrant maintains a directors' and officers' liability insurance policy, including bank reimbursement, for the purpose of providing indemnification to its directors and officers in the event of such a threatened, pending or completed action. ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS The exhibits filed pursuant to this Item 21 immediately follow the Exhibit Index. The following is a description of the applicable exhibits required for Form S-4 provided by Item 601 of Regulation S-K. Exhibit Number Description (1) Not Applicable (2) The Merger Agreement by and between Delaware Interim Bank and The Delaware County Bank & Trust Company and joined in by DCB Financial Corp. is attached as Appendix I to the Prospectus/Proxy Statement forming a part of this Registration Statement. (3) Articles of Incorporation and Code of Regulations. 87 A. A copy of the Amended Articles of Incorporation of the Registrant is included as Exhibit 3.A to this Registration Statement. B. A copy of the Code of Regulations of the Registrant is included as Exhibit 3.B to this Registration Statement. (4) Instruments defining the rights of security holders, including indentures. A. Instruments defining the rights of security holders are included in the Articles of Incorporation and Code of Regulations (see Exhibit 3.A. and B). (5) Opinion of Werner & Blank Co., L.P.A., regarding DCB Financial Corp. Common Stock, and Consent (6) Not Applicable. (7) Not Applicable. (8) Opinion of Werner & Blank Co., L.P.A., regarding certain tax matters, and Consent. (9) Not Applicable. (10) Not Applicable (11) Not Applicable. (12) Not Applicable. (13) Not Applicable. (14) Not Applicable. (15) Not Applicable. (16) Not Applicable. (21) None. (22) None (23) Consents of Experts and Counsel. 88 A. Consent of Werner & Blank Co., L.P.A. (the consent is contained in that firm's opinions filed as Exhibits (5) and (8)). (24) Power of Attorney (25) Not Applicable. (26) Not Applicable. (27) Not Applicable. (28) Not Applicable. (99) Additional Exhibits. A. Form of President's Letter to Shareholders of The Delaware County Bank & Trust Company. B. Form of Notice of Special Meeting of Shareholders of The Delaware County Bank & Trust Company. C. Form of Proxy to be delivered to Shareholders of The Delaware County Bank & Trust Company. 89 ITEM 22. UNDERTAKINGS. A. The undersigned Registrant hereby undertakes as follows: (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the Prospectus any facts or events arising after the Effective Date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to the information set forth in the Registration Statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) 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 that is incorporated by reference in this 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. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to officers, directors, 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 90 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 that matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. B. The undersigned Registrant hereby undertakes to respond to requests for information that are incorporated by reference into the Prospectus/Proxy Statement 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 the documents filed subsequent to the Effective Date of this Registration Statement through the date of responding to the request. C. 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 this Registration Statement when it became effective. 91 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-4 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Delaware, State of Ohio, this 26th day of December, 1996. DCB Financial Corp. By: /s/ Larry D. Coburn -------------------------------- Larry D. Coburn, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on the 26th day of December, 1996. Signature Title --------- ----- /s/ Larry D. Coburn President and Chief Executive - ------------------------- Officer and Director (Principal Larry D. Coburn Executive Officer) /s/ Larry E. Westbrook Treasurer (Principal Financial - ------------------------- Officer and Principal Accounting Larry E. Westbrook Officer) *C. William Bonner, Director *Jerome J. Harmeyer, Director *Rodney B. Hurl, Director *F. Frances Hutchinson, Director *G. Edwin Johnson, Director *Merrill L. Kaufman, Director *Terry M. Kramer, Director *William R. Oberfield, Director *G. William Parker, Director *Thomas T. Porter, Director *Edward Powers, Director *Gary M. Skinner, Director *By: /s/ Larry D. Coburn ----------------------------------- Larry D. Coburn, Attorney-in-Fact 92 EXHIBIT INDEX Exhibit No. 3.A A copy of the Registrant's Amended Articles of Incorporation * 3.B A copy of the Registrant's Code of Regulations * 5.0 Opinion of Werner & Blank Co., L.P.A. regarding * DCB Financial Corp., Common Stock and Consent 8.0 Opinion of Werner & Blank Co., L.P.A., Attorneys, regarding certain Tax Matters and Consent 23.0 Contained in Opinions at 5.0 and 8.0. * 24.0 Power of Attorney * 99.A Form of President's Letter to Shareholders * of The Delaware County Bank & Trust Company 99.B Form of Notice of Special Meeting of Shareholders of * The Delaware County Bank & Trust Company 99.C Form of Proxy to be delivered to shareholders of * The Delaware County Bank & Trust Company * Previously Filed EX-8 2 EXHIBIT 8 1 EXHIBIT TO S-4 REGISTRATION STATEMENT EXHIBIT 8 2 [WERNER & BLANK CO., L.P.A. LETTERHEAD] December 26, 1996 The Board of Directors The Delaware County Bank & Trust Company 41 N. Sandusky Street Delaware, Ohio 43015 Attention: Mr. Larry D. Coburn Re: Plan of Corporate Reorganization under which The Delaware County Bank & Trust Company, Delaware, Ohio, will become a wholly owned subsidiary of DCB Financial Corp. Gentlemen: We have been requested as special counsel to The Delaware County Bank & Trust Company (the "Bank") to render our opinion expressed below in connection with the proposed merger (the "Merger") of the Bank and Delaware Interim Bank (the "New Bank"), a wholly owned subsidiary of DCB Financial Corp. (the "Corporation"), an Ohio corporation organized at the direction of the Bank pursuant to the terms and conditions of a Merger Agreement (the "Agreement"), by and among the Bank, the Corporation, and the New Bank described in the Form S-4 Registration Statement (the "Registration Statement") filed by the Corporation. In rendering our opinion, we have conducted an examination of applicable law, regulations, rulings, decisions, documents, and records, and have made such investigation of fact as we have deemed necessary, and we have relied upon the representations in the Agreement and upon the following "Assumptions of Facts" and certain "Representations" which have heretofore been made to us by directors and officers. ASSUMPTIONS OF FACTS The Delaware County Bank & Trust Company The Delaware County Bank & Trust Company ("Bank") is a State Bank organized under the laws of the State of Ohio, with its principal office and place of business at 41 N. Sandusky Street, Delaware, Ohio 43015. 3 [WERNER & BLANK CO., L.P.A. LETTERHEAD] Page 2 The Board of Directors December 26, 1996 The Bank has an authorized capital structure of 1,424,400 shares of common stock, par value $1.00 per share, all of which 1,424,400 authorized shares are presently issued and outstanding. The Bank is engaged in the general banking business in the City of Delaware, which is located in Delaware County. The Bank provides customary retail and commercial banking services to its customers, including checking and savings accounts, time deposits, safe deposit facilities, personal loans, and installment loans. It also makes secured and unsecured commercial loans. The Bank does not operate any foreign offices. DCB Financial Corp. DCB Financial Corp. ("Corporation") is a domestic corporation which was incorporated under the laws of the State of Ohio on June 13, 1996, at the direction of the management of the Bank for the purpose of becoming a bank holding company by acquiring all of the outstanding shares of common stock of the Bank. Corporation also has its principal place of business at 41 N. Snadusky Street, Delaware, Ohio 43015. Corporation has an authorized capital structure of 7,500,000 shares, without par value. After the merger becomes effective, and as and when required by the Agreement, Corporation will issue up to 4,273,200 shares of its common stock in exchange for Bank common stock, as provided in the Agreement. Corporation maintains its books of account on a calendar year basis, and computes its income for financial purposes under the accrual method of accounting. Delaware Interim Bank Delaware Interim Bank (the "New Bank") is a banking corporation which will be organized under the laws of the State of Ohio and will be wholly owned by Corporation. It is intended that the New Bank will never open for business as a separate operating entity, but will only be an "interim" bank to be merged with the Bank as part of the proposed reorganization. New Bank will also have its principal place of business at 41 N. Sandusky Street, Delaware, Ohio 43015. The New Bank will have an authorized capital structure of 1,000 shares of common stock, par value of $125.00 per share, all of which shares will be issued and outstanding at the time of the Merger. 4 [WERNER & BLANK CO., L.P.A. LETTERHEAD] Page 3 The Board of Directors December 26, 1996 PROPOSED TRANSACTION In the proposed transaction, the Bank will become a wholly owned subsidiary of the Corporation. Each of the following steps has been or will be undertaken at the direction of the Bank to carry out the plan of reorganization. The Corporation will acquire 100% of the stock of the New Bank, as soon as the New Bank receives a charter and issues shares of its common stock. The New Bank will be merged with and into the Bank, under the laws of the State of Ohio and pursuant to a Merger Agreement (the "Agreement"), which has been entered into between the Bank, the New Bank, and joined by the Corporation. Pursuant to the Agreement, the resulting bank (hereinafter called the "Resulting Bank") will continue the name and banking business of the Bank without change. The Resulting Bank will continue to hold all of the Bank's assets and will assume all of the Bank's liabilities subsequent to the transaction. The name of the Resulting Bank will be "The Delaware County Bank & Trust Company" and the Resulting Bank's Articles of Incorporation and Code of Regulations will be the Articles of Incorporation and Code of Regulations of the Bank upon the effective date of the merger. The Resulting Bank will operate under the charter of the Bank. The principal office of the Bank will continue to be the principal office of the Resulting Bank. Each share of the common stock of the Bank then issued and outstanding will, by operation of law, be transferred into the Corporation, and the holders thereof will receive three (3) shares of common stock of Corporation in exchange therefor, unless such holder properly exercises his dissenter's right of appraisal under Ohio law. The shareholders of the Bank have the right to dissent from the transaction under applicable law. The amount and number of shares of capital stock of the New Bank outstanding immediately before the merger becomes effective (specifically, $125,000 divided into 1,000 shares, $125 par value) will be increased in the amount and number of shares of the capital stock of the Bank outstanding immediately before the merger becomes effective. At the effective date of the merger, the Resulting Bank will redeem and simultaneously cancel the 1,000 shares of $125 par value stock formerly representing the capital stock of the New Bank from the Corporation. BUSINESS PURPOSES The Boards of Directors of the Bank and the Corporation believe that the proposed merger will provide a means whereby the Resulting Bank can provide improved commercial banking services to the Delaware area. 5 [WERNER & BLANK CO., L.P.A. LETTERHEAD] Page 4 The Board of Directors December 26, 1996 The bank holding company structure will give the Resulting Bank greater flexibility in carrying on its present activities and responding effectively in the future to meet the changing needs of its customers. Enterprises with facilities or customers outside of the Resulting Bank's local area can be served more effectively by the broader geographic coverage of the Corporation. Total earnings of the group, including the Corporation and the Resulting Bank, should be increased through the use of the combined skills of the Bank and the Corporation. The new structure will also provide an opportunity for diversification, either through the formation of new subsidiaries or by acquisition of established companies. The extent of such diversification is governed by the provisions of the Bank Holding Company Act of 1956, as amended, and is limited essentially to ownership of banks and of companies whose activities are closely related to banking. The activities in which a bank holding company may engage include mortgage banking, financial companies, credit card activities, servicing of loans for others, electronic data processing, equipment leasing, insurance agencies or insurance brokerage operations and certain equity and debt investments. In summary, the merger of the New Bank with and into the Bank, and the Resulting Bank's affiliation with the Corporation is expected to enable the Resulting Bank to operate more efficiently and profitably for the benefit of its customers, employees and the shareholders of the Corporation. REPRESENTATIONS The following representations are made in connection with the proposed transaction: 1. The fair market value of the Corporation's stock and other consideration received by each Bank shareholder will be approximately equal to the fair market value of the Bank stock surrendered in the exchange. 2. There is no plan or intention by the shareholders of Bank who own one percent (1%) or more of the Bank stock, and to the best of the knowledge of the management of Bank, there is no plan or intention on the part of the remaining shareholders of Bank to sell, exchange or otherwise dispose of a number of shares of the Corporation stock received in the transaction that would reduce the Bank shareholders' ownership of the Corporation stock to a number of shares having a value, as of the date of the transaction, of less than eighty percent (80%) of the value of all of the formerly outstanding stock of the Bank as of the same date. For purposes of this representation, shares of Bank stock exchanged for cash or other property, surrendered by dissenters or exchanged for cash in lieu of fractional shares of parent stock will be treated as outstanding Bank stock and shares of Corporation stock held by Bank shareholders and otherwise sold, redeemed, or disposed of prior or subsequent to the transaction will be considered in making this representation. 6 [WERNER & BLANK CO., L.P.A. LETTERHEAD] Page 5 The Board of Directors December 26, 1996 3. The New Bank will acquire at least 90 percent of the fair market value of the net assets and at least 70 percent of the fair market value of the gross assets held by the Bank immediately prior to the transaction. For purposes of this representation, amounts paid by the Bank to dissenters, amounts paid by the Bank to shareholders who receive cash or other property, the Bank assets used to pay its reorganization expenses, and all redemptions and distributions (except for regular, normal dividends) made by the Bank immediately preceding the transfer, will be included as assets of the Bank held immediately prior to the transaction. 4. Prior to the transaction, the Corporation will be in control of the New Bank within the meaning of Section 368(c) of the Internal revenue Code. 5. Following the transaction, Resulting Bank will not issue additional shares of its stock that would result in Corporation losing control of Resulting Bank within the meaning of Section 368(c) of the Internal Revenue Code. 6. The Corporation has no plan or intention to reacquire any of its stock issued in the transaction. 7. The Corporation has no plan or intention to liquidate the Resulting Bank; to merge the Resulting Bank with and into another corporation; to sell or otherwise dispose of the stock of the Resulting Bank; or to cause the Resulting Bank to sell or otherwise dispose of any of the assets of the Bank acquired in the transaction, except for dispositions made in the ordinary course of business of transfers described in Section 368(a)(2)(C) of the Internal Revenue Code. 8. The liabilities of the New Bank assumed by the Bank and the liabilities to which the transferred assets of the New Bank are subject were incurred by the New Bank in the ordinary course of its business. 9. Following the transaction, the Resulting Bank will continue the historic business of the Bank or use a significant portion of the Bank's business assets in a business. 10. The Corporation, the New Bank, and the Bank, and the shareholders of the Bank will pay their respective expenses, if any, incurred in connection with the transaction. 11. There is no intercorporate indebtedness existing between the Corporation and the Bank or between the New Bank and the Bank that was issued, acquired, or will settle at a discount. 7 [WERNER & BLANK CO., L.P.A. LETTERHEAD] Page 6 The Board of Directors December 26, 1996 12. No two parties to the transaction are investment companies as defined in Section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code. 13. The Bank is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Internal Revenue Code. 14. The fair market value of the assets of the New Bank transferred to the Bank will equal or exceed the sum of the liabilities assumed by the Bank, plus the amount of liabilities, if any, to which the transferred assets are subject. 15. No stock of the New Bank will be issued in the transaction. 16. No dividends will be paid by the Bank prior to the consummation of the transaction other than regular periodic dividends, consistent in amount and in effect with prior dividend distributions. 17. The Bank presently has, and on the date of the proposed transaction will have, no outstanding warrants, options or convertible securities or any other type or right pursuant to which any person could acquire shares of Bank. OPINION Based on the foregoing "Assumptions of Facts" and "Representations," it is our opinion that: 1. The merger of the New Bank with and into the Bank qualifies as a statutory merger under the laws of the State of Ohio, and provided that after the transaction the Resulting Bank will hold substantially all of the assets and substantially all of the liabilities of the Bank and the New Bank, and in the transaction shareholders of the Bank will exchange, an amount of stock of Bank representing "control," within the meaning of Section 368(c), for Corporation voting common stock, the transaction will constitute a reorganization, within the meaning of Section 368(a)(1)(A) and (a)(2)(E) of the Internal Revenue Code of 1986, as amended. For purposes of this opinion, "substantially all" means at least 90 percent of the fair market value of the gross assets of the Bank and the New Bank. 2. No gain or loss will be recognized by the Corporation, the Bank or the New Bank upon the acquisition by the Corporation of the stock of the Bank, as described in number 1, above. 3. The basis of the assets received by the Resulting Bank will be the same as the basis of such assets in the hands of the Bank immediately prior to the merger (Section 362(b)). 4. No gain or loss will be recognized by the Corporation upon receipt of stock of the Bank solely in exchange for stock in the Corporation (Section 354(a)(1)). 5. With respect to Bank shareholders who receive only Corporation voting stock in the transaction, no gain or loss will be recognized by them on the receipt of shares of 8 [WERNER & BLANK CO., L.P.A. LETTERHEAD] Page 7 The Board of Directors December 26, 1996 Corporation voting common stock solely in exchange for shares of their stock in the Bank (Section 354(a)(1)). 6. With respect to those Bank shareholders who receive only Corporation voting stock in the transaction, the basis of the Corporation stock received by them will be the same as the basis of their shares of the Bank stock surrendered in exchange therefor (Section 358(a)(1)). 7. The holding period for the Corporation's stock to be received by the shareholders of the Bank will include the period during which their shares of stock in the Bank surrendered in exchange therefor were held, provided that the shares of the Bank stock surrendered in the exchange were held as capital assets on the date of the exchange (Section 1223(1)). This letter is solely for your information and use and that of the Shareholders of The Delaware County Bank & Trust Company and, except to the extent that such may be referred to in the Registration Statement on Form S-4 as 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. Sincerely, Werner & Blank Co., L.P.A. -----END PRIVACY-ENHANCED MESSAGE-----