Filed with the Securities and Exchange Commission on June 3, 1996
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
RIVER VALLEY BANCORP
(Exact name of registrant as specified in its charter)
Indiana 6712 35-1984567
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code No.)
organization)
303 Clifty Drive James E. Fritz
P.O. Box 626 Madison First Federal
Madison, Indiana 47250 Savings and Loan Association
(812) 273-4949 303 Clifty Drive
(Address, including P.O. Box 626
zip code, and telephone Madison, Indiana 47250
number, including (812) 273-4949
area code, of registrant's (Address, including zip code,
principal executive offices) and telephone number, including
area code, of agent for service)
Copy to:
Claudia S. Swhier, Esq.
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204
----------
Approximate date of commencement of proposed sale to the public: As
promptly as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Proposed Maximum Amount of
Title of each Class of Amount to be Maximum Offering Aggregate Offering Registration
Securities to be Registered Registered Price Per Unit Price (1) Fee
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, without par value 1,190,250 $10.00 $11,902,500 $4,104.31
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS-REFERENCE SHEET
Item in Form S-1 Caption in Prospectus
- ---------------- ---------------------
1. Forepart of Registration Forepart of Registration Statement
Statement and Outside Front Cover and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Inside Front and Outside Back
Back Cover Pages of Prospectus Cover Pages of Prospectus
3. Summary Information, Risk Factors, "PROSPECTUS SUMMARY"; "RISK
and Ratio of Earnings to FACTORS"
Fixed Charges
4. Use of Proceeds "USE OF PROCEEDS"
5. Determination of Offering Price "THE CONVERSION - Stock Pricing"
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution "PROSPECTUS SUMMARY"; "THE
CONVERSION - Subscription
Offering," "- Direct Community
Offering," "-Agent," "- Selected
Dealers"
9. Description of Securities "DESCRIPTION OF CAPITAL STOCK"
to be Registered
10. Interests of Named Experts Not Applicable
and Counsel
11. Information with Respect
to Registrant
(a) Description of Business "RIVER VALLEY BANCORP"; "MADISON
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION"; "CITIZENS NATIONAL
BANK OF MADISON"; "BUSINESS OF
FIRST FEDERAL"; "BUSINESS OF
CITIZENS"
(b) Description of Property "BUSINESS OF FIRST FEDERAL -
Properties"; "BUSINESS OF CITIZENS
- Properties" "BUSINESS OF FIRST
FEDERAL - Legal Proceedings";
"BUSINESS OF CITIZENS - Legal
Proceedings"
(d) Market Price of "MARKET FOR THE COMMON STOCK;"
and Dividends on the "DIVIDEND POLICY;" "ANTICIPATED
Registrant's Common Equity MANAGEMENT PURCHASES";
and Related Stockholder "DESCRIPTION OF CAPITAL STOCK"
Matters
(e) Financial Statements "FINANCIAL STATEMENTS"; "SELECTED
PRO FORMA UNAUDITED CONDENSED
COMBINED FINANCIAL DATA OF THE
HOLDING COMPANY"; "UNAUDITED PRO
FORMA CONSOLIDATED COMBINED
FINANCIAL STATEMENTS"; "PRO FORMA
DATA"
(f) Selected Financial Data "SELECTED CONSOLIDATED FINANCIAL
DATA OF MADISON FIRST FEDERAL
SAVINGS AND LOAN ASSOCIATION AND
SUBSIDIARIES"; "SELECTED
CONSOLIDATED FINANCIAL DATA OF
CITIZENS NATIONAL BANK OF MADISON"
(g) Supplementary Financial Not Applicable
Information
(h) Management's Discussion and "MANAGEMENT'S DISCUSSION AND
Analysis of Financial ANALYSIS OF FINANCIAL CONDITION
Condition and Results of AND RESULTS OF OPERATIONS OF
Operations MADISON FIRST FEDERAL SAVINGS AND
LOAN ASSOCIATION"; "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CITIZENS NATIONAL
BANK OF MADISON"
<PAGE>
(i) Changes in and Disagreements Not Applicable
with Accountants on
Accounting and Financial
Disclosure
(j) Directors and Executive "MANAGEMENT OF THE HOLDING
Officers COMPANY"; "MANAGEMENT OF
FIRST FEDERAL"; "MANAGEMENT OF
CITIZENS"
(k) Executive Compensation "EXECUTIVE COMPENSATION AND
RELATED TRANSACTIONS OF FIRST
FEDERAL"; "EXECUTIVE COMPENSATION
AND RELATED TRANSACTIONS OF
CITIZENS"
(l) Security Ownership of "ANTICIPATED MANAGEMENT PURCHASES"
Certain Beneficial
Owners and Management
(m) Certain Relationships "EXECUTIVE COMPENSATION AND
and Related Transactions RELATED TRANSACTIONS OF FIRST
FEDERAL - Transactions with
Certain elated Persons";
"EXECUTIVE COMPENSATION AND
RELATED TRANSACTIONS OF CITIZENS -
- Transactions with Certain
Related Persons"
12. Disclosure of Commission Not Applicable
Position on Indemnification
for Securities Act Liabilities
<PAGE>
SUBSCRIPTION AND DIRECT COMMUNITY OFFERING PROSPECTUS
River Valley Bancorp
Madison, Indiana
(Proposed Holding Company for Madison First Federal Savings and Loan Association
and Citizens National Bank of Madison)
Up to 1,035,000 (Anticipated Maximum) Shares of Common Stock
River Valley Bancorp, an Indiana corporation (the "Holding Company"), is
offering for sale, as described below, up to 1,035,000 shares of its common
stock, without par value (the "Common Stock"), in connection with (i) its
acquisition of the common stock of Madison First Federal Savings and Loan
Association ("Madison First") to be issued upon the conversion of Madison First
from a federal mutual savings and loan association to a federal stock savings
and loan association (the "Conversion") and (ii) its acquisition (the
"Acquisition") of 120,429 shares of common stock, $8.00 par value per share (the
"Citizens Shares"), of Citizens National Bank of Madison ("Citizens"),
constituting 95.6 % of the issued and outstanding shares of Citizens' common
stock. Madison First and Citizens are together hereinafter referred to as the
"Institutions." The purchase price for the Common Stock (the "Purchase Price")
is $10.00 per share. As part of the Conversion, Madison First will adopt a
Federal Stock Charter and amended and restated By-Laws. For a description of the
Conversion transaction, see "The Conversion." For a description of the
Acquisition, see "The Acquisition." Pursuant to the Conversion, the Common Stock
is first being offered in a subscription offering (the "Subscription Offering"),
in order of priority and subject to availability, to: (i) certain holders of
deposit accounts at Madison First with an aggregate balance of $50.00 or more as
of December 31, 1994 ("Eligible Account Holders"); (ii) the Holding Company's
tax-qualified Employee Stock Ownership Plan and Trust (the "ESOP"); (iii)
certain holders of deposit accounts at Madison First with an aggregate balance
of $50.00 or more as of [June 30, 1996] ("Supplemental Eligible Account
Holders"); and (iv) other deposit account holders and borrowers of Madison First
as of , 1996 ("Other Members"), subject to the limitations described herein.
Pursuant to Office of Thrift Supervision ("OTS") regulations, subscription
rights granted to the above persons are non-transferable; persons violating such
provisions may lose their right to purchase Common Stock in the Conversion and
be subject to other possible sanctions and penalties imposed by the OTS.
(continued on next page.)
SEE "RISK FACTORS" FOR CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE
COMMON STOCK.
THE SHARES OF COMMON STOCK BEING OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
SAVINGS DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION (THE "FDIC") OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "SEC"), ANY STATE SECURITIES COMMISSION, THE OTS OR
THE FDIC, NOR HAS THE SEC, ANY STATE SECURITIES COMMISSION, THE OTS OR THE FDIC
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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Estimated Estimated
Underwriting Fees and Net Conversion
Purchase Price (1) Other Expenses (2) Proceeds (3)
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<S> <C> <C> <C>
Minimum Per Share.................................... $10.00 $0.73 $9.27
Midpoint Per Share................................... $10.00 $0.66 $9.34
Maximum Per Share.................................... $10.00 $0.60 $9.40
Maximum Per Share, as adjusted (4)................... $10.00 $0.55 $9.45
Total Minimum........................................ $7,650,000 $561,000 $7,089,000
Total Midpoint....................................... $9,000,000 $592,000 $8,408,000
Total Maximum........................................ $10,350,000 $623,000 $9,727,000
Total Maximum, as adjusted (4)....................... $11,902,500 $660,000 $11,242,500
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</TABLE>
(1) The current aggregate value of the Common Stock is based upon an
independent appraisal of the Common Stock by Keller & Company, Inc.
("Keller") as of May 3, 1996. See "The Conversion -- Stock Pricing." The
total offering will be within a range of $7,650,000 to $10,350,000 (the
"Estimated Valuation Range"), unless market and financial conditions
necessitate a change in this range, which change would be supported by a
change in the appraisal. Changes in the size of the offering will have an
effect on the estimated net proceeds of the offering and pro forma
capitalization and book value per share of the Holding Company. If the
final valuation is not within a range between the minimum of the Estimated
Valuation Range to 15% above the maximum of the Estimated Valuation Range,
subscribers will be given notice of such change, which notice will set a
date by which subscribers must elect whether to continue their
subscriptions during any offering at a revised Estimated Valuation Range.
In such event, subscribers will be given the right to have their
subscriptions returned promptly after they inform the Holding Company of
their decision not to continue their subscriptions. Subscriptions as to
which the Holding Company receives no affirmative or negative election by
the date specified in the notice will be returned promptly after such date.
See "Use of Proceeds," "Capitalization," and "Pro Forma Data."
(2) Consists of estimated costs to Madison First and the Holding Company
arising from the Conversion, including estimated management fees,
commissions and reimbursable out-of-pocket expenses to be paid to Trident
Securities, Inc. (the "Agent") in connection with the Agent's engagement as
exclusive sales agent and financial advisor to the Holding Company and
Madison First. Madison First and the Holding Company will pay the Agent a
management fee equal to 0.5% of the aggregate number of shares of Common
Stock sold in the Conversion. Commissions are estimated based on the total
number of shares of Common Stock sold, assuming a 2.0% commission paid to
the Agent with respect to all shares sold in the Subscription Offering and
the Direct Community Offering (except for purchases by the ESOP, officers
and directors of the Institutions and their Associates, as hereinafter
defined), and assuming no sales have been made through selected dealers.
See "Use of Proceeds." Offers and sales in the Direct Community Offering
will be on a best efforts basis. The Holding Company and Madison First have
agreed to indemnify the Agent against certain liabilities, including
liabilities arising under the Securities Act of 1933, as amended (the "1933
Act"). See "The Conversion -- Agent."
(3) Net Conversion proceeds may vary from the estimated amounts. The Holding
Company will initially receive 60% of the net Conversion proceeds after
providing for the loan to the ESOP to allow the ESOP to purchase shares of
Common Stock in the Conversion. The Holding Company will use $3,010,715 of
the proceeds to acquire the Citizens Shares in the Acquisition. The Holding
Company will also use a portion of the proceeds remaining after acquisition
of the Citizens Shares to make a capital contribution to Citizens of up to
$1.5 million. See "Pro Forma Data" and "Use of Proceeds."
(4) Gives effect to an increase in the number of shares which could occur due
to an increase of up to 15% above the maximum number of shares which may be
offered in the Conversion to reflect changes in market and financial
conditions following commencement of the Subscription and Direct Community
Offerings. No resolicitation of subscribers will be made and subscribers
will not be permitted to modify or cancel their subscriptions unless the
gross proceeds from the sale of Common Stock in the Conversion are less
than the minimum or more than 15% above the maximum of the Estimated
Valuation Range. See "The Conversion -- Number of Shares to be Issued."
TRIDENT SECURITIES, INC.
The date of this Prospectus is , 1996.
<PAGE>
Shareholders, depositors and borrowers of Citizens do not have subscription
rights under Madison First's Plan of Conversion (the "Plan" or the "Plan of
Conversion") unless such persons are otherwise Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members of Madison First. See
"The Conversion -- Subscription Offering." Commencing concurrently with the
Subscription Offering, and subject to the prior rights of holders of
subscription rights, the Common Stock is also being offered to members of the
general public, with preference given to residents of Jefferson County, Indiana,
pursuant to a direct community offering (the "Direct Community Offering").
Madison First has the right to terminate the Direct Community Offering as soon
as it has received orders for at least the minimum number of shares available
for purchase in the Conversion. See "The Conversion--Direct Community Offering."
The Subscription Offering will expire at p.m., Madison time, on , 1996,
unless extended by Madison First and the Holding Company. The Direct Community
Offering may expire as early as , 1996, or at any time thereafter (until , 1996,
unless extended by Madison First and the Holding Company) when orders for at
least 765,000 shares of Common Stock have been received in both the Subscription
Offering and the Direct Community Offering, if any. Neither the Subscription
Offering nor the Direct Community Offering may be extended beyond , 1996,
without regulatory approval. See "The Conversion--Subscription Offering" and
"--Direct Community Offering." All purchases will be subject to maximum and
minimum purchase limitations, and to certain other terms and conditions
described below. Under the Plan, no Eligible Account Holder, Supplemental
Eligible Account Holder or Other Member may purchase more than 10,000 shares per
deposit account held or loan owed to Madison First as of ____________, 1996, and
no subscribing member, alone or with an Associate or group of persons acting in
concert, may purchase more than 20,000 shares of Common Stock in the Conversion.
No person, alone or with an Associate or group of persons acting in concert, may
purchase more than 10,000 shares of Common Stock in the Direct Community
Offering. A member who, together with his Associates and persons acting in
concert, has subscribed for shares in the Subscription Offering may subscribe
for a number of additional shares in the Direct Community Offering that does not
exceed the lesser of (i) 10,000 shares or (ii) the number of shares which, when
added to the number of shares subscribed for by the member (and his Associates
and persons acting in concert) in the Subscription Offering, would not exceed
20,000. Notwithstanding the foregoing, the ESOP may purchase up to 10% of the
Common Stock sold in the Conversion. The ESOP currently intends to acquire 8% of
the shares sold in the Conversion. The ESOP may purchase Common Stock if shares
remain available after satisfying the subscriptions of Eligible Account Holders
up to $10,350,000, the maximum of the Estimated Valuation Range. The ESOP
reserves the right to have all or part of its order filled by purchases in the
open market following the Conversion. See "Executive Compensation and Related
Transactions of Madison First -- Employee Stock Ownership Plan and Trust" and
"Executive Compensation and Related Transactions of Citizens -- Employee Stock
Ownership Plan and Trust." The minimum number of shares of Common Stock that may
be purchased by any person or entity is 25 shares. Madison First and the Holding
Company, in their sole discretion, may increase or decrease subscription rights
and the purchase limitations. See "The Conversion -- Limitations on Common Stock
Purchases."
Shares of Common Stock may be ordered at the Purchase Price directly from
the Holding Company by returning the appropriate stock order form and
certification (the "Order Form"), together with full payment, or appropriate
instructions authorizing withdrawals from accounts at Madison First, for the
shares to be purchased. Orders must be received at Madison First's Stock
Information Center, by ____ p.m., Madison time, on _______, 1996. All amounts
subscribed for by check will be placed in a special savings account at Madison
First and will earn interest at the then-current passbook rate, which is
currently 3.00% per annum (for an annual percentage yield ("APY") of 3.04%),
from the date of receipt until completion or termination of the Conversion.
Subscriptions are irrevocable until 45 days after the expiration of the
Subscription Offering (________, 1996). Funds authorized for withdrawal from
accounts will continue to earn interest at the rate specified on the account
until completion of the Conversion and will not be subject to early withdrawal
penalties. If the Conversion is not completed by _______, 1996, and Madison
First and the Holding Company elect to extend the time required to complete the
Conversion, subscribers will be given the right to increase, decrease or rescind
their subscriptions as set forth in the Plan of Conversion. If Madison First and
the Holding Company decide to extend the Subscription Offering, subscribers will
be given the right to have their subscriptions promptly refunded following the
conclusion of the current offering (which will end no later than ______, 1996),
and Madison First will return subscriptions with interest unless subscribers
affirmatively elect to continue their subscriptions during the period of
extension. If the offering period is not extended and the Conversion is not
completed, all subscription funds will be promptly returned, together with
accrued interest from the date of receipt, and all withdrawal authorizations
will be terminated. Any delay in completing the Conversion may result in a delay
in shareholders of the Holding Company receiving their stock certificates,
increased Conversion costs and expenses or a change in the Estimated Valuation
Range. See "Risk Factors -- Risk of Delayed Offering." The offering may be
extended, subject to OTS approval, until 24 months following the members'
approval, or until _______, 1998.
Under the Plan of Conversion, the Conversion will not become effective
until such time as all conditions precedent to the Acquisition are satisfied.
See "The Acquisition." Therefore, a delay in the satisfaction of any conditions
precedent to the Acquisition would result in a delay in completing the
Conversion. See "Risk Factors -- Risk of Delayed Offering." If at any time it
becomes clear that any condition precedent to the Acquisition will not be
satisfied, the Conversion and the Plan will terminate, and Madison First will
promptly refund all subscription funds with accrued interest and cancel all
withdrawal authorizations. See "The Conversion -- Conditions and Termination."
2
<PAGE>
The maximum number of 1,035,000 shares of Common Stock offered hereby
represents the high end of a range from 765,000 shares to 1,035,000 shares at an
offering price of $10.00 per share, based upon an independent appraisal of the
aggregate pro forma market value of the Common Stock as of May 3, 1996, in
accordance with applicable regulations. The number of shares to be sold in the
Conversion must fall within this range unless market and financial conditions
necessitate a change in the range, which change would be supported by a change
in the appraisal. Madison First reserves the right to reject any orders received
in the Direct Community Offering in whole or in part. Funds received pursuant to
rejected orders will be refunded promptly with any interest due thereon.
Madison First has engaged the Agent as its exclusive sales agent to assist
on a best efforts basis in the sale of Common Stock in both the Subscription
Offering and the Direct Community Offering, if any. In addition to assisting in
the marketing of the Common Stock, the Agent will assist Madison First by, among
other things, training Madison First's employees regarding the mechanics and
regulatory requirements of the conversion process, conducting informational
meetings for subscribers and other potential purchasers and keeping records of
all stock subscriptions. The Agent will only be assisting the Holding Company on
a best efforts basis in effecting the sale of Common Stock directly. The Agent
will have no obligation to take or purchase any Common Stock. The Agent intends
to make a market in the Common Stock following the Conversion, although it is
under no obligation to do so. See "The Conversion -- Agent." Upon a
determination by Madison First and the Agent, the Agent may enter into
agreements to use the services of dealers selected by Madison First and the
Agent in the Direct Community Offering, if any. If used, any selected dealers
will solicit indications of interest on a best efforts basis from their
customers to place orders for Common Stock, which orders will be placed only
when and if the Agent and Madison First believe that enough indications of
interest and orders have been received in the Subscription Offering and the
Direct Community Offering to consummate the Conversion. See "The Conversion --
Selected Dealers."
The Holding Company has received approval to have its Common Stock quoted
on the National Association of Securities Dealers Automated Quotation ("NASDAQ")
Small Cap Market under the symbol "RIVR," subject to certain conditions which
the Holding Company and Madison First believe will be met. Prior to this
offering, there was no public market for the Common Stock and there can be no
assurance that an established and liquid market for the Common Stock will
develop or, if such a market does develop, that it will continue. In addition,
there can be no assurance that resales of the Common Stock after completion of
the Conversion can be made at or above the Purchase Price. See "Market for the
Common Stock."
The number of shares of Common Stock directors and executive officers of
Madison First may purchase is limited under the Plan. Directors and executive
officers of the Institutions expect to purchase 104,800 shares, or 11.6% of the
total shares offered in the Conversion (at the midpoint of the Estimated
Valuation Range). See "Anticipated Management Purchases." Such purchases will
apply toward the minimum required number of shares (765,000) to be sold in the
Conversion and will be made for investment purposes only.
CONSUMMATION OF THE CONVERSION IS SUBJECT TO THE SATISFACTION OF ALL
CONDITIONS PRECEDENT TO THE ACQUISITION AND THE APPROVAL OF THE PLAN OF
CONVERSION BY A MAJORITY OF THE TOTAL VOTES OF MADISON FIRST'S MEMBERS ELIGIBLE
TO BE CAST AT A SPECIAL MEETING CALLED FOR , 1996.
3
<PAGE>
Madison First Federal Savings
and Loan Association and
Citizens National Bank of Madison
Madison, Indiana
[INSERT MAP]
4
<PAGE>
PROSPECTUS SUMMARY
This summary and the selected financial data which follow this summary do
not purport to be complete and are qualified in their entirety by the more
detailed information and financial statements appearing elsewhere herein.
Risk Factors
There are certain risk factors relating to an investment in the Common
Stock which should be carefully examined by prospective purchasers of the Common
Stock, including risks inherent in the potential impact of changes in interest
rates, risks associated with the Acquisition, risks associated with Citizens'
commercial lending, risks associated with the Institutions' nonresidential real
estate and multi-family lending, the disparity between the Savings Association
Insurance Fund (the "SAIF") premiums payable by Madison First and Bank Insurance
Fund (the "BIF") premiums payable by commercial banks (including Citizens), the
impact of Madison First's decreasing earnings and the effect on return on
equity, the existence of the Minority Shares (as defined below), the possible
dilutive effect of stock-based benefit plans expected to be adopted by the
Holding Company following the Conversion, the potential benefits to management
of the Holding Company and the Institutions upon and subsequent to the
Conversion, the potential impact of ESOP compensation expenses, the absence of
an established trading market for the Common Stock, competition in the
Institutions' local market area, the Institutions' geographic concentration of
loans, the risk of a delayed offering, anti-takeover provisions, the possible
effects of regulatory oversight and recent legislation, and the potential income
tax consequences of subscription rights. See "Risk Factors."
The Holding Company
The Holding Company is an Indiana corporation recently organized to acquire
all of the common stock of Madison First in the Conversion and the Citizens
Shares in the Acquisition, and thereafter act as the savings and loan holding
company for Madison First and as the bank holding company for Citizens. Pursuant
to the Plan of Conversion, the Holding Company will offer the Common Stock to
Eligible Account Holders, the ESOP, Supplemental Eligible Account Holders, Other
Members, and to the general public. The holding company structure will provide
increased flexibility in conducting future business activities related to the
Institutions. The Holding Company currently intends to maintain the independence
of the Institutions, but may in the future evaluate a possible merger or
combination of the Institutions. The Holding Company has received the approval
of the OTS to become a savings and loan holding company through the acquisition
of the common stock of Madison First in the Conversion and of the Board of
Governors of the Federal Reserve System (the "FRB") to become a bank holding
company through the acquisition of the Citizens Shares in the Acquisition. Prior
to the Conversion and the Acquisition, the Holding Company will not engage in
any material operations. Upon consummation of the Acquisition, the Holding
Company will be a savings and loan holding company and a bank holding company,
the activities of which will be restricted generally by federal law and FRB
regulations to activities considered related to banking. See "Regulation -- Bank
Holding Company Regulation" and "-- Savings and Loan Holding Company
Regulation." Upon consummation of the Conversion and the Acquisition, the
Holding Company will have no significant assets other than the common stock of
Madison First, the Citizens Shares, the ESOP loan and that portion of the net
Conversion proceeds retained by the Holding Company and not used by the Holding
Company to purchase the Citizens Shares, some of which will be used to make a
capital contribution to Citizens of up to $1.5 million. The Holding Company may
also use a portion of such remaining funds, if any, to pay dividends and,
subject to applicable regulatory restrictions, to repurchase shares of its
Common Stock, although it has no present plans to do so. See "Use of Proceeds."
Other than in connection with the Acquisition, the Holding Company has no
current arrangements, negotiations or agreements, written or oral, with respect
to any future acquisition. The Holding Company's executive office is located at
303 Clifty Drive, Post Office Box 626, Madison, Indiana 47250, and its telephone
number is (812) 273-4949. See "River Valley Bancorp."
5
<PAGE>
Madison First
Madison First, organized as a federally chartered savings and loan
association in 1875, conducts its business from three full-service offices and
one stand-alone drive-through branch, all located in Jefferson County, Indiana.
Madison First's principal business historically has been attracting deposits
from the general public and originating fixed-rate and adjustable-rate loans
secured by first mortgage liens on one- to four-family real estate within
Jefferson County, Madison First's principal market area. See "Business of
Madison First." Jefferson County is located in southern Indiana, approximately
95 miles south of Indianapolis, 55 miles northeast of Louisville, Kentucky and
75 miles west of Cincinnati, Ohio. According to the U.S. Bureau of Census, the
city of Madison, the county seat of Jefferson County, had a population of
12,006, and Jefferson County had a population of 29,797, at the time of the 1990
census. See "Market Area." Madison First's deposits are insured up to applicable
limits by the FDIC through the SAIF.
At March 31, 1996, Madison First had total assets of $88.3 million,
deposits of $79.3 million and net equity capital of $6.6 million, an amount
equal to 7.5% of total assets. Madison First's net income for the year ended
December 31, 1995 and the three months ended March 31, 1996 was $258,000 and
$64,000, respectively. Madison First's net yield on weighted average
interest-earning assets for the year ended December 31, 1995 and the three
months ended March 31, 1996 was 2.61% and 2.71%, respectively. Madison First's
capital ratios are now, and on a pro forma basis will be, in excess of all
regulatory capital requirements, as prescribed by law. See "Pro Forma Data --
Regulatory Capital Compliance." Madison First has no current arrangements,
negotiations, or agreements, written or oral, with respect to any future
acquisition.
Madison First is the oldest independent financial institution headquartered
in Jefferson County. Management believes Madison First has developed a solid
reputation among its loyal customer base because of its commitment to personal
service and its strong support of the local community. By focusing primarily on
residential real estate mortgage lending in Jefferson County, Madison First has
achieved the following:
o Asset Quality and Emphasis on Residential Mortgage Lending. Since its
inception, Madison First has emphasized the financing of
single-family, owner-occupied residences in its market area. Madison
First anticipates a continued commitment to financing the purchase or
improvement of such residences. By emphasizing one- to four-family
residential mortgage loans, Madison First's strategy previously
minimized the credit risk of its asset base in exchange for lower
yields than would typically be available on riskier investments, such
as commercial loans. At March 31, 1996, 76.2% of Madison First's total
loan portfolio consisted of one- to four-family residential mortgage
loans. At that date, non-performing assets totaled $30,000, or 0.03%
of total assets, and Madison First's ratio of allowance for loan
losses to total loans outstanding was 0.7%. See "Business of Madison
First -- Non-Performing and Problem Assets."
o Community Orientation. Madison First is committed to meeting the
financial needs of the community in which it operates. Madison First
believes it is large enough to provide a wide range of personal and
business financial services, and yet is small enough to be able to
provide such services on a personalized and efficient basis.
Management believes that Madison First can be more effective in
servicing its customers than many of its non-local competitors because
of Madison First's ability to quickly and effectively provide senior
management responses to customer needs and inquiries.
Citizens
Citizens was organized as a national bank in 1981. Citizens conducts its
business from four full-service offices, all located in Jefferson County,
Indiana. Citizens offers a broad array of lending, deposit and other financial
services to its retail and commercial customers. See "Business of Citizens."
Citizens' principal market area is also Jefferson County in southern Indiana.
See "Market Area." Citizens' deposits are insured up to applicable limits by the
FDIC through the BIF.
At March 31, 1996, Citizens had total assets of $58.1 million, deposits of
$52.7 million and net shareholders' equity capital of $3.4 million, an amount
equal to 5.9% of total assets. See "Business of Citizens." Citizens' capital
ratios are currently in excess of all regulatory capital requirements, as
prescribed by law. Citizens has no current arrangements, negotiations, or
agreements, written or oral, with respect to any future acquisition.
By providing its individual and commercial customers a broad array of
services and products, Citizens has achieved the following:
o Profitability. Citizens has reported positive net income in every year
since 1990. Citizens' net income increased from $120,000 for the year
ended December 31, 1991 to $342,000 for the year ended December 31,
1995. Citizens had net income of $22,000 for the three months ended
March 31, 1996, a decrease of $95,000 from the three-month period
ended March 31, 1995, due primarily to a $150,000 provision for loan
losses in the quarter. Citizens' net interest income for the three
months ended March 31, 1996 totaled $497,000, an increase of $56,000,
or 12.7%, from the $441,000 for the three months ended March 31, 1995.
Citizens' net yield on weighted average interest-earning assets for
the year ended December 31, 1995 and the three months ended March 31,
1996 was 4.25% and 3.69%, respectively.
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o Asset Growth and Asset Quality. Citizens' total assets have increased
from $30.1 million at December 31, 1991 to $58.1 million at March 31,
1996. Citizens' growth in total assets is attributable to a sustained
growth in virtually all areas of lending, including one- to
four-family residential mortgage lending, consumer lending and
commercial lending. Despite its aggressive growth, Citizens has thus
far been successful in maintaining the quality of its loan and
investment portfolios. At March 31, 1996, non-performing assets
totaled $262,000, or 0.5% of total assets. See "Business of Citizens
-- Non-Performing and Problem Assets."
o Low Interest Rate Risk. At March 31, 1996, Citizens' NPV (as defined
below) would increase ___% in the event of a 2% increase in market
interest rates and would decrease ___% in the event of a 2% decrease
in market interest rates. These calculations indicate that Citizens'
net portfolio value is more sensitive to decreases in market interest
rates but that Citizens' interest rate risk would be well within the
OTS' definition of normal level of exposure described below in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations of Madison First Federal Savings and Loan
Association -- Asset/Liability Management." Although these regulations
have not been implemented by the OTS, and Citizens, as a national
bank, would not be subject to the regulations if implemented by the
OTS, the methodology set forth in the OTS' regulations provides an
informational basis on which Citizens' interest rate risk can be
evaluated. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Citizens National Bank of
Madison -- Asset/ Liability Management." Citizens has achieved this
asset/liability posture by emphasizing adjustable-rate loans and
investments and by selling its fixed-rate one- to four-family
residential mortgage loans to the Federal Home Loan Mortgage
Corporation (the "FHLMC") on the secondary market. See "Business of
Citizens."
o Community Orientation. Citizens has developed a solid reputation in
its market by offering a wide variety of lending, deposit and other
financial services to its retail and commercial customers on a
personalized and efficient basis. By building on its reputation as a
responsive lender, Citizens plans to strengthen its position as a
leading financial institution in Jefferson County.
The Acquisition
On March 4, 1996, Madison First and Eloise A. Durocher ("Ms. Durocher")
entered into an Amended and Restated Stock Purchase Agreement (the "Agreement")
pursuant to which Madison First agreed to purchase through the Holding Company,
and Ms. Durocher agreed to sell to the Holding Company, the Citizens Shares,
which constitute 95.6% of the issued and outstanding capital stock of Citizens.
As consideration for the Citizens Shares, the Holding Company will pay to Ms.
Durocher cash in the amount of $3,010,725, or $25.00 per Citizens Share. The
Holding Company and Madison First estimate that the total cost of the
Acquisition, including all professional fees and expenses, will be $3,075,725.
Consummation of the Acquisition is conditioned upon the satisfaction of certain
conditions, including the Holding Company's (i) completing a satisfactory due
diligence review of Citizens and (ii) obtaining all necessary regulatory
approvals to acquire the Citizens Shares in the Acquisition. The Holding
Company's due diligence review of Citizens may continue through the date of the
Acquisition. The Holding Company has obtained the approval of the FRB to become
a bank holding company upon the acquisition of the Citizens Shares in the
Acquisition. See "Regulation -- Bank Holding Company Regulation."
The Agreement may be terminated by Madison First and the Holding Company
if, among other things, it is determined that the audited financial statements
of Citizens as of and for the year ended December 31, 1995, do not fairly
present the financial position and results of operations for Citizens as of and
for the year then ended or that there has been a material adverse change in the
operations, prospects or financial condition of Citizens since December 31,
1995. The Agreement further provides that Ms. Durocher may terminate the
Agreement if it becomes clear that any condition precedent to her obligations
under the Agreement cannot be satisfied on or prior to December 31, 1996. Either
party may terminate the Agreement at any time if there is a final determination
that any material provision of the Agreement is illegal, invalid or
unenforceable or if it becomes clear that any condition precedent to such
party's obligations under the Agreement cannot be satisfied on or prior to June
30, 1997.
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The Conversion will not become effective until such time as all conditions
precedent to the Acquisition are satisfied. If at any time it becomes clear that
any condition precedent to the Acquisition will not be satisfied, the Conversion
and the Plan of Conversion will terminate. See "The Conversion -- Conditions and
Termination."
The Acquisition will enable Madison First to expand its banking services.
In addition, the Acquisition will enable Madison First to expand efficiently its
lending emphasis to include installment, commercial and agricultural loan
products through Citizens' established experience in such lending areas.
Moreover, the Acquisition in combination with the Conversion will permit the
Holding Company to put to use a significant portion of the capital raised in the
Conversion to acquire the Citizens Shares, loan money to the ESOP and increase
the capital of Citizens. Each of the Institutions will continue to qualify as a
"well capitalized" institution for regulatory purposes. The Acquisition is also
expected to reduce the pressure to leverage the Holding Company's consolidated
balance sheet that typically exists when a "well capitalized" institution
engages in a standard conversion transaction. See "Unaudited Pro Forma Condensed
Combined Financial Statements" and "Pro Forma Data -- Regulatory Capital
Compliance."
The Holding Company and Madison First currently intend to maintain Citizens
as an independent entity but may in the future consider a merger or
consolidation of the Institutions. The Holding Company may also evaluate
alternatives to purchase the 4.4% of Citizens' issued and outstanding common
stock not being acquired by the Holding Company in the Acquisition (the
"Minority Shares") through a transaction in which holders of the Minority Shares
would receive fair consideration, most likely in the form of cash, shares of
Common Stock or a combination thereof. In the meantime, the Holding Company and
the Institutions will explore opportunities to integrate certain aspects of the
Institutions' operations in a manner designed to achieve operating efficiencies,
including the possible combination or integration of the Institutions' data
processing, marketing, financial reporting, collections and human resources
functions, compliance functions, their deposit and loan operations, and their
insurance and employee benefit programs. The Holding Company and the
Institutions may also explore opportunities to utilize their offices and
physical locations in a more efficient manner. For further information regarding
the Acquisition, see "The Acquisition." For further information regarding
Citizens, see "Citizens National Bank of Madison," "Business of Citizens" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Citizens National Bank of Madison."
The Conversion
General. The Board of Directors of Madison First unanimously adopted a Plan
of Conversion pursuant to which Madison First will convert from a federal mutual
savings and loan association to a federal stock savings and loan association,
subject to certain conditions set forth therein, including consummation of the
Acquisition. The Plan of Conversion and the Federal Stock Charter (the
"Charter") will be submitted for the approval of the members of Madison First at
a special meeting currently scheduled for , 1996 (the "Special Meeting"). The
Conversion will not become effective until such time as all conditions precedent
to the Acquisition are satisfied. If at any time it becomes clear that any
condition precedent to the Acquisition will not be satisfied, the Conversion and
the Plan will terminate and Madison First will refund all payments and cancel
all withdrawal authorizations, as applicable, for subscriptions received in the
Conversion. See "The Conversion -- Conditions and Termination."
The proceeds from the sale of the Common Stock made as a part of the
Conversion will strengthen the Institutions' capital positions and will allow
Madison First to be structured in a corporate form similar to that of most
business entities. The Conversion will not affect Madison First's normal
business or its existing services to depositors and borrowers. Deposits at
Madison First will continue to be insured by the FDIC up to the applicable
limits. After the Conversion, the Holding Company will have exclusive voting
rights with respect to Madison First and no account holder or borrower will have
any voting rights with respect to, or be a member or a shareholder of, Madison
First. Holders of shares of Common Stock will have voting rights only with
respect to the Holding Company.
Stock Pricing and Independent Appraisal. The aggregate purchase price of
the Common Stock being sold in the Conversion will be based upon the aggregate
pro forma market value of the Common Stock, as determined by an independent
valuation. Keller, a financial advisory firm experienced in the valuation of
financial institutions, was retained by Madison First to prepare an appraisal of
the estimated pro forma market value of the Common Stock. Keller's appraisal
concluded that as of May 3, 1996, the Estimated Valuation Range was from a
minimum of $7,650,000 to a maximum of $10,350,000, with a midpoint of
$9,000,000. The aggregate number of shares of the Common Stock to be sold at
$10.00 per share will be within the range of 765,000 to 1,035,000, unless market
and financial conditions necessitate a change in the range. The appraisal will
be updated shortly before the completion of the Conversion and the Acquisition.
The Board of Directors reviewed with management Keller's methods and assumptions
and accepted Keller's appraisal as reasonable and adequate. Madison First has
agreed to pay Keller a fee of $17,000 for its appraisal services, plus
out-of-pocket expenses not to exceed $500. Keller has also prepared a business
plan for Madison First, which includes three-year pro forma financial statements
for the Holding Company for a fee of $5,000. See "The Conversion -- Stock
Pricing" and "-- Number of Shares to be Issued."
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The independent valuation is not intended and must not be construed as a
recommendation of any kind as to the advisability of voting to approve the
Conversion or of purchasing the shares of the Common Stock. Moreover, because
the valuation is necessarily based upon estimates and projections of a number of
matters (including certain assumptions as to the Acquisition, the amount of net
proceeds and the earnings thereon), all of which are subject to change from time
to time, no assurance can be given that persons purchasing shares in the
Conversion will thereafter be able to sell shares of Common Stock at prices
related to the valuation of the pro forma market value.
Members Meeting. The sale of shares of Common Stock in the Conversion is
conditioned upon, among other things, approval of the Plan and the adoption of
the Charter by a majority of the votes eligible to be cast by the members of
Madison First at the Special Meeting. If the Conversion is not approved by the
members at the Special Meeting, no shares will be issued, the Conversion will
not take place, all subscription funds received will be promptly returned
together with interest at the passbook rate, which is currently 3.00% per annum,
or 3.04% APY, and all withdrawal authorizations will be canceled.
Subscription Offering. Pursuant to the Plan of Conversion, up to 1,035,000
shares of Common Stock are being offered by the Holding Company at the price of
$10.00 per share in the Subscription Offering to the following persons in the
following order of priority: (i) Eligible Account Holders; (ii) the ESOP; (iii)
Supplemental Eligible Account Holders who are not Eligible Account Holders and
(iv) Other Members who are not Eligible Account Holders or Supplemental Eligible
Account Holders. Shareholders, depositors and borrowers of Citizens do not have
subscription rights under the Plan unless such persons are otherwise Eligible
Account Holders, Supplemental Eligible Account Holders or Other Members of
Madison First. The Subscription Offering expires at ____ p.m., Madison time, on
, 1996, unless extended by Madison First and the Holding Company. The
Subscription Offering may be extended, subject to OTS approval, until 24 months
after the Special Meeting, or until , 1998. See "The Conversion -- Subscription
Offering."
Subscriptions may be paid by check or by withdrawal from accounts at
Madison First. Funds authorized for withdrawal from deposit accounts will
continue to earn interest at the rate specified for the account until completion
of the Conversion. All amounts paid will be placed in a savings account at
Madison First and will earn interest at Madison First's passbook rate from the
date of receipt until completion of the Conversion. That rate is currently
3.00%, for an APY of 3.04%. Amounts may be withdrawn from certificate accounts
at Madison First to purchase Common Stock in the Conversion without the payment
of early withdrawal penalties. However, if the amount withdrawn reduces the
balance of the certificate account to less than the applicable required minimum
balance, such account after completion of the Conversion will earn interest at
the then-current passbook rate.
Refunds. In the event that a subscriber's order cannot be filled in full as
a result of an oversubscription or the Conversion is not consummated, refunds
(including interest at the passbook rate of interest for payments made other
than through authorization of withdrawal from deposit accounts) will be made
upon closing of the Conversion by check or, if payment was made through
authorization of withdrawal from a deposit account, through cancellation of an
appropriate portion of such withdrawal authorization.
If the Conversion is not completed by , 1996, and Madison First and the
Holding Company elect to extend the time required to complete the Conversion,
with the OTS' approval, subscribers will be given the right to increase,
decrease or rescind their subscriptions pursuant to procedures approved by the
OTS and as set forth in the Plan of Conversion. If Madison First and the Holding
Company decide to extend the Subscription Offering, subscribers will be given
the right to have their subscriptions promptly refunded following the conclusion
of the current offering (which will end no later than , 1996), and Madison First
will return subscriptions with interest unless subscribers affirmatively elect
to continue their subscriptions during the period of extension.
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Under the Plan of Conversion, the Conversion will not become effective
until such time as all conditions precedent to the Acquisition are satisfied.
Therefore, a delay in the satisfaction of any condition precedent to the
Acquisition would result in a delay in completing the Conversion, possibly
delaying the Holding Company's ability to issue certificates and commence
trading following receipt of subscription orders. See "Risk Factors -- Risk of
Delayed Offering." If at any time it becomes clear that any condition precedent
to the Acquisition will not be satisfied, the Conversion and the Plan will
terminate, and Madison First will promptly refund all subscription funds with
accrued interest and cancel all withdrawal authorizations. See "The Conversion
- -- Conditions and Termination."
Direct Community Offering. Commencing concurrently with the Subscription
Offering and subject to availability, shares of Common Stock are being offered
to the general public, giving preference to residents of Jefferson County, in a
Direct Community Offering. The purchase price in the Direct Community Offering
will also be $10.00 per share. The Direct Community Offering may, subject to OTS
approval, be extended until 24 months after the Special Meeting, or until ,
1998. Madison First reserves the absolute right to reject or accept any orders
received in the Direct Community Offering, in whole or in part, either at the
time of receipt of an order, or as soon as practicable following the expiration
of the Direct Community Offering.
The Direct Community Offering may expire as early as , 1996, or at any time
thereafter (until , 1996, unless extended by Madison First and the Holding
Company) when orders and indications of interest for at least 765,000 shares
have been received in the Subscription Offering and the Direct Community
Offering, if any. Accordingly, persons wishing to purchase Common Stock in the
Direct Community Offering directly from the Holding Company should return the
Order Form to Madison First on or before , 1996. If a person waits until after
that date, the Direct Community Offering may be terminated prior to the time the
Order Form is submitted, and that person may be precluded from purchasing shares
of Common Stock in the Direct Community Offering. See "The Conversion -- Direct
Community Offering."
In the event that Madison First and the Agent determine and agree to use
selected dealers to assist with the Direct Community Offering, each such
selected dealer will receive commissions at an agreed upon rate, not to exceed
4.5%, for all shares sold by the selected dealer. See "The Conversion --
Selected Dealers."
Purchase Limitations. The minimum purchase by any person or entity in the
Conversion is 25 shares. No subscribing member may purchase more than 10,000
shares with respect to each deposit account held and each loan owed to Madison
First as of _____________, 1996. For this purpose, joint account holders
collectively may not exceed the 10,000 share limit. Notwithstanding the
foregoing, the maximum number of shares of Common Stock which may be purchased
in the Subscription Offering by any member (including such person's Associates)
or group acting in concert shall be 20,000 shares in the aggregate, except that
the ESOP may purchase in the aggregate not more than 10% of the total number of
shares offered in the Conversion. The maximum number of shares of Common Stock
which may be purchased in the Direct Community Offering by any person (including
such person's Associates) or persons acting in concert is 10,000 in the
aggregate. A member who, together with his Associates and persons acting in
concert, has subscribed for shares in the Subscription Offering may subscribe
for a number of additional shares in the Direct Community Offering that does not
exceed the lesser of (i) 10,000 shares or (ii) the number of shares which, when
added to the number of shares subscribed for by the member (and his Associates
and persons acting in concert) in the Subscription Offering, would not exceed
20,000. The ESOP expects to purchase a number of shares equal to 8% of the total
number of shares sold in the Conversion. These purchase limitations are subject
to increase or decrease under certain circumstances by the Boards of Directors
of Madison First and the Holding Company. See "The Conversion -- Limitations on
Common Stock Purchases."
Participation of the Agent in the Offerings. In consideration for acting as
exclusive sales agent in the Subscription Offering and the Direct Community
Offering, if any, and for providing consulting and financial advisory services
to the Holding Company and Madison First, the Agent will receive a management
fee equal to 0.5% of the aggregate dollar amount of shares of Common Stock sold
in the Conversion and commissions in an amount equal to 2.0% of the aggregate
dollar amount of shares of Common Stock sold in the Conversion (other than
through broker-dealers) except for shares sold to the ESOP, or to officers and
directors of the Institutions and their Associates. The Agent will also be
reimbursed for out-of-pocket expenses which are not to exceed $12,000 without
Madison First's consent and for legal fees and expenses which are not to exceed
$35,000 without Madison First's consent. See "The Conversion -- Agent."
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Shares to be Purchased by Management and the ESOP. Directors and executive
officers of the Institutions expect to purchase 104,800 shares at $10.00 per
share, or 13.7% and 10.1% of the shares of Common Stock offered in the
Conversion based upon the minimum and maximum, respectively, of the Estimated
Valuation Range. See "Anticipated Management Purchases." Employees of the
Institutions, including executive officers, will also participate in the ESOP
and be able to vote shares allocated to their accounts under the ESOP, which is
expected to purchase a number of shares equal to 8% of the shares of Common
Stock issued in the Conversion with the proceeds of a loan made to the ESOP by
the Holding Company. The ESOP may purchase Common Stock if shares remain
available after satisfying the subscriptions of Eligible Account Holders up to
$10,350,000, the maximum of the Estimated Valuation Range.
Use of Proceeds
The net proceeds from the sale of Common Stock offered hereby are estimated
at $8.4 million, based upon the sale of 900,000 shares at $10.00 per share. The
Holding Company will initially receive 60% of the net Conversion proceeds after
providing for the loan to the ESOP to allow the ESOP to purchase shares of
Common Stock in the Conversion. See "Executive Compensation and Related
Transactions of Madison First -- Employee Stock Ownership Plan and Trust" and
"Executive Compensation and Related Transactions of Citizens -- Employee Stock
Ownership Plan and Trust." The Holding Company will use $3.0 million of the
proceeds to acquire the Citizens Shares in the Acquisition. See "The
Acquisition." The Holding Company will also use a portion of the proceeds
remaining after acquiring the Citizens Shares to make a capital contribution to
Citizens of up to $1.5 million. The remaining proceeds retained by the Holding
Company, if any, will be used for general corporate purposes, including the
possible payment of dividends and future repurchases of the Holding Company's
Common Stock as permitted by the OTS and applicable regulations. However, the
Holding Company has no present plans to pay dividends or effect repurchases of
the Common Stock.
The remaining Conversion proceeds will be received by Madison First and
will be used primarily to support Madison First's lending and investment
activities. The proceeds received by Citizens from the Holding Company will be
used primarily to support Citizens' lending and investment activities. Any
remaining proceeds may be used by the Institutions for general corporate
purposes, including contributions to the proposed management recognition and
retention plan and trust (the "RRP"). In the interim, the net proceeds will be
invested in U.S. government securities, other U.S. agency securities and
mortgage-backed securities. See "Use of Proceeds."
Market for the Common Stock
The Holding Company will use its best efforts to develop a public trading
market for the Common Stock. The Holding Company has received approval to have
its Common Stock quoted on the NASDAQ Small Cap Market under the symbol "RIVR"
upon successful closing of the Subscription and Direct Community Offerings,
subject to certain conditions which the Holding Company and Madison First
believe will be met. It is anticipated that upon the completion of the
Conversion at least two market makers will make a market in the Common Stock,
although the Holding Company has not yet obtained any market makers and will not
do so until the offering is completed. The Agent intends to make a market in the
Common Stock, although it is under no obligation to do so. There can be no
assurance that an active and liquid market for the Common Stock will develop in
the foreseeable future or, if such a market does develop, that it will continue.
In addition, there can be no assurance that shareholders will be able to sell
their shares at or above the Purchase Price after the completion of the
Conversion. Accordingly, purchasers of Common Stock should have a long-term
investment intent and recognize that the absence of an active and liquid trading
market may make it difficult to sell the Common Stock, and may have an adverse
effect on the price. See "Risk Factors -- No Prior Market for Common Stock" and
"Market for the Common Stock."
Dividend Policy
Although no decision has been made yet regarding the payment of dividends,
the Holding Company may consider a policy of paying cash dividends on the Common
Stock following the Conversion. Dividends, when and if paid, will be subject to
determination and declaration by the Board of Directors in its discretion, which
will take into account the Holding Company's consolidated financial condition
and results of operations, tax considerations, industry standards, economic
conditions, capital levels, regulatory restrictions on dividend payments by the
Institutions to the Holding Company, general business practices and other
factors. Citizens does not anticipate paying dividends on its common stock in
the foreseeable future. Moreover, following the Acquisition, Citizens may decide
not to pay dividends on its shares of common stock until the Holding Company
acquires the Minority Shares. See "Dividend Policy," "Regulation -- Regulatory
Capital," and "-- Dividend Limitations."
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Executive Compensation and Related Transactions
Employment Contracts. Effective January 1, 1996, Madison First entered into
a three-year Employment Agreement with James E. Fritz, Madison First's President
and Chief Executive Officer (the "Fritz Agreement"). The Fritz Agreement
provides, among other things, for: (i) the payment to Mr. Fritz of his current
base salary subject to annual review and adjustment by Madison First's Board of
Directors; (ii) Mr. Fritz's participation in other bonus and fringe benefit
plans available to Madison First's employees; (iii) the lump-sum payment to Mr.
Fritz of an amount equal to the difference between (A) the product of 2.99 times
his "base amount" (as defined in Section 280G(b)(3) of the Internal Revenue Code
of 1986, as amended (the "Code")) and (B) the sum of any other parachute
payments, as determined under Section 280G(b)(2) of the Code in certain
circumstances involving the termination of Mr. Fritz's employment by Madison
First for other than cause or by Mr. Fritz for reasons specified in the Fritz
Agreement within twelve months following a change in control (as defined
therein) of Madison First or the Holding Company; and (iv) the lump-sum or
periodic payment to Mr. Fritz of an amount equal to the sum of (A) Mr. Fritz's
base salary through the end of the then-current term, plus (B) Mr. Fritz's base
salary for an additional twelve-month period, plus (C) in Mr. Fritz's sole
discretion and in lieu of continued participation in Madison First's fringe
benefit plans, cash in an amount equal to the cost of obtaining all health,
life, disability and other benefits to which Mr. Fritz would otherwise be
entitled, in certain circumstances involving the constructive termination of Mr.
Fritz (as described therein) or the termination of Mr. Fritz without just cause
(as defined therein) other than during a period which is within twelve months
after a change in control of Madison First or the Holding Company. As of the
date hereof, the cash compensation that would be paid to Mr. Fritz under the
Fritz Agreement if such agreement were terminated within twelve months after a
change in control of Madison First or the Holding Company would be $194,000. See
"Executive Compensation and Related Transactions of Madison First -- Employment
Contract." Upon completion of the Conversion, the Holding Company intends to
guarantee Madison First's obligations under the Fritz Agreement.
Citizens and Robert D. Hoban, Citizens' President and Chief Executive
Officer, entered into an Employment Agreement effective as of January 1, 1995
(the "1995 Agreement"). The 1995 Agreement is a one-year agreement that
automatically renews for an additional one-year term unless terminated by
Citizens or Mr. Hoban in accordance with the terms of the 1995 Agreement. The
1995 Agreement provides, among other things, for (i) the payment to Mr. Hoban of
a base salary subject to annual review and adjustment by Citizens' Board of
Directors; (ii) Mr. Hoban's participation in other fringe benefit plans in the
same manner and on the same basis as may be furnished to other executive
management personnel of Citizens; (iii) Mr. Hoban's use of an automobile to be
provided by Citizens; and (iv) Mr. Hoban's participation in a performance-based
bonus program to be established and maintained by Citizens' Board of Directors.
If Citizens gives notice of its intention not to renew the 1995 Agreement at any
time not following a change in control (as defined therein) of Citizens, the
1995 Agreement provides for (i) a severance payment to Mr. Hoban in an amount
equal to his then-current annual salary, and (ii) continued health care coverage
at Citizens' sole expense for Mr. Hoban and his eligible family members for a
period of one year. The 1995 Agreement further provides that in the event that
Mr. Hoban's duties and responsibilities are changed or the Board of Directors
elects not to renew the 1995 Agreement following a change in control of
Citizens, such events may, at Mr. Hoban's election and upon written notice to
Citizens, be deemed a termination of the 1995 Agreement entitling Mr. Hoban to
(i) payment of a lump-sum amount equal to three times Mr. Hoban's then-current
salary, subject to reduction to the extent necessary to prevent it from
constituting a parachute payment under Section 280G of the Code, and (ii)
continued health care coverage at Citizens' sole expense for Mr. Hoban and his
eligible family members for a period of three years. As of the date hereof, the
cash compensation that would be paid to Mr. Hoban under the 1995 Agreement if
such agreement were terminated after a change in control of Citizens (which
would include the Acquisition) would be $300,000.
Effective upon consummation of the Acquisition, Citizens expects to enter
into a three-year Employment Agreement with Mr. Hoban (the "Hoban Agreement").
If entered into, the Hoban Agreement would supercede the 1995 Agreement. The
Hoban Agreement will provide, among other things, for: (i) the payment to Mr.
Hoban of his current base salary subject to annual review and adjustment by
Citizens' Board of Directors; (ii) Mr. Hoban's participation in other bonus and
fringe benefit plans available to Citizens' employees; (iii) the lump-sum
payment to Mr. Hoban of an amount equal to the difference between (A) the
product of 2.99 times his "base amount" (as defined in Section 280G(b)(3) of the
Code) and (B) the sum of any other parachute payments, as determined under
Section 280G(b)(2) of the Code in certain circumstances involving the
termination of Mr. Hoban's employment by Citizens for other than cause or by Mr.
Hoban for reasons specified in the Hoban Agreement within twelve months
following a change in control (as defined therein) of Citizens or the Holding
Company; and (iv) the lump-sum or periodic payment to Mr. Hoban of an amount
equal to the sum of (A) Mr. Hoban's base salary through the end of the
then-current term, plus (B) Mr. Hoban's base salary for an additional
twelve-month period, plus (C) in Mr. Hoban's sole discretion and in lieu of
continued participation in Citizens' fringe benefit plans, cash in an amount
equal to the cost of obtaining all health, life, disability and other benefits
to which Mr. Hoban would otherwise be entitled, in certain circumstances
involving the constructive termination of Mr. Hoban (as described therein) or
the termination of Mr. Hoban without just cause (as defined therein) other than
during a period which is within twelve months after a change in control of
Citizens or the Holding Company. See "Executive Compensation and Related
Transactions of Citizens -- Employment Contracts." Upon completion of the
Acquisition, the Holding Company intends to guarantee Citizens' obligations
under the Hoban Agreement.
12
<PAGE>
Special Termination Agreements. Each of the Institutions expect to enter
into Special Termination Agreements effective as of the date of the Conversion,
in the case of Madison First, and as of the date of consummation of the
Acquisition, in the case of Citizens (collectively, the "Termination
Agreements"), with all executive officers of the Institutions other than Messrs.
Fritz and Hoban (collectively, the "Covered Employees"). The Termination
Agreements have terms of one year, subject to annual extensions by the Board of
Directors of the employing Institution, and provide that upon the termination of
a Covered Employee's employment by the employer for other than cause or by the
Covered Employee for reasons specified in the Termination Agreements during the
18-month period following the effective date of the Termination Agreements or
within a 12-month period following a "change in control" (as defined in the
Termination Agreements) of the employing Institution or the Holding Company
which occurs during the term of the applicable Termination Agreements, such
Covered Employee shall be entitled to a lump sum payment of 100% of his or her
base amount of compensation, as determined pursuant to the Code (the
"Termination Benefit"). Covered Employees may elect to receive the Termination
Benefit in semi-monthly payments over a twelve-month period. The Termination
Agreements also provide for continued life, health and disability coverage for
Covered Employees until the expiration of twelve months following the
termination of employment or until the Covered Employee obtains coverage from
another employer, whichever occurs first. If a Covered Employee obtains coverage
from another employer and does not have substantially identical life, health and
disability coverage, the employing Institution shall maintain substantially
identical coverage on behalf of the Covered Employee for a period of twelve
months.
Severance Programs. Each of the Institutions expect to implement a
severance program as of the date of the Conversion, in the case of Madison
First, and as of the date of the Acquisition, in the case of Citizens, for the
benefit of all employees of the Institutions who are not covered by Termination
Agreements or by employment contracts. Pursuant to the severance programs, any
employee of the Institutions who is terminated within twelve months following a
change in control of the Holding Company or the employing Institution or within
18 months following the effective date of the program will be entitled to
receive a lump-sum payment in an amount equal to three weeks compensation for
every year of service with the employing Institution, up to a maximum of twelve
months compensation. See "Executive Compensation and Related Transactions of
Madison First -- Severance Program" and "Executive Compensation and Related
Transactions of Citizens -- Severance Program."
Employee Stock Ownership Plan and Trust. In connection with the Conversion,
the Holding Company has established the ESOP effective January 1, 1996, for
eligible employees of the Institutions, including executive officers. The ESOP
intends to purchase a number of shares equal to 8% of the Common Stock issued in
the Conversion for the benefit of its participants. The ESOP intends to borrow
the funds necessary to purchase the Common Stock from the Holding Company. See
"Executive Compensation and Related Transactions of Madison First -- Employee
Stock Ownership Plan and Trust" and "Executive Compensation and Related
Transactions of Citizens -- Employee Stock Ownership Plan and Trust."
RRP. At a meeting of the Holding Company's shareholders to be held at least
six months after the completion of the Conversion, the Board of Directors
intends to submit for shareholder approval the RRP, and at that time to make
certain awards pursuant to the RRP, as a means of providing the directors,
officers and employees of the Institutions and the Holding Company with an
ownership interest in the Holding Company in a manner designed to encourage such
persons to remain with the Holding Company and the Institutions. If the RRP is
approved by the Holding Company's shareholders, the Institutions will contribute
funds to the RRP to enable it to acquire an aggregate amount of Common Stock
equal to up to 4% of the shares issued in the Conversion, either directly from
the Holding Company or on the open market. Shares awarded under the RRP will
vest at a rate of 20% at the end of each full twelve months of service with the
Holding Company or the Institutions after the date of grant, subject to earlier
vesting in the event of death or disability. Assuming the shares purchased by
the RRP have a market value on the date of grant of $10.00 per share, the shares
available for distribution under the RRP would have an aggregate market value of
between $306,000 and $414,000, based upon the minimum and maximum of the
Estimated Valuation Range, respectively. It is anticipated that on the date of
the Holding Company's first shareholder meeting following the Conversion, the
following awards will be made under the RRP:
13
<PAGE>
<TABLE>
<CAPTION>
Shares Awarded Under RRP
---------------------------------------------------------------
Minimum of Estimated Maximum of Estimated
% of Shares Valuation Range Valuation Range
Issued in -------------------------- -------------------------
Conversion Number Value (1) Number Value (1)
----------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
James E. Fritz
President, Chief Executive Officer
and Director (2)................... 0.595% 4,552 $ 45,520 6,158 $ 61,580
Robert D. Hoban
President, Chief Executive Officer
and Director (3)................... 0.500 3,825 38,250 5,175 51,750
John Wayne Deveary
Vice President and Treasurer (2)... 0.300 2,295 22,950 3,105 31,050
Larry C. Fouse
Chief Financial Officer
and Controller (3)................. 0.250 1,912 19,120 2,588 25,880
Carolyn B. Flowers
Vice President --
Compliance/Operations (3).......... 0.250 1,912 19,120 2,588 25,880
Mark A. Goley
Vice President and
Senior Loan Officer (3)............ 0.250 1,912 19,120 2,588 25,880
Fred W. Koehler
Chairman (2)....................... 0.250 1,912 19,120 2,588 25,880
Robert W. Anger
Vice President -- Lending
and Director (2)................... 0.220 1,683 16,830 2,277 22,770
Michael J. Hensley
Director (2)....................... 0.220 1,683 16,830 2,277 22,770
Cecil L. Dorten
Director (2)....................... 0.220 1,683 16,830 2,277 22,770
Earl W. Johann
Director (2)....................... 0.220 1,683 16,830 2,277 22,770
Lonnie D. Collins
Secretary (2)...................... 0.200 1,530 15,300 2,070 20,700
Traci A. Bridgford
Vice President --
Compliance/Operations (2).......... 0.150 1,148 11,480 1,552 15,520
Jonnie L. Davis
Director (3)....................... 0.150 1,148 11,480 1,552 15,520
Burton P. Chambers
Chairman (3)....................... 0.075 574 5,740 776 7,760
Van E. Shelton
Director (3)....................... 0.075 574 5,740 776 7,760
Ralph E. Storm
Director (3)....................... 0.075 574 5,740 776 7,760
----- ------ -------- ------ --------
Total............................ 4.000% 30,600 $306,000 41,400 $414,000
===== ====== ======== ====== ========
</TABLE>
- ----------
(1) Assumes value of shares on date of award of $10.00 per share.
(2) Of Madison First.
(3) Of Citizens.
See "Executive Compensation and Related Transactions of Madison First -- RRP"
and "Executive Compensation and Related Transactions of Citizens -- RRP."
14
<PAGE>
Stock Option Plan. At a meeting of the Holding Company's shareholders to
be held at least six months after completion of the Conversion, the Board of
Directors intends to submit for shareholder approval a stock option plan (the
"Stock Option Plan"), and at that time to make certain awards pursuant to the
Stock Option Plan. Options will become exercisable at a rate of 20% at the
end of each full twelve months of service with the Holding Company or the
Institutions after the date of award, subject to early vesting in the event
of death or disability. If approved by the Holding Company's shareholders,
Common Stock in an aggregate amount of 10.0% of the shares issued in the
Conversion (or between 76,500 and 103,500 shares, based upon the Estimated
Valuation Range) will be reserved for issuance upon the exercise of options
granted under the Stock Option Plan. It is anticipated that on the date of
the Holding Company's first shareholder meeting following the Conversion, the
following grants will be made under the Stock Option Plan:
<TABLE>
<CAPTION>
Options Granted Under Option Plan
-------------------------------------------------
% of Shares Number at Minimum of Number at Maximum
Issued in Estimated Valuation Estimated Valuation
Conversion Range Range
----------- --------------------- --------------------
<S> <C> <C> <C>
James E. Fritz
President, Chief Executive Officer
and Director (1).............................. 1.20% 9,180 12,420
Robert D. Hoban
President, Chief Executive Officer
and Director (2).............................. 1.00 7,650 10,350
John Wayne Deveary
Vice President and Treasurer (1).............. 0.60 4,590 6,210
Larry C. Fouse
Chief Financial Officer and Controller (2).... 0.50 3,825 5,175
Carolyn B. Flowers
Vice President --
Compliance/Operations (2)..................... 0.50 3,825 5,175
Mark A. Goley
Vice President and
Senior Loan Officer (2)....................... 0.50 3,825 5,175
Fred W. Koehler
Chairman (1).................................. 0.50 3,825 5,175
Robert W. Anger
Vice President-- Lending and Director (1)..... 0.45 3,443 4,658
Michael J. Hensley
Director (1).................................. 0.45 3,443 4,658
Cecil L. Dorten
Director (1).................................. 0.45 3,443 4,658
Earl W. Johann
Director (1).................................. 0.45 3,443 4,658
Lonnie D. Collins
Secretary (1)................................. 0.40 3,060 4,140
Traci A. Bridgford
Vice President --
Compliance/Operations (1)..................... 0.30 2,295 3,105
Jonnie L. Davis
Director (2).................................. 0.30 2,295 3,105
Burton P. Chambers
Chairman (2).................................. 0.15 1,147 1,552
Van E. Shelton
Director (2).................................. 0.15 1,147 1,552
Ralph E. Storm
Director (2).................................. 0.15 1,147 1,552
Other Employees................................... 1.95 14,917 20,182
----- ------ -------
Total......................................... 10.00 76,500 103,500
===== ====== =======
</TABLE>
- ----------
(1) Of Madison First.
(2) Of Citizens.
See "Executive Compensation and Related Transactions of Madison First -- Stock
Option Plan" and "Executive Compensation and Related Transactions of Citizens --
Stock Option Plan."
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF
MADISON FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARIES
The following selected consolidated financial data of Madison First and its
subsidiaries is qualified in its entirety by, and should be read in conjunction
with, the consolidated financial statements, including notes thereto, included
elsewhere in this Prospectus. Information at March 31, 1996 and for the three
months ended March 31, 1996 and 1995 is unaudited but, in the opinion of
management, includes all adjustments necessary for a fair presentation of the
financial position and results of operations as of and for such dates.
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, ----------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(Unaudited) (In thousands)
Summary of Financial Condition Data:
<S> <C> <C> <C> <C> <C> <C>
Total assets................................ $88,307 $86,604 $87,072 $84,086 $82,157 $75,397
Loans receivable, net....................... 57,393 57,945 56,287 51,970 53,685 57,735
Mortgage-backed and related securities...... 9,146 9,917 11,328 13,925 13,548 7,968
Cash and cash equivalents (1)............... 8,757 2,689 2,416 5,803 7,070 2,938
Investment securities (2)................... 9,959 13,018 14,097 9,491 5,485 4,329
FHLB advances............................... 2,000 4,471 4,986 --- --- ---
Deposits.................................... 79,254 75,233 75,458 78,081 76,688 70,813
Equity capital, net, substantially restricted 6,599 6,574 6,304 5,668 4,950 4,165
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ---- ---- ---- ---- ---- ----
(Unaudited) (In thousands)
Summary of Operating Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income....................... $1,459 $1,442 $5,794 $5,419 $5,684 $6,174 $6,785
Total interest expense...................... 890 825 3,594 2,854 3,042 3,645 4,678
-------- -------- -------- -------- -------- ------ ------
Net interest income...................... 569 617 2,200 2,565 2,642 2,529 2,107
Provision for loan losses................... 6 --- 150 29 55 37 143
-------- -------- -------- -------- -------- ------ ------
Net interest income after provision
for loan losses........................ 563 617 2,050 2,536 2,587 2,492 1,964
Other income:
Insurance commissions.................... 60 48 175 181 182 180 158
Service fees, charges, and
other operating income................. 48 46 187 189 182 129 117
-------- -------- -------- -------- -------- ------ ------
Total other income..................... 108 94 362 370 364 309 275
Other expenses:
Employee compensation and benefits....... 294 241 998 888 869 811 821
Data processing.......................... 70 60 237 243 234 157 126
Federal deposit insurance premiums....... 45 44 177 178 117 149 141
Other.................................... 144 118 554 549 582 748 611
-------- -------- -------- -------- -------- ------ ------
Total other expenses.................. 553 463 1,966 1,858 1,802 1,865 1,699
-------- -------- -------- -------- -------- ------ ------
Income before income tax expense and cumulative
effect of change in accounting method.... 118 248 446 1,048 1,149 936 540
Income tax expense.......................... 54 102 188 412 456 305 250
Cumulative effect of change in accounting
for income tax expense................... --- --- --- --- 25 --- ---
-------- -------- -------- -------- -------- ------ ------
Net income............................... $ 64 $ 146 $ 258 $ 636 $ 718 $ 631 $ 290
======== ======== ======== ======== ======== ====== ======
Supplemental Data:
Interest rate spread during period.......... 2.54% 2.85% 2.36% 3.00% 3.24% 3.23% 2.66%
Net yield on interest-earning assets (3) (4) 2.71 2.99 2.61 3.15 3.32 3.35 2.89
Return on assets (4) (5).................... 0.29 0.71 0.30 0.74 0.86 0.80 0.39
Return on equity (4) (6).................... 3.89 9.16 4.01 10.62 13.52 13.84 7.21
Equity to assets (7)........................ 7.47 7.50 7.59 7.24 6.74 6.03 5.52
Average interest-earning assets to average
interest-bearing liabilities............. 104.19 103.36 105.62 104.43 101.96 102.39 103.83
Non-performing assets to total assets (7)... 0.03 0.01 0.01 0.01 0.01 0.18 0.17
Allowance for loan losses to total loans
outstanding (7).......................... 0.72 0.45 0.70 0.45 0.44 0.49 0.39
Allowance for loan losses to
non-performing loans (7)................. 1,376.67 2,520.00 5,087.50 1,938.46 3,242.86 166.88 150.33
Net charge-offs to average
total loans outstanding ................. --- --- (0.01) 0.01 0.17 --- 0.02
Other expenses to
average assets (8)....................... 2.63 2.24 2.26 2.20 2.15 2.36 2.09
Number of full service offices (7).......... 3 3 3 3 3 3 3
</TABLE>
- ----------
(1) Includes certificates of deposit in other financial institutions.
(2) Includes investment securities designated as available for sale.
(3) Net interest income divided by average interest-earning assets.
(4) Information for three months ended March 31, 1996 and 1995, has been
annualized. Interim results are not necessarily indicative of the results
of operations for an entire year.
(5) Net income divided by average total assets.
(6) Net income divided by average total equity.
(7) At end of period.
(8) Other expenses divided by average total assets.
16
<PAGE>
SELECTED FINANCIAL DATA OF
CITIZENS NATIONAL BANK OF MADISON
The following selected financial data of Citizens is qualified in its
entirety by, and should be read in conjunction with, the financial statements,
including notes thereto, included elsewhere in this Prospectus. Information at
March 31, 1996 and for the three months ended March 31, 1996 and 1995 is
unaudited but, in the opinion of management, includes all adjustments necessary
for a fair presentation of the financial position and results of operations as
of and for such dates.
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, ---------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------ ---- ---- ---- ---- ----
(Unaudited) (In thousands)
Summary of Financial Condition Data:
<S> <C> <C> <C> <C> <C> <C>
Total assets................................ $58,055 $54,503 $41,252 $33,123 $31,496 $30,092
Loans receivable, net....................... 41,588 40,432 29,834 19,898 18,673 17,344
Mortgage-backed and related securities (1).. 3,429 3,562 5,049 6,008 2,407 2,864
Cash and cash equivalents (2)............... 5,835 6,826 2,191 3,512 4,578 5,811
Investment securities (1)................... 4,971 1,657 2,769 2,399 4,601 2,782
Deposits.................................... 52,747 49,227 38,011 30,089 28,828 27,586
Shareholders' equity, net................... 3,445 3,396 3,000 2,749 2,479 2,270
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(Unaudited) (In thousands, except per share data)
Summary of Operating Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income....................... $1,070 $787 $3,695 $2,525 $2,100 $2,185 $2,220
Total interest expense...................... 573 346 1,820 1,025 880 1,081 1,277
------ ------ ------ ------ ------ ------ ------
Net interest income...................... 497 441 1,875 1,500 1,220 1,104 943
Provision for loan losses................... 150 9 104 17 50 54 60
------ ------ ------ ------ ------ ------ ------
Net interest income after provision
for loan losses........................ 347 432 1,771 1,483 1,170 1,050 883
Other income:
Service charges on deposits accounts..... 81 69 293 219 215 149 127
Other service charges and fees........... 60 30 157 143 309 159 19
Realized gain (loss) on investments, net. --- 3 4 (71) --- --- ---
Other.................................... 11 51 109 53 24 --- 45
------ ------ ------ ------ ------ ------ ------
Total other income..................... 152 153 563 344 548 308 191
Other expenses:
Employment compensation and benefits..... 227 183 831 677 612 509 458
Premises and equipment expenses.......... 76 59 292 279 226 195 170
Other.................................... 158 161 646 504 518 408 326
------ ------ ------ ------ ------ ------ ------
Total other expenses................... 461 403 1,769 1,460 1,356 1,112 954
------ ------ ------ ------ ------ ------ ------
Income before income tax expense and
cumulative effect of change
in accounting method..................... 38 182 565 367 362 246 120
Income tax expense.......................... 16 65 223 129 92 37 ---
------ ------ ------ ------ ------ ------ ------
Net income before cumulative effect of change
in accounting method.................... 22 117 342 238 270 209 120
Cumulative effect of change in
accounting method........................... --- --- --- 86 --- --- ---
------ ------ ------ ------ ------ ------ ------
Net income .............................. $ 22 $ 117 $ 342 $ 324 $ 270 $ 209 $ 120
====== ====== ====== ====== ====== ====== ======
Earnings per share....................... $ 0.17 $ 0.93 $ 2.71 $ 2.57 $ 2.14 $ 1.66 $ 0.96
====== ====== ====== ====== ====== ====== ======
Supplemental Data:
Interest rate spread during period.......... 3.10% 4.09% 3.78% 4.04% 3.53% 3.60% 3.90%
Net yield on interest-earning assets (3) (4) 3.69 4.51 4.25 4.49 4.19 3.99 3.41
Return on assets (4) (5).................... 0.16 1.12 0.71 0.87 0.84 0.68 0.40
Return on equity (4) (6).................... 2.57 15.23 10.69 11.27 10.33 8.80 5.40
Equity to assets (7)........................ 5.93 7.27 6.23 7.27 8.30 7.87 7.55
Average interest-earning assets to average
interest-bearing liabilities............. 113.79 112.08 111.50 114.79 121.74 109.92 109.78
Non-performing assets to total assets (7)... 0.45 0.90 0.54 0.23 0.11 0.05 0.05
Allowance for loan losses to total loans
outstanding (7).......................... 1.15 1.03 0.86 1.13 1.80 1.69 1.85
Allowance for loan losses to
non-performing loans (7)................. 182.44 85.68 117.17 361.29 997.22 1,504.76 1,436.36
Net charge-offs to average
total loans outstanding ................. 0.05 0.03 0.25 0.17 0.04 0.30 ---
Operating expenses to
average assets (8)...................... 3.26 3.92 3.89 4.24 4.56 3.69 3.64
Number of full service offices (7).......... 4 4 4 2 2 2 2
</TABLE>
- ----------
(1) Includes securities designated as available for sale.
(2) Includes certificates of deposit in other financial institutions.
(3) Net interest income divided by average interest-earning assets.
(4) Information for three months ended March 31, 1996 and 1995, has been
annualized. Interim results are not necessarily indicative of the results
of operations for an entire year.
(5) Net income divided by average total assets.
(6) Net income divided by average total equity.
(7) At end of period.
(8) Other expenses divided by average total assets.
17
<PAGE>
RISK FACTORS
Before investing in shares of the Common Stock offered hereby, prospective
investors should consider carefully the matters presented below.
Potential Impact of Changes in Interest Rates
Madison First's profitability is dependent to a large extent upon its net
interest income, which is the difference between its interest income on
interest-earning assets, such as loans and investments, and its interest expense
on interest-bearing liabilities, such as deposits and other borrowings. At March
31, 1996, a substantial portion of the adjustable-rate mortgage loans in Madison
First's portfolio were one-year adjustable-rate mortgage loans which provide for
maximum rate adjustments of 1% per year and 5% over the terms of the loans,
although Madison First began offering one-year adjustable-rate mortgage loans
with maximum rate adjustments of 1.5% per year and 6% over the terms of the
loans in late 1995. In a period of rising interest rates, these restrictions on
rate adjustments may prevent Madison First's adjustable-rate loans from
repricing upward as quickly or by as much as market rates. In addition, a
substantial portion of Madison First's adjustable-rate mortgage loans are
indexed to the 11th District Cost of Funds which is considered a "lagging"
index; i.e., the index is tied to variables that may not reprice on a basis as
quickly as market rates (e.g, the One-Year Treasury). In a period of rising
interest rates, Madison First's adjustable-rate mortgage loans tied to this
lagging index may not adjust upward as quickly as market rates. See "Business of
Madison First." As a result of the foregoing, Madison First's net interest
income could be adversely affected in periods of rising interest rates.
At March 31, 1996, based on financial modeling information provided by the
OTS, it was estimated that Madison First's NPV (the present value of cash flows
from assets, liabilities, and off-balance sheet items) would increase ___%,
___%, ___% and ___% in the event of 1%, 2%, 3% and 4% decreases in market
interest rates, respectively. Madison First's NPV at the same date would
decrease ___%, ___%, ___% and ___% in the event of 1%, 2%, 3% and 4% increases
in market rates, respectively. These calculations indicate that Madison First's
net portfolio value could be adversely affected by increases in interest rates
but that Madison First's interest rate risk is within the definition of "normal"
level of exposure under the net market value methodology proposed by the OTS,
which is 2% of the present value of its assets. As a result, if the OTS' NPV
methodology had been effective and if Madison First had been subject to the OTS'
reporting requirements under this methodology, it would not have been required
to take a deduction from capital available to calculate its risk-based capital
requirement at March 31, 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Madison First Federal Savings
and Loan Association -- Asset/Liability Management."
Like Madison First, Citizens' profitability is to a large extent dependent
upon its net interest income. Citizens' one-year adjustable-rate mortgage loans
provide for maximum rate adjustments of 1% per year and 5% over the terms of the
loans. In a period of rising interest rates, these restrictions on rate
adjustments may prevent Citizens' adjustable-rate loans from repricing upward as
quickly or by as much as market rates. This could negatively affect Citizens'
net interest income. See "Business of Citizens."
Although Citizens' NPV is not as sensitive to fluctuations in market rates
as Madison First's at March 31 1996, Citizens' net portfolio value may be
negatively impacted by changes in market rates. At March 31, 1996, based on
financial modeling information provided by Baxter Capital Management, Inc.,
Madison First's financial advisor, it was estimated that Citizens' NPV would
increase ___% in the event of a 2% increase in market interest rates and would
decrease ___% in the event of a 2% decrease in market interest rates. These
calculations indicate that Citizens' net portfolio value is more sensitive to
decreases in market interest rates but that Citizens' interest rate risk would
be within the definition of normal level of exposure if the OTS methodology
described above was effective and applicable to Citizens. As a result, Citizens
would not have been required to take a deduction from capital at March 31, 1996
under such methodology. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Citizens National Bank of Madison --
Asset/Liability Management."
Madison First and Citizens, like most financial institutions, will continue
to be affected by general changes in levels of interest rates and other economic
factors beyond its control.
Risks Relating to the Acquisition
In connection with the Conversion, the Holding Company will acquire the
Citizens Shares in the Acquisition. The Holding Company and Madison First have
never acquired another financial institution, and the future success of the
Holding Company will, in part, depend on the success of Citizens and the
Acquisition. The success of the Acquisition will, in turn, depend on a number of
factors, including the ability of the Holding Company to integrate the
operations of the Institutions, where appropriate, in a manner that allows the
Institutions to benefit from overall operating efficiencies and the Holding
Company's ability to control incremental non-operating expense from the
Acquisition. There can be no assurance that Citizens' business will be
successfully integrated into Madison First's operations or result in improved
profits. A material delay in consummating the Acquisition may result in a
significant increase in the costs of completing the Conversion and the
Acquisition. See "-- Risk of Delayed Offering."
18
<PAGE>
Commercial Lending
Citizens is an active nonmortgage commercial lender in its market area.
Citizens' nonmortgage commercial loans are usually adjustable-rate loans and
have varying terms depending on the nature of the collateral, if any. As of
March 31, 1996, approximately 95.6% of Citizens' nonmortgage commercial loans
were secured by some type of collateral. While such lending assists Citizens in
its asset/liability management and provides a greater yield than one- to
four-family residential mortgage lending, this type of lending involves a higher
degree of credit risk due to the concentration of principal in a limited number
of loans and borrowers and the effects of general economic conditions on the
projects involved. In addition, the nature of these loans makes them more
difficult to monitor and evaluate. As of March 31, 1996, $4.3 million, or 10.3%
of Citizens' total loan portfolio, was comprised of nonmortgage commercial
loans. On the same date, $40,000, or 15.3%, of Citizens' non-performing loans
consisted of nonmortgage commercial loans or participations therein. See
"Business of Citizens -- Lending Activities -- Commercial Loans" and "--
Non-Performing and Problem Assets."
Nonresidential Real Estate and Multi-Family Lending
In an effort to generate loan growth, Citizens has been, and after the
Acquisition will continue to be, active in the origination of nonresidential
real estate and multi-family loans. As of March 31, 1996, Citizens' total
portfolio of nonresidential real estate and multi-family loans amounted to $9.4
million and $874,000, respectively, or 22.4% and 2.1%, respectively, of
Citizens' total loan portfolio. Madison First, while less active than Citizens
in these lending areas, had nonresidential real estate and multi-family loans of
$6.0 million and $1.6 million, respectively, or 10.2% and 2.7%, respectively, of
Madison First's total loan portfolio at March 31, 1996. Although nonresidential
real estate and multi-family loans provide higher interest rates and shorter
terms, these loans have higher credit risk than one- to four-family residential
loans. Nonresidential real estate and multi-family loans often involve large
loan balances to single borrowers or groups of related borrowers. In addition,
payment experience on loans secured by such properties is typically dependent on
the successful operation of the properties and thus may be subject to a greater
extent to adverse conditions in the real estate market or in the general
economy. Accordingly, the nature of the loans make them more difficult for
management to monitor and evaluate. Moreover, to the extent that the properties
constitute new ventures, predictions about their operating results are
inherently speculative, and cash flow and other financial problems may take some
time to develop. If these borrowers develop problems, because of the relatively
large size of the loans, such problems may require significant increases in
allowances for loan losses, and may result in significant reductions in net
income. Such reductions could have an adverse effect on the shares of Common
Stock offered hereby. Madison First's largest nonresidential real estate and
multi-family loans had outstanding balances of $825,000 and $729,000,
respectively, as of March 31, 1996. Citizens' largest nonresidential real estate
and multi-family loans had outstanding balances of $343,000 and $227,000,
respectively, as of March 31, 1996. None of Madison First's nonresidential real
estate and multi-family loans was non-performing as of March 31, 1996. As of the
same date, none of Citizens' multi-family loans was included in non-performing
assets, and nonresidential real estate loans totalling $114,000 were
non-performing, constituting 43.5% of all non-performing loans. See "Business of
Madison First -- Lending Activities" and "Business of Citizens -- Lending
Activities."
Disparity Between SAIF and BIF Premiums
The FDIC is authorized to establish separate annual assessment rates for
deposit insurance for members of the BIF and the SAIF. The FDIC may increase
assessment rates for either fund if necessary to restore the fund's ratio of
reserves to insured deposits to a target level within a reasonable time and may
decrease such rates if such target level has been met. The FDIC has established
a risk-based assessment system for both SAIF and BIF members. Under such system,
assessments may vary depending on the risk the institution poses to its deposit
insurance fund. Such risk level is determined by reference to the institution's
capital level and the FDIC's level of supervisory concern about the institution.
Because of the differing reserve levels of the SAIF and the BIF, deposit
insurance assessments paid by well-capitalized BIF-insured institutions, like
Citizens, were recently reduced significantly below the level paid by
well-capitalized SAIF-insured institutions, like Madison First. Assessments paid
by well-capitalized SAIF-insured institutions exceeded those paid by
well-capitalized BIF-insured institutions by approximately $0.19 per $100 in
deposits in late 1995 and exceeded them by $0.23 per $100 in deposits beginning
in 1996. Such premium disparity could have a negative competitive impact on
Madison First and other institutions with SAIF deposits.
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Congress is currently considering legislation to recapitalize the SAIF and
to eliminate the significant premium disparity between the BIF and the SAIF.
Currently, the recapitalization plan provides for a special assessment of
approximately $0.85 per $100 of SAIF deposits held at some time in 1995, in
order to increase SAIF reserves to the level required by law. Certain banks
holding SAIF-insured deposits would pay a lower special assessment. In addition,
the cost of prior thrift failures would be shared by both the SAIF and the BIF.
Such cost sharing might increase BIF assessments, and thus Citizens'
assessments, by $0.02 to $0.025 per $100 in deposits. SAIF assessments for
well-capitalized SAIF-insured institutions would be set at a significantly lower
level after the legislation is adopted and could never be reduced below the
level set for well-capitalized BIF-insured institutions. The recapitalization
plan also provides for the merger of the SAIF and BIF on January 1, 1998. It has
also been proposed that the savings association charter be eliminated in
connection with such a merger of the SAIF and BIF.
Madison First had $79.3 million in deposits at March 31, 1996. If the
one-time special assessment in the legislative proposal is enacted into law,
Madison First will pay an additional after-tax assessment of approximately
$365,000 (based upon deposits at March 31, 1996), which will reduce capital and
earnings for the quarter in which any such assessment is recorded. However, it
is expected that quarterly SAIF assessments would be reduced significantly
sometime after adoption of the legislation.
No assurances can be given that the SAIF recapitalization plan will be
enacted into law or in what form it may be enacted. In addition, the Holding
Company can give no assurances that the disparity between BIF and SAIF
assessments will be eliminated. If the proposed legislation is not adopted, SAIF
premiums may increase and the disparity between BIF and SAIF premiums may become
greater, with a resulting adverse effect on Madison First's operations. See
"Regulation -- Insurance of Deposits."
Decreasing Earnings and Impact on Return on Equity
Due to the strong competition in the Institutions' market area, Madison
First has been aggressively pricing its deposit products to assist it in
maintaining its deposit base. Similarly, Madison First has attempted to
competitively price its loan products within its market area. These pricing
strategies, together with Madison First's emphasis on residential mortgage loans
which have lower yields than other loan products with higher credit risk, have
negatively affected Madison First's net interest income and its interest rate
spread. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Madison First Federal Savings and Loan Association."
While Madison First has strategies to increase its earnings, there can be no
guarantee that it will be successful in doing so. Moreover, it is not expecting
immediate reductions in expenses following the Conversion and the Acquisition,
and the Holding Company is expected to incur additional expenses as a result of
the Conversion and the Acquisition, including expenses that may be incurred in
connection with any acquisition by it of the Minority Shares. Moreover, while
Madison First is not converting primarily as a capital raising tool, Madison
First will have a substantially increased capital position following the
Conversion. Based on the Holding Company's pro forma capital at March 31, 1996
of $13.9 million and 1995 pro forma net income of $716,000 (based on the
midpoint of the Estimated Valuation Range), the Holding Company would have pro
forma return on shareholders' equity of less than 7%, which in the opinion of
management is not an acceptable long-term return. See "Pro Forma Data."
Unacceptable returns likely will continue for the foreseeable future. In
pursuing the Conversion and the Acquisition, the Holding Company and the
Institutions are committed to building profitable, independent community-based
financial institutions. As a result, following consummation of the Conversion
and the Acquisition, the Holding Company expects to pursue a long-term strategy
to enhance shareholder value.
Existence of Minority Shares
The Holding Company will be acquiring only 95.6% of the outstanding shares
of Citizens. Following the Acquisition, the Holding Company may consider the
acquisition of the remaining 4.4% interest in a transaction in which fair
consideration would be provided to the holders of the Minority Shares, most
likely in the form of cash or Common Stock, or a combination thereof. Unless and
until the Minority Shares are acquired, Citizens may decide not to declare cash
dividends, as the holders of the Minority Shares would have to participate in
those dividends on a pro rata basis. A transaction in which the Holding Company
acquires the Minority Shares could result in increased costs and expenses to the
Holding Company and, to the extent that Common Stock is issued in such a
transaction, could dilute the interests of the Holding Company's existing
shareholders.
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Possible Dilutive Effect of Future Stock Benefit Plans
Following the Conversion, it is likely that the Holding Company will adopt,
subject to shareholder approval, employee and management benefit plans which may
involve the issuance of additional shares of Common Stock. In particular, the
Holding Company anticipates adopting the RRP and the Stock Option Plan following
the Conversion, subject to receiving shareholder approval of such plans at a
shareholders' meeting to be held at least six months after the completion of the
Conversion. Under the RRP, directors, officers, and employees of the Holding
Company and the Institutions could be awarded an aggregate amount of Common
Stock equal to 4% of the shares issued in the Conversion. Under the Stock Option
Plan, directors, officers, and employees of the Holding Company and the
Institutions could be granted options to purchase an aggregate amount of Common
Stock equal to 10% of the shares issued in the Conversion at exercise prices
equal to the fair market value of the shares on the date of grant.
It is currently anticipated that the shares issued to directors, officers,
and employees of the Holding Company and the Institutions under the RRP will be
shares purchased on the open market. However, to the extent shares are not
available on the open market or the Holding Company decides not to purchase such
shares on the open market, authorized but unissued shares of Common Stock may be
issued to recipients of awards under the RRP. If newly issued shares are used,
the interests of existing shareholders will be diluted. Assuming that 900,000
shares of Common Stock are issued in the Conversion and that all awards under
the RRP are from authorized but unissued shares, the Holding Company estimates
that the per share book value for the Common Stock would be diluted $0.21 per
share, or 1.4%, on a pro forma basis as of March 31, 1996. See "Pro Forma Data."
It is also expected that options to purchase a number of shares of Common
Stock equal to 10.0% of the shares sold in the Conversion will be granted
pursuant to the Stock Option Plan. The grant of these stock options may also be
considered dilutive of the interests of shareholders.
Potential Benefits to Management Upon and Subsequent to Conversion
ESOP. The Holding Company has adopted the ESOP effective January 1, 1996
for eligible employees of the Holding Company and the Institutions, including
executive officers. As part of the Conversion, the ESOP intends to borrow funds
from the Holding Company and use such funds to purchase a number of shares of
Common Stock equal to 8% of the shares issued in the Conversion. Collateral for
the loan will be the Common Stock purchased by the ESOP in the Conversion. The
loan will be repaid principally from the Institutions' discretionary
contributions to the ESOP over a period of 7 years. Shares purchased by the ESOP
will be held in a suspense account for allocation among participants as the loan
is repaid. Assuming shares of Common Stock appreciate in value over time,
compensation expense relating to the ESOP will also incease over time. See "--
ESOP Compensation Expense," "Executive Compensation and Related Transactions of
Madison First -- Employee Stock Ownership Plan and Trust" and "Executive
Compensation and Related Transactions of Citizens -- Employee Stock Ownership
Plan and Trust."
Stock Options. The Board of Directors of the Holding Company intends to
implement the Stock Option Plan, contingent upon receipt of shareholder approval
at a meeting to be held at least six months following completion of the
Conversion. Assuming 900,000 shares of Common Stock are issued in the Conversion
and receipt of the required approval, it is expected that stock options for
90,000 shares of Common Stock will be granted under the Stock Option Plan. The
exercise price of the options, which would be granted at no cost to the
recipient thereof, would be the fair market value of the Common Stock subject to
the option on the date the option is granted, which is expected to be the date
of the shareholder meeting.
RRP. The Board of Directors of the Holding Company intends to implement the
RRP contingent upon receipt of approval from the Holding Company's shareholders
at a meeting to be held at least six months following completion of the
Conversion. Subject to such approval, the RRP will purchase an amount of shares
after the Conversion equal to up to 4% of the shares issued in the Conversion
(36,000 shares at the midpoint of the Estimated Valuation Range). Awards under
the RRP would be granted at no cost to the recipient thereof.
ESOP Compensation Expense
In November, 1993, the American Institute of Certified Public Accountants
(the "AICPA") issued Statement of Position ("SOP") 93-6, "Employers' Accounting
for Employee Stock Ownership Plans." SOP 93-6 requires an employer to record
compensation expense in an amount equal to the fair value of shares committed to
be released to employees from an employee stock ownership plan. If shares of
Common Stock appreciate in value over time, the adoption of SOP 93-6 may
increase compensation expense relating to the ESOP to be established in
connection with the Conversion as compared with prior guidance which required
the recognition of compensation expense based on the cost of shares acquired by
the ESOP. It is impossible to determine at this time the extent of such impact
on future net income.
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No Prior Market for Common Stock
The Holding Company has never issued Common Stock to the public;
consequently, there is no established market for the Common Stock. However, the
Holding Company will use its best efforts to develop a public market for the
Common Stock. The Holding Company has received approval to have its Common Stock
quoted on the NASDAQ Small Cap Market under the symbol "RIVR" upon successful
completion of the offering, subject to certain conditions which the Holding
Company and Madison First believe will be met. The Holding Company anticipates
that there will be at least two market makers for the Common Stock upon the
completion of the Conversion, depending upon the volume of trading activity in
the Common Stock and subject to compliance with applicable provisions for
federal and state securities laws and other regulatory requirements. The Agent
intends to make a market in the Common Stock, although it is under no obligation
to do so.
An active and liquid public trading market for the securities of any
issuer, including the Holding Company, depends upon the presence in the
marketplace of both willing buyers and willing sellers of the securities at any
given time. Although the Holding Company has received approval to have its
shares quoted on the NASDAQ Small Cap Market, no assurance can be given that an
active and liquid trading market will develop or that the trading price per
share of the Common Stock will equal or exceed the Purchase Price. Purchasers of
Common Stock should consider, therefore, the potentially illiquid and long-term
nature of their investment in the shares of Common Stock being offered hereby.
Even if a market develops, there can be no assurance that shareholders will be
able to sell their shares at or above the Purchase Price after the completion of
the Conversion. See "Market for the Common Stock."
Competition
The Institutions experience strong competition in their local market area
in both originating loans and attracting deposits. This competition arises
principally from commercial banks, thrifts and credit unions. The recent
enactment of federal and Indiana interstate branching legislation may also
increase the Institutions' competition in their market. Such competition may
limit the Institutions' growth in the future. See "Competition."
Geographic Concentration of Loans
At December 31, 1995, 95.2% of Madison First's real estate mortgage loans
and 90.3% of Citizens' real estate mortgage loans were secured by properties
located in Indiana. A substantial portion of such loans is located in the
Institutions' primary market area. While each of the Institutions currently
believes that its loans reflect sufficient collateral coverage and its loss
allowances are adequate, in the event that real estate prices in Jefferson
County substantially weaken or economic conditions in the Institutions' primary
market area deteriorate, reducing the value of properties securing such loans,
it is possible both that some borrowers may default and that the value of the
real estate collateral may be insufficient to fully secure the loan. In either
event, the Institutions may experience increased levels of delinquencies and
related losses having an adverse impact on net income.
Risk of Delayed Offering
The Holding Company and Madison First expect to complete the Conversion
within the time periods indicated in this Prospectus. Nevertheless, it is
possible, although not anticipated, that adverse market, economic or other
factors could significantly delay the completion of the Conversion and result in
a delay in shareholders of the Holding Company receiving their stock
certificates, increased Conversion costs and expenses or a change in the
Estimated Valuation Range. Moreover, consummation of the Conversion is
conditioned on the satisfaction of all conditions precedent to the Acquisition.
Therefore, a delay in the satisfaction of any condition precedent to the
Acquisition would result in a delay in completing the Conversion. The
Subscription Offering could be extended to ________, 1996 and the Direct
Community Offering extended to as late as ___________, 1996, before subscribers
would have the right to modify or rescind their subscriptions. If the
Subscription Offering or the Direct Community Offering is extended beyond such
dates, all subscribers will have the right to modify or rescind their
subscriptions and to have their subscription funds returned promptly, with
interest, or to have their withdrawal authorizations terminated. See "The
Conversion."
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Anti-Takeover Provisions
Provisions in the Holding Company's Governing Instruments. The Articles of
Incorporation of the Holding Company contain certain provisions which could
impede a non-negotiated, unsolicited change in control of the Holding Company,
even if desired by a majority of the shareholders. The Articles of Incorporation
provide that: (i) no person shall directly or indirectly offer to acquire or
acquire the beneficial ownership of more than 10% of any class of equity
security of the Holding Company (provided that such limitations shall not apply
to the acquisition of equity securities by any one or more tax-qualified
employee stock benefit plans maintained by the Holding Company, if the plan or
plans beneficially own no more than 25% of any class of such equity security of
the Holding Company); and that (ii) shares beneficially owned in violation of
the stock ownership restriction described above shall not be entitled to vote
and shall not be voted by any person or counted as voting stock in connection
with any matter submitted to a vote of the shareholders. For these purposes, a
person (including management) who has obtained the right to vote shares of the
Common Stock pursuant to revocable proxies shall not be deemed to be the
"beneficial owner" of those shares if that person is not otherwise deemed to be
the beneficial owner of those shares. See "Restrictions on Acquisition of the
Holding Company -- Provisions of the Holding Company's Articles and By-Laws." In
addition, the Articles of Incorporation provide for the issuance of serial
preferred stock with such designations and preferences as may be determined by
the Holding Company's Board of Directors, without obtaining shareholder
approval. Such preferred stock could be used by the Holding Company to impede a
non-negotiated change of control, even if the change in control might result in
shareholders receiving a substantial premium for their shares over then-current
market prices. Moreover, federal and Indiana laws contain provisions that
restrict the acquisition of control of the Holding Company and the Institutions.
Indiana law specifically authorizes directors, in considering the best interest
of the corporation, to consider the effects of any action on shareholders,
employees, suppliers, and customers of the corporation, and communities in which
offices or other facilities of the corporation are located, and any other
factors the directors consider pertinent. Indiana law also provides that
directors are not required to approve a business combination or other corporate
action if the directors determine in good faith that such approval is not in the
best interest of the corporation. See "Restrictions on Acquisition of the
Holding Company -- Other Restrictions on Acquisition of the Holding Company and
the Institutions."
Although the Holding Company's Board of Directors believes that the
restrictions on acquisition are beneficial to shareholders, the provisions may
have the effect of rendering the Holding Company less attractive to potential
acquirors thereby discouraging future takeover attempts which would not be
approved by the Board of Directors but which certain shareholders might deem to
be in their best interest or pursuant to which shareholders might receive a
substantial premium for their shares over then current market prices. These
provisions will also render the removal of the incumbent Board of Directors and
of management more difficult. The Board of Directors has, however, concluded
that the potential benefits of these restrictive provisions outweigh the
possible disadvantages.
Voting Control of Directors and Executive Officers. Directors and executive
officers of the Holding Company and the Institutions and their Associates expect
to purchase 104,800 shares at $10.00 per share, or 13.7% and 10.1% of the shares
of Common Stock offered in the Conversion based upon the minimum and maximum,
respectively, of the Estimated Valuation Range. Employees of the Institutions,
including their executive officers, will also be eligible to participate in the
ESOP and be able to vote shares allocated to their accounts under the ESOP. See
"Executive Compensation and Related Transactions of Madison First -- Employee
Stock Ownership Plan and Trust" and "Executive Compensation and Related
Transactions of Citizens -- Employee Stock Ownership Plan and Trust." Moreover,
the Holding Company intends to adopt, after the Conversion, stock benefit plans
for employees and management of the Holding Company and the Institutions. See
"Executive Compensation and Related Transactions of Madison First -- RRP," "--
Stock Option Plan," "Executive Compensation and Related Transactions of Citizens
- -- RRP" and "-- Stock Option Plan." Accordingly, directors and executive
officers of the Holding Company and the Institutions as a group may have
effective control over an even greater amount of stock in the future. Assuming
the sale of 900,000 shares of Common Stock in the Conversion and that all shares
awarded under the RRP are purchased on the open market and upon (i) the full
vesting of the restricted stock awards to directors and executive officers
contemplated under the RRP and (ii) the exercise in full of all options expected
to be granted to directors and executive officers under the Stock Option Plan,
the Institutions' and the Holding Company's directors and executive officers
would receive an additional 126,000 shares of Common Stock and would exercise
effective control of 23.3% of the outstanding shares of Common Stock.
Regulatory Oversight and Recent Legislation
Madison First is subject to extensive regulation, supervision and
examination by the OTS as its primary federal regulator and by the FDIC, which
insures its deposits up to applicable limits. Madison First is a member of the
FHLB of Indianapolis and is subject to certain limited regulation by the FRB.
Citizens is subject to extensive regulation, supervision and examination by the
Office of Comptroller of Currency (the "OCC") as its primary federal regulator
and by the FDIC, which insures its deposits up to applicable limits. Citizens is
also a member of the FHLB of Indianapolis and the Federal Reserve System. As a
savings and loan holding company, the Holding Company will be subject to
regulation and oversight by the OTS. As a bank holding company, the Holding
Company will also be subject to regulation and oversight by the FRB. See
"Regulation." Such regulation and supervision govern the activities in which an
institution can engage and are intended primarily for the protection of the
insurance fund and deposits. With a view to strengthening the banking industry,
regulatory authorities have been granted extensive discretion in connection with
their supervisory and enforcement activities. The assessments, filing fees and
other costs associated with reports, examinations and other regulatory matters
are significant, and increases in such costs may have an adverse effect on the
Holding Company's results of operations.
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Congress is considering legislation that would consolidate the supervision
and regulation of all U.S. financial institutions into one administrative body,
would expand the powers of financial institutions, and would provide regulatory
relief to financial institutions (the "Legislation"). It cannot be predicted
with certainty whether or when the Legislation will be enacted or the extent to
which the Holding Company, would be affected thereby.
Under current tax laws, savings associations meeting certain requirements
have been able to deduct from income for tax purposes amounts designated as
reserved for bad debts. The Senate and the House have each recently passed
legislation prospectively repealing the percentage of taxable income method used
by savings associations to compute their bad debt deductions and further
requiring, generally, that bad debt reserves taken after 1987 using the
percentage of taxable income method be included in Madison First's future
taxable income over a six-year period, although a two-year delay may be
permitted for institutions meeting a residential mortgage loan origination test.
This legislation requires smaller thifts (i.e., less than $500 million in
assets) to use the experience method and larger thrifts (i.e., $500 million in
assets or more) to use the charge-off method to compute these tax deductions.
The proposed tax legislation is not expected to have an adverse effect on
Madison First and the Holding Company, due to the existence of deferred taxes
which have been provided for such amounts, although until such legislation
becomes law, the extent of such effect is uncertain. See "Taxation -- Federal
Taxation."
Income Tax Consequences of Subscription Rights
If the subscription rights granted in connection with the Conversion are
deemed to have an ascertainable value, receipt of such rights will be taxable to
recipients, either as ordinary income or capital gain, in an amount not in
excess of such value. In the opinion of Keller, the subscription rights have no
ascertainable fair market value. See "The Conversion -- Principal Effects of
Conversion -- Tax Effects."
RIVER VALLEY BANCORP
The Holding Company was incorporated under the laws of the State of Indiana
on May 22, 1996, for the purpose of acquiring all of the common stock of Madison
First in the Conversion and the Citizens Shares in the Acquisition and acting as
the Institutions' holding company. As the Holding Company was not incorporated
until recently and is currently a shell corporation, no Holding Company
financial statements are included herein. The holding company structure will
provide increased flexibility in conducting future business activities related
to the Institutions. The Holding Company has received approval of the OTS to
become a savings and loan holding company through the acquisition of all of the
common stock of Madison First to be issued upon completion of the Conversion and
of the FRB to become a bank holding company through the acquisition of the
Citizens Shares upon consummation of the Acquisition.
As an Indiana corporation, the Holding Company is authorized to engage in
any activity that is permitted by the Indiana Business Corporation Law, as
amended (the "IBCL"). The Board of Directors of the Holding Company anticipates
that, after completion of the Conversion, the Holding Company will conduct its
business as a bank holding company in respect of Citizens and as a savings and
loan holding company in respect of Madison First. As a bank holding company for
Citizens, the Holding Company's activities will be limited to those permitted by
FRB regulations. See "Regulation -- Bank Holding Company Regulation." The
holding company structure will provide the Holding Company with greater
flexibility than the Institutions to diversify their business activities, either
through newly-formed subsidiaries or through acquisitions. The Holding Company
has no current arrangements, discussions or agreements, written or oral,
regarding any such business activities or acquisitions other than in connection
with the Acquisition at this time. However, after the Conversion the Holding
Company will be able to take advantage of favorable business or acquisition
opportunities that may arise. The Holding Company currently intends to maintain
the independence of the Institutions, but may in the future evaluate a possible
merger or consolidation of the Institutions. Upon consummation of the Conversion
and the Acquisition, the Holding Company will have no significant assets other
than the common stock of Madison First to be issued in connection with the
Conversion, the Citizens Shares, the ESOP loan and that portion of the net
Conversion proceeds retained by the Holding Company and not used by the Holding
Company to purchase the Citizens Shares. The Holding Company will initially
receive 60% of the net Conversion proceeds after providing for the Holding
Company's loan to the ESOP which will permit the ESOP to purchase Common Stock
in the Conversion. The Holding Company will use $3.0 million of the proceeds to
purchase the Citizens Shares in the Acquisition and a portion of the proceeds to
make a capital contribution to Citizens of up to $1.5 million. The Holding
Company may use any remaining funds for general corporate purposes, including
the payment of dividends and, subject to OTS approval, repurchases of shares of
its Common Stock in the future. However, the Holding Company has no present
plans to pay dividends or effect repurchases of the Common Stock. Any activities
of the Holding Company will initially be funded from such net proceeds,
repayments on the ESOP loan and through future dividends from the Institutions,
which are subject to certain limitations. Citizens does not anticipate paying
dividends on its common stock in the foreseeable future and may be effectively
precluded from paying dividends until the Holding Company acquires the Minority
Shares. See "Dividend Policy," "Regulation -- Dividend Limitations," and "Use of
Proceeds."
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Assuming net Conversion proceeds at the midpoint of the Estimated Valuation
Range and assuming (i) the Holding Company's purchase of the Citizens Shares for
$3.0 million and (ii) the Holding Company's $1.5 million capital contribution to
Citizens, the Holding Company's pro forma total risk-based capital ratio, Tier I
risk-based capital ratio and leverage ratio would be 17.1%, 15.9% and 8.9%,
respectively.
The executive offices of the Holding Company are located at 303 Clifty
Drive, Post Office Box 626, Madison, Indiana 47250 and its telephone number is
(812) 273-4949.
MADISON FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
Madison First was organized as a federally chartered savings and loan
association in 1875 and conducts its business from three full-service offices
and one stand-alone drive-through branch all located in Jefferson County,
Indiana. Management believes Madison First has developed a solid reputation
among its loyal customer base because of its commitment to personal service and
its strong support of the local community. Madison First offers a variety of
lending, deposit and other financial services to its retail and commercial
customers.
Madison First attracts deposits from the general public and originates
mortgage loans, most of which are secured by one- to four-family residential
real property in Jefferson County, Indiana. Madison First also offers second
mortgage loans, indemnification mortgage loans, construction loans, multi-family
loans, nonresidential real estate loans, land loans and consumer loans,
including automobile loans, loans secured by deposits, home equity loans and
installment loans. Madison First derives most of the funds for its lending from
deposits of its customers consisting primarily of certificates of deposit,
demand accounts and savings accounts.
Madison First has maintained a relatively strong capital position by
focusing on residential real estate mortgage lending in Jefferson County,
Indiana. At March 31, 1996, Madison First had total assets of $88.3 million,
deposits of $79.3 million and net equity capital of $6.6 million. For the fiscal
year ended December 31, 1995, Madison First had net income of $258,000, a return
on assets of 0.30% and a return on equity of 4.01%. Madison First has
experienced very few asset quality problems in its total loan portfolio, and at
March 31, 1996, its ratio of non-performing assets to total assets was 0.03%.
During the year ended December 31, 1995, Madison First recovered $5,000 of loans
previously charged off. Madison First made no charge offs during the same
period.
At March 31, 1996, Madison First's equity capital equaled 7.5% of total
assets. Assuming net proceeds at the midpoint of the Estimated Valuation Range,
Madison First's pro forma equity to assets ratio at March 31, 1996, after
adjustments, would have been 10.6%. Assuming net proceeds are allocated to
Madison First at the midpoint of the Estimated Valuation Range (except for 60%
of the net Conversion proceeds after providing for the Holding Company's loan to
the ESOP retained by the Holding Company), Madison First's pro forma tangible
capital, core capital and risk-based capital ratios would have been 10.5%, 10.5%
and 23.2%, respectively, at March 31, 1996. Madison First's capital ratios are
now, and on a pro forma basis will be, in excess of the capital requirements
imposed by applicable law. See "Pro Forma Data -- Regulatory Capital
Compliance." Madison First has no current arrangements, negotiations, or
agreements, written or oral, with respect to any future acquisition.
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CITIZENS NATIONAL BANK OF MADISON
Citizens was organized as a national bank in 1981. Citizens conducts its
business from four full-service offices, all located in Jefferson County,
Indiana. Citizens has cultivated a solid reputation in its market area as a
responsive full-service community bank through its offering of a wide variety of
lending, deposit and other financial services to its retail and commercial
customers.
Citizens attracts deposits from the general public and originates
residential, multi-family, land, nonresidential mortgage, construction and home
equity loans, most of which are secured by real property located in Jefferson
County, Indiana, nonmortgage commercial loans, mobile home loans, and consumer
loans, including automobile loans, loans secured by deposits, and installment
loans. Citizens derives most of the funds for its lending activities from
deposits of its customers consisting primarily of certificates of deposits,
demand accounts and savings accounts. See "Business of Citizens -- Lending
Activities -- Origination, Purchase and Sale of Loans."
By offering a wide variety of lending, deposit and other financial services
to its retail and commercial customers, Citizens has benefited from consistent
and sustained growth. At March 31, 1996, Citizens had total assets of $58.1
million, deposits of $52.7 million and net shareholders' equity of $3.4 million.
Citizens has no accounting goodwill or other intangible assets on its balance
sheet. For the fiscal year ended December 31, 1995, Citizens had net income of
$342,000, or $2.71 per share, a return on assets of 0.7% and a return on equity
of 10.7%. Despite its commitment to achieving aggressive growth in its loan
portfolio, Citizens has been relatively successful in maintaining its asset
quality. At March 31, 1996, Citizens' ratio of non-performing loans to total
assets was 0.5%. For the year ended December 31, 1995, Citizens charged off
$92,000 of loans, net of recoveries.
At March 31, 1996, Citizens' net shareholders' equity capital totaled $3.4
million, or 5.9% of total assets. Assuming consummation of the Conversion and
the Acquisition and assuming Citizens' receipt of a $1.5 million capital
contribution from the Holding Company, Citizens' pro forma net shareholders'
equity capital to total assets ratio at March 31, 1996 would have been 8.3%.
Assuming Citizens' receipt of the $1.5 million capital contribution from the
Holding Company anticipated upon completion of the Conversion and consummation
of the Acquisition, Citizens' pro forma total risk-based capital ratio, Tier I
risk-based capital ratio and leverage ratio would have been 12.6%, 11.4% and
7.5%, respectively. Citizens' capital ratios are now, and on a pro forma basis
will be, in excess of its regulatory capital requirements, imposed by applicable
law. See "Pro Forma Data -- Regulatory Capital Compliance."
THE ACQUISITION
General
On March 4, 1996, Madison First and Ms. Durocher entered into the Agreement
pursuant to which Madison First agreed to purchase through the Holding Company,
and Ms. Durocher agreed to sell to the Holding Company, the Citizens Shares,
which constitute 95.6% of the issued and outstanding capital stock of Citizens.
In consideration of the Citizens Shares, the Agreement provides that the Holding
Company will pay to Ms. Durocher cash in the amount of $3,010,725, or $25.00 per
Citizens Share. For further information regarding Citizens, see "Citizens
National Bank of Madison," "Business of Citizens" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Citizens
National Bank of Madison."
Reasons for the Acquisition
The Acquisition will enable Madison First to expand its banking services.
In addition, the Acquisition will enable Madison First to efficiently expand its
lending emphasis to include installment, commercial and agricultural loan
products through Citizens' established experience in such lending areas.
Moreover, the Acquisition in combination with the Conversion will permit the
Holding Company to put to use a significant portion of its capital, with the
Institutions continuing to qualify as "well capitalized" institutions for
regulatory purposes. The Acquisition is also expected to reduce the pressure to
leverage the Holding Company's consolidated balance sheet that typically exists
when a "well capitalized" institution engages in a standard conversion
transaction. See "Unaudited Pro Forma Condensed Combined Financial Statements"
and "Pro Forma Data -- Regulatory Capital Compliance." The Acquisition will also
create an affiliation between the Institutions which is expected to enable the
Holding Company and the Institutions to explore opportunities to integrate
certain aspects of the Institutions' operations in a manner designed to achieve
operating efficiencies, including the possible combination or integration of the
Institutions' data processing, marketing, financial reporting, collections and
human resources functions, compliance functions, their deposit and loan
operations, and their insurance and employee benefit programs. The Holding
Company and the Institutions will also be able to explore opportunities to
utilize their offices and physical locations in a more efficient manner
following the Acquisition.
26
<PAGE>
Closing
The Agreement provides that the Acquisition will be consummated on such
date as all conditions precedent to the Acquisition are satisfied, or at such
later time as the parties may agree (the "Closing Date").
Conditions to the Acquisition
Conditions to Each Party's Obligations. The respective obligations of each
party to effect the Acquisition are subject to the condition that the Conversion
shall have been consummated and any necessary regulatory approvals for the
Acquisition shall have been obtained. The Holding Company has obtained the
approval of the FRB to become a bank holding company upon the acquisition of the
Citizens Shares in the Acquisition. See "Regulation -- Bank Holding Company
Regulation."
Conditions to the Obligations of Madison First and the Holding Company. The
obligations of Madison First and the Holding Company to effect the Acquisition
are further subject to the satisfaction at or prior to the Closing Date of the
following conditions: (i) the representations and warranties of Ms. Durocher
contained in the Agreement shall be true and correct on the Closing Date; and
(ii) Madison First and the Holding Company shall have completed a due diligence
review of Citizens and the results of such review shall be satisfactory to
Madison First and the Holding Company. The due diligence review of Citizens may
continue until consummation of the Acquisition.
Conditions to the Obligations of Ms. Durocher. The obligations of Ms.
Durocher to effect the Acquisition are further subject to the satisfaction at or
prior to the Closing Date of the conditions that the representations and
warranties of Madison First contained in the Agreement shall be true and correct
on the Closing Date.
Regulatory Approvals
Consummation of the Acquisition is conditioned on the Holding Company's
obtaining all necessary regulatory approvals to acquire the Citizens Shares in
the Acquisition. The Holding Company has obtained the approval of the FRB to
become a bank holding company upon the acquisition of the Citizens Shares in the
Acquisition. See "Regulation -- Bank Holding Company Regulation."
Termination of the Agreement
Termination by Either Party. The Agreement may be terminated by either
party if: (i) at any time there shall have been a final determination that any
material provision of the Agreement is illegal, invalid or unenforceable; or
(ii) if it becomes clear that any condition precedent to such party's
obligations under the Agreement cannot be satisfied on or prior to June 30,
1997.
Termination by Madison First and the Holding Company. The Agreement may be
terminated by Madison First and the Holding Company if: (i) Madison First and
the Holding Company determine that the audited balance sheet of Citizens as of
December 31, 1995 does not fairly present the financial position of Citizens as
of such date; (ii) Madison First and the Holding Company determine that the
audited income statement of Citizens for the year ended December 31, 1995 does
not fairly present the financial results of operations of Citizens for such
period; or (iii) Madison First and the Holding Company determine that there has
been a material adverse change in the operations, prospects or financial
condition of Citizens since December 31, 1995.
Termination by Ms. Durocher. The Agreement may be terminated by Ms.
Durocher if it becomes clear that any condition precedent to her obligations
under the Agreement cannot be satisfied on or prior to December 31, 1996.
Acquisition as Condition to Conversion
The Conversion will not become effective until such time as all conditions
precedent to the Acquisition are satisfied. If at any time it becomes clear that
any condition precedent to the Acquisition will not be satisfied, the Conversion
and the Plan of Conversion will terminate. See "The Conversion -- Conditions and
Termination."
27
<PAGE>
Accounting and Tax Treatment
The Holding Company will treat the Acquisition as a purchase for accounting
purposes. For income tax purposes, the Acquisition will be treated as a purchase
by the Holding Company of the Citizens Shares owned by Ms. Durocher.
Accordingly, Ms. Durocher will realize a gain or loss equal to the difference
between the purchase price and tax basis in the shares sold by her. None of the
Holding Company, Madison First, Citizens, or the members of Madison First will
realize a gain or loss by reason of the Acquisition.
Operations After the Acquisition and the Conversion
The Holding Company and Madison First currently intend to maintain Citizens
as an independent entity but may in the future consider a merger or
consolidation of the Institutions. The Holding Company may also evaluate
alternatives to purchase the Minority Shares through a transaction in which
holders of the Minority Shares would receive fair consideration, most likely in
the form of cash, shares of Common Stock or a combination thereof. In the
meantime, the Holding Company and the Institutions will explore opportunities to
integrate certain aspects of the Institutions' operations in a manner designed
to achieve operating efficiencies, including the possible combination or
integration of the Institutions' data processing, marketing, financial
reporting, collections and human resources functions, their deposit and loan
operations, and their insurance and employee benefit programs. The Holding
Company and the Institutions may also explore opportunities to utilize their
offices and physical locations in a more efficient manner.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited consolidated financial statements reflect the
acquisition of the Citizens Shares by the Holding Company in the Acquisition and
the Conversion of Madison First from a federally chartered mutual savings and
loan association to a federally chartered stock savings and loan association.
Pro forma adjustments related to the consolidated condensed combined pro forma
statements of operations for the fiscal year ended December 31, 1995, and the
three months ended March 31, 1996, have been prepared using the midpoint of the
Estimated Valuation Range, and assuming both the Acquisition and the Conversion
were consummated as of January 1, 1995 and January 1, 1996, respectively. The
consolidated condensed combined pro forma statement of financial condition was
prepared assuming both the Acquisition and the Conversion were consummated on
March 31, 1996.
The historical financial information has been derived from the historical
financial statements of Madison First and Citizens. The consolidated condensed
combined pro forma financial statements should be read in conjunction with the
historical combined financial statements of Madison First and Citizens and the
notes thereto and the other financial information pertaining to Madison First
and Citizens included elsewhere in this Prospectus.
The consolidated condensed combined pro forma financial statements have
been prepared under the purchase method of accounting. Under purchase
accounting, the acquired assets and liabilities of Citizens are recorded at fair
value as of the date of consummation of the Acquisition.
The pro forma consolidated condensed combined financial statements do not
purport to be indicative of the financial position or operating results which
would have been achieved had the Acquisition and the Conversion been consummated
as of the dates or for the periods indicated and should not be construed as
representative of future financial position or operating results. The pro forma
adjustments are based on available information and assumptions Madison First
believes are reasonable under the circumstances.
28
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Consolidated Condensed Combined Statements of Financial Condition
--------------------------------------------------------------------------------------------
March 31, 1996
--------------------------------------------------------------------------------------------
Pro-Forma
Conversion Acquisition Consolidated
Adjustments (1) Adjustments(2) Condensed Footnote
Madison First Citizens Dr. (Cr.) Dr. (Cr.) Combined References
------------- -------- --------- --------- -------- ----------
(In Thousands)
Assets:
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.............. $ 8,757 $ 5,835 $4,328 $(3,075) $ 15,845 (1)(2)
Investment securities.................. 9,959 4,619 --- --- 14,578 (2)
Mortgage-backed and related
securities........................... 9,146 3,429 --- --- 12,575 (2)
Loans receivable, net.................. 57,393 41,588 --- --- 98,981
Goodwill, net of accumulated
amortization....................... 147 --- --- 575 722 (1)(2)(7)
Other assets........................... 2,905 2,584 --- (90) 5,399 (3)(6)
------- ------- ------- ------- --------
Total assets......................... $88,307 $58,055 $4,328 $(2,590) $148,100
======= ======= ======= ======= ========
Liabilities:
Total deposits......................... $79,254 $52,748 $3,000 $ --- $129,002 (1)(2)
FHLB advances.......................... 2,000 1,500 --- --- 3,500
Other liabilities...................... 454 362 --- (683) 1,499 (5)
Minority interest in consolidated
subsidiary........................... --- --- --- (172) 172 (4)
------- ------- ------- ------- --------
Total liabilities.................... 81,708 54,610 3,000 (855) 134,173
Shareholders' Equity:
Preferred stock........................ --- --- --- --- --- (1)(2)
Common stock........................... --- 1,008 --- 1,008 --- (1)(2)
Additional paid in capital............. --- 1,657 (8,408) 1,657 8,408 (1)(2)
Employee stock ownership plan.......... --- --- 720 --- (720) (1)(2)
Recognition and retention plan......... --- --- 360 --- (360) (1)(2)
Retained earnings
substantially restricted............ 6,626 831 --- 831 6,626 (1)(2)
Net unrealized losses on securities
available for sale, net of
related tax effects.................. (27) (51) --- (51) (27) (2)
------- ------- ------- ------- --------
Total shareholders' equity........ 6,599 3,445 (7,328) 3,445 13,927
------- ------- ------- ------- --------
Total liabilities
and shareholders' equity ........ $88,307 $58,055 $(4,328) $ 2,590 $148,100
======= ======= ======= ======= ========
</TABLE>
(Footnotes on following page)
29
<PAGE>
(1) The pro forma financial statements reflect the sale of the Holding
Company's Common Stock in the Conversion at the midpoint of the Estimated
Valuation Range. The pro forma financial statements contemplate that $3.0
million of such Common Stock sales are effected via withdrawals from
existing savings deposits. The pro forma Conversion adjustments also
reflect the ESOP's and RRP's purchases of 8% and 4% of the shares offered
in the Conversion, respectively, at the initial $10.00 Purchase Price. The
RRP will be subject to approval by the shareholders at the Holding
Company's first meeting of shareholders.
(2) The pro forma financial statements depict the acquisition of 95.6% of
Citizens' outstanding common stock for $3.0 million plus capitalized
Acquisition costs totaling approximately $65,000. The Acquisition will be
accounted for using the purchase method of accounting which requires that
assets acquired and liabilities assumed are recorded at fair value at the
Acquisition date. In the Acquisition, pro forma fair value adjustments have
been effected to provide for exit costs related to data processing
contracts and duplicative equipment ($168,000), lease agreements and
severance packages for personnel with overlapping responsibilities
($340,000) and estimated pension termination costs ($175,000).
Additionally, such pro forma adjustments take into consideration the costs
of liquidating overlapping branch facilities. Fair value adjustments were
not required for cash, investments and mortgage-backed securities due to
fact that such instruments were carried at fair value. A fair value
adjustment was not applied to the loan portfolio at March 31, 1996, based
on an immaterial difference (less than $75,000) between the historic cost
carrying value and fair value.
(3) This pro forma adjustment reflects the write-down of duplicative special
purpose premises and equipment to estimated net realizable value upon
disposal ($550,000).
(4) This adjustment represents the residual 4.4% minority interest in Citizens
after the Acquisition. Based on materiality, no effect has been given as to
the ultimate cost of such shares, if any.
(5) This pro forma adjustment reflects the pre-tax costs of severing certain
data processing contract, pension termination and personnel severance
packages.
(6) Tax benefits attendant to write down of office premises and equipment, as
well as tax benefits attendant to termination of data processing contracts,
pension liability and personnel severance packages.
(7) Goodwill arising from Acquisition.
30
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Consolidated Condensed Combined Statements of Operations
--------------------------------------------------------------------------------------------
For the Three Months Ended March 31, 1996
--------------------------------------------------------------------------------------------
Conversion Purchase Pro Forma Combined
Adjustments Adjustments After Conversion Footnote
Madison First Citizens Dr. (Cr.) Dr. (Cr.) and Acquisition References
------------- -------- --------- --------- --------------- ----------
(In thousands)
Interest Income:
<S> <C> <C> <C> <C> <C> <C>
Loans............................... $1,117 $ 899 $ --- $ --- $2,016
Investment securities............... 150 21 (18) --- 189 (8)
Mortgage-backed and
related securities................ 149 57 --- --- 206
Interest-bearing
deposits and other................ 43 93 --- --- 136
-------- ------- ------ ------ --------
Total interest income........... 1,459 1,070 (18) --- 2,547
-------- ------- ------ ------ --------
Interest Expense:
Deposits............................ 854 548 (39) --- 1,363 (8)
Borrowed funds...................... 36 25 --- --- 61
-------- ------- ------ ------ --------
Total interest expense............ 890 573 (39) --- 1,424
-------- ------- ------ ------ --------
Net interest income............... 569 497 (57) --- 1,123
Provision for loan losses.............. 6 150 --- --- 156
-------- ------- ------ ------ --------
Net interest income after
provision for loan losses........... 563 347 (57) --- 967
Other Income:
Insurance commissions............... 60 --- --- --- 60
Service fees, charges and
other operating................... 48 141 --- --- 189
Other............................... --- 11 --- --- 11
-------- ------- ------ ------ --------
Total other income............... 108 152 --- --- 260
Other Expense:
Employee compensation
and benefits...................... 294 226 --- (45) 475 (9)
ESOP and RRP benefits............... --- --- 45 --- 45 (10)
Occupancy and equipment............. 44 76 --- (5) 115 (11)
Federal deposit
insurance premiums................ 45 --- --- --- 45
Data processing..................... 70 --- --- --- 70
Amortization of goodwill
and other intangibles............. 1 --- --- 12 13 (12)
Other............................... 99 159 --- --- 258
-------- ------- ------ ------ --------
Total other expense.............. 553 461 45 (38) 1,021
-------- ------- ------ ------ --------
Income before income tax expense....... 118 38 (12) (38) 206
Income tax expense..................... 54 16 5 15 90 (13)
-------- ------- ------ ------ --------
Net income............................. $ 64 $ 22 $ (7) $ (23) $ 116
======== ======= ====== ====== ========
Earnings per share
(based on 900,000
weighted average
shares outstanding)............... $ 0 .13
=======
- ----------
</TABLE>
(8) Represents 3 month earnings of 5.65% (one-year Treasury rate) on $1.3
million of the net proceeds retained after the Acquisition, as well as a
reduction in the cost of savings on $3.0 million of deposit withdrawals at
an assumed weighted average cost of 5.2%.
(9) Represents the reduction in employee compensation due to severance
packages.
(10) Reflects 3 month amortization expense related to RRP (5-year term) and ESOP
(7-year term).
(11) Represents 3 month reduction in depreciation expense due to disposal of
branch facilities and equipment.
(12) Amortization of goodwill and other intangible assets over an estimated
12-year life.
(13) Tax effects of pro forma adjustments.
31
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Consolidated Condensed Combined Statements of Operations
-------------------------------------------------------------------------------------
For the Year Ended December 31, 1995
-------------------------------------------------------------------------------------
Pro Forma
Combined After
Conversion Purchase Conversion
Madison Adjustments Adjustments and Footnote
First Citizens Dr. (Cr.) Dr. (Cr.) Acquisition References
----- -------- --------- --------- ----------- ----------
(In thousands)
Interest Income:
<S> <C> <C> <C> <C> <C> <C>
Loans ................................. $4,240 $3,194 $ --- $ --- $7,434
Investment securities.................. 777 270 (71) --- 1,118 (8)
Mortgage-backed
and related securities............... 670 231 --- --- 901
Interest-bearing deposits and other.... 107 --- --- --- 107
------- ------- ------ ------- ---------
Total interest income................ 5,794 3,695 (71) --- 9,560
------- ------- ------ ------- ---------
Interest Expense:
Deposits............................. 3,419 1,750 (156) --- 5,013 (8)
Borrowed funds....................... 175 70 --- --- 245
------- ------- ------ ------- ---------
Total interest expense............... 3,594 1,820 (156) --- 5,258
------- ------- ------ ------- ---------
Net interest income.............. 2,200 1,875 (227) --- 4,302
Provision for loan losses.............. 150 104 --- --- 254
------- ------- ------ ------- ---------
Net interest income after
provision for loan losses............ 2,050 1,771 (227) --- 4,048
Other Income:
Insurance commissions.................. 175 --- --- --- 175
Service fees, charges
and other operating.................. 187 450 --- --- 637
Gain on sales of
investment securities................ --- 4 --- --- 4
Other ................................. --- 109 --- --- 109
------- ------- ------ ------- ---------
Total other income................... 362 563 --- --- 925
------- ------- ------ ------- ---------
Other Expenses:
Employee compensation and benefits..... 998 831 --- (180) 1,649 (9)
ESOP and RRP benefits.................. --- --- 180 180 (10)
Occupancy and equipment................ 212 293 --- (18) 487 (11)
Federal deposit insurance premiums..... 177 60 --- --- 237
Data processing........................ 237 87 --- --- 324
Amortization of goodwill
and other intangibles ............... 7 --- --- 48 55 (12)
Other ................................. 335 498 --- --- 833
------- ------- ------ ------- ---------
Total other expense.................. 1,966 1,769 180 (150) 3,765
------- ------- ------ ------- ---------
Income before income tax expense.......... 446 565 (47) (150) 1,208
Income tax expense........................ 188 223 19 60 490 (13)
------- ------- ------ ------- ---------
Net income................................ $ 258 $ 342 $ 28 $ (90) $ 718
======= ======= ====== ======= =========
Earnings per share (based on 900,000
weighted average shares outstanding)... $ 0.80
=========
</TABLE>
- ------------
(8) Represents earnings of 5.45% (one-year Treasury rate) on $1.3 million of
the net proceeds retained after the Acquisition, as well as a reduction in
the cost of savings on $3.0 million of deposit withdrawals at an assumed
weighted average cost of 5.2%.
(9) Represents the reduction in employee compensation due to termination of
pension liability and severance packages.
(10) Reflects amortization expense related to RRP (5-year term) and ESOP (7-year
term).
(11) Represents reduction in depreciation expense due to disposal of branch
facilities.
(12) Amortization of goodwill and other intangible assets over an estimated
12-year life.
(13) Tax effects of pro forma adjustments.
32
<PAGE>
MARKET AREA
The Institutions' primary market area is Jefferson County, Indiana.
Madison, the county seat of Jefferson County, is located in southern Indiana,
approximately 95 miles south of Indianapolis, 55 miles northeast of Louisville,
Kentucky and 75 miles west of Cincinnati, Ohio. According to the U.S. Bureau of
Census, the city of Madison, the county seat of Jefferson County, had a
population of 12,006, and Jefferson County had a population of 29,797, at the
time of the 1990 census.
According to the Indiana Department of Employment and Training Services,
the total work force in Jefferson County was 14,830 as of January, 1996. As of
the same date, 13,940 persons were employed, resulting in an unemployment rate
for Jefferson County of approximately 6.0%. As of the same date, the
unemployment for Indiana was 5.0%, and the nationwide unemployment rate was
6.3%.
According to the Madison-Jefferson County Industrial Development
Corporation, Jefferson County's largest employer with approximately 1,144
employees is Grote Industries, Inc., which manufactures truck, bus and trailer
safety equipment. Jefferson County's second largest employer is Rotary Lift, a
division of Dover Industries, which employs approximately 500 persons and
manufactures automotive vehicle lift equipment.
USE OF PROCEEDS
The Holding Company will initially receive 60% of the net Conversion
proceeds after providing for the loan to the ESOP to allow the ESOP to purchase
shares of Common Stock in the Conversion. See "Executive Compensation and
Related Transactions of Madison First -- Employee Stock Ownership Plan and
Trust" and "Executive Compensation and Related Transactions of Citizens --
Employee Stock Ownership Plan and Trust." The Holding Company will use $3.0
million of the proceeds to acquire the Citizens Shares in the Acquisition. See
"The Acquisition." The Holding Company will use a portion of the proceeds
remaining after acquisition of the Citizens Shares to make a capital
contribution to Citizens of up to $1.5 million. The Holding Company may use a
portion of any remaining proceeds for the payment of dividends and future
repurchases of its Common Stock as permitted by the OTS and applicable
regulations, although it has no current plans to do so. See "The Conversion --
Restrictions on Repurchase of Stock."
The funds received by the Institutions will be used primarily to make
adjustable-rate mortgage loans, nonresidential real estate loans and consumer
loans to the extent there is demand for such loans and subject to market
conditions. On an interim basis, the net proceeds will be invested in U.S.
government securities, other U.S. agency securities and mortgage-backed
securities. See "Business of Madison First -- Investments and Mortgage-Backed
Securities" and "Business of Citizens -- Investments and Mortgage-Backed
Securities." Any remaining net proceeds may be used for general corporate
purposes, including contributions to the proposed RRP. Neither the Holding
Company nor Madison First has any current plans to acquire any other financial
institutions, other than in connection with the Acquisition.
The following table shows estimated gross and net proceeds based upon
shares of Common Stock being sold in the Conversion at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range.
<TABLE>
<CAPTION>
15% Above
Minimum, Midpoint, Maximum, Maximum,
765,000 900,000 1,035,000 1,190,250
Shares Shares Shares Shares
Sold at Price Sold at Price Sold at Price Sold at Price
of $10.00 of $10.00 of $10.00 of $10.00(3)
------------- ------------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Gross Proceeds.......................... $7,650 $9,000 $10,350 $11,903
Less:
Estimated Underwriting Fees
and Other Expenses(1) (2)............ (561) (592) (623) (660)
------ ------ -------- -------
Estimated net Conversion
proceeds(1).......................... $7,089 $8,408 $ 9,727 $11,243
====== ====== ======== =======
</TABLE>
- ----------
(1) In calculating estimated net Conversion proceeds, it has been assumed that
no sales will be made through selected dealers, that all shares are sold in
the Subscription Offering, and that executive officers and directors of
Citizens and Madison First and their Associates purchase 104,800 shares of
Common Stock in the Conversion.
(2) Does not include expenses related to the Acquisition estimated to be
$65,000. For a disclosure regarding the impact of the Acquisition on
tangible capital, see "Pro Forma Data."
(3) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following the
commencement of the Subscription and Direct Community Offerings.
33
<PAGE>
The actual net proceeds may differ from the estimated net proceeds
calculated above for various reasons, including variances in the actual amount
of legal and accounting expenses incurred in connection with the Conversion,
commissions paid for sales made through other dealers, and the actual number of
shares of Common Stock sold in the Conversion. Any variance in the actual net
proceeds from the estimates provided in the table above is not expected to be
material.
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Holding Company will have
the authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. The Board of Directors may consider a policy of paying
cash dividends on the Common Stock in the future. However, no decision has been
made as to the amount or timing of any such dividends. The declaration and
payment of dividends, if any, will depend upon a number of factors including the
Holding Company's then-current and projected consolidated operating results and
financial condition, regulatory restrictions, future growth plans and such other
factors as the Board of Directors deems relevant.
After the Conversion, the Institutions will be direct subsidiaries of the
Holding Company. Initially, the Holding Company will have no independent
operations or other subsidiaries to generate income. Consequently, other than
the net proceeds of the Conversion that the Holding Company will receive (after
funding the loan to the ESOP, purchasing the Citizens Shares in the Acquisition
and making up to a $1.5 million capital contribution to Citizens) and repayments
of the ESOP loan, the ability of the Holding Company to accumulate earnings for
the payment of cash dividends to its shareholders or possible repurchases of
shares of Common Stock will depend upon the ability of the Institutions to pay
dividends to the Holding Company.
Under OTS regulations, a converted savings association may not declare or
pay a cash dividend if the effect would be to reduce its net worth below the
amount required for the liquidation account. See "The Conversion -- Principal
Effects of Conversion -- Effect on Liquidation Rights." The liquidation account
will initially equal approximately $6.6 million. In addition, under OTS
regulations, the extent to which a savings association may make a "capital
distribution," which includes, among other things, cash dividends, will depend
upon in which one of three categories, based upon levels of capital, that
savings association is classified. Madison First is now, and expects to be after
the Conversion, a "tier one institution" and therefore would be able to pay cash
dividends to the Holding Company during any calendar year of up to 100% of its
net income during that calendar year plus the amount that would reduce by one
half its "surplus capital ratio" (the excess over its Capital Requirements) at
the beginning of the calendar year. See "Regulation -- Capital Distributions
Regulation." Prior notice of any dividend to be paid by Madison First to the
Holding Company will have to be given to the OTS.
Income of Madison First appropriated to bad debt reserves and deducted from
gross income for federal income tax purposes is not available for payment of
cash dividends or other distributions to the Holding Company without the payment
of federal income taxes by Madison First on the amount of such income. At
December 31, 1995, approximately $2.4 million of Madison First's retained
earnings represented bad debt deductions for which no federal income tax
provision had been made. See "Taxation -- Federal Taxation." Madison First's
unrecorded deferred income tax liability on such accumulated bad debt deduction
at December 31, 1995 was approximately $700,000. See Note H to the Notes to
Consolidated Financial Statements for additional information. For a description
of proposed legislation concerning deductions for bad debt reserves, see
"Taxation -- Federal Taxation."
Citizens is subject to OCC limits on its dividends. The approval of the OCC
is required for any dividend by a national bank subsidiary if the total of all
dividends, including any proposed dividends by the national bank in any calendar
year, exceeds the total of its net profits (as defined by the OCC) for that year
combined with its retained net profits for the preceding two years, less any
required transfers to surplus. Moreover, a national bank may not pay a dividend
on its common stock if the dividend would exceed net undivided profits then on
hand. In certain cases, even if prior approval of the OCC is not required, the
OCC may find a dividend payment to be an unsafe and unsound practice. Following
the Acquisition, Citizens may decide not to pay dividends to the Holding Company
until the Holding Company purchases the Minority Shares through a transaction in
which holders of the Minority Shares receive fair value, most likely in the form
of cash, Common Stock or a combination thereof. In the event Citizens paid a
dividend on its shares of common stock before such time, holders of the Minority
Shares would receive the same per share amount as the Holding Company. Citizens
does not anticipate paying dividends on its common stock in the foreseeable
future.
34
<PAGE>
Generally, there is no OTS regulatory restriction on the payment of
dividends by the Holding Company unless there is a determination by the Director
of the OTS that there is reasonable cause to believe that the payment of
dividends constitutes a serious risk to the financial safety, soundness or
stability of Madison First. Under FRB supervisory policy, a bank holding company
generally should not maintain its existing rate of cash dividends on common
shares unless (i) the organization's net income available to common shareholders
over the past year has been sufficient to fully fund the dividends and (ii) the
prospective rate of earnings retention appears consistent with the
organization's capital needs, asset quality, and overall financial condition.
The FDIC also has authority under current law to prohibit a bank from paying
dividends if, in its opinion, the payment of dividends would constitute an
unsafe or unsound practice in light of the financial condition of the
Institutions. Indiana law, however, would prohibit the Holding Company from
paying a dividend, if, after giving effect to the payment of that dividend, the
Holding Company would not be able to pay its debts as they become due in the
usual course of business or the Holding Company's total assets would be less
than the sum of its total liabilities plus preferential rights of holders of
preferred stock, if any. See "Regulation -- Regulatory Capital" and "-- Dividend
Limitations."
MARKET FOR THE COMMON STOCK
The Holding Company has never issued Common Stock to the public.
Consequently, there is no established market for the Common Stock. The Holding
Company has received approval to have its Common Stock quoted on the NASDAQ
Small Cap Market under the symbol "RIVR" upon successful closing of the
offering. The Holding Company anticipates that there will be at least two market
makers for its shares upon the completion of the Conversion, depending upon the
volume of trading activity in the Common Stock and subject to compliance with
applicable provisions of federal and state securities laws and other regulatory
requirements. The Holding Company has not yet obtained any market makers and
will not do so until the offering is completed. The Agent intends to make a
market in the Common Stock, although it is under no obligation to do so.
An active and liquid public trading market for the securities of any
issuer, including the Holding Company, depends upon the presence in the
marketplace of both willing buyers and willing sellers of the securities at any
given time. The Holding Company has received approval to have its shares quoted
on the NASDAQ Small Cap Market, subject to certain conditions which the Holding
Company and Madison First believe will be met, including having at least 300
holders of Common Stock, at least 100,000 publicly held shares of Common Stock,
and two market makers for the Common Stock. However, no assurance can be given
that an active and liquid trading market will develop or that the trading price
per share of the Common Stock will equal or exceed the Purchase Price.
Purchasers of Common Stock should consider the potentially illiquid and
long-term nature of their investment in the shares being offered hereby.
The aggregate price of the Common Stock is based upon an independent
appraisal of the pro forma market value of the Common Stock. However, there can
be no assurance that an investor will be able to sell the Common Stock purchased
in the Conversion at or above the Purchase Price.
COMPETITION
The Institutions originate most of their loans to and accept most of their
deposits from residents of Jefferson County, Indiana. The Institutions are
subject to competition from various financial institutions, including state and
national banks, state and federal savings associations, credit unions, and
certain nonbanking consumer lenders that provide similar services in Jefferson
County with significantly larger resources than the Institutions. In total,
there are 11 financial institutions located in Jefferson County, Indiana,
including the Institutions. The Institutions also compete with money market
funds with respect to deposit accounts and with insurance companies with respect
to individual retirement accounts.
Under current law, bank holding companies may acquire savings associations.
Savings associations may also acquire banks under federal law. To date, several
bank holding company acquisitions of savings associations and savings
association acquisitions of banks in Indiana have been completed. Affiliations
between banks and savings associations based in Indiana may also increase the
competition faced by the Holding Company and the Institutions.
In addition, The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Riegle-Neal Act") permits bank holding companies to acquire
banks in other states and, with state consent and subject to certain
limitations, allows banks to acquire out-of-state branches either through merger
or de novo expansion. The State of Indiana recently passed a law establishing
interstate branching provisions for Indiana state-chartered banks consistent
with those established by the Riegle-Neal Act (the "Indiana Branching Law"). The
Indiana Branching Law authorizes Indiana banks to branch interstate by merger or
de novo expansion and authorizes out-of-state banks meeting certain requirements
to branch into Indiana by merger or de novo expansion. The Indiana Branching Law
became effective March 15, 1996, provided that prior to June 1, 1997 interstate
mergers and de novo branches are not permitted to out-of-state banks unless the
laws of their home states permit Indiana banks to merge or establish de novo
branches on a reciprocal basis. This new legislation may also result in
increased competition for the Holding Company and the Institutions.
35
<PAGE>
Because of recent changes in federal law, interstate acquisitions of banks
are less restricted than they were under prior law. Savings and loan
associations have certain powers to acquire savings associations based in other
states, and Indiana law expressly permits reciprocal acquisitions of Indiana
savings assocations. In addition, federal savings associations are permitted to
branch on an interstate basis. See "Regulation -- Acquisitions or Dispositions
and Branching."
The primary factors influencing competition for deposits are interest
rates, service and convenience of office locations. The Institutions compete for
loan originations primarily through the efficiency and quality of services they
provide borrowers and through interest rates and loan fees charged. Competition
is affected by, among other things, the general availability of lendable funds,
general and local economic conditions, current interest rate levels, and other
factors that are not readily predictable.
36
<PAGE>
ANTICIPATED MANAGEMENT PURCHASES
The following table sets forth information as to subscription rights to
Common Stock intended at this time to be exercised by each director of Madison
First and Citizens and the executive officers who are not directors of Madison
First and Citizens (including shares to be purchased by their Associates) and
all directors and executive officers of the Institutions as a group. For
purposes of the following table, it has been assumed that sufficient shares will
be available to satisfy subscriptions in all categories and that shares will be
sold for $10.00 per share.
<TABLE>
<CAPTION>
Aggregate Amount of Shares Percent of Shares Percent of Shares Percent of Shares Percent of Shares
Purchase Proposed to be Assuming Assuming Assuming Assuming
Price of Subscribed 765,000 Shares 900,000 Shares 1,035,000 Shares 1,190,250 Shares
Name and Intended for all in are Sold in the are Sold in the are Sold in the are Sold in the
Position Purchases(1) Categories Conversion Conversion Conversion Conversion
- ---------- ------------ ---------------- ----------------- ----------------- ------------------ ---------------
Madison First
<S> <C> <C> <C> <C> <C> <C>
Robert W. Anger, $ 50,000 5,000 0.65% 0.56% 0.48% 0.42%
Vice President
Lending and Director
Traci A. Bridgford, 25,000 2,500 0.33 0.28 0.24 0.21
Vice President
Compliance/
Operations (2)
Lonnie D. Collins, 150,000 15,000 1.96 1.67 1.45 1.26
Secretary
John Wayne Deveary, 100,000 10,000 1.31 1.11 0.97 0.84
Vice President and
Treasurer
Cecil L. Dorten, 150,000 15,000 1.96 1.67 1.45 1.26
Director
James E. Fritz, 150,000 15,000 1.96 1.67 1.45 1.26
President, Chief
Executive Officer
and Director (2)
Michael J. Hensley, 100,000 10,000 1.31 1.11 0.97 0.84
Director
Earl W. Johann, 50,000 5,000 0.65 0.56 0.48 0.42
Director
Fred W. Koehler, 150,000 15,000 1.96 1.67 1.45 1.26
Chairman
Citizens
Burton P. Chambers, 1,000 100 0.01 0.01 0.01 0.01
Chairman (2)
Jonnie L. Davis, 5,000 500 0.07 0.06 0.05 0.04
Director (2)
Carolyn B. Flowers, 10,000 1,000 0.13 0.11 0.10 0.08
Vice President
Compliance/
Operations (2)
Larry C. Fouse, 2,000 200 0.03 0.02 0.02 0.02
Chief Financial
Officer and
Controller (2)
Mark A. Goley, 1,000 100 0.01 0.01 0.01 0.01
Vice President and
Senior Loan
Officer (2)
Robert D. Hoban, 100,000 10,000 1.31 1.11 0.97 0.84
President, Chief
Executive Officer
and Director (2)
Van E. Shelton, 3,000 300 0.04 0.03 0.03 0.03
Director (2)
Ralph E. Storm, 1,000 100 0.01 0.01 0.01 0.01
Director (2) ---------- ------- ----- ----- ----- ----
All directors and $1,048,000 104,800 13.70% 11.66% 10.14% 8.81%
executive ========== ======= ===== ===== ===== ====
officers as a
group
(17 persons)(3)
</TABLE>
- ----------
Footnotes on following page
37
<PAGE>
(1) Does not include shares subject to stock options which may be granted under
the Stock Option Plan, shares which may be awarded under the RRP, or any
shares which may be allocated to officers under the ESOP.
(2) Although all of the persons in the table above have subscription rights,
this footnote identifies those individuals who are not Eligible Account
Holders.
(3) Assuming that all shares awarded under the RRP are purchased on the open
market and upon (i) the full vesting of the restricted stock awards to
directors and executive officers contemplated under the RRP and (ii) the
exercise in full of all options expected to be granted to directors and
executive officers under the Stock Option Plan, all directors and executive
officers as a group would beneficially own 211,900 shares (25.2%), 230,800
shares (23.3%), 249,700 shares (21.9%), and 271,435 shares (20.7%) upon
sales at the minimum, midpoint, maximum, and 15% above the maximum of the
Estimated Valuation Range, respectively. See "Executive Compensation and
Related Transactions of Madison First -- RRP," "-- Stock Option Plan,"
"Executive Compensation and Related Transactions of Citizens -- RRP" and
"-- Stock Option Plan."
CAPITALIZATION
The following table presents the historical capitalization of Madison First
at March 31, 1996, and the pro forma consolidated capitalization of the Holding
Company as of that date, giving effect to the Acquisition and the sale of Common
Stock offered by this Prospectus based on the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range, and subject to the other
assumptions set forth below. The pro forma data set forth below may change
significantly at the time the Holding Company completes the Conversion due to,
among other factors, a change in the Estimated Valuation Range or a change in
the current estimated expenses of the Conversion. If the Estimated Valuation
Range changes so that between 765,000 and 1,190,250 shares are not sold in the
Conversion, subscriptions will be returned to subscribers who do not
affirmatively elect to continue their subscriptions during the offering at the
revised Estimated Valuation Range.
<TABLE>
<CAPTION>
At March 31, 1996
--------------------------------------------------------------------------------------
Pro Forma Holding Company
Capitalization Based on Sale of
-------------------------------------------------------------------
765,000 900,000 1,035,000 1,190,250
Shares Shares Shares Shares
Sold at Sold at Sold at Sold at
Madison First Price of Price of Price of Price of
Historical $10.00 $10.00 $10.00 $10.00(6)
------------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Goodwill......................................... $ 147 $ 836 $ 836 $ 836 $ 836
Deposits (1)..................................... 79,254 129,002 129,002 129,002 129,002
Federal Home Loan Bank advances.................. 2,000 3,500 3,500 3,500 3,500
Capital and retained earnings:
Preferred stock, without par
value, 2,000,000 shares
authorized, none issued....................... --- --- --- --- ---
Common Stock, without par
value, 5,000,000 shares
authorized; indicated number
of shares assumed outstanding (2)............. --- --- --- --- ---
Additional paid in capital..................... --- 7,089 8,408 9,727 11,243
Retained earnings and net unrealized losses
on securities available for sale (3).......... 6,599 6,599 6,599 6,599 6,599
Less:
Common Stock acquired by RRP (4).............. --- (306) (360) (414) (476)
Common Stock acquired by the ESOP (5)......... --- (612) (720) (828) (952)
-------- --------- --------- --------- ---------
Total capital and retained earnings.............. $ 6,599 $ 12,770 $ 13,927 $ 15,084 $ 16,414
======== ========= ========= ========= =========
</TABLE>
- ----------
Footnotes on following page
38
<PAGE>
(1) Excludes accrued interest. The pro forma capitalization assumes $3.0
million of withdrawals from deposit accounts to purchase the Common Stock.
(2) The number of shares to be issued in the Conversion may be increased or
decreased based on market and financial conditions prior to the completion
of the Conversion. Assumes estimated expenses of $561,000, $592,000,
$623,000 and $660,000 at the minimum, midpoint, maximum and adjusted
maximum of the Estimated Valuation Range, respectively. See "Use of
Proceeds."
(3) Retained earnings are substantially restricted. See Notes H and K to
Madison First's Consolidated Financial Statements. See also "The Conversion
-- Principal Effects of Conversion -- Effect on Liquidation Rights."
Retained earnings do not reflect the federal income tax consequences of the
restoration to income of Madison First's special bad debt reserve for
income tax purposes which would be required in the unlikely event of a
liquidation or if a substantial portion of retained earnings were otherwise
used for a purpose other than absorption of bad debt losses and may be
required under certain legislation currently pending in Congress. See
"Taxation -- Federal Taxation." Equity capital includes retained earnings
decreased by net unrealized losses on securities available for sale.
(4) Assuming the receipt of shareholder approval at the Holding Company's first
meeting of shareholders, the Holding Company intends to implement the RRP.
Assuming such implementation, the RRP will purchase an amount of shares
equal to 4.0% of the Common Stock sold in the Conversion for issuance to
directors, officers and employees of the Holding Company and the
Institutions. Such shares may be purchased from authorized but unissued
shares or on the open market. The Holding Company currently intends that
the RRP will purchase the shares on the open market. Under the terms of the
RRP, shares will vest at the rate of 20% per year. The Common Stock to be
purchased by the RRP represents unearned compensation and is, accordingly,
reflected as a reduction to pro forma shareholders' equity. As shares of
the Common Stock granted pursuant to the RRP vest, a corresponding
reduction in the charge against capital will occur. In the event that
authorized but unissued shares are acquired, the interests of existing
shareholders will be diluted. Assuming that 900,000 shares of Common Stock
are issued in the Conversion and that all awards under the RRP are from
authorized but unissued shares, the Holding Company estimates that the per
share book value for the Common Stock would be diluted $0.21 per share, or
1.4% on a pro forma basis as of March 31, 1996.
(5) Assumes purchases by the ESOP of a number of shares equal to 8% of the
shares issued in the Conversion. The funds used to acquire the ESOP shares
will be borrowed from the Holding Company. See "Use of Proceeds." The
Institutions intend to make contributions to the ESOP sufficient to service
and ultimately retire its debt. The Common Stock acquired by the ESOP is
reflected as a reduction of shareholders' equity. See "Executive
Compensation and Related Transactions of Madison First -- Employee Stock
Ownership Plan and Trust" and "Executive Compensation and Related
Transactions of Citizens -- Employee Stock Ownership Plan and Trust."
(6) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following the
commencement of the Subscription and Direct Community Offerings.
PRO FORMA DATA
Pro forma combined consolidated net income of the Holding Company for the
three months ended March 31, 1996 and for the year ended December 31, 1995 have
been calculated based upon (i) Madison First's historic net income for the
respective periods, (ii) Citizens' historic net income for the respective
periods, (iii) the interest earned on residual net cash proceeds, and (iv)
foregone interest expense on $3.0 million of assumed deposit withdrawals to
purchase the Common Stock. Pro forma income has been calculated assuming the
Common Stock had been sold in the Conversion and the Acquisition had been
consummated at the beginning of the periods and the net proceeds had been
invested at 5.65% (the yield of a one-year U.S. Treasury bill on May 15, 1996).
The pro forma after-tax return for the Holding Company on a consolidated basis
is assumed to be 3.27% for the reported periods after giving effect to (i) the
yield on net proceeds, (ii) foregone interest expense on deposit withdrawals at
a weighted average cost of 5.2%, and (iii) adjusting for taxes using a federal
statutory tax rate of 34% and a net state statutory income tax rate of 6%.
Historical and per share amounts have been calculated by dividing historical
amounts and pro forma amounts by the indicated number of shares of Common Stock
assuming that such number of shares had been outstanding during each of the
entire periods.
Book value represents the difference between the stated amount of
consolidated assets and consolidated liabilities of the Holding Company computed
in accordance with generally accepted accounting principles. Book value does not
necessarily reflect current market value of assets and liabilities, and does not
reflect the effect of the liquidation account to be established in the
Conversion, see "The Conversion -- Principal Effects of Conversion -- Effect on
Liquidation Rights," or the federal income tax consequences of the restoration
to income of Madison First's pre-1987 special bad debt reserves for income tax
purposes which would be required in the unlikely event of liquidation and may be
required pursuant to legislation currently pending in Congress. See "Taxation --
Federal Taxation." Tangible book value represents the difference between
consolidated tangible assets (all assets less goodwill) and consolidated
liabilities of the Holding Company computed in accordance with generally acepted
accounting principles. Pro forma book value and pro forma tangible book value
includes only net proceeds as of the indicated dates and does not include
earnings on the proceeds for the periods then ended.
The pro forma net income derived from the assumptions set forth above
should not be considered indicative of the actual results of operations of the
Holding Company that would have been attained for any period if the Conversion
had been actually consummated at the beginning of such periods and the
assumptions regarding investment yields should not be considered indicative of
the actual yield expected to be achieved during any future period. The pro forma
book values or tangible book values at the dates indicated should not be
considered as reflecting the potential trading value of the Holding Company's
stock. There can be no assurance that an investor will be able to sell the
Common Stock purchased in the Conversion at prices within the range of the pro
forma book values of the Common Stock or at or above the Purchase Price.
39
<PAGE>
<TABLE>
<CAPTION>
765,000 Shares 900,000 Shares 1,035,000 Shares 1,190,250 Shares(1)
Sold at Sold at Sold at Sold at
$10.00 Per Share $10.00 Per Share $10.00 Per Share $10.00 Per Share
Three Months Year Three Months Year Three Months Year Three Months Year
ended ended ended ended ended ended ended ended
3/31/96 12/31/95 3/31/96 12/31/95 3/31/96 12/31/95 3/31/96 12/31/95
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross proceeds..................... $7,650 $7,650 $ 9,000 9,000 $10,350 $10,350 $11,903 $11,903
Less offering expenses............. (561) (561) (592) (592) (623) (623) (660) (660)
------- ------- ------- ------- --------- --------- --------- ---------
Estimated net
conversion proceeds (2)............ $7,089 7,089 8,408 $8,408 $ 9,727 $ 9,727 $11,243 $ 11,243
Consolidated net income:
Historical (3) .................. 26 $ 600 $ 26 600 $ 26 $ 600 $ 26 $ 600
Pro forma income (4)............. 46 181 56 221 65 260 77 305
Pro forma ESOP adjustment (7).... (13) (52) (16) (62) (18) (71) (21) (82)
Pro forma RRP adjustment (5)..... (9) (37) (11) (43) (13) (50) (14) (57)
------- ------- ------- ------- --------- --------- --------- ---------
Pro forma net income ............ $ 50 $ 692 $ 55 716 $ 60 $ 739 $ 68$ 766
Consolidated earnings
per share (7):
Historical ......................$ .04 $ .85 $ .03 .72 $ .03 $ .63 $ .02$ .54
Pro forma income (4)............. .06 .24 .07 .27 .07 .27 .07 .28
Pro forma ESOP adjustment (7).... (.02) (.07) (.02) (.07) (.02) (.07) (.02) (.07)
Pro forma RRP adjustment (5)..... (.01) (.05) (.01) (.05) (.01) (.05) (.01) (.05)
------- ------- ------- ------- --------- --------- --------- ---------
Pro forma earnings per share.....$ .07 $ .97 $ .07 .87 $ .07 $ .78 $ .06 $ .70
Consolidated book value (6):
Historical.......................$ 6,599 $ 6,574 $ 6,599 6,574 $ 6,599 $6,574 $ 6,599 $ 6,574
Estimated net conversion
proceeds (2) ................... 7,089 7,089 ,408 8,408 9,727 9,727 11,243 11,243
Less:
Common Stock acquired
by RRP (5).................... (306) (306) (360) (360) (414) (414) (476) (476)
Common Stock acquired
by ESOP (7)................... (612) (612) (720) (720) (828) (828) (952) (952)
------- ------- ------- ------- --------- --------- --------- ---------
Pro forma book value.............$12,770 $12,745 $13,927 $13,902 $15,084 $15,059 $16,414 $16,389
Consolidated book value
per share (6)(8):
Historical ......................$ 8.63 8.59 $ 7.33 7.31 $ 6.38 $ 6.35 $ 5.54$ 5.52
Estimated net conversion
proceeds per share.............. 9.27 9.27 9.34 9.34 9.40 9.40 9.45 9.45
Less:
Common Stock acquired
by RRP (5)................... (.40) (.40) (.40) (.40) (.40) (.40) (.40) (.40)
Common Stock acquired
by ESOP (7) ....................... (.80) (.80) (.80) (.80) (.80) (.80) (.80) (.80)
------- ------- ------- ------- --------- --------- --------- ---------
Pro forma book value per share... $16.70 $ 16.66 $15.47 15.45 $ 14.58 $ 14.55 $ 13.79 $ 13.77
======= ======= ======= ======= ========= ========= ========= =========
Offering price as a
percentage of pro
forma book value per share....... 60.00% 60.00% 65.00% 65.00% 69.00% 69.00% 73.00% 73.00%
======= ======= ======= ======= ========= ========= ========= =========
Offering price to pro forma
earnings per share .............. 35.70% 10.10% 35.70% 11.50% 35.70% 12.80% 41.70% 14.30%
======= ======= ======= ======= ========= ========= ========= =========
Tangible book value per share...... $15.60 $ 15.57 $ 14.55 $14.52 $ 13.77 $ 13.74 $ 13.09 $ 13.07
======= ======= ======= ======= ========= ========= ========= =========
Number of shares used in
calculating EPS.................. 708,172 708,172 833,143 833,143 958,114 958,114 1,101,831 1,101,831
======= ======= ======= ======= ========= ========= ========= =========
Number of shares used in
calculating book value and
tangible book value.............. 765,000 765,000 900,000 900,000 1,035,000 1,035,000 1,190,250 1,190,250
======= ======= ======= ======= ========= ========= ========= =========
</TABLE>
- ----------
(Footnotes on following page.)
40
<PAGE>
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following
commencement of the Subscription and Direct Community Offerings.
(2) See "Use of Proceeds" for assumptions utilized to determine the estimated
net proceeds of the sale of Common Stock.
(3) Historic net income for the three months ended March 31, 1996 and the year
ended December 31, 1995 is computed as follows:
3 months ended Year ended
March 31, 1996 December 31, 1995
-------------- -----------------
(In thousands)
Madison First $ 64 $ 258
Citizens (38) 342
----- -----
Pro forma combined - historic $ 26 $ 600
===== =====
(4) Pro forma income for the three months ended March 31, 1996, and the year
ended December 31, 1995 has been computed as follows:
3 months ended Year ended
March 31, December 31,
1996 1995
-------------- -------------
(In thousands)
Sale of 765,000 shares
Yield on residual cash proceeds of
$.096 million ($6.171 million - $3.075
million Acquisition
Price - $3.0 million of deposit
withdrawals) at 5.65%$ 1 $ 5
Reduced interest expense on $3.0 million of
deposit withdrawals at 5.20% 39 156
Purchase price adjustments 36 141
----- -----
Subtotal 76 302
Less tax effects at 40% (30) (121)
----- -----
Pro forma income $ 46 $ 181
===== =====
Sale of 900,000 shares
Yield on residual net cash proceeds of
$1.253 million ($7.328 million -
$3.075 million Acquisition Price -
$3.0 million of deposit withdrawals) at 5.65% $ 18 $ 71
Reduced interest expense on $3.0 million of deposit
withdrawals at 5.20% 39 156
Purchase price adjustments 36 141
----- -----
Subtotal 93 368
Less tax effects at 40% (37) (147)
----- -----
Pro forma income $ 56 $ 221
===== =====
Sale of 1,035,000 shares
Yield on residual net cash proceeds of
$2.410 million ($8.485 million -
$3.075 million Acquisition Price -
$3.0 million of deposit withdrawals) at 5.65% $ 34 $ 136
Reduced interest expense on $3.0 million of deposit
withdrawals at 5.20% 39 156
Purchase price adjustments 36 141
----- -----
Subtotal 109 433
Less tax effects at 40% (44) (173)
----- -----
Pro forma income $ 65 $ 260
===== =====
Sale of 1,190,250 shares
Yield on residual net cash proceeds of
$3.740 million ($9.815 million -
$3.075 million Acquisition Price -
$3.0 million of deposit withdrawals) at 5.65% $ 53 $ 211
Reduced interest expense on $3.0 million of deposit
withdrawals at 5.20% 39 156
Purchase price adjustments 36 141
----- -----
Subtotal 128 508
Less tax effects at 40% (51) (203)
----- -----
Pro forma income $ 77 $ 305
===== =====
41
<PAGE>
(5) Assuming the receipt of shareholder approval at the Holding Company's first
meeting of shareholders, the Holding Company intends to implement the RRP.
Assuming such implementation, the RRP will purchase an amount of shares
equal to 4.0% of the Common Stock sold in the Conversion for issuance to
directors, officers and employees of the Holding Company and the
Institutions. Such shares may be purchased from authorized but unissued
shares or on the open market. The Holding Company currently intends that
the RRP will purchase the shares on the open market, and the estimated net
Conversion proceeds have been reduced for the purchase of the shares in
determining estimated proceeds available for investment. Under the terms of
the RRP, shares will vest at the rate of 20% per year. A tax benefit of 40%
has been assumed. The Common Stock to be purchased by the RRP represents
unearned compensation and is, accordingly, reflected as a reduction to pro
forma shareholders' equity. As shares of the Common Stock granted pursuant
to the RRP vest, a corresponding reduction in the charge against capital
will occur. In the event that authorized but unissued shares are acquired,
the interests of existing shareholders will be diluted. Assuming that
900,000 shares of Common Stock are issued in the Conversion and that all
awards under the RRP are from authorized but unissued shares, the Holding
Company estimates that the per share book value for the Common Stock would
be diluted $0.21 per share, or 1.4% on a pro forma basis as of March 31,
1996.
(6) Book value represents the excess of assets over liabilities. The effect of
the liquidation account is not reflected in these computations. (For
additional information regarding the liquidation account, see "The
Conversion -- Principal Effects of Conversion -- Effect on Liquidation
Rights.") Tangible book value equals tangible assets (all assets less
goodwill) less liabilities.
(7) It is assumed that 8% of the shares of Common Stock issued in the
Conversion will be purchased by the ESOP. The funds used to acquire the
ESOP shares will be borrowed by the ESOP from the Holding Company (see "Use
of Proceeds"). The Institutions intend to make annual contributions to the
ESOP in an amount at least equal to the principal and interest requirements
on the debt. The Institutions' total annual expense in payment of the ESOP
debt is based upon 7 equal annual installments of principal and interest,
with an assumed tax benefit of 40%. The pro forma net income assumes: (i)
The Institutions' total contributions are equivalent to the debt service
requirement for the year, and (ii) the effective tax rate applicable to the
debt was 40%. Expense for the ESOP beginning on October 1, 1996 and
thereafter will be based on the number of shares committed to be released
to participants for the year at the average market value of the shares
during the year. Accordingly, the Institutions' total annual expense in
payment of the ESOP for such years may be higher than that discussed above.
The amount borrowed is reflected as a reduction of shareholders' equity.
(8) Assuming the receipt of shareholder approval at the Holding Company's first
meeting of shareholders, the Holding Company intends to implement the Stock
Option Plan. Assuming such implementation, Common Stock in an aggregate
amount equal to 10.0% of the shares issued in the Conversion will be
reserved for issuance by the Holding Company upon the exercise of the stock
options granted under the Stock Option Plan. No effect has been given to
the shares of Common Stock reserved for issuance under the Stock Option
Plan. Upon the exercise of stock options granted under the Stock Option
Plan, the interests of existing shareholders will be diluted. Assuming the
issuance of 900,000 shares in the Conversion and the exercise of 90,000
options at an exercise price of $10.00 per share, the Holding Company
estimates that the per share book value for the Common Stock would be
diluted $0.49 per share, or 3.5% on a pro forma basis as of March 31, 1996.
(9) Management believes that the Conversion and Acquisition are interdependent.
Therefore, additional pro forma statements showing the other variations of
the transaction have not been provided.
<PAGE>
Regulatory Capital Compliance
The following table compares Madison First's historical and pro forma
regulatory capital levels as of March 31, 1996 to Madison First's capital
requirements after giving effect to the Conversion.
<TABLE>
<CAPTION>
At March 31, 1996
Pro Forma Capital Based on Sale of
---------------------------------------------------------------------------------------
765,000 Shares 900,000 Shares 1,035,000 Shares 1,190,250 Shares
Madison First Sold at Price of Sold at Price of Sold at Price of Sold at Price of
Historical $10.00 $10.00 $10.00 $10.00 (1)
---------------- --------------- ---------------- --------------- ------------------
Amount Ratio(2) Amount Ratio(2) Amount Ratio(2) Amount Ratio(2) Amount Ratio (2)
------ -------- ------ -------- ------ -------- ------ -------- ------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity capital based upon
generally accepted
accounting principles (3)...... $6,599 7.5% $9,190 10.1% $9,674 10.6% $10,159 11.1% $10,715 11.6%
Tangible capital (3):
Historical or
pro forma.................... $6,479 7.3% $9,070 10.0% $9,554 10.5% $10,039 10.9% $10,595 11.5%
Required....................... 1,325 1.5 1,634 1.5 1,371 1.5 1,398 1.5 1,387 1.5
------ --- ------ ---- ------ ---- -------- ---- -------- ----
Excess....................... $5,154 5.8% $7,706 8.5% $8,183 8.0% $ 8,661 9.4% $ 9,208 10.0%
====== === ====== ==== ====== ==== ======== ==== ======== ====
Core capital (3):
Historical or
pro forma (4)................ $6,479 7.3% $9,070 10.0% $9,554 10.5% $10,039 10.9% $10,595 11.5%
Required....................... 2,650 3.0 2,728 3.0 2,742 3.0 2,757 3.0 2,774 3.0
------ --- ------ ---- ------ ---- -------- ---- -------- ----
Excess....................... $3,829 4.3% $6,342 7.0% $6,812 7.5% $ 7,282 7.9% $7,821 8.5%
====== === ====== ==== ====== ==== ======== ==== ======== ====
Risk-based capital (3):
Historical or
pro forma ................... $6,885 16.3% $9,476 22.1% $9,960 23.2% $10,445 24.3% $11,001 25.5%
Required....................... 3,385 8.0 3,426 8.0 3,424 8.0 3,442 8.0 3,451 8.0
------ --- ------ ---- ------ ---- -------- ---- -------- ----
Excess....................... $3,500 8.3% $6,050 14.1% $6,536 15.2% $ 7,003 16.3% $ 7,550 17.5%
====== === ====== ==== ====== ==== ======== ==== ======== ====
</TABLE>
- ----------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following
commencement of the Subscription and Direct Community Offerings.
(2) Tangible and core capital levels are shown as a percentage of total assets;
risk-based capital levels are shown as a percentage of risk-weighted
assets.
(3) Pro forma capital levels assume receipt by Madison First of $2.6 million,
$3.1 million, $3.6 million and $4.1 million at the minimum, midpoint,
maximum and adjusted maximum of the Estimated Valuation Range,
respectively. Assumes net proceeds have been invested in 20% risk-weighted
assets.
(4) Pro forma tangible and core capital requirements are based on total assets
of $90.9 million, $91.4 million, $91.9 million and $92.5 million at the
minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation
Range, respectively. Risk-based assets are based on pro forma totals of
$42.8 million, $42.9 million, $43.0 million and $43.1 million at the
minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation
Range, respectively.
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF MADISON FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
General
The Holding Company was recently formed as an Indiana corporation on May
22, 1996, for the purpose of issuing the Common Stock and (i) owning all of the
outstanding common stock of Madison First to be issued in the Conversion and
(ii) acquiring the Citizens Shares in the Acquisition. As a newly formed
corporation, the Holding Company has no operating history.
The principal business of savings associations, including Madison
First, has historically consisted of attracting deposits from the general public
and making loans secured by residential real estate. Madison First's earnings
are primarily dependent upon its net interest income, the difference between
interest income and interest expense. Interest income is a function of the
balances of loans and investments outstanding during a given period and the
yield earned on such loans and investments. Interest expense is a function of
the amount of deposits and borrowings outstanding during the same period and
interest rates paid on such deposits and borrowings. Madison First's earnings
are also affected by provisions for loan losses, service charges, operating
expenses and income taxes.
Madison First is significantly affected by prevailing economic
conditions, as well as government policies and regulations concerning, among
other things, monetary and fiscal affairs, housing and financial institutions.
See "Regulation." Deposit flows are influenced by a number of factors, including
interest rates paid on competing investments, account maturities and level of
personal income and savings within the Institutions' market. In addition,
deposit growth is affected by how customers perceive the stability of the
financial services industry amid various current events such as regulatory
changes, failures of other financial institutions and financing of the deposit
insurance fund. Lending activities are influenced by the demand for and supply
of housing lenders, the availability and cost of funds and various other items.
Sources of funds for lending activities of Madison First include deposits,
payments on loans, borrowings and income provided from operations.
Current Business Strategy
Madison First's business strategy is to operate a well-capitalized,
profitable and independent financial institution dedicated primarily to
residential lending with an emphasis on personal service. Madison First has
sought to implement this strategy by (i) emphasizing the origination of one- to
four-family residential mortgage loans in its market area, (ii) maintaining
asset quality through diligent collection efforts and (iii) managing and
controlling Madison First's level of operating expenses. Management of Madison
First believes the Conversion and the Acquisition, as well as Madison First's
development of additional products and services, will assist it in furthering
this strategy as follows:
o Improving Interest Rate Risk. Historically, Madison First originated
one-year adjustable-rate residential mortgage loans indexed to the
11th District Cost of Funds, which is considered a lagging index, with
maximum rate adjustments of 1% per year and 5% over the terms of the
loans. In a period of rising interest rates, these loans may not
reprice upward as quickly or by as much as market rates, thereby
increasing Madison First's interest rate risk. See " --
Asset/Liability Management." However, in late 1995 Madison First began
originating its one-year adjustable-rate residential mortgage loans
tied to the U.S. Treasury securities yields (adjusted to a constant
maturity) with maximum rate adjustments of 1.5% per year and 6% over
the terms of the loans. In addition, Madison First expects to begin
originating its fixed-rate residential mortgage loans with terms of 15
years and greater for sale to the FHLMC on the secondary market. See
"Business of Madison First." The change in the index used and the
increase in the maximum rate adjustments for Madison First's
adjustable-rate residential mortgage loans as well as the
implementation of a secondary market program for Madison First's
longer term, fixed-rate residential mortgage loans should assist
Madison First in improving its interest rate risk.
o Pursuing Operating Efficiencies After the Acquisition. The
consummation of the Acquisition will enable the Holding Company and
the Institutions to explore opportunities to integrate certain aspects
of the Institutions' operations in a manner designed to result in more
efficient operations. Among those opportunities that may be targeted
are (i) data processing, (ii) marketing, (iii) collections, (iv)
financial reporting, (v) human resources, (vi) deposit and loan
operations, (vii) compliance, and (viii) insurance and employee
benefits programs. The Institutions will also be able to explore
opportunities to utilize their offices and physical locations in a
more efficient manner following the Acquisition. See "The Acquisition
-- Reasons for the Acquisition."
43
<PAGE>
o Emphasis on New Home Equity Loan Product. In May, 1996, Madison First
began offering a new home equity line of credit. This line of credit
is an adjustable-rate line of credit tied to the prime rate and has an
initial rate equal to 1% less than the prime rate for the first year.
Thereafter, the applicable interest rate is equal to the prime rate
plus 1%. See "Business of Madison First -- Lending Activities."
Madison First expects to actively market this new home equity line
within its market area.
o Emphasis on Nonresidential Real Estate Lending. In addition to
continuing its emphasis on originating adjustable-rate one- to
four-family residential mortgage loans and its implementation of the
FHLMC secondary market program, Madison First anticipates that
following the Conversion it will begin to place more emphasis on the
origination of mortgage loans secured by nonresidential real estate in
its market area. Management of Madison First believes that the higher
interest rates and shorter terms associated with nonresidential real
estate loans will assist Madison First in its asset/liability
management and improve Madison First's interest rate spread. Although
such loans typically involve more credit risk than one- to four-family
residential mortgage loans, management also believes that Madison
First's diligent collection efforts will assist Madison First in
maintaining its asset quality. See "Business of Madison First."
Asset/Liability Management
Madison First, like other savings associations, is subject to interest rate
risk to the degree that its interest-bearing liabilities, primarily deposits
with short- and medium-term maturities, mature or reprice at different rates
than its interest-earning assets. Management of Madison First believes it is
critical to manage the relationship between interest rates and the effect on
Madison First's net portfolio value ("NPV"). This approach calculates the
difference between the present value of expected cash flows from assets and the
present value of expected cash flows from liabilities, as well as cash flows
from off-balance sheet contracts. Management of Madison First's assets and
liabilities is done within the context of the marketplace, regulatory
limitations and within limits established by the Board of Directors on the
amount of change in NPV which is acceptable given certain interest rate changes.
The OTS issued a regulation, which has not yet been implemented, which uses
a net market value methodology to measure the interest rate risk exposure of
thrift institutions. Under this OTS regulation, an institution's "normal" level
of interest rate risk in the event of an assumed change in interest rates is a
decrease in the institution's NPV in an amount not exceeding 2% of the present
value of its assets. Thrift institutions with over $300 million in assets or
less than a 12% risk-based capital ratio would be required to file OTS Schedule
CMR. Data from Schedule CMR would be used by the OTS to calculate changes in NPV
(and the related "normal" level of interest rate risk) based upon certain
interest rate changes (discussed below). Institutions which do not meet either
of the filing requirements would not be required to file OTS Schedule CMR, but
could do so voluntarily. As Madison First does not currently meet either of
these requirements, it would not be required to file Schedule CMR. Under the
proposed regulation, institutions which would be required to file would be
required to take a deduction (the interest rate risk capital component) from
their total capital available to calculate their risk based capital requirement
if their interest rate exposure is greater than "normal." The amount of that
deduction would be one-half of the difference between (a) the institution's
actual calculated exposure to a 200 basis point interest rate increase or
decrease (whichever results in the greater pro forma decrease in NPV) and (b)
its "normal" level of exposure which is 2% of the present value of its assets.
Presented below, as of March 31, 1996, is an analysis performed by the OTS
of Madison First's interest rate risk as measured by changes in NPV for
instantaneous and sustained parallel shifts in the yield curve, in 100 basis
point increments, up and down 400 basis points and in accordance with the
proposed regulations. At March 31, 1996, 2% of the present value of Madison
First's assets was approximately $_________. Because the interest rate risk of a
200 basis point increase in market rates (which was greater than the interest
rate risk of a 200 basis point decrease ) was $_________ at March 31, 1996,
Madison First would not have been required to deduct any dollar amount from its
capital if the OTS' NPV methodology had been effective and if Madison First had
been subject to the OTS' reporting requirements under this methodology.
44
<PAGE>
Net Portfolio Value NPV as % of PV of Assets
Change ------------------------ ------------------------
In Rates $ Amount $ Change % Change NPV Ratio Change
- -------- -------- -------- -------- --------- ------
(Dollars in thousands)
+ 400 bp * $ $ % % bp
+ 300 bp % % bp
+ 200 bp % % bp
+ 100 bp % % bp
0 bp % % bp
- - 100 bp % % bp
- - 200 bp % % bp
- - 300 bp % % bp
- - 400 bp % % bp
- ----------
* Basis points.
As with any method of measuring interest rate risk, certain
shortcomings are inherent in the methods of analysis presented above. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as adjustable-rate loans, have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. Further, in the event of a change in interest rates, expected rates
of prepayments on loans and early withdrawals from certificates could likely
deviate significantly from those assumed in calculating the table.
45
<PAGE>
Average Balances and Interest Rates and Yields
The following tables present at March 31, 1996, and for the three month
periods ended March 31, 1996, and 1995, and the years ended December 31, 1995,
1994 and 1993, the average daily balances, of each category of Madison First's
interest-earning assets and interest-bearing liabilities, and the interest
earned or paid on such amounts.
<TABLE>
<CAPTION>
Three Months Ended March 31,
At March 31, ----------------------------------------------------------------
1996 1996 1995
-------------------- ----------------------------- -----------------------------
Average Average Average Average
Balance Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning deposits
and other........................ $ 7,537 5.16% $ 4,085 $ 43 4.21 $ 1,250 $ 18 5.76%
Investment securities (1).......... 9,959 5.25 12,579 150 4.77 14,010 206 5.88
Mortgage-backed and
related securities............... 9,146 6.13 9,814 149 6.07 11,433 172 6.02
Loans receivable, net (2).......... 57,393 7.71 57,418 1,117 7.78 55,886 1,046 7.49
-------- -------- --------
Total interest-earning assets.... $84,035 7.02 $83,896 $1,459 6.96 $82,579 $1,442 6.98
======== ======== ========
Interest-bearing liabilities:
Deposits........................... $79,254 4.32 $78,123 $ 854 4.37 $76,376 $ 778 4.07
FHLB advances...................... 2,000 5.63 2,402 36 6.00 3,520 47 5.34
-------- -------- --------
Total interest-bearing liabilities $81,254 4.35 $80,525 $ 890 4.42 $79,896 $ 825 4.13
======== ======== ========
Net interest-earning assets........... $ 2,781 $ 3,371 $ 2,683
======== ======== ========
Net interest income................... $ 569 $617
Interest rate spread (3).............. 2.67% 2.54% 2.85%
==== ==== ====
Net yield on weighted average
interest-earning assets (4)........ ---% 2.71% 2.99%
==== ==== ====
Average interest-earning
assets to average interest-bearing
liabilities........................ 103.42% 104.19% 103.36%
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
Year Ended December 31,
-------------------------------------------------------------------------------------------
1995 1994 1993
---------------------------- ---------------------------- ----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ---------- ---------------- ----------
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning deposits and other.. $ 2,610 $ 107 4.10% $ 2,288 $ 112 4.90% $ 3,589 $ 175 4.88%
Investment securities (1)............ 13,925 777 5.58 13,685 713 5.21 8,615 494 5.73
Mortgage-backed and
related securities................. 10,989 670 6.10 12,702 743 5.85 14,681 866 5.90
Loans receivable, net (2)............ 56,916 4,240 7.45 52,708 3,851 7.31 52,719 4,149 7.87
Total interest-earning assets...... $84,440 $5,794 6.86 $81,383 $5,419 6.66 $79,604 $5,684 7.14
Interest-bearing liabilities:
Deposits............................. $76,983 $3,419 4.44 $77,703 $2,842 3.66 $78,053 $3,041 3.90
FHLB advances........................ 2,967 175 5.90 228 12 5.26 22 1 4.55
Total interest-bearing liabilities. $79,950 $3,594 4.50 $77,931 $2,854 3.66 $78,075 $3,042 3.90
Net interest-earning assets............. $ 4,490 $ 3,452 $ 1,529
Net interest income..................... $2,200 $2,565 $2,642
====== ====== ======
Interest rate spread (3)................ 2.36% 3.00% 3.24%
==== ==== ====
Net yield on weighted average
interest-earning assets (4).......... 2.61% 3.15% 3.32%
==== ==== ====
Average interest-earning assets
to average interest-bearing
liabilities.......................... 105.62% 104.43% 101.96%
====== ====== ======
</TABLE>
- ----------
(1) Includes securities available for sale at amortized cost prior to SFAS No.
115 adjustments.
(2) Total loans less loans in process.
(3) Interest rate spread is calculated by subtracting weighted average interest
rate cost from weighted average interest rate yield for the period
indicated.
(4) The net yield on weighted average interest-earning assets is calculated by
dividing net interest income by weighted average interest-earning assets
for the period indicated. No net yield amount is presented at March 31,
1996, because the computation of net yield is applicable only over a period
rather than at a specific date.
46
<PAGE>
Interest Rate Spread
Madison First's results of operations have been determined primarily by net
interest income and, to a lesser extent, fee income, miscellaneous income and
general and administrative expenses. Net interest income is determined by the
interest rate spread between the yields earned on interest-earning assets and
the rates paid on interest-bearing liabilities and by the relative amounts of
interest-earning assets and interest-bearing liabilities.
The following table sets forth the weighted average effective interest rate
earned by Madison First on its loan and investment portfolios, the weighted
average effective cost of Madison First's deposits and advances, the interest
rate spread of Madison First, and the net yield on weighted average
interest-earning assets for the periods and as of the dates shown. Average
balances are based on average daily balances.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
At March 31, ------------------ ----------------------------------
1996 1996 1995 1995 1994 1993
------------ ------ ------ ------ ------ ------
Weighted average interest rate earned on:
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits and other.......... 5.16% 4.21% 5.76% 4.10% 4.90% 4.88%
Investment securities........................ 5.25 4.77 5.88 5.58 5.21 5.73
Mortgage-backed and related securities....... 6.13 6.07 6.02 6.10 5.85 5.90
Loans receivable, net........................ 7.71 7.78 7.49 7.45 7.31 7.87
Total interest-earning assets.............. 7.02 6.96 6.98 6.86 6.66 7.14
Weighted average interest rate cost of:
Deposits..................................... 4.32 4.37 4.07 4.44 3.66 3.90
FHLB advances................................ 5.63 6.00 5.34 5.90 5.26 4.55
Total interest-bearing liabilities......... 4.35 4.42 4.13 4.50 3.66 3.90
Interest rate spread (1)........................ 2.67% 2.54% 2.85% 2.36% 3.00% 3.24%
==== ==== ==== ==== ==== ====
Net yield on weighted average
interest-earning assets (2).................. ---% 2.71% 2.99% 2.61% 3.15% 3.32%
==== ==== ==== ==== ==== ====
</TABLE>
(1) Interest rate spread is calculated by subtracting combined weighted average
interest rate cost from combined weighted average interest rate earned for
the period indicated. Interest rate spread figures must be considered in
light of the relationship between the amounts of interest-earning assets
and interest-bearing liabilities.
(2) The net yield on weighted average interest-earning assets is calculated by
dividing net interest income by weighted average interest-earning assets
for the period indicated. No net yield figure is presented at March 31,
1996 because the computation of net yield is applicable only over a period
rather than at a specific date.
47
<PAGE>
The following table describes the extent to which changes in interest rates
and changes in volume of interest-related assets and liabilities have affected
Madison First's interest income and expense during the periods indicated. For
each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to (1) changes in rate (changes
in rate multiplied by old volume) and (2) changes in volume (changes in volume
multiplied by old rate). Changes attributable to both rate and volume which
cannot be segregated have been allocated proportionally to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
Increase (Decrease) in Net Interest Income
-----------------------------------------------------
Total
Due to Due to Net
Rate Volume Change
-------- --------- -----------
(In thousands)
Three months ended March 31, 1996
compared to three months ended March 31, 1995
Interest-earning assets:
<S> <C> <C> <C>
Interest-earning deposits and other........................ $ (6) $ 31 $ 25
Investment securities...................................... (36) (20) (56)
Mortgage-backed and related securities..................... 2 (25) (23)
Loans receivable, net...................................... 42 29 71
----- ------ ------
Total.................................................... 2 15 17
----- ------ ------
Interest-bearing liabilities:
Deposits................................................... 58 18 76
FHLB advances.............................................. 6 (17) (11)
----- ------ ------
Total.................................................... 64 (1) 65
----- ------ ------
Net change in net interest income............................ $ (62) $ 14 $ (48)
===== ====== ======
Year ended December 31, 1995 compared
to year ended December 31, 1994
Interest-earning assets:
Interest-earning deposits and other........................ $ (16) $ 11 $ (5)
Investment securities...................................... 52 12 64
Mortgage-backed and related securities..................... 32 (105) (73)
Loans receivable, net...................................... 77 312 389
----- ------ ------
Total.................................................... 145 230 375
----- ------ ------
Interest-bearing liabilities:
Deposits................................................... 614 (37) 577
FHLB advances.............................................. 16 147 163
----- ------ ------
Total.................................................... 630 110 740
----- ------ ------
Net change in net interest income............................ $(485) $ 120 $(365)
===== ====== ======
Year ended December 31, 1994 compared
to year ended December 31, 1993
Interest-earning assets:
Interest-earning deposits and other........................ $ 1 $ (64) $ (63)
Investment securities...................................... (20) 239 219
Mortgage-backed and related securities..................... (7) (116) (123)
Loans receivable, net...................................... (297) (1) (298)
----- ------ ------
Total.................................................... (323) 58 (265)
----- ------ ------
Interest-bearing liabilities:
Deposits................................................... (186) (13) (199)
FHLB advances.............................................. 0 11 11
----- ------ ------
Total.................................................... (186) (2) (188)
----- ------ ------
Net change in net interest income............................ $(137) $ 60 $ (77)
===== ====== ======
</TABLE>
48
<PAGE>
Financial Condition at March 31, 1996 Compared to Financial Condition at
December 31, 1995
Madison First's total assets at March 31, 1996 amounted to $88.3 million,
an increase of $1.7 million, or 2.0%, from December 31, 1995. The increase was
funded primarily through growth in the deposit portfolio of $4.0 million, which
was partially offset by a reduction in advances from the FHLB of Indianapolis of
approximately $2.5 million.
Liquid assets (cash and due from banks, certificates of deposit and
investment securities) totaled $18.7 million at March 31, 1996, an increase of
$3.0 million over the total at December 31, 1995. This increase resulted
primarily from the growth in deposits coupled with proceeds from repayments on
loans and mortgage-backed securities during the period.
Loans receivable totaled $57.4 million at March 31, 1996, a decrease of
$552,000, or 1.0%, from December 31, 1995. This decrease resulted primarily from
principal repayments of $3.0 million, which exceeded loan disbursements of $2.5
million. Madison First's allowance for losses on loans totaled $413,000 at March
31, 1996, an increase of $6,000 over the balance at December 31, 1995. The
allowance represented 0.7% of total loans at each of March 31, 1996 and December
31, 1995. Non-performing loans totaled $30,000 and $8,000 at March 31, 1996 and
December 31, 1995, respectively.
Deposits totaled $79.3 million at March 31, 1996, an increase of $4.0
million, or 5.3%, over the total at December 31, 1995. The increase resulted
primarily from management's desire to maintain public deposits and fund the
payoff of FHLB advances.
Advances from the FHLB of Indianapolis totaled $2.0 million at March 31,
1996, a decline of $2.5 million from the balance at December 31, 1995. Advances
were repaid in part with proceeds from the aforementioned growth in deposits.
Financial Condition at December 31, 1995 Compared to Financial Condition at
December 31, 1994
Madison First's total assets amounted to $86.6 million at December 31,
1995, a decrease of $468,000, or 0.5%, from December 31, 1994. The decline in
assets resulted primarily from a reduction in deposits of $225,000, and a
decline in advances from the FHLB of Indianapolis of $515,000, which were
partially offset by an increase in retained earnings of $270,000.
Liquid assets (cash and due from banks, certificates of deposit and
investment securities) totaled $15.7 million at December 31, 1995, which
represented a reduction of $806,000, or 4.9%, from 1994 levels. During 1995,
management elected to fund net deposit outflows and repayments of advances from
the FHLB of Indianapolis with excess liquidity. Mortgage-backed securities
declined by $1.4 million, or 12.5%, to a total of $9.9 million in 1995, as a
result of principal repayments during the year.
Loans receivable totaled $57.9 million at December 31, 1995, an increase of
$1.7 million, or 2.9%, over the 1994 total. The increase resulted primarily from
loan disbursements of $15.6 million in excess of principal repayments of $13.7
million. Madison First's allowance for losses on loans amounted to $407,000 at
December 31, 1995, an increase of $155,000, or 61.5%, over the $252,000 total
maintained as of December 31, 1994. The allowance represented 0.7% and 0.5% of
total loans as of December 31, 1995 and 1994, respectively. The 1995 provision
was heavily influenced by $1.6 million of growth in nonresidential and
multi-family loans during the period. Non-performing loans totaled $8,000 and
$13,000 as of December 31, 1995 and 1994, respectively.
Deposits totaled $75.2 million at December 31, 1995, a decrease of
$225,000, or 0.3%, from the total in 1994. Certificates of deposit increased by
$944,000 during 1995, while transaction and demand accounts declined by
approximately $1.2 million.
Advances from the FHLB of Indianapolis declined by $515,000, or 10.3%,
during 1995 to a total of $4.5 million. Management elected to utilize excess
liquidity to repay such advances in 1995.
49
<PAGE>
Comparison of Operating Results For Three Months Ended March 31, 1996 and 1995
Madison First's net income for the three months ended March 31, 1996
amounted to $64,000, a decline of $82,000, or 56.2%, from the $146,000 in net
income recorded for the three-month period ended March 31, 1995. The decline in
net income resulted primarily from a $48,000 decrease in net interest income, a
$6,000 increase in the provision for losses on loans and a $90,000 increase in
general, administrative and other expenses, which were partially offset by an
increase of $14,000 in other income and a $48,000 decrease in the provision for
income taxes.
Total interest income amounted to $1.5 million for the three month period
ended March 31, 1996, a $17,000, or 1.2%, increase over the comparable 1995
quarter. Interest income on loans totaled $1.1 million in 1996, an increase of
$71,000, or 6.8%, over 1995. The increase resulted primarily from growth of $1.5
million in weighted average balances outstanding, coupled with a 29 basis point
increase in weighted average yield, from 7.49% in 1995 to 7.78% in 1996.
Interest income on mortgage-backed securities decreased by $23,000, or 13.4%,
during the 1996 quarter, as compared to 1995, as a result of a decline of $1.6
million in the weighted average balance outstanding. Interest income on
investment securities and interest-bearing deposits decreased by $31,000, or
13.8%, due primarily to an increase in the weighted average balance outstanding
of approximately $1.6 million, offset by a 130 basis point decline in the
weighted average yield year-to-year.
Interest expense on deposits totaled $854,000 for the three month period
ended March 31, 1996, an increase of $76,000, or 9.8%, over the comparable 1995
period. This increase was due primarily to a $1.7 million increase in the
weighted average balances outstanding, coupled with a 30 basis point increase in
the weighted average cost of deposits, from 4.07% in the 1995 quarter to 4.37%
in the 1996 period. Interest expense on borrowings decreased by $11,000, or
23.4%, due primarily to a $1.5 million decline in the weighted average balances
outstanding, being partially offset by a 66 basis point increase in the average
rate year-to-year.
As a result of the foregoing changes in interest income and interest
expense, net interest income declined by $48,000, or 7.8%, for the three month
period ended March 31, 1996, compared to the comparable period in 1995. The
interest rate spread declined by 35 basis points, from 2.85% in 1995 to 2.50% in
1996, while the net interest margin declined by 28 basis points, from 2.99% in
1995 to 2.71% in 1996.
The provision for losses on loans increased by $6,000 for the three months
ended March 31, 1996, compared to the same period in 1995. The increase was
attributed to growth in Madison First's loan portfolio during the period. While
non-performing loans increased to $30,000 during the 1996 quarter, this level
remains well below the peer group and industry averages as a percentage of loans
outstanding.
Other income totaled $108,000 for the three months ended March 31, 1996, an
increase of $14,000, or 14.9%, over the 1995 quarter. The increase resulted
primarily from an increase in non-recurring bonus insurance commissions recorded
during the 1996 period.
Other expense totaled $553,000 for the three months ended March 31, 1996,
an increase of $90,000, or 19.4%, over the 1995 quarter. The increase resulted
primarily from a $53,000, or 22.0%, increase in employee compensation and
benefits, an $11,000, or 33.3%, increase in occupancy and equipment, a $10,000,
or 16.7%, increase in data processing and a $15,000, or 17.6%, increase in other
operating expense. The increase in employee compensation and benefits was due
primarily to increased staffing levels and normal merit increases.
The provision for income taxes amounted to $54,000 for the three month
period ended March 31, 1996, a decrease of $48,000, or 47.1%, from the provision
recorded in the 1995 period. The decrease resulted primarily from a $130,000
decline in earnings before taxes. The effective tax rates were 45.8% and 4l.l%
for the three-month periods ended March 31, 1996 and 1995, respectively.
Comparison of Operating Results For Fiscal Years Ended December 31, 1995 and
1994
Net income for the year ended December 31, 1995, amounted to $258,000, a
decrease of $378,000, or 59.4%, from the $636,000 in net income recorded in
1994. The decline in net income resulted primarily from a $365,000 decline in
net interest income, a $121,000 increase in the provision for losses on loans,
an $8,000 decline in other income and a $108,000 increase in other expense,
which were partially offset by a decrease of $224,000 in the provision for
income taxes.
Total interest income amounted to $5.8 million for the year ended December
31, 1995, an increase of $375,000, or 6.9%, over 1994. Interest income on loans
totaled $4.2 million, an increase of $389,000 over the 1994 total. This increase
resulted primarily from growth of $4.2 million in the weighted average balance
outstanding, coupled with an increase in the weighted average yield of 14 basis
points to 7.45% in 1995. Interest income on mortgage-backed securities declined
by $73,000, or 9.8%, from the 1994 amount, due to a $1.7 million decline in the
weighted average balance outstanding, which was partially offset by a 25 basis
point increase in yield to 6.10% in 1995. Interest income on investment
securities and interest-bearing deposits increased by $59,000, or 7.2%, over
1994 due to an increase in yield and an increase in the weighted average balance
outstanding.
50
<PAGE>
Interest expense on deposits increased for the year ended December 31,
1995, by $577,000, or 20.3%, to a total of $3.4 million, compared to $2.8
million in 1994. The increase resulted primarily from a 78 basis point increase
in the weighted average cost of deposits from 3.66% in 1994 to 4.44% in 1995.
The increase in cost of deposits was partially offset by a $720,000 decline in
the weighted average balance outstanding year-to-year. Interest expense on
borrowings increased by $163,000 during 1995 to a total of $175,000. This
increase was due primarily to a $2.7 million increase in borrowings outstanding
during 1995, coupled with a 64 basis point increase in the weighted average cost
of borrowings to 5.90% in 1995. The increases in rates paid on Madison First's
deposit and borrowing portfolios generally reflect the increase in interest
rates in the overall economy during 1995.
As a result of the foregoing changes in interest income and interest
expense, net interest income declined during 1995 by $365,000, or 14.2%, to a
total of $2.2 million. The interest rate spread declined by 64 basis points
during 1995 from 3.00% in 1994 to 2.36% in 1995, while the net interest margin
declined by 54 basis points, from 3.15% in 1994 to 2.61% in 1995.
Other income amounted to $362,000 during the year ended December 31, 1995,
a decrease of $8,000, or 2.2%, from 1994 due primarily to a decline in insurance
commissions year-to-year.
Other expense totaled approximately $2.0 million for the year ended
December 31, 1995, an increase of $108,000, or 5.8%, over the amount recorded
for 1994. The increase resulted primarily from a $110,000, or 12.4%, increase in
employee compensation and benefits, a $19,000, or 9.8%, increase in occupancy
and equipment and a $6,000, or 1.8%, increase in other operating expense, which
were partially offset by a $20,000 decrease in the provision for valuation
decline in mortgage-related securities. The increase in employee compensation
and benefits resulted primarily from an increase in staffing levels and normal
merit salary increases, coupled with a reduction in deferred loan origination
costs, as loan origination volume declined by $3.8 million year-to-year. The
increase in occupancy and equipment expense resulted generally from increases in
the cost of equipment maintenance contracts, while the increase in other
operating expense was due to pro-rata increases in various operating costs
year-to-year.
The provision for income taxes totaled $188,000 for the year ended December
31, 1995, a decline of $224,000, or 54.4%, from the 1994 amount. The decline
resulted primarily from a $602,000, or 57.4%, decrease in earnings before taxes.
Madison First's effective tax rates were 42.2% and 39.3% for the years ended
December 31, 1995 and 1994, respectively.
Comparison of Operating Results For Fiscal Years Ended December 31, 1994 and
1993
Net income for the year ended December 31, 1994, totaled $636,000, a
decrease of $82,000, or 11.4%, from the $718,000 in net earnings recorded in
1993. The decline in net income resulted primarily from a $77,000 decrease in
net interest income and a $56,000 increase in general, administrative and other
expense, which were partially offset by a $26,000 decrease in the provision for
losses on loans and a $44,000 decrease in the provision for income taxes.
Total interest income amounted to $5.4 million for the year ended December
31, 1994, a decrease of $265,000, or 4.7%, from 1993. Interest income on loans
totaled $3.9 million, a decline of $298,000, or 7.2%, from the 1993 total. The
decrease resulted from a decline in the average yield of 56 basis points, to
7.31% in 1994 from 7.87% in 1993, as the weighted average outstanding balance
remained constant year-to-year at $52.7 million. Interest income on
mortgage-backed securities decreased by $123,000, or 14.2%, due primarily to a
decline in the average balance outstanding of approximately $2.0 million, as the
weighted average yield remained relatively unchanged over the period. Interest
income on investment securities and interest-bearing deposits increased by
$156,000, or 23.3%, due to a $3.8 million increase in the weighted average
balance outstanding year-to-year.
Interest expense on deposits declined by $199,000, or 6.5%, during the year
ended December 31, 1994, to a total of $2.8 million, compared to $3.0 million
for 1993. The decrease resulted primarily from a 24 basis point decline in the
weighted average cost of deposits, from 3.90% in 1993, to 3.66% in 1994.
As a result of the foregoing changes in interest income and interest
expense, net interest income decreased by $77,000, or 2.9%, to a total of $2.6
million for the year ended December 31, 1994. The interest rate spread decreased
by 24 basis points, to 3.00% in 1994 from 3.24% in 1993. The net interest margin
decreased by 17 basis points during the period, from 3.32% in 1993 to 3.15% in
1994.
The provision for losses on loans totaled $29,000 for the year ended
December 31, 1994, a decrease of $26,000, or 47.3%, from 1993. The decline in
the provision for 1994 resulted primarily from the decline in net charge-offs,
which totaled $90,000 in 1993 compared to $4,000 in 1994.
Other income totaled $370,000 for the year ended December 31, 1994, an
increase of $6,000, or 1.6%, over the amount recorded for 1993. The increase
resulted primarily from an increase in service fees and other charges on loans
and deposits.
51
<PAGE>
Other expense totaled $1.9 million for the year ended December 31, 1994, an
increase of $56,000, or 3.1%, over the 1993 total. The increase resulted
primarily from a $19,000, or 2.2%, increase in employee compensation and
benefits and a $61,000, or 52.1%, increase in federal deposit insurance
premiums, which were partially offset by a $19,000, or 9.0%, decrease in
occupancy and equipment expense and a $10,000 decline in the provision for
valuation decline on mortgage-related securities. The increase in employee
compensation and benefits was due primarily to normal merit increases and a
decline in deferred loan origination costs attendant to a $4.7 million decline
in loan origination volume. The increase in federal deposit insurance premiums
resulted primarily from the recognition of a credit of $58,000 related to the
FSLIC Secondary Reserve deposit taken in the prior year.
The provision for income taxes totaled $412,000 for the year ended December
31, 1994, a decrease of $19,000, or 4.4%, from the amount recorded in 1993,
after giving effect to the $25,000 cumulative effect recognized in 1993 for
adoption of SFAS No. 109. The decline resulted primarily from a $101,000, or
8.8%, decline in earnings before taxes. Madison First's effective tax rates were
39.3% and 39.7% for the years ended December 31, 1994 and 1993, respectively.
Liquidity and Capital Resources
Madison First's primary sources of funds are deposits, borrowings, proceeds
from principal and interest payments on loans and proceeds from maturing
securities. While maturities and scheduled amortization of loans are a
predictable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions, and competition.
The primary investing activity of Madison First is the origination of
loans. During the years ended December 31, 1995, 1994 and 1993, Madison First
originated total loans in the amounts of $15.6 million, $19.4 million and $24.1
million, respectively. Loan principal repayments totaled $13.7 million, $15.0
million and $25.7 million during the respective periods.
During the three-month periods ended March 31, 1996 and 1995, Madison First
originated loans of $2.5 million and $2.7 million, respectively. Loan principal
repayments totaled $3.0 million and $2.6 million, respectively, during these
periods.
During the years ended December 31, 1994 and 1993, Madison First purchased
securities (including mortgage-backed securities) in the amounts of $4.6 and
$12.4 million, respectively. Maturities and repayments of securities were $2.4
million in 1995, $2.6 million in 1994 and $7.9 million in 1993.
Madison First had outstanding loan commitments of $594,000 and unused lines
of credit of $186,000 at March 31, 1996. Madison First anticipates that it will
have sufficient funds from loan repayments to meet its current commitments
without having to borrow additional funds from the FHLB of Indianapolis.
Certificates of deposit scheduled to mature in one year or less at March 31,
1996 totaled $35.0 million. Management believes that a significant portion of
such deposits will remain with Madison First based upon historical deposit flow
data and Madison First's competitive pricing in its market area.
Liquidity management is both a daily and long-term function of Madison
First's management strategy. In the event that Madison First should require
funds beyond its ability to generate them internally, additional funds are
available through the use of FHLB advances and through sales of securities. FHLB
advances were $2.0 million at March 31, 1996.
The following is a summary of cash flows for Madison First, which are of
three major types. Cash flows from operating activities consist primarily of net
income generated by cash. Investing activities generate cash flows through the
origination and principal collection on loans as well as purchases and sales of
securities. Investing activities will generally result in negative cash flows
when Madison First is experiencing loan growth. Cash flows from financing
activities include savings deposits, withdrawals and maturities and changes in
borrowings. The following table summarizes cash flows for each of the
three-month periods ended March 31, 1996 and 1995 and each of the three years in
the three-year period ended December 31, 1995.
52
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------- --------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating activities.................... $ 375 $ 308 $ 459 $ 774 $ 862
Investing activities:
Investment purchases................. --- --- --- (4,592) (8,499)
Investment maturities/sales.......... 3,000 101 1,101 --- 4,500
Mortgage-backed
securities purchases............... --- --- --- --- (3,918)
Mortgage-backed
securities repayments.............. 768 299 1,417 2,576 3,399
Changes in loans..................... 539 (152) (1,892) (4,446) 1,562
Other................................ (94) (21) (22) (108) (400)
Financing activities:
Deposit increase/(decrease).......... 4,021 1,613 (224) (2,624) 1,393
Borrowings increase/ (decrease)...... (2,471) (2,932) (515) 4,986 ---
Other................................ 30 29 (1) (3) 2
------ -------- -------- ------- -------
Net increase/(decrease) in cash
and cash equivalents................. $6,168 $ (755) $ 323 $(3,437) $(1,099)
====== ======== ======== ======= =======
</TABLE>
Federal regulations require FHLB-member savings associations to maintain an
average daily balance of liquid assets equal to a monthly average of not less
than a specified percentage of its net withdrawable savings deposits plus
short-term borrowings. Liquid assets include cash, certain time deposits,
certain bankers' acceptances, specified U.S. government, state or federal agency
obligations, certain corporate debt securities, commercial paper, certain mutual
funds, certain mortgage-related securities, and certain first lien residential
mortgage loans. This liquidity requirement may be changed from time-to-time by
the OTS to any amount within the range of 4% to 10%, and is currently 5%. Also,
a savings association currently must maintain short-term liquid assets
constituting at least 1% of its average daily balance of net withdrawable
deposit accounts and current borrowings. Monetary penalties may be imposed for
failure to meet these liquidity requirements. As of March 31, 1996, Madison
First had liquid assets of $28 million, and a regulatory liquidity ratio of
33.5%, of which 10.6% constituted short-term investments.
Pursuant to OTS capital regulations, savings associations must currently
meet a 1.5% tangible capital requirement, a 3% leverage ratio (or core capital)
requirement, and a total risk-based capital to risk-weighted assets ratio of 8%.
At March 31, 1996, Madison First's tangible capital ratio was 7.3%, its core
capital ratio was 7.3%, and its risk-based capital to risk-weighted assets ratio
was 16.3%. Therefore, at March 31, 1996, Madison First's capital exceeded all of
its capital requirements currently in effect. The following table provides the
minimum regulatory capital requirements and Madison First's capital ratios as of
March 31, 1996:
<TABLE>
<CAPTION>
At March 31, 1996
OTS Requirement Madison First's Capital Level
------------------------ ---------------------------------------------
% of % of Amount
Capital Standard Assets Amount Assets(1) Amount of Excess
- ---------------- ------ ------ --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible capital............................ 1.5% $1,325 7.3% $6,479 $5,154
Core capital (2)............................ 3.0 2,650 7.3 6,479 3,829
Risk-based capital.......................... 8.0 3,385 16.3 6,885 (3) 3,500
</TABLE>
(1) Tangible and core capital levels are shown as a percentage of total assets;
risk-based capital levels are shown as a percentage of risk-weighted
assets.
(2) The OTS has proposed and is expected to adopt a core capital requirement
for savings associations comparable to that recently adopted by the OCC for
national banks. The new regulation, as proposed, would require at least 3%
of total adjusted assets for savings associations that received the highest
supervisory rating for safety and soundness, and 4% to 5% for all other
savings associations. The final form of such new OTS core capital
requirement may differ from that which has been proposed. Madison First
expects to be in compliance with such new requirements. See "Regulation --
Regulatory Capital."
(3) Madison First's risk-based capital includes $406,000 of general valuation
allowances.
For definitions of tangible capital, core capital and risk-based capital,
see "Regulation -- Savings Association Regulatory Capital."
53
<PAGE>
As of March 31, 1996, except for proposed legislation relating to the
BIF/SAIF disparity in deposit insurance premiums, management is not aware of any
current recommendations by regulatory authorities which, if they were to be
implemented, would have, or are reasonably likely to have, a material adverse
effect on Madison First's liquidity, capital resources or results of operations.
Current Accounting Issues
In June, 1993, the Financial Accounting Standards Board (the "FASB")
adopted Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan." SFAS No. 114, which is
effective for fiscal years beginning after December 15, 1994, requires that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or fair value of the
collateral. Madison First's loans which might be affected are
collateral-dependent, and Madison First's current procedures for evaluating
impaired loans result in carrying such loans at the lower of cost or fair value.
Management adopted SFAS No. 114 on January 1, 1995, without a significant
detrimental effect on Madison First's overall consolidated financial position or
results of operations.
In May, 1995, the FASB issued SFAS No. 122 "Accounting for Mortgage
Servicing Rights," which requires that Madison First recognize as separate
assets, rights to service mortgage loans for others, regardless of how those
servicing rights are acquired. An institution that acquires mortgage servicing
rights through either the purchase or origination of mortgage loans and sells
those loans with servicing rights retained would allocate some of the cost of
the loans to the mortgage servicing rights.
SFAS No. 122 requires that securitizations of mortgage loans be accounted
for as sales of mortgage loans and acquisitions of mortgage-backed securities.
Additionally, SFAS No. 122 requires that capitalized mortgage servicing rights
and capitalized excess servicing rights be assessed for impairment. Impairment
is measured based on value.
SFAS No. 122 was effective for years beginning after December 15, 1995,
(January 1, 1996, as to Madison First) for transactions in which an entity
acquires mortgage servicing rights and to impairment evaluations of all
capitalized mortgage servicing rights and capitalized excess servicing
receivables whenever acquired. Retroactive application is prohibited, and
earlier adoption is encouraged. Currently, Madison First does not sell any
loans; therefore, the provisions of SFAS No. 122 were adopted without material
effect.
In October, 1995, the FASB issued SFAS No. 123 entitled "Accounting for
Stock-Based Compensation." SFAS No. 123 establishes a fair value based method of
accounting and disclosing the amount of stock-based compensation paid to
employees. SFAS No. 123 recognizes the fair value of an award of stock or stock
options on the grant date and is required to be adopted by 1996, although
earlier application is permitted. The disclosure provisions of SFAS No. 123 will
be adopted by management upon completion of the Conversion. Management does not
believe that adoption of SFAS No. 123 disclosure provisions will have a material
adverse effect on Madison First's consolidated financial position or results of
operations.
Impact of Inflation
The consolidated financial statements presented herein have been
prepared in accordance with generally accepted accounting principles. These
principles require the measurement of financial position and operating results
in terms of historical dollars, without considering changes in the relative
purchasing power of money over time due to inflation.
The primary assets and liabilities of financial institutions such as
Madison First are monetary in nature. As a result, interest rates have a more
significant impact on Madison First's performance than the effects of general
levels of inflation. Interest rates, however, do not necessarily move in the
same direction or with the same magnitude as the price of goods and services,
since such prices are affected by inflation. In a period of rapidly rising
interest rates, the liquidity and maturities structures of Madison First's
assets and liabilities are critical to the maintenance of acceptable performance
levels.
The principal effect of inflation, as distinct from levels of interest
rates, on earnings is in the area of noninterest expense. Such expense items as
employee compensation, employee benefits and occupancy and equipment costs may
be subject to increases as a result of inflation. An additional effect of
inflation is the possible increase in the dollar value of the collateral
securing loans made by Madison First. Madison First is unable to determine the
extent, if any, to which properties securing Madison First's loans have
appreciated in dollar value due to inflation.
54
<PAGE>
BUSINESS OF MADISON FIRST
General
Madison First was organized as a federally chartered savings and loan
association in 1875 and conducts its business from three full-service offices
and one stand-alone drive-through branch all located in Jefferson County.
Madison First's principal business consists of attracting deposits from the
general public and originating fixed-rate and adjustable-rate loans secured
primarily by first mortgage liens on one- to four-family real estate. Madison
First's deposit accounts are insured up to applicable limits by the SAIF of the
FDIC.
Madison First is the oldest independent financial institution headquartered
in Jefferson County, Indiana. Management believes Madison First has developed a
solid reputation among its loyal customer base because of its commitment to
personal service and its strong support of the local community. Madison First
offers a number of consumer and commercial financial services. These services
include: (i) residential real estate loans; (ii) indemnification mortgage loans;
(iii) construction loans; (iv) loans secured by deposits; (v) nonresidential
real estate loans; (vi) multi-family loans; (vii) land loans; (viii) installment
loans; (ix) automobile loans; (x) home equity loans; (xi) second mortgage loans;
(xii) NOW accounts; (xiii) money market demand accounts ("MMDAs") (xiv) passbook
savings accounts; (xv) certificates of deposit and (xvi) individual retirement
accounts.
Lending Activities
Madison First historically has concentrated its lending activities on the
origination of loans secured by first mortgage liens for the purchase,
construction or refinancing of one- to four-family residential real property.
One- to four-family residential mortgage loans continue to be the major focus of
Madison First's loan origination activities, representing 76.2% of Madison
First's total loan portfolio at March 31, 1996. Madison First also offers
multi-family mortgage loans, nonresidential real estate loans, land loans,
construction loans and consumer loans. Mortgage loans secured by multi-family
properties and nonresidential real estate totaled approximately 2.7% and 10.2%,
respectively, of Madison First's total loan portfolio at March 31, 1996. Land
loans totaled approximately 1.3% of Madison First's total loan portfolio at the
same date. Construction loans totaled approximately 3.7% of Madison First's
total loans as of March 31, 1996. Consumer loans constituted approximately 5.9%
of Madison First's total loan portfolio at March 31, 1996.
Loan Portfolio Data. The following table sets forth the composition of
Madison First's loan portfolio by loan type as of the dates indicated, including
a reconciliation of gross loans receivable after consideration of the allowance
for loan losses, deferred loan origination costs and loans in process.
<TABLE>
<CAPTION>
At December 31,
At March 31, --------------------------------------------------------------
1996 1995 1994 1993
------------------ ------------------ ------------------ ------------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ --------
TYPE OF LOAN (Unaudited) (Dollars in thousands)
Residential real estate:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to four-family..................... $44,492 76.2% $44,417 74.7% $46,378 81.5% $45,206 86.3%
Multi-family........................... 1,597 2.7 1,613 2.7 1,242 2.2 912 1.7
Construction........................... 2,132 3.7 2,489 4.2 748 1.3 809 1.5
Nonresidential real estate................ 5,983 10.2 6,005 10.1 4,740 8.3 2,945 5.6
Land loans................................ 735 1.3 1,558 2.6 1,034 1.8 91 0.2
Consumer loans:
Automobile loans....................... 1,351 2.3 1,392 2.3 1,022 1.8 978 1.9
Loans secured by deposits.............. 668 1.1 590 1.0 527 0.9 591 1.1
Home improvement loans................. 267 0.5 295 0.5 270 0.5 171 0.3
Other.................................. 1,173 2.0 1,129 1.9 977 1.7 717 1.4
------- ---- ------- ---- ------- ---- ------- ----
Gross loans receivable.................... 58,398 100.0 59,488 100.0 56,938 100.0 52,420 100.0
Add/(Deduct):
Deferred loan orgination costs......... 226 0.4 234 0.4 243 0.4 236 0.4
Undisbursed portions
of loans in process.................. (818) (1.4) (1,370) (2.3) (642) (1.1) (459) (0.9)
Allowance for loan losses.............. (413) (0.7) (407) (0.7) (252) (0.4) (227) (0.4)
------- ---- ------- ---- ------- ---- ------- ----
Net loans receivable...................... $57,393 98.3% $57,945 97.4% $56,287 98.9% $51,970 99.1%
======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
55
<PAGE>
The following table sets forth certain information at December 31, 1995,
regarding the dollar amount of loans maturing in Madison First's loan portfolio
based on the contractual terms to maturity. Demand loans having no stated
schedule of repayments and no stated maturity and overdrafts are reported as due
in one year or less. This schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses. Management expects
prepayments will cause actual maturities to be shorter.
<TABLE>
<CAPTION>
Due During Years Ended December 31,
Balance ------------------------------------------------------------------------
Outstanding at 1999 2001 2006 2011
December 31, to to to and
1995 1996 1997 1998 2000 2005 2010 following
-------------- ---- ---- ---- ---- ---- ---- ---------
(In thousands)
Residential real estate loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to four-family................. $44,417 $ 526 $144 $ 339 $ 725 $ 710 $18,536 $23,437
Multi-family.......................... 1,613 --- --- 3 11 146 668 785
Construction....................... 2,489 800 --- --- --- --- 919 770
Nonresidential
real estate loans.................. 6,005 3 4 37 85 1,663 3,203 1,010
Land loans ......................... 1,558 800 7 9 546 98 98 ---
Consumer loans:
Loans secured by deposits.......... 590 482 25 29 20 32 2 ---
Other loans........................ 2,816 267 336 501 1,670 42 --- ---
------- ------ ---- ----- ------- ------- -------- -------
Total............................ $59,488 $2,878 $516 $ 918 $ 3,057 $ 2,691 $ 23,426 $26,002
======= ====== ==== ===== ======= ======= ======== =======
</TABLE>
The following table sets forth, as of December 31, 1995, the dollar amount
of all loans due after one year that have fixed interest rates and floating or
adjustable interest rates.
<TABLE>
<CAPTION>
Due After December 31, 1996
---------------------------------------------------------------
Fixed Rates Variable Rates Total
----------- -------------- ---------
(In thousands)
Residential real estate loans:
<S> <C> <C> <C>
One-to four-family................................ $14,298 $29,592 $43,890
Multi-family...................................... --- 1,613 1,613
Construction...................................... 680 1,009 1,689
Non-residential
real estate loans................................. 41 5,961 6,002
Land loans ........................................ 14 745 759
Consumer loans:
Loans secured by deposits......................... --- 108 108
Other loans....................................... 2,549 --- 2,549
------- ------- -------
Total........................................... $17,582 $39,028 $56,610
======= ======= =======
</TABLE>
Residential Loans. Residential loans consist primarily of one- to
four-family loans. Approximately $44.5 million, or 76.2% of Madison First's
portfolio of loans at March 31, 1996, consisted of one- to four-family
residential loans, of which approximately 73% had adjustable rates. Pursuant to
federal regulations, such loans must require at least semi-annual payments and
be for a term of not more than 40 years, and, if the interest rate is
adjustable, it must be correlated with changes in a readily verifiable index.
Madison First currently offers adjustable-rate one- to four-family
residential mortgage loans ("ARMs") which adjust annually and are indexed to the
one-year U.S. Treasury securities yields adjusted to a constant maturity,
although until late 1995 Madison First's ARMs were indexed to the 11th District
Cost of Funds. Madison First's ARMs have a current margin above such index of
2.5% for owner-occupied properties and 3.75% for non-owner-occupied properties.
A substantial portion of the ARMs in Madison First's portfolio at March 31, 1996
provide for maximum rate adjustments per year and over the life of the loan of
1% and 5%, respectively, although Madison First recently began originating
residential ARMs which provide for maximum rate adjustments per year and over
the life of the loan of 1.5% and 6%, respectively. Madison First's residential
ARMs are amortized for terms up to 30 years.
56
<PAGE>
Adjustable-rate loans decrease the risk associated with changes in interest
rates but involve other risks, primarily because as interest rates rise, the
payments by the borrowers may rise to the extent permitted by the terms of the
loan, thereby increasing the potential for default. Also, adjustable-rate loans
have features which restrict changes in interest rates on a short-term basis and
over the life of the loan. At the same time, the market value of the underlying
property may be adversely affected by higher interest rates.
Madison First also currently offers fixed-rate one- to four-family
residential mortgage loans which provide for the payment of principal and
interest over periods of 10 to 20 years. Historically, Madison First has
retained all of its fixed-rate residential mortgage loans in its portfolio;
however, Madison First anticipates beginning to originate its fixed-rate
residential mortgage loans with terms of 15 years and greater for sale to the
Federal Home Loan Mortgage Corporation (the "FHLMC") on a servicing-retained
basis during the second quarter of 1996. See "-- Origination, Purchase and Sale
of Loans." At March 31, 1996, 27% of Madison First's residential mortgage loans
had fixed rates.
Madison First does not currently originate residential mortgage loans if
the ratio of the loan amount to the lesser of the current cost or appraised
value of the property (i.e., the "Loan-to-Value Ratio") exceeds 95%. Madison
First generally requires private mortgage insurance on all conventional one- to
four-family residential real estate mortgage loans with Loan-to-Value Ratios of
in excess of 80%. The cost of such insurance is factored into the APY on such
loans, and is not automatically eliminated when the principal balance is reduced
over the term of the loan.
Substantially all of the one- to four-family residential mortgage loans
that Madison First originates include "due-on-sale" clauses, which give Madison
First the right to declare a loan immediately due and payable in the event that,
among other things, the borrower sells or otherwise disposes of the real
property subject to the mortgage and the loan is not repaid. However, Madison
First does permit assumptions of existing residential mortgage loans on a
case-by-case basis.
Madison First's residential mortgage loans historically have not been
originated on terms and conditions and using documentation that conform with the
standard underwriting criteria required to sell such loans on the secondary
market. However, Madison First has been approved to originate and sell its
residential mortgage loans to the FHLMC, and anticipates beginning to originate
its fixed-rate residential mortgage loans with terms of 15 years and greater for
sale to the FHLMC on a servicing-retained basis during the second quarter of
1996. See "-- Origination, Purchase and Sale of Loans."
Madison First also offers indemnification mortgage loans ("ID Mortgage
Loans"), which are typically written as fixed-rate second mortgage loans.
Madison First's ID Mortgage Loans are written for terms of 5 years and generally
have maximum Loan-to-Value Ratios of 80%.
Madison First also offers standard second mortgage loans. Madison First's
second mortgage loans are adjustable-rate loans tied to the U.S. Treasury
securities yields adjusted to a constant maturity and have a current margin
above such index of 4.25%. If another institution holds the first mortgage, the
initial interest rate on the second mortgage loan is set 50 basis points higher.
Madison First's second mortgage loans have maximum rate adjustments per year and
over the terms of the loans equal to 1.5% and 6%, respectively. Madison First's
second mortgage loans have terms of 10 to 20 years.
At March 31, 1996, one- to four-family residential mortgage loans amounting
to $23,000, or .04% of total loans, were included in non-performing assets. See
"-- Non-Performing and Problem Assets."
Construction Loans. Madison First offers construction loans with respect to
residential and nonresidential real estate and, in certain cases, to builders or
developers constructing such properties on a speculative basis (i.e., before the
builder/developer obtains a commitment from a buyer). At March 31, 1996,
approximately $2.1 million, or 3.7% of Madison First's total loan portfolio,
consisted of construction loans. The largest construction loan at March 31,
1996, totalling $800,000, constituted a loan to a church in Madison, Indiana. No
construction loans were included in non-performing assets on that date.
Generally, construction loans are written as 12 month fixed-rate loans with
interest calculated on the amount disbursed under the loan and payable on a
semi-annual basis. Madison First generally requires an 80% Loan-to-Value Ratio
for its construction loans. Inspections are made prior to any disbursement under
a construction loan, and Madison First does not charge commitment fees for its
construction loans.
While providing Madison First with a comparable, and in some cases higher,
yield than a conventional mortgage loan, construction loans involve a higher
level of risk. For example, if a project is not completed and the borrower
defaults, Madison First may have to hire another contractor to complete the
project at a higher cost. Also, a project may be completed, but may not be
salable, resulting in the borrower defaulting and Madison First taking title to
the project.
57
<PAGE>
Nonresidential Real Estate Loans. At March 31, 1996, approximately $6.0
million, or 10.2% of Madison First's total loan portfolio, consisted of
nonresidential real estate loans. Of these loans, approximately $320,000
constituted participations in loans secured by nonresidential real estate which
were purchased from other financial institutions. See "-- Origination, Purchase
and Sale of Loans." The nonresidential real estate loans included in Madison
First's portfolio are primarily secured by real estate such as churches and
small business properties. Madison First generally originates nonresidential
real estate loans as one-year adjustable-rate loans indexed to the one-year U.S.
Treasury securities yields adjusted to a constant maturity and are written for
maximum terms of 20 years and with maximum Loan-to-Value Ratios of 80%. Madison
First's nonresidential real estate loans have a margin above such index of
4.25%, and maximum adjustments per year and over the life of the loan of 1.5%
and 6%, respectively. Madison First underwrites these loans on a case-by-case
basis and, in addition to its normal underwriting criteria, Madison First
evaluates the borrower's ability to service the debt from the net operating
income of the property. The largest nonresidential real estate loan as of March
31, 1996 was $825,000 and was secured by a storage facility in Clarksville,
Indiana. On the same date, there were no nonresidential real estate loans
included in non-performing assets.
Loans secured by nonresidential real estate generally are larger than one-
to four-family residential loans and involve a greater degree of risk.
Nonresidential real estate loans often involve large loan balances to single
borrowers or groups of related borrowers. Payments on these loans depend to a
large degree on results of operations and management of the properties and may
be affected to a greater extent by adverse conditions in the real estate market
or the economy in general. Accordingly, the nature of the loans makes them more
difficult for management to monitor and evaluate.
Multi-Family Loans. At March 31, 1996, approximately $1.6 million, or 2.7%
of Madison First's total loan portfolio, consisted of mortgage loans secured by
multi-family dwellings (those consisting of more than four units). Madison
First's multi-family loans are written on terms and conditions similar to
Madison First's nonresidential real estate loans. The largest multi-family loan
as of March 31, 1996 was $729,000 and was secured by an apartment building in
Lawrenceburg, Indiana. On the same date, there were no multi-family loans
included in non-performing assets.
Multi-family loans, like nonresidential real estate loans, involve a
greater risk than do residential loans. See "-- Nonresidential Real Estate
Loans" above. Also, the loans-to-one borrowers limitation limits the ability of
Madison First to make loans to developers of apartment complexes and other
multi-family units.
Land Loans. At March 31, 1996, approximately $735,000, or 1.3% of Madison
First's total loan portfolio, consisted of mortgage loans secured by undeveloped
real estate. Madison First's land loans are generally written on terms and
conditions similar to Madison First's nonresidential real estate loans. Some of
Madison First's land loans are land development loans; i.e., the proceeds of the
loans are used for improvements to the real estate such as streets and sewers.
At March 31, 1996, Madison First's largest land loan totalled $432,000.
While none of Madison First's land development loans were included in
non-performing assets as of March 31, 1996, such loans are more risky than
conventional loans since land development borrowers who are over budget may
divert the loan funds to cover cost-overruns rather than direct them toward the
purpose for which such loans were made. In addition, those loans are more
difficult to monitor than conventional mortgage loans. As such, a defaulting
borrower could cause Madison First to take title to partially improved land that
is unmarketable without further capital investment.
Consumer Loans. Federal laws and regulations permit federally chartered
savings associations to make secured and unsecured consumer loans in an
aggregate amount of up to 35% of the association's total assets. In addition, a
federally chartered savings association has lending authority above the 35%
limit for certain consumer loans, such as property improvement loans and deposit
account loans. However, the Qualified Thrift Lender test places additional
limitations on a savings association's ability to make consumer loans. See
"Regulation -- Qualified Thrift Lender."
Madison First's consumer loans, consisting primarily of auto loans, home
improvement loans and loans secured by deposits, aggregated approximately $3.5
million at March 31, 1996, or 5.9% of Madison First's total loan portfolio.
Madison First consistently originates consumer loans to meet the needs of its
customers and to assist in meeting its asset/liability management goals. All of
Madison First's consumer loans, except loans secured by deposits, are fixed-rate
loans with terms that vary from six months (for unsecured installment loans) to
60 months (for home improvement loans and loans secured by new automobiles).
Madison First does not make indirect automobile loans. At March 31, 1996, 85% of
Madison First's consumer loans were secured by collateral.
58
<PAGE>
Madison First's loans secured by deposits are made up to 90% of the
original account balance and accrue at a rate of 2% over the underlying passbook
or certificate of deposit rate. Interest on loans secured by deposits is paid
semi-annually.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans which are unsecured or are secured by
rapidly depreciable assets, such as automobiles. Further, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. At March 31, 1996, consumer loans amounting to $7,000 were included
in non-performing assets. See "-- Non-Performing and Problem Assets." There can
be no assurances, however, that additional delinquencies will not occur in the
future.
Home Equity Loans. In May, 1996, Madison First began offering a new home
equity line of credit. This line of credit is written with a fixed rate of 1%
below the prime rate for the first year. Thereafter, the line is an
adjustable-rate line of credit tied to the prime rate with a margin of positive
1%. Madison First's home equity loans have interest rate minimums of 7.5% and
interest rate maximums of 18%. Madison First's home equity loans are amortized
based on a 20 year maturity and are generally not written in principal amounts
of less than $5,000. Madison First generally requires an 80% Loan-to-Value Ratio
for its home equity loans (taking into account any other mortgages on the
property).
Madison First's previous home equity line of credit was an adjustable-rate
line of credit tied to the prime rate with varying margins up to 3%, depending
on the amount committed under the line of credit. These lines of credit had
interest rate minimums of 8.5% and interest rate maximums of 18%. Madison
First's previous home equity lines were not written in amounts less than $5,000.
At March 31, 1996, Madison First had approved approximately $453,000 of
home equity loans, of which approximately $267,000 were outstanding. No home
equity loans were included in non-performing assets on that date.
Origination, Purchase and Sale of Loans. Madison First historically has
originated its mortgage loans pursuant to its own underwriting standards which
were not in conformity with the standard criteria of the FHLMC or Federal
National Mortgage Association ("FNMA"). If it desired to sell its mortgage
loans, Madison First might therefore experience some difficulty selling such
loans quickly in the secondary market. Madison First's ARMs vary from secondary
market criteria because, among other things, Madison First does not require
current property surveys in most cases and does not permit the conversion of
those loans to fixed rate loans in the first three years of their term.
Madison First recently was approved to begin originating fixed-rate
residential mortgage loans for sale to the FHLMC on a servicing-retained basis.
Madison First anticipates beginning this fixed-rate program during the second
quarter of 1996. Loans originated for sale to the FHLMC in the secondary market
will be originated in accordance with the guidelines established by the FHLMC
and will be sold promptly after they are originated. Madison First will receive
a servicing fee of one-fourth of 1% of the principal balance of all loans
serviced.
Madison First confines its loan origination activities primarily to
Jefferson County. At March 31, 1996, loans totalling approximately $2.8 million
were secured by property located outside of Indiana. Madison First's loan
originations are generated from referrals from existing customers, real estate
brokers, and newspaper and periodical advertising. Loan applications are
underwritten at any of Madison First's three full-service offices and are
processed at Madison First's downtown office.
Madison First's loan approval process is intended to assess the borrower's
ability to repay the loan, the viability of the loan and the adequacy of the
value of the property that will secure the loan. To assess the borrower's
ability to repay, Madison First studies the employment and credit history and
information on the historical and projected income and expenses of its
mortgagors. All mortgage loans are approved by Madison First's Loan Committee.
Consumer loans up to $15,000 may be approved by a Loan Officer. Consumer loans
for more than $15,000 must be approved by the President.
Madison First generally requires appraisals on all real property securing
its loans and requires an attorney's opinion and a valid lien on its mortgaged
real estate. Appraisals for all real property securing mortgage loans are
performed by independent appraisers who are state-licensed. Madison First
requires fire and extended coverage insurance in amounts at least equal to the
principal amount of the loan and also requires flood insurance to protect the
property securing its interest if the property is in a flood plain. Madison
First also generally requires private mortgage insurance for all residential
mortgage loans with Loan-to-Value Ratios of greater than 80%. Madison First does
not require escrow accounts for insurance premiums or taxes.
59
<PAGE>
Madison First's underwriting standards for consumer loans are intended to
protect against some of the risks inherent in making consumer loans. Borrower
character, paying habits and financial strengths are important considerations.
Madison First occasionally purchases participations in commercial loans,
nonresidential real estate and multi-family loans from other financial
institutions. At March 31, 1996, Madison First held in its loan portfolio
participations in nonresidential real estate mortgage loans aggregating
approximately $320,000 that it had purchased, all of which were serviced by
others. Madison First generally does not sell participations in any loans that
it originates.
The following table shows loan origination and repayment activity for
Madison First during the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------- ----------------------------------------------
1996 1995 1995 1994 1993
------ ------ --------- -------- -------
(In thousands)
Loans Originated:
<S> <C> <C> <C> <C> <C>
Residential real estate loans................. $1,476 $1,758 $ 8,023 $12,097 $20,284
Multi-family loans............................ --- --- --- 758 57
Construction loans............................ 260 395 3,027 2,415 1,046
Non-residential real estate loans............. 55 124 1,805 1,031 1,211
Land loans.................................... 98 --- 333 981 91
Consumer loans................................ 608 469 2,412 2,137 1,419
------ ------- -------- -------- --------
Total originations........................ 2,497 2,746 15,600 19,419 24,108
Reductions:
Principal loan repayments..................... 3,036 2,594 13,708 14,973 25,670
Transfers from loans to real estate owned..... --- --- --- 15 35
------ ------- -------- -------- --------
Total reductions.......................... 3,036 2,594 13,708 14,988 25,705
Decrease in other items (1)................... (13) (2) (234) (114) (118)
------ ------- -------- -------- --------
Net increase (decrease) ...................... $ (552) $ 150 $ 1,658 $ 4,317 $ (1,715)
====== ======= ======== ======== ========
</TABLE>
(1) Other items consist of amortization of deferred loan origination costs and
the provision for losses on loans.
Origination and Other Fees. Madison First realizes income from late
charges, checking account service charges, and fees for other miscellaneous
services. Madison First does not currently charge any origination fees or points
on its loans. Late charges are generally assessed if payment is not received
within a specified number of days after it is due. The grace period depends on
the individual loan documents.
Non-Performing and Problem Assets
Mortgage loans are reviewed by Madison First on a regular basis and are
placed on a non-accrual status when management determines that the
collectability of the interest is less than probable or collection of any amount
of principal is in doubt. Generally, when loans are placed on non-accrual
status, unpaid accrued interest is written off, and further income is recognized
only to the extent received. Delinquency notices are sent with respect to all
mortgage loans contractually past due 15 days. When loans are 45 days in
default, additional delinquency notices are sent and personal contact is made
with the borrowers to establish acceptable repayment schedules. When loans are
60 days in default, contact is again made with the borrowers to establish
acceptable repayment schedules. Management is authorized to commence foreclosure
proceedings for any loan upon making a determination that it is prudent to do
so.
Consumer loans are treated similarly. Interest income on consumer and other
nonmortgage loans is accrued over the term of the loan except when serious doubt
exists as to the collectibility of a loan, in which case accrual of interest is
discontinued. It is Madison First's policy to recognize losses on these loans as
soon as they become apparent.
Non-performing assets. At March 31, 1996, $30,000, or .03% of Madison
First's total assets, were non-performing assets (non-performing loans and
non-accruing loans) compared to $8,000, or .01%, of Madison First's total assets
at December 31, 1995. At March 31, 1996, residential loans and consumer loans
accounted for $23,000 and $7,000, respectively, of non-performing assets. There
were no REO or non-accruing investments at March 31, 1996.
60
<PAGE>
The table below sets forth the amounts and categories of Madison First's
non-performing assets (non-performing loans, foreclosed real estate and troubled
debt restructurings) for the last three years. It is the policy of Madison First
that all earned but uncollected interest on all loans be reviewed monthly to
determine if any portion thereof should be classified as uncollectible for any
loan past due in excess of 90 days.
<TABLE>
<CAPTION>
At December 31,
March 31, --------------------------------------------
1996 1995 1994 1993
----------- -------- ---------- ---------
(Unaudited) (Dollars in thousands)
Non-performing assets:
<S> <C> <C> <C> <C>
Non-performing loans................................ $ 30 $ 8 $ 13 $ 7
Troubled debt restructurings........................ --- --- --- ---
---- ---- ---- ----
Total non-performing loans........................ 30 8 13 7
Foreclosed real estate.............................. --- --- --- ---
---- ---- ---- ----
Total non-performing assets....................... $ 30 $ 8 $ 13 $ 7
==== ==== ==== ====
Non-performing loans to total loans.................... 0.05% 0.01% 0.02% 0.01%
==== ==== ==== ====
Non-performing assets to total assets.................. 0.03% 0.01% 0.01% 0.01%
==== ==== ==== ====
</TABLE>
As of March 31, 1996, Madison First had loans aggregating approximately
$48,000 which had been made to facilitate the sale of foreclosed real estate.
At March 31, 1996, Madison First held no loans delinquent from 30 to 89
days. Madison First was not aware of any loans, the borrowers of which were
experiencing financial difficulties. In addition there were no other assets that
would need to be disclosed as non-performing assets.
61
<PAGE>
Delinquent Loans. The following table sets forth certain information at
March 31, 1996, and at December 31, 1995, 1994, and 1993, relating to
delinquencies in Madison First's portfolio. Delinquent loans that are 90 days or
more past due are considered non-performing assets.
<TABLE>
<CAPTION>
At March 31, 1996 At December 31, 1995
------------------------------------------------- ------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- ------------------------- ----------------------- -----------------------
Principal Principal Principal Principal
Number Balance of Number Balance of Number Balance of Number Balance of
of Loans Loans of Loans Loans of Loans Loans of Loans Loans of
-------- ----- -------- ----- -------- ----- -------- ----- --
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real
estate loans............ --- $--- 2 $23 5 $102 1 $ 1
Multi-family loans......... --- --- --- --- --- --- --- ---
Construction loans......... --- --- --- --- --- --- --- ---
Land loans................. --- --- --- --- --- --- --- ---
Nonresidential
real estate loans....... --- --- --- --- 1 23 --- ---
Consumer loans............. --- --- 4 7 1 3 4 7
---- ---- ---- ---- ---- ---- ---- ----
Total................... --- $--- 6 $30 7 $128 5 $ 8
==== ==== ==== ==== ==== ==== ==== ====
Delinquent loans to
total loans............. 0.05% 0.23%
==== ====
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1994 At December 31, 1993
------------------------------------------------- ------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- ------------------------- ----------------------- -----------------------
Principal Principal Principal Principal
Number Balance of Number Balance of Number Balance of Number Balance of
of Loans Loans of Loans Loans of Loans Loans of Loans Loans of
-------- ----- -------- ----- -------- ----- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real
estate loans............ 1 $ 4 2 $13 4 $ 94 --- $---
Multi-family loans......... --- --- --- --- 1 10 --- ---
Construction loans......... --- --- --- --- --- --- --- ---
Land loans................. --- --- --- --- --- --- --- ---
Nonresidential
real estate loans....... -- --- --- --- --- --- --- ---
Consumer loans............. 6 13 --- --- 1 1 3 7
---- ---- ---- ---- ---- ----- ---- -----
Total................... 7 $17 2 $13 6 $105 3 $7
=== ==== ==== ==== ==== ===== ==== =====
Delinquent loans to
total loans............. 0.05% 0.22%
==== ====
</TABLE>
62
<PAGE>
Classified assets. Federal regulations and Madison First's Asset
Classification Policy provide for the classification of loans and other assets
such as debt and equity securities considered by the OTS to be of lesser quality
as "substandard," "doubtful" or "loss" assets. An asset is considered
"substandard" if it is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the institution will sustain "some loss" if the deficiencies are not
corrected. Assets classified as "doubtful" have all of the weaknesses inherent
in those classified "substandard," with the added characteristic that the
weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets which do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "special mention" by management.
An insured institution is required to establish general allowances for loan
losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. General allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount. An institution's determination
as to the classification of its assets and the amount of its valuation
allowances is subject to review by the OTS which can order the establishment of
additional general or specific loss allowances.
At March 31, 1996, the aggregate amount of Madison First's classified
assets, and of Madison First's general and specific loss allowances were as
follows:
At March 31, 1996
-----------------
(Unaudited)
(In thousands)
Substandard assets............................................. $ 97
Doubtful assets................................................ ---
Loss assets.................................................... 8
----
Total classified assets.................................... $105
====
General loss allowances........................................ $405
Specific loss allowances....................................... 8
----
Total allowances........................................... $413
====
Madison First regularly reviews its loan portfolio to determine whether any
loans require classification in accordance with applicable regulations. Not all
of Madison First's classifed assets constitute non-performing assets.
63
<PAGE>
Allowance for Loan Losses
The allowance for loan losses is maintained through the provision for loan
losses, which is charged to earnings. The provision for loan losses is
determined in conjunction with management's review and evaluation of current
economic conditions (including those of Madison First's lending area), changes
in the character and size of the loan portfolio, loan delinquencies (current
status as well as past and anticipated trends) and adequacy of collateral
securing loan delinquencies, historical and estimated net charge-offs, and other
pertinent information derived from a review of the loan portfolio. In
management's opinion, Madison First's allowance for loan losses is adequate to
absorb anticipated future losses from loans at March 31, 1996. However, there
can be no assurance that regulators, when reviewing Madison First's loan
portfolio in the future, will not require increases in its allowances for loan
losses or that changes in economic conditions will not adversely affect Madison
First's loan portfolio.
Summary of Loan Loss Experience. The following table analyzes changes in
the allowance during the past three fiscal years ended December 31, 1995, and
the three-month periods ended March 31, 1996, and March 31, 1995.
<TABLE>
<CAPTION>
Three Months Year Ended
Ended March 31, December 31,
------------------------ -------------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited) (Dollars in thousands)
Balance of allowance at beginning
<S> <C> <C> <C> <C> <C>
of period................................ $407 $252 $252 $227 $262
Add:
Provision for losses on loans.......... 6 --- 150 29 55
Recoveries of loans previously
charged off:
Consumer loans......................... --- --- 5 --- 10
Total recoveries..................... --- --- 5 --- 10
Less charge-offs:
Residential real estate loans.......... --- --- --- --- 75
Consumer loans......................... --- --- --- 4 25
---- ---- ---- ---- ----
Total charge-offs.................... --- --- --- 4 100
---- ---- ---- ---- ----
Net charge-offs (recoveries)................ --- --- (5) 4 90
---- ---- ---- ---- ----
Balance of allowance at end of
period................................... $413 $252 $407 $252 $227
==== ==== ==== ==== ====
Net charge-offs (recoveries) to total
average loans outstanding................ ---% ---% (0.01)% 0.01% 0.17%
Allowance at end of period to loans
outstanding.............................. 0.72 0.45 0.70 0.45 0.44
Allowance at end of period to
non-performing loans..................... 1,376.67 2,520.00 5,087.50 1,938.46 3,242.86
</TABLE>
Allocation of Allowance for Loan Losses. The following table presents an
analysis of the allocation of Madison First's allowance for loans losses at the
dates indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
---------------------------------------- --------------------------------------------------------
1996 1995 1995 1994 1993
------------------- ----------------- ----------------- ----------------- ---------------
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
category category category category category
to total total to total to total total
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Balance at end of
period applicable to:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate..... $160 38.7% $152 60.4% $157 38.6% $152 60.4% $127 56.0%
Nonresidential real estate.. 102 24.7 --- --- 100 24.6 --- --- --- ---
Consumer loans.............. 51 12.3 50 19.8 50 12.2 50 19.8 50 22.0
Unallocated................. 100 24.3 50 19.8 100 24.6 50 19.8 50 22.0
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
Total....................... $413 100.0% $252 100.0% $407 100.0% $252 100.0% $227 100.0%
==== ===== ==== ===== ==== ===== ==== ===== ==== =====
</TABLE>
64
<PAGE>
Investments and Mortgage-Backed Securities
Investments. Madison First's investment portfolio consists of U.S.
government and agency obligations, asset management funds, and FHLB stock. At
March 31, 1996, approximately $10.6 million, or 12.0%, of Madison First's total
assets consisted of such investments.
The following table sets forth the amortized cost and the market value of
Madison First's investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------ -----------------------------------------------------------------
1996 1995 1994 1993
------------------ ------------------ ------------------- ------------------
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
--------- ------ --------- ------ --------- ------ --------- ------
(Unaudited) (In thousands)
Held to Maturity:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
agency obligations............... $ 6,000 $ 5,909 $ 8,000 $ 7,930 $13,996 $13,120 $ 9,491 $ 9,574
Available for Sale:
U.S. Government and
agency obligations............... 4,000 3,959 5,000 5,018 --- --- --- ---
Asset management funds............. --- --- 101 101 --- ---
FHLB stock............................ 610 610 610 610 610 610 610 610
------- ------- ------- ------- ------- ------- ------- -------
Total investments................ $10,610 $10,478 $13,610 $13,558 $14,707 $13,831 $10,101 $10,101
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The following table sets forth the amount of investment securities
(excluding FHLB stock) which mature during each of the periods indicated and the
weighted average yields for each range of maturities at March 31, 1996.
<TABLE>
<CAPTION>
Amount at March 31, 1996 which matures in
------------------------------------------------------------------------------------
One Year One Year Five Years After
or Less to Five Years to Ten Years Ten Years
------------------- ------------------ ------------------- ------------------
Amortized Average Amoritzed Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield
--------- ------- --------- ------- --------- ------- ---------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and agency obligations.......... $2,500 4.47% $7,500 5.50% $--- ---% $--- ---%
====== ==== ====== ==== ==== ==== ==== ====
</TABLE>
Mortgage-Backed Securities. At March 31, 1996, Madison First had $9.1
million of mortgage-backed securities outstanding, all of which were classified
as held to maturity. These mortgage-backed securities may be used as collateral
for borrowings and through repayments, as a source of liquidity.
The following table sets forth the carrying value and market value of
Madison First's mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------ --------------------------------------------------------------
1996 1995 1994 1993
------------------ ------------------- ------------------ -------------------
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
--------- ------ --------- ------ --------- ------ --------- ------
(Unaudited) (In thousands)
Mortgage-backed
<S> <C> <C> <C> <C> <C> <C> <C> <C>
securities............................... $9,146 $9,068 $9,917 $9,941 $11,328 $10,715 $13,925 $14,195
====== ====== ====== ====== ======= ======= ======= =======
</TABLE>
65
<PAGE>
The following table sets forth the amount of mortgage-backed securities
which mature during each of the periods indicated and the weighted average
yields for each range of maturities at December 31, 1995.
<TABLE>
<CAPTION>
Amount at December 31, 1995 which matures in
----------------------------------------------------------------------------------
One Year One Year to After
or Less Five Years Five Years
------------------------ ----------------------- -------------------------
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
----------- -------- --------- --------- --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities...................... $139 8.00% $6,830 5.96% $2,948 6.54%
==== ==== ====== ==== ====== ====
</TABLE>
The following table sets forth the changes in the Madison First's
mortgage-backed securities portfolio for the three-month periods ended March 31,
1996 and 1995 and for the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
For the Three Months For the Year Ended
Ended March 31, December 31,
------------------------- -------------------------------------------
1996 1995 1995 1994 1993
------ -------- -------- -------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance........................... $9,917 $11,328 $11,328 $13,925 $13,548
Purchases................................... --- --- --- --- 3,918
Repayments/sales............................ (768) (299) (1,417) (2,576) (3,399)
Premium and discount
amortization, net........................ (3) 2 6 (1) (37)
Unrealized loss on securities
available for sale....................... --- --- --- --- ---
Provision for other than temporary
decline.................................. --- --- --- (20) (105)
------ ------- ------- ------- -------
Ending balance.............................. $9,146 $11,031 $ 9,917 $11,328 $13,925
====== ======= ======= ======= =======
</TABLE>
Management intends to temporarily hold the proceeds from the Conversion in
U.S. government securities, other U.S. agency securities and mortgage-backed
securities. See "Use of Proceeds."
Sources of Funds
General. Deposits have traditionally been Madison First's primary source of
funds for use in lending and investment activities. In addition to deposits,
Madison First derives funds from scheduled loan payments, investment maturities,
loan prepayments, retained earnings, income on earning assets and borrowings.
While scheduled loan payments and income on earning assets are relatively stable
sources of funds, deposit inflows and outflows can vary widely and are
influenced by prevailing interest rates, market conditions and levels of
competition. Borrowings from the FHLB of Indianapolis may be used in the
short-term to compensate for reductions in deposits or deposit inflows at less
than projected levels.
Deposits. Deposits are attracted, principally from within Jefferson County,
through the offering of a broad selection of deposit instruments including
fixed-rate certificates of deposit, NOW, MMDAs and other transaction accounts,
individual retirement accounts and savings accounts. Madison First does not
actively solicit or advertise for deposits outside of Jefferson County.
Substantially all of Madison First's depositors are residents of that county.
Deposit account terms vary, with the principal differences being the minimum
balance required, the amount of time the funds remain on deposit and the
interest rate. Madison First does not pay a fee for any deposits it receives.
Interest rates paid, maturity terms, service fees and withdrawal penalties
are established by Madison First on a periodic basis. Determination of rates and
terms are predicated on funds acquisition and liquidity requirements, rates paid
by competitors, growth goals, and applicable regulations. Madison First relies,
in part, on customer service and long-standing relationships with customers to
attract and retain its deposits, but also closely prices its deposits in
relation to rates offered by its competitors.
66
<PAGE>
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. The variety of deposit accounts offered by Madison First has
allowed it to be competitive in obtaining funds and to respond with flexibility
to changes in consumer demand. Madison First has become more susceptible to
short-term fluctuations in deposit flows as customers have become more interest
rate conscious. Madison First manages the pricing of its deposits in keeping
with its asset/liability management and profitability objectives. Based on its
experience, Madison First believes that its passbook, NOW and MMDAs are
relatively stable sources of deposits. However, the ability of Madison First to
attract and maintain certificates of deposit, and the rates paid on these
deposits, have been and will continue to be significantly affected by market
conditions.
<PAGE>
An analysis of deposit accounts by type, maturity, and rate at Madison
First at March 31, 1996, is as follows:
<TABLE>
<CAPTION>
Minimum Balance at Weighted
Opening March 31, % of Average
Type of Account Balance 1996 Deposits Rate
- --------------- ------- ---- -------- ----
(Unaudited)
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C>
Passbook accounts.......................................... $ 10 $17,189 21.7% 3.05%
MMDA....................................................... 1,000 7,238 9.1 3.00
NOW accounts............................................... 100 8,828 11.1 2.63
Super NOW accounts......................................... 1,000 1,076 1.4 2.72
------- -----
Total withdrawable....................................... 34,331 43.3 2.92
Certificates (original terms):
I.R.A...................................................... 100 5,995 7.5
3 months................................................... 2,500 121 0.2
6 months................................................... 2,500 5,168 6.5
12 months.................................................. 500 7,280 9.2
15 months.................................................. 500 6,447 8.1
18 months.................................................. 500 3,408 4.3
30 months ................................................. 500 5,290 6.7
48 months.................................................. 500 56 0.1
60 months.................................................. 500 2,914 3.7
72 months ................................................. 500 10 ---
96 months.................................................. 500 165 0.2
120 months................................................. 500 4 ---
Jumbo certificates............................................ 99,000 8,065 10.2
Total certificates......................................... 44,923 56.7 5.69
------- ----- ----
Total deposits................................................ $79,254 100.0% 4.49%
======= ===== ====
</TABLE>
67
<PAGE>
The following table sets forth by various interest rate categories the
composition of time deposits of Madison First at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
At March 31, --------------------------------------------------------
1996 1995 1994 1993
------------ --------------- ------------ ----------
(Unaudited) (In thousands)
<S> <C> <C> <C> <C>
3.00 to 3.99%............................... $ --- $ --- $ 443 $25,420
4.00 to 4.99%............................... 4,381 98 30,882 9,900
5.00 to 5.99%............................... 26,279 30,116 5,276 3,578
6.00 to 6.99%............................... 13,682 10,731 3,365 303
7.00 to 7.99%............................... 581 232 267 ---
------- ------- ------- -------
Total.................................... $44,923 $41,177 $40,233 $39,201
======= ======= ======= =======
</TABLE>
The following table represents, by various interest rate categories, the
amounts of time deposits maturing during each of the three years following March
31, 1996. Matured certificates, which have not been renewed as of March 31,
1996, have been allocated based upon certain rollover assumptions.
<TABLE>
<CAPTION>
Amounts at March 31, 1996
--------------------------------------------------------------------------------
One Year Two Three Greater Than
or Less Years Years Three Years
------------- --------------- ------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
3.00 to 3.99%............................... $ --- $ --- $ --- $ ---
4.00 to 4.99%............................... 4,378 --- 3 ---
5.00 to 5.99%............................... 19,492 4,303 2,273 211
6.00 to 6.99%............................... 10,730 2,173 --- 779
7.00 to 7.99%............................... 367 6 20 188
------- ------ ------ ------
Total.................................... $34,967 $6,482 $2,296 $1,178
======= ====== ====== ======
</TABLE>
The following table indicates the amount of Madison First's jumbo and other
certificates of deposit of $100,000 or more by time remaining until maturity as
of March 31, 1996.
At March 31, 1996
-----------------
Maturity Period (In thousands)
Three months or less...................................... $3,705
Greater than three months through six months.............. 1,706
Greater than six months through twelve months............. 1,688
Over twelve months........................................ 701
------
Total................................................ $7,800
======
The following table sets forth the dollar amount of savings deposits in the
various types of deposits offered by Madison First at the dates indicated, and
the amount of increase or decrease in such deposits as compared to the previous
period.
<TABLE>
<CAPTION>
DEPOSIT ACTIVITY
--------------------------------------------------------------------------------
Balance Increase Balance Increase
at (Decrease) at (Decrease)
March 31, % of from December 31, % of from
1996 Deposits 1995 1995 Deposits 1994
---- -------- ---- ---- -------- ----
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts............................. $17,189 21.7% $(722) $17,911 23.8% $(1,519)
MMDA ........................................ 7,238 9.1 97 7,141 9.5 (511)
NOW accounts.................................. 8,828 11.1 887 7,941 10.6 529
Super NOW accounts............................ 1,076 1.4 13 1,063 1.4 332
------- ----- ------ ------- ----- --------
Total withdrawable.......................... 34,331 43.3 275 34,056 45.3 (1,169)
Certificates (original terms):
I.R.A......................................... 5,995 7.5 212 5,783 7.7 (293)
3 months...................................... 121 0.2 26 95 0.1 (348)
6 months...................................... 5,168 6.5 (220) 5,388 7.1 (2,086)
12 months..................................... 7,280 9.2 (66) 7,346 9.8 (1,473)
15 months..................................... 6,447 8.1 477 5,970 7.9 5,970
18 months..................................... 3,408 4.3 123 3,285 4.4 840
30 months .................................... 5,290 6.7 24 5,266 7.0 (802)
48 months..................................... 56 0.1 --- 56 0.1 ---
60 months..................................... 2,914 3.7 (135) 3,049 4.1 (305)
72 months .................................... 10 --- --- 10 --- ---
96 months..................................... 165 0.2 --- 165 0.2 (35)
120 months.................................... 4 --- --- 4 --- (7)
Jumbo certificates............................... 8,065 10.2 3,305 4,760 6.3 (517)
------- ----- ------ ------- ----- --------
Total certificates............................ 44,923 56.7 3,746 41,177 54.7 944
------- ----- ------ ------- ----- --------
Total deposits................................... $79,254 100.0% $4,021 $75,233 100.0% $ (225)
======= ===== ====== ======= ===== ========
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
DEPOSIT ACTIVITY
-------------------------------------------------------------------
Balance Increase Balance
at (Decrease) at
December 31, % of from December 31, % of
1994 Deposits 1993 1993 Deposits
---- -------- ---- ---- --------
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C> <C>
Passbook accounts............................. $19,430 25.8% $(3,713) $23,143 29.6%
MMDA ........................................ 7,652 10.1 (635) 8,287 10.6
NOW accounts.................................. 7,412 9.8 821 6,591 8.5
Super NOW accounts............................ 731 1.0 (128) 859 1.1
------- ----- ------- ------- -----
Total withdrawable.......................... 35,225 46.7 (3,655) 38,880 49.8
Certificates (original terms):
I.R.A......................................... 6,076 8.1 (207) 6,283 8.0
3 months...................................... 443 0.6 (25) 468 0.6
6 months...................................... 7,474 9.9 (828) 8,302 10.6
12 months..................................... 8,819 11.7 2,288 6,531 8.4
15 months..................................... --- --- --- --- ---
18 months..................................... 2,445 3.2 (707) 3,152 4.0
30 months .................................... 6,068 8.0 (662) 6,730 8.6
48 months..................................... 56 0.1 --- 56 0.1
60 months..................................... 3,354 4.4 (196) 3,550 4.6
72 months .................................... 10 --- --- 10 ---
96 months..................................... 200 0.3 (36) 236 0.3
120 months.................................... 11 --- (4) 15 --
Jumbo certificates............................... 5,277 7.0 1,409 3,868 5.0
------- ----- ------- ------- -----
Total certificates............................ 40,233 53.3 1,032 39,201 50.2
------- ----- ------- ------- -----
Total deposits................................... $75,458 100.0% $(2,623) $78,081 100.0%
======= ===== ======= ======= =====
</TABLE>
69
<PAGE>
In the unlikely event of liquidation of Madison First after the Conversion,
all claims of creditors (including those of deposit account holders, to the
extent of their deposit balances) would be paid first followed by distribution
of the liquidation account to certain deposit account holders, with any assets
remaining thereafter distributed to the Holding Company as the sole shareholder
of Madison First. See "The Conversion -- Principal Effects of Conversion --
Effect on Liquidation Rights."
Borrowings. Madison First focuses on generating high quality loans and then
seeks the best source of funding from deposits, investments or borrowings. At
March 31, 1996, Madison First had $2.0 million in borrowings from the FHLB of
Indianapolis which had interest rates of 5.63%. These borrowings were paid off
in April, 1996. Madison First does not anticipate any difficulty in obtaining
advances appropriate to meet its requirements in the future.
The following table presents certain information relating to the Madison
First's borrowings at or for the three months ended March 31, 1996 and 1995 and
at or for the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
At or for the
Three Months At or for the Year
Ended March 31, Ended December 31,
------------------------ -------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
FHLB Advances:
<S> <C> <C> <C> <C> <C>
Outstanding at end of period.................... $2,000 $2,054 $4,471 $4,986 $ ---
Average balance outstanding for period.......... 2,000 3,520 2,967 228 22
Maximum amount outstanding at any
month-end during the period................... 3,404 3,283 4,471 4,986 ---
Weighted average interest rate
during the period............................. 6.00 % 5.34% 5.90 % 5.26% 4.55%
Weighted average interest rate
at end of period.............................. 5.63 6.81 5.76 6.26 ---
</TABLE>
<PAGE>
Properties
The following table provides certain information with respect of Madison
First's offices as of March 31, 1996.
Net Book Value
of Property
Year Furniture, Approximate
Opened or Fixtures and Square
Description and Address Acquired Equipment Footage
- ----------------------- -------- --------- -------
(Dollars in thousands)
Locations in Madison, Indiana
Downtown Office:
233 E. Main Street........... 1952 $171 9,110
Drive-Through Branch:
401 E. Main Street........... 1984 117 375
Hilltop Location:
303 Clifty Drive............. 1973 242 3,250
Location in Hanover, Indiana
136 Thornton Road............ 1980 254 2,584
70
<PAGE>
The following table provides certain information with respect to real
estate owned by Madison First and rented to other entities as of March 31, 1996.
All real estate listed in the table below is rented on a month-to-month basis,
and none of the parcels is subject to any written lease agreement. This property
was acquired by Madison First for future expansion of its banking operations.
Address Tenant
- -------- ------
223 E. Main Street
Madison, Indiana 47250 Paperback Exchange
225 E. Main Street
Madison, Indiana 47250 Madison Gallery of Fine Art
227 E. Main Street
Madison, Indiana 47250 Heitz Photo
407 E. Jefferson
Madison, Indiana 47250 MIDCOR Community Foundation
Madison First owns computer and data processing equipment which is used for
transaction processing, loan origination, and accounting. The net book value of
electronic data processing equipment owned by Madison First was approximately
$19,000 at March 31, 1996.
Madison First operates three automated teller machines ("ATMs"), one at
each office location other than its downtown branch. Madison First's ATMs
participate in the PLUS(R) and MagicLine(R) networks.
Madison First has also contracted for the data processing and reporting
services of BISYS, Inc. in Houston, Texas. The cost of these data processing
services is approximately $13,000 per month.
Service Corporation Subsidiaries
OTS regulations permit federal savings associations to invest in the
capital stock, obligations or other specified types of securities of
subsidiaries (referred to as "service corporations") and to make loans to such
subsidiaries and joint ventures in which such subsidiaries are participants in
an aggregate amount not exceeding 2% of an association's assets, plus an
additional 1% of assets if the amount over 2% is used for specified community or
inner-city development purposes. In addition, federal regulations permit
associations to make specified types of loans to such subsidiaries (other than
special purpose finance subsidiaries), in which the association owns more than
10% of the stock, in an aggregate amount not exceeding 50% of the association's
regulatory capital if the association's regulatory capital is in compliance with
applicable regulations. A savings association that acquires a non-savings
association subsidiary, or that elects to conduct a new activity within a
subsidiary, must give the FDIC and the OTS at least 30 days advance written
notice. The FDIC may, after consultation with the OTS, prohibit specified
activities if it determines such activities pose a serious threat to SAIF.
Moreover, a savings association must deduct from capital, for purposes of
meeting the core capital, tangible capital and risk-based capital requirements,
their entire investment in and loans to a subsidiary engaged in activities not
permissible for a national bank (other than exclusively agency activities for
its customers or mortgage banking subsidiaries).
Madison First currently has two subsidiaries, Madison First Service
Corporation ("First Service") and McCauley Insurance Agency, Inc. ("McCauley").
First Service was incorporated under the laws of the State of Indiana on July 3,
1973 and currently owns all of the outstanding capital stock of McCauley. First
Service has no other operations. McCauley was organized under the laws of the
State of Indiana under the name Builders Insurance Agency, Inc. on August 2,
1957 and changed its name to McCauley Insurance Agency, Inc. on August 29, 1957.
McCauley currently is engaged in the sale of general fire and accident, car,
home and life insurance to the general public. During the year ended December
31, 1995, McCauley received approximately $175,000 in commissions.
71
<PAGE>
Upon consummation of the Acquisition, the Holding Company will become a
bank holding company and will be subject to the Bank Holding Company Act of
1956, as amended (the "BHCA"). At such time, the insurance operations of
McCauley will not be permitted under the BHCA, and Madison First will be
required to divest its ownership of McCauley within two years. However, McCauley
would be permitted to continue its insurance business through the Hanover,
Indiana branch of Citizens since Hanover, Indiana has a population under 5,000.
The Boards of Directors of the Institutions will consider such an alternative,
but no decisions have been made regarding the divestiture of McCauley or the
transfer of its business to Citizens.
At March 31, 1996, Madison First's aggregate investment in First Service
was approximately $701,000, and First Service's aggregate investment in McCauley
was approximately $487,000. The consolidated statements of income of Madison
First and its subsidiaries included elsewhere herein include the operations of
First Service and McCauley. All intercompany balances and transactions have been
eliminated in the consolidation.
Employees
As of March 31, 1996, Madison First employed 29 persons on a full-time
basis and one person on a part-time basis. None of Madison First's employees is
represented by a collective bargaining group. Management considers its employee
relations to be good.
Madison First's employee benefits for full-time employees include, among
other things, a Pentegra (formerly known as Financial Institutions Retirement
Fund) defined benefit pension plan ("Pension Plan"), and major medical, dental,
and long-term disability insurance.
Employee benefits are considered by management to be competitive with those
offered by other financial institutions and major employers in Madison First's
area. See "Executive Compensation and Related Transactions of Madison First."
Legal Proceedings
Although Madison First, from time to time, is involved in various legal
proceedings in the normal course of business, there are no material legal
proceedings to which Madison First is a party or to which any of its property is
subject.
72
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF CITIZENS NATIONAL BANK OF MADISON
General
The principal business of national banks, including Citizens, consists of
providing a full complement of financial services through a broad array of
deposit and loan products to the small businesses, professionals and other
individuals located within its market area. Citizens' earnings are primarily
dependent upon its net interest income, the difference between interest income
and interest expense. Interest income is a function of the balances of loans and
investments outstanding during a given period and the yield earned on such loans
and investments. Interest expense is a function of the amount of deposits and
borrowings outstanding during the same period and interest rates paid on such
deposits and borrowings. Citizens' earnings are also affected by provisions for
loan losses, service charges, operating expenses and income taxes.
Citizens is significantly affected by prevailing economic conditions, as
well as government policies and regulations concerning, among other things,
monetary and fiscal affairs, housing and financial institutions. See
"Regulation." Deposit flows are influenced by a number of factors, including
interest rates paid on competing investments, account maturities and level of
personal income and savings within the Institutions' market. In addition,
deposit growth is affected by how customers perceive the stability of the
financial services industry amid various current events such as regulatory
changes, failures of other financial institutions and financing of the deposit
insurance fund. Lending activities are influenced by the demand for and supply
of other lenders, the availability and cost of funds and various other items.
Sources of funds for lending activities of Citizens include deposits, payments
on loans, borrowings and income provided from operations.
Current Business Strategy
Citizens' business strategy is to operate a well-capitalized and profitable
community bank dedicated to meeting the financial needs of the small businesses,
professionals and other individuals located in its market area by offering a
full complement of deposit and loan products and other financial services with
an emphasis on personal service. Citizens has sought to implement this strategy
by (i) expanding the products and services offered to its customers and
achieving consistent and sustained growth and (ii) managing its interest rate
risk by emphasizing adjustable-rate loan products and selling its fixed-rate
mortgage loans to the FHLMC on the secondary market.
The highlights of Citizens' business strategy are as follows:
o Profitability. Citizens has reported positive net income in every year
since 1990. Citizens' net income increased from $120,000 for the year
ended December 31, 1991 to $342,000 for the year ended December 31,
1995. Citizens had net income of $22,000 for the three months ended
March 31, 1996, a decrease of $95,000 from the three-month period
ended March 31, 1995, due primarily to a $150,000 provision for loan
losses in the quarter. Citizens' net interest income for the three
months ended March 31, 1996 totaled $497,000, an increase of $56,000,
or 12.7%, from $441,000 for the three months ended March 31, 1995.
Citizens' net yield on weighted average interest-earning assets for
the year ended December 31, 1995 and the three months ended March 31,
1996 was 4.25% and 3.69%, respectively.
o Asset Growth and Asset Quality. Citizens' total assets have increased
from $30.1 million at December 31, 1991 to $58.1 million at March 31,
1996. Citizens' growth in total assets is attributable to a sustained
growth in virtually all areas of lending, including one- to
four-family residential mortgage lending, consumer lending and
commercial lending. Despite its aggressive growth, Citizens has thus
far been successful in maintaining the quality of its loan and
investment portfolios. At March 31, 1996, Citizens' non-performing
loans totaled $262,000, or 0.5% of total assets.
o Low Interest Rate Risk. Management of Citizens believes that the
maturities and repricings of Citizens' interest rate-sensitive assets
and interest rate-sensitive liabilities are prudently positioned. At
March 31, 1996, Citizens' NPV would increase ___% in the event of a 2%
increase in market interest rates and would decrease in the event of a
2% decrease in market interest rates. This indicates that Citizens'
net portfolio value is more sensitive to decreases in market interest
rates but that Citizens' interest rate risk would be within the
definition of normal level of exposure contained in regulations
recently issued by the OTS. Although these regulations have not been
implemented by the OTS, and Citizens, as a national bank, would not be
subject to the regulations if implemented by the OTS, the methodology
set forth in the OTS' regulations provides an informational basis on
which Citizens' interest rate risk can be evaluated. Citizens has
achieved this asset/liability posture by emphasizing adjustable-rate
loans and investments and by selling its fixed-rate one- to
four-family residential mortgage loans to the FHLMC on the secondary
market.
73
<PAGE>
o Community Orientation. Citizens has developed a solid reputation in
its market by offering a wide variety of lending, deposit and other
financial services to its retail and commercial customers on a
personalized and efficient basis. By building on its reputation as a
responsive lender, Citizens plans to strengthen its position as a
leading financial institution in Jefferson County.
Asset/Liability Management
Citizens, like other financial institutions, is subject to interest rate
risk to the degree that its interest-bearing liabilities, primarily deposits
with short- and medium-term maturities, mature or reprice at different rates
than its interest-earning assets. Management of Citizens believes it is critical
to manage the relationship between interest rates and the effect on Citizens'
NPV. Management of Citizens' assets and liabilities is done within the context
of the marketplace, regulatory limitations and within limits established by the
Board of Directors.
Presented below, as of March 31, 1996, is an analysis performed by
Baxter Capital Management, Inc. of Citizens' interest rate risk as measured by
changes in NPV for instantaneous and sustained parallel shifts in the yield
curve, up and down 200 basis points. At March 31, 1996, 2% of the present value
of Citizens' assets was approximately $_________. Because the interest rate risk
of a 200 basis point decrease in market rates (which was greater than the
interest rate risk of a 200 basis point increase ) was $_________ at March 31,
1996, Citizens would not have been required to deduct any dollar amount from its
capital under the NPV methodology adopted by the OTS if such methodology was
applied to Citizens.
Net Portfolio Value NPV as % of PV of Assets
Change ------------------------ ------------------------
In Rates $ Amount $ Change % Change NPV Ratio Change
- -------- -------- -------- -------- --------- ------
+ 200 bp
0 bp
- - 200 bp
In evaluating Citizens' exposure to interest rate movements, certain
shortcomings are inherent in the method of analysis presented above. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as adjustable rate mortgages, have features
which restrict changes in interest rates on a short-term basis and over the life
of the asset. Further, in the event of a change in interest rates, prepayment
and early withdrawal levels would likely deviate significantly from those
assumed above. Finally, the ability of many borrowers to service their debt may
decrease in the event of an interest rate increase. Citizens considers all of
these factors in monitoring its exposure to interest rate risk.
74
<PAGE>
Average Balances and Interest
The following tables present at March 31, 1996 the balance of each category
of Citizens' interest-earning assets and interest-bearing liabilities, and their
yield/cost at that date and presents for the three months ended March 31, 1996
and 1995 and for the years ended December 31, 1995, 1994, and 1993, the average
daily balances of each category of Citizens' interest-earning assets and
interest-bearing liabilities, and the interest earned or paid on such amounts.
<TABLE>
<CAPTION>
Three Months Ended March 31,
At March 31, --------------------------------------------------------------------
1996 1996 1995
------------------- --------------------------------- --------------------------------
Average Interest Average Average Interest Average
Balance Yield/Cost Balance Earned/Paid Yield/Cost Balance Earned/Paid Yield/Cost
------- ---------- --------- ----------- ---------- ------- ----------- ----------
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning deposits and other... $ 5,313 5.38% $ 8,106 $ 93 4.59% $ 637 $ 9 5.65%
Investment securities (1)................ 4,619 6.25 1,683 21 4.99 2,467 28 4.54
Mortgage-backed and
related securities.................. 3,429 6.76 3,522 57 6.47 5,004 84 6.71
Loans receivable, net (2)............. 41,588 8.68 40,597 899 8.86 30,959 666 8.60
------- ------- ------- ------- ----
Total interest-earning assets....... $54,949 8.04 $53,908 $1,070 7.94 $39,067 $787 8.06
======= ======= ======= ======= ====
Interest-bearing liabilities:
Deposits.............................. $52,747 4.30 $45,877 $ 548 4.78 $34,705 $345 3.98
FHLB advances......................... 1,500 6.62 1,500 25 6.67 78 1 5.13
Other borrowings...................... --- --- --- --- --- 74 --- 2.16
Total interest-bearing
liabilities....................... $54,247 4.36 $47,377 $ 573 4.84 $34,857 $346 3.97
======= ======= ======= ======= ====
Net interest-earning assets..............$ 702 $ 6,531 $ 4,210
======= ======= =======
Net interest income...................... --- $ 497 $441
Interest rate spread (3)................. 3.68% 3.10% 4.09%
==== ==== ====
Net yield on weighted average
interest-earning assets (4)........... ---% 3.69% 4.51%
==== ==== ====
Average interest-earning
assets to average interest-bearing
liabilities........................... 101.29% 113.79% 112.08%
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------ ----------------------------- ------------------------------
Average Interest Average Average Interest Average Average Interest Average
Balance Earned/Paid Yield/Cost Balance Earned/Paid Yield/Cost Balance Earned/PaidYield/Cost
------- ----------- ---------- ------- ----------- ---------- -------- ----------- ---------
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning deposits........ $ 1,425 $ 78 5.47% $ 1,085 $ 40 3.69% $ 2,701 .$ 81 3.00%
Investment securities (1)........ 3,379 192 5.68 6,005 193 3.21 7,167 340 4.74
Mortgage-backed securities....... 3,380 231 6.83 2,074 256 12.34 --- --- ---
Loans (2)........................ 35,890 3,194 8.90 24,221 2,036 8.41 19,257 1,679 8.72
------- ------ ------- ------ ------ ------
Total interest-earning assets.. $44,074 $3,695 8.38 $33,385 $2,525 7.56 $29,125 $2,100 7.21
======= ====== ======= ====== ======= ======
Interest-bearing liabilities:
Deposits......................... $38,393 $1,750 4.56 $29,054 $1,024 3.52 $23,924 $ 880 3.68
FHLB advances.................... 1,134 70 6.17 16 1 6.25 --- --- ---
Other borrowings................. --- --- --- 13 --- --- --- --- ---
------- ------ ------- ------ ------ ------
Total interest-bearing
liabilities.................. $39,527 $1,820 4.60 $29,083 $1,025 3.52 $23,924 $ 880 3.68
======= ====== ======= ====== ======= ======
Net interest-earning assets......... $ 4,547 $ 4,302 $ 5,201
======= ======= =======
Net interest income................. $1,875 $1,500 $1,220
====== ====== ======
Interest rate spread (3)............ 3.78% 4.04% 3.53%
==== ==== ====
Net yield on weighted average
interest-earning assets (4)...... 4.25% 4.49% 4.19%
==== ==== ====
Average interest-earning
assets to average
interest-bearing liabilities..... 111.50% 114.79% 121.74%
====== ====== ======
</TABLE>
(1) Includes securities available for sale at amortized cost prior to SFAS No.
115 adjustments.
(2) Total loans less loans in process.
(3) Interest rate spread is calculated by subtracting weighted average interest
rate cost from weighted average interest rate yield for the period
indicated.
(4) The net yield on weighted average interest-earning assets is calculated by
dividing net interest income by weighted average interest-earning assets
for the period indicated. No net yield amount is presented at March 31,
1996, because the computation of net yield is applicable only over a period
rather than at a specific date.
75
<PAGE>
Interest Rate Spread
Citizens' results of operations have been determined primarily by net
interest income and, to a lesser extent, fee income, miscellaneous income,
general and administrative expenses, taxes and the provision for loan losses.
Net interest income is determined by the interest rate spread between the yields
earned on interest-earning assets and the rates paid on interest-bearing
liabilities and by the relative amounts of interest-earning assets and
interest-bearing liabilities.
The following table sets forth the weighted average effective interest rate
earned by Citizens on its loan and investment portfolios, the weighted average
effective cost of Citizens' deposits, the interest rate spread of Citizens, and
the net yield on weighted average interest-earning assets for the periods and as
for the dates shown. Average balances for the three months ended March 31, 1996
and 1995, and the years ended December 31, 1995, 1994 and 1993, are based on
average daily balances.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
At March 31, ------------------ --------------------------------
1996 1996 1995 1995 1994 1993
---- ---- ---- ---- ---- ----
Weighted average interest rate earned on:
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits and other...... 5.38% 4.59% 5.02% 5.47% 3.69% 3.00%
Investment securities.................... 6.25 4.99 4.54 5.68 3.21 4.74
Mortgage-backed and
related securities..................... 6.76 6.47 6.79 6.83 12.34 ---
Loans receivable, net.................... 8.68 8.86 8.60 8.90 8.41 8.72
Total interest-earning assets.......... 8.04 7.94 8.06 8.38 7.56 7.21
Weighted average interest rate cost of:
Deposits................................. 4.30 4.78 3.98 4.56 3.52 3.68
FHLB advances............................ 6.62 6.67 5.13 6.17 6.25 ---
Other borrowings......................... --- --- 2.16 --- --- ---
Total interest-bearing liabilities..... 4.36 4.84 3.97 4.60 3.52 3.68
Interest rate spread (1).................... 3.68% 3.10% 4.09% 3.78% 4.04% 3.53%
==== ==== ==== ==== ==== ====
Net yield on weighted average
interest-earning assets (2).............. ---% 3.69% 4.51% 4.25% 4.49% 4.19%
==== ==== ==== ==== ==== ====
</TABLE>
- -------------------------
(1) Interest rate spread is calculated by subtracting combined weighted
average interest rate cost from combined weighted average interest rate
earned for the period indicated. Interest rate spread figures must be
considered in light of the relationship between the amounts of
interest-earning assets and interest-bearing liabilities.
(2) The net yield on weighted average interest-earning assets is calculated
by dividing net interest income by weighted average interest-earning
assets for the period indicated. No net yield figure is presented at
March 31, 1996 because the computation of net yield is applicable only
over a period rather than at a specific date.
76
<PAGE>
The following table describes the extent to which changes in interest rates
and changes in volume of interest-related assets and liabilities have affected
Citizens' interest income and expense during the periods indicated. For each
category of interest-earning asset and interest-bearing liability, information
is provided on changes attributable to (1) changes in rate (changes in rate
multiplied by old volume) and (2) changes in volume (changes in volume
multiplied by old rate). Changes attributable to both rate and volume which
cannot be segregated have been allocated proportionally to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
Increase (Decrease) in Net Interest Income
------------------------------------------------------
Total
Due to Due to Net
Rate Volume Change
---- ------ ------
(In thousands)
Three months ended March 31, 1996 compared to three months ended March 31, 1995
<S> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits and other.................. $ --- $ 84 $ 84
Investment securities................................ 3 (10) (7)
Mortgage-backed and related securities............... (4) (23) (27)
Loans receivable, net................................ 20 213 233
------ ------- -------
Total.............................................. 19 264 283
------ ------- -------
Interest-bearing liabilities:
Deposits............................................. 80 123 203
FHLB advances........................................ 1 23 24
Other borrowings..................................... --- --- ---
------ ------- -------
Total.............................................. 81 146 227
------ ------- -------
Net change in net interest income...................... $ (62) $ 118 $ 56
====== ======= =======
Year ended December 31, 1995 compared
to year ended December 31, 1994
Interest-earning assets:
Interest-earning deposits and other.................. $ 23 $ 15 $ 38
Investment securities................................ 198 (199) (1)
Mortgage-backed and related securities............... (78) 53 (25)
Loans receivable, net................................ 127 1,031 1,158
------ ------- -------
Total.............................................. 270 900 1,170
------ ------- -------
Interest-bearing liabilities:
Deposits............................................. 330 396 726
FHLB advances........................................ 16 53 69
Other borrowings..................................... --- --- ---
------ ------- -------
Total.............................................. 346 449 795
------ ------- -------
Net change in net interest income...................... $ (76) $ 451 $ 375
====== ======= =======
Year ended December 31, 1994 compared
to year ended December 31, 1993
Interest-earning assets:
Interest-earning deposits and other.................. $ 24 $ (65) $ (41)
Investment securities................................ (98) (49) (147)
Mortgage-backed and related securities............... --- 256 256
Loans receivable, net................................ (58) 415 357
------ ------- -------
Total.............................................. (132) 557 425
------ ------- -------
Interest-bearing liabilities:
Deposits............................................. (35) 179 144
FHLB advances........................................ --- 1 1
Other borrowings..................................... --- --- ---
------ ------- -------
Total.............................................. (35) 180 145
------ ------- -------
Net change in net interest income...................... $ (97) $ 377 $ 280
====== ======= =======
</TABLE>
77
<PAGE>
Financial Condition at March 31, 1996 Compared to Financial Condition at
December 31, 1995
Citizens' total assets at March 31, 1996 amounted to $58.1 million, an
increase of $3.6 million, or 6.5%, over the total at December 31, 1995. The
increase in assets was funded primarily through growth in deposits of $3.5
million.
Liquid assets (cash, federal funds sold, certificates of deposit and
investment securities) totaled $10.5 million at March 31, 1996, an increase of
$2.3 million, or 27.4%, over the balance at December 31, 1995. This increase was
funded through the growth in deposits during the period.
Loans receivable totaled $41.6 million at March 31, 1996, an increase of
$1.2 million, or 2.9%, over the total at December 31, 1995.
Deposits increased by $3.5 million, or 7.2%, to a total of $52.7 million at
March 31, 1996. This increase resulted primarily from a continuation of
management's goal to maintain deposit growth through advertising and pricing
strategies.
Financial Condition at December 31, 1995 Compared to Financial Condition at
December, 1994
Citizens' total assets amounted to $54.5 million at December 31, 1995, an
increase of $13.3 million, or 32.1%, over 1994. The increase was funded
primarily through growth in savings deposits of $11.2 million, an increase in
advances from the Federal Home Loan Bank of $1.5 million and a $396,000 increase
in shareholders' equity.
Liquid assets (cash, federal funds sold, certificates of deposit and
investment securities) totaled $8.5 million at December 31, 1995, an increase of
$3.8 million, or 71.0%, over 1994 levels. The increase was funded by growth in
savings deposits.
Loans receivable totaled $40.4 million at December 31, 1995, an increase of
$10.6 million, or 35.5%, over the 1994 amount. Growth in the loan portfolio was
funded through redeployment of deposit inflows as well as through use of
principal repayments on mortgage-backed securities, which declined by
approximately $1.5 million. The allowance for losses on loans totaled $348,000
at December 31, 1995, an increase of $12,000, or 3.6%, over 1994. The allowance
represented 0.9% and 1.1% of total loans at December 31, 1995 and 1994,
respectively. Non-performing loans totaled $297,000 and $93,000 at December 31,
1995 and 1994, which represented 0.7% and 0.3% of total loans and 85.3% and
27.7% of the allowance for losses on loans at those respective dates.
Deposits totaled $49.2 million at December 31, 1995, an increase of $11.2
million, or 29.5%, over the 1994 total. Citizens was able to achieve such a
level of growth as a result of several things, including changes in the product
line, very competitive rates, and a high level of advertising. Training and an
emphasis on improved personal service also contributed to the growth.
Comparison of Operating Results For Three Months Ended March 31, 1996 and 1995
Citizens recorded net income from operations for the three month period
ended March 31, 1996 of $22,000, which represented a decrease of $95,000 from
the $117,000 in net income recorded for the comparable 1995 period. The decline
in net income resulted primarily from a $141,000 increase in the provision for
losses on loans and an increase in other expenses of $58,000, which were
partially offset by an increase in net interest income of $56,000 and a decrease
in the provision for income taxes of $49,000.
Total interest income amounted to $1.1 million for the three months ended
March 31, 1996, an increase of $283,000, or 36.0%, from the 1995 quarter.
Interest income on loans increased by $233,000, or 35.0%, to a total of
$899,000. This increase resulted primarily from a $9.6 million increase in the
average balance outstanding, coupled with a 26 basis point increase in the
weighted average yield to 8.86% in 1996. Interest income on investment and
mortgage-backed securities and other interest bearing deposits totaled $171,000
for the three month period ended March 31, 1996, an increase of $50,000, or
41.3%. The increase was due to a $5.2 million increase in the average
outstanding balance, which was partially offset by an 83 basis point decline in
the weighted average yield year-to-year to 5.14% in 1996.
Interest expense on deposits totaled $548,000 for the three months ended
March 31, 1996, an increase of $203,000, or 58.8%, over the comparable quarter
in 1995. This increase resulted primarily from an $11.2 million increase in the
average balance outstanding, coupled with an increase in the weighted average
cost of deposits, which amounted to 4.78% in 1996, compared to 3.98% in 1995.
Interest expense on borrowings increased by $24,000, due to an increase in
borrowings during the current quarter.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $56,000, or 12.7%, to a total of
$497,000 for the three months ended March 31, 1996. The interest rate spread
declined from 4.09% in 1995 to 3.10% in 1996, while the net interest margin
declined from 4.51% in 1995 to 3.69% in 1996.
78
<PAGE>
The provision for loan losses increased by $141,000, to a total of $150,000
for the three months ended March 31, 1996, as compared to the same quarter in
1995. This increase resulted primarily from growth in the loan portfolio over
the period and refinements in internal loss experience factors, as well as an
increase in non-performing loans during the period. An increase of loans for
1995 of 35.5% and a similar increase in 1994 prompted Citizens to make a large
increase in its loan reserve. Also non-performing loans increased from $36,000
at the end of 1993 to $297,000 at the end of 1995.
Other expenses totaled $461,000 for the three months ended March 31, 1996,
an increase of $58,000, or 14.4%, over the comparable 1995 period. The increase
resulted primarily from a $44,000, or 24.0%, increase in employee compensation
and benefits and a $17,000, or 28.8%, increase in premises and equipment
expense. The increase in employee compensation and benefits resulted from normal
merit increases and increased staffing levels attendant to Citizens' growth over
the period. The increase in occupancy and equipment was due to the fact that
Citizens' Walmart branch opened in January, 1995, and Citizens was incurring
some expense for its Hanover branch, which opened in May, 1995.
Citizens recorded a provision for income taxes for the three months ended
March 31, 1996, of $16,000 which represented a $49,000 decrease from the $65,000
in income tax expense recorded for the same period in 1995. The decrease
resulted from the $144,000 decline in earnings before taxes. The effective tax
rates were 42.1% and 35.7% for the three months ended March 31, 1996 and 1995,
respectively.
<PAGE>
Comparison of Operating Results For Fiscal Years Ended December 31, 1995 and
1994
Net income for the year ended December 31, 1995 amounted to $342,000, an
increase of $18,000, or 5.6%, over the $324,000 in net income recorded in 1994.
The increase in net income resulted primarily from a $375,000 increase in net
interest income and a $219,000 increase in other income, which were partially
offset by an $87,000 increase in the provision for losses on loans, a $309,000
increase in other expenses and a $180,000 increase in the provision for income
taxes, including the recognition of an $86,000 cumulative effect of change in
accounting principle in 1994.
Total interest income amounted to $3.7 million for the year ended December
31, 1995, an increase of $1.2 million, or 46.3%, over 1994. Interest income on
loans totaled $3.2 million, an increase of $1.2 million, or 56.9%, over the $2.0
million recorded in 1994. The increase resulted primarily from an $11.7 million
increase in average loans outstanding year-to-year, coupled with a 49 basis
point increase in yield to 8.90% in 1995. Interest income on investment and
mortgage-backed securities and other interest-bearing deposits totaled $501,000
in 1995, an increase of $12,000, or 2.5%. The decrease was due primarily to a
$980,000 decrease in the average balance outstanding, which was partially offset
by an 78 basis point increase in yield to 6.12% in 1995.
Interest expense on deposits increased by $726,000, or 70.9%, to a total of
$1.8 million for the year ended December 31, 1995. This increase resulted
primarily from a $9.3 million increase in the average balance outstanding,
coupled with a 104 basis point increase in the weighted average cost of deposits
year-to-year. Interest on borrowings increased by $69,000 for the year ended
December 31, 1995, due to an increase in borrowings during the year.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $375,000, or 25.0%, to a total of $1.9
million for the year ended December 31, 1995. The interest rate spread declined
from 4.04% in 1994, to 3.78% in 1995, while the net interest margin declined to
4.25% in 1995 from 4.49% in 1994.
Citizens recorded a provision for losses on loans totaling $104,000 for the
year ended December 31, 1995, an increase of $87,000 over the $17,000 provision
recorded in 1994. The increase was attributable to the $10.6 million increase in
the loan portfolio over the period. Also non-performing loans increased from
$36,000 at the end of 1993 to $297,000 at December 31, 1995.
Other income totaled $563,000 for the year ended December 31, 1995, an
increase of $219,000, or 63.7%, over 1994. The increase resulted primarily from
an $88,000, or 24.3%, increase in service fees and charges on deposits and other
services, an increase on the gain on sale of investment securities of $75,000,
and an increase of $56,000, or 105.7% in other income.
Other expense totaled $1.8 million for the year ended December 31, 1995, an
increase of $308,000, or 21.2%, over the $1.5 million recorded in 1994. The
increase in other expense resulted primarily from a $154,000, or 22.7%, increase
in employee compensation and benefits, a $24,000, or 40.6%, increase in
advertising, a $34,000, or 56.6%, increase in office supplies and postage and a
$55,000, or 26.4%, increase in other operating expenses. The increase in
employee compensation and benefits resulted primarily from normal merit
increases and additional staffing levels due to growth. The increase in office
supplies and postage and other operating expenses resulted primarily from
pro-rata increases in all expenses due to Citizens' growth year-to-year. The
increase in advertising was mainly due to the opening of two branches, the
introduction of new products and managements' emphasis on changing Citizens'
image.
79
<PAGE>
Citizens' provision for income taxes totaled $223,000 for the year ended
December 31, 1995, an increase of $181,000 over the provision recorded in 1994.
The 1994 provision, totaling $43,000, was net of a cumulative effect of adoption
of SFAS No. 109, totaling $86,000. The increase in the provision also resulted
from an increase in earnings before taxes of $198,000, or 54.0%. The effective
tax rates were 39.5% and 35.1% for the years ended December 31, 1995 and 1994,
respectively.
Comparison of Operating Results For Fiscal Years Ended December 31, 1994 and
1993
Citizens' net income for the year ended December 31, 1994 totaled $324,000,
an increase of $54,000, or 20.0%, over the $270,000 in net income recorded in
1993. The increase in net income resulted primarily from an increase of $280,000
in net interest income, a decrease of $33,000 in the provision for losses on
loans and an $86,000 cumulative effect of a change in accounting principle in
1994, which were partially offset by a decrease in other income of $204,000, an
increase in the provision for income taxes of $36,000, and an increase in other
expenses of $104,000.
Total interest income amounted to $2.5 million for the year ended December
31, 1994, an increase of $425,000, or 20.2%, over 1993. Interest income on loans
totaled $2.0 million, an increase of $357,000, or 21.3%, over 1993. This
increase resulted primarily from a $5.0 million increase in the weighted average
portfolio balance outstanding, which was partially offset by a decline in the
weighted average yield, from 8.72% in 1993 to 8.41% in 1994. Interest income on
investment and mortgage-backed securities and interest-bearing deposits totaled
$489,000 in 1994, an increase of $68,000, or 16.2%, over 1993. The increase
resulted primarily from an increase in the weighted average yield of 107 basis
points to 5.34% in 1994.
Interest expense on deposits totaled $1.0 million for the year ended
December 31, 1994, an increase of $144,000, or 16.4%, over 1993. The increase
was due primarily to a $5.1 million increase in the weighted average outstanding
balance, which was partially offset by a decline of 16 basis points in the
weighted average cost of deposits to 3.52% in 1994.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $280,000, or 23.0%, to a total of $1.5
million for the year ended December 31, 1994, as compared to 1993. The interest
rate spread increased to 4.04% in 1994 from 3.53% in 1993, while the net
interest margin increased to 4.49% in 1994, compared to 4.19% in 1993.
Citizens recorded a $17,000 provision for losses on loans for the year
ended December 31, 1994, a decrease of $33,000, or 66.0%, from the $50,000
provision recorded in 1993. Non-performing loans totaled $93,000 at December 31,
1994 and $36,000 at December 31, 1993, respectively, which represented 0.3 % and
0.2% of total loans on such dates.
Other income totaled $344,000 for the year ended December 31, 1994, a
decrease of $204,000, or 37.2%, from the $548,000 in other income recorded in
1993. The decrease resulted primarily from a decline in other service charges
and fees of $162,000, or 30.9% and a $71,000 loss on sale of investment
securities recorded during 1994, which were partially offset by a $28,000
increase in other operating income. The decline in service charges and fees
resulted primarily from the decrease in FHLMC service charges. Fees decreased
from $524,000 to $367,000 as a result of the increase in mortgage rates.
Other expense totaled $1.5 million for the year ended December 31, 1994, an
increase of $104,000, or 7.7%, over the $1.4 million total recorded in 1993. The
increase resulted primarily from a $65,000, or 10.6%, increase in employee
compensation and benefits and a $53,000, or 23.5%, increase in occupancy and
equipment. The increase in employee compensation and benefits resulted primarily
from normal merit increases, coupled with additional staffing levels attendant
to Citizens' 25% growth in assets year-to-year. The increase in occupancy and
equipment resulted from expenses for Citizens' Walmart branch. Costs of $60,000
were expensed at the end of the year relating to the Walmart branch.
The provision for income taxes totaled $129,000 for the year ended December
31, 1994, before consideration of an $86,000 cumulative effect credit for a
change in method of accounting for income taxes. The 1994 provision represented
an increase of $37,000, or 40.2%, over 1993. Citizens' effective tax rates were
35.1% and 25.4% for the years ended December 31, 1994 and 1993, respectively.
80
<PAGE>
Liquidity and Capital Resources
Citizens' primary sources of funds are deposits, proceeds from principal
and interest payments on loans and proceeds from maturing securities. While
maturities and scheduled amortization of loans are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions, competition and the restructuring of the
thrift industry.
The primary investing activity of Citizens is the origination of mortgage,
commercial and consumer loans. During the years ended December 31, 1995, 1994
and 1993, Citizens originated mortgage loans in the amounts of $32.7 million,
$17.3 million and $28.2 million, respectively. Citizens originated commercial
loans in the amounts of $9.2 million, $6.2 and $4.8 million, respectively,
during these periods. Citizens originated consumer loans of $7.4 million, $6.6
million and $4.7 million, respectively, during these periods. Loan repayments,
sales, and other deductions were $39.0 million, $20.2 million and $36.3 million
during the respective three one-year periods.
During the three month periods ended March 31, 1996 and 1995, Citizens
originated mortgage loans of $6.0 million and $4.0 million, respectively.
Citizens originated commercial loans in the amount of $2.3 million and $1.4
million, respectively, during these periods. During the same periods, Citizens
originated consumer loans of $1.2 million and $1.9 million, respectively. Loan
repayments, sales, and other deductions were $8.5 million and $5.0 million,
respectively, during these periods.
During the years ended December 31, 1995, 1994, and 1993, Citizens
purchased securities (including mortgage-backed securities) in the amounts of
$2.1 million, $3.6, and $6.7 million, respectively. Maturities, sales, and
repayments of securities were $4.7 million in 1995, $4.0 million in 1994 and
$5.1 million in 1993. For the three months ended March 31, 1996 and 1995,
Citizens purchased $3.3 million and $1.3 million of securities (including
mortgage-backed securities), respectively. Maturities, sales and repayments of
securities were $113,000 and $1.8 million for the three months ended March 31,
1996 and 1995, respectively.
Citizens had outstanding loan commitments of $750,000 and unused lines of
credit of $3.5 million at March 31, 1996. Citizens anticipates that it will have
sufficient funds from loan repayments to meet its current commitments without
having to borrow additional funds from the FHLB of Indianapolis. Certificates of
deposit scheduled to mature in one year or less at March 31, 1996 totaled $19.6
million. Management believes that a significant portion of such deposits will
remain with Citizens based upon historical deposit flow data and Citizens'
competitive pricing in its market area.
Liquidity management is both a daily and long-term function of Citizens'
management strategy. In the event that Citizens should require funds beyond its
ability to generate them internally, additional funds are available through the
use of FHLB advances and through sales of securities. FHLB advances were $1.5
million at March 31, 1996.
The following is a summary of cash flows for Citizens, which are of three
major types. Cash flows from operating activities consist primarily of net
income generated by cash. Investing activities generate cash flows through the
origination and principal collection on loans as well as purchases and sales of
securities. Investing activities will generally result in negative cash flows
when Citizens is experiencing loan growth. Cash flows from financing activities
include savings deposits, withdrawals and maturities and changes in borrowings.
The following table summarizes cash flows for the three months ended March 31,
1996 and 1995 and each of the three years in the period ended December 31, 1995.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------- ----------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating activities........................... $ (23) $ 45 $ 639 $ 514 $ 640
Investing activities:
Investment purchases........................ (3,343) (1,326) (2,072) (3,596) ---
Investment maturities/sales................. 113 1,772 4,748 3,967 ---
Net change in investment
securities................................ --- --- --- --- (1,562)
Changes in loans............................ (1,259) (2,614) (10,760) (9,977) (1,267)
Other....................................... (659) (162) (2,339) 449 (438)
Financing activities:
Deposit increases........................... 3,521 1,558 11,216 7,922 1,261
Borrowings.................................. --- 200 1,500 --- ---
------- ------- --------- -------- -------
Net change in cash and
cash equivalents............................ $(1,650) $ (527) $ 2,932 $ (721) $(1,366)
======= ======= ========= ======== =======
</TABLE>
81
<PAGE>
At March 31, 1996, Citizens had Tier I leverage capital of $3.5 million and
total risk-based capital of $3.9 million, and therefore exceeded all capital
requirements imposed by applicable law. See "Regulation -- Bank Regulatory
Capital."
Current Accounting Issues
In June 1993, the FASB adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." SFAS No. 114, which is effective for fiscal years
beginning after December 15, 1994, requires that impaired loans be measured
based on the present value of expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or fair value of the collateral. Citizens' loans which
might be affected are collateral dependent, and Citizens' current procedures for
evaluating impaired loans result in carrying such loans at the lower of cost or
fair value. Management adopted SFAS No. 114 on January 1, 1995, without a
significant detrimental effect on Citizens' overall consolidated financial
position or results of operations.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights," which requires that Citizens recognize as separate assets,
rights to service mortgage loans for others, regardless of how those servicing
rights are acquired. An institution that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and sells those
loans with servicing rights retained would allocate some of the cost of the
loans to the mortgage servicing rights.
SFAS No. 122 requires that securitizations of mortgage loans be accounted
for as sales of mortgage loans and acquisitions of mortgage-backed securities.
Additionally, SFAS No. 122 requires that capitalized mortgage servicing rights
and capitalized excess servicing receivables be assessed for impairment.
Impairment is measured based on fair value.
SFAS No. 122 was effective for years beginning after December 15, 1995
(January 1, 1996, as to Citizens) with respect to transactions in which an
entity acquires mortgage servicing rights and to impairment evaluations of all
capitalized mortgage servicing rights and capitalized excess servicing
receivables whenever acquired. Retroactive application is prohibited, and
earlier adoption is encouraged. Management adopted SFAS No. 122 as of January 1,
1996 without adverse material effect on Citizens' financial position or results
of operations.
Impact of Inflation
The financial statements presented herein have been prepared in accordance
with generally accepted accounting principles. These principles require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation.
The primary assets and liabilities of financial institutions such as
Citizens are monetary in nature. As a result, interest rates have a more
significant impact on Citizens' performance than the effects of general levels
of inflation. Interest rates, however, do not necessarily move in the same
direction or with the same magnitude as the price of goods and services, since
such prices are affected by inflation. In a period of rapidly rising interest
rates, the liquidity and maturities structures of Citizens' assets and
liabilities are critical to the maintenance of acceptable performance levels.
The principal effect of inflation, as distinct from levels of interest
rates, on earnings is in the area of noninterest expense. Such expense items as
employee compensation, employee benefits and occupancy and equipment costs may
be subject to increases as a result of inflation. An additional effect of
inflation is the possible increase in the dollar value of the collateral
securing loans made by Citizens. Citizens is unable to determine the extent, if
any, to which properties securing Citizens' loans have appreciated in dollar
value due to inflation.
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<PAGE>
BUSINESS OF CITIZENS
General
Citizens was organized as a national bank in 1981 and conducts its business
from four full-service offices all located in Jefferson County, Indiana.
Citizens' business consists of attracting deposits from the general public and
originating residential and nonresidential real estate mortgage loans,
commercial loans and consumer loans. Citizens specially tailors loans to achieve
the structure and flexibility required by its borrowers. The small to medium
sized businesses, professionals and individuals who borrow from Citizens receive
the benefit of individual attention, review and oversight offered by Citizens
and its staff. Citizens' deposits are insured up to applicable limits by the BIF
of the FDIC.
Citizens offers a number of consumer and commercial financial services,
including: (i) residential mortgage loans; (ii) nonresidential real estate
loans; (iii) nonmortgage commercial loans; (iv) multi-family loans; (v)
agricultural loans; (vi) construction loans; (vii) home equity loans; (viii)
loans secured by deposits; (ix) home equity loans; (x) installment loans; (xi)
mobile home loans; (xii) NOW accounts; (xiii) money market accounts; (xiv)
savings accounts; (xv) certificates of deposit; (xvi) annuities and (xvii)
individual retirement accounts.
Lending Activities
Citizens historically has concentrated its lending activities on the
origination of loans secured by first mortgage liens for the purchase,
construction or refinancing of one- to four-family residential real property.
One- to four-family residential mortgage loans continue to be the major focus of
Citizens' loan origination activities, representing 39.4% of Citizens' total
loan portfolio at March 31, 1996. Citizens also offers multi-family mortgage
loans, nonresidential real estate loans, nonmortgage commercial loans and
consumer loans. Mortgage loans secured by multi-family properties and
nonresidential real estate totaled approximately 2.1% and 22.4%, respectively,
of Citizens' total loan portfolio at March 31, 1996. Nonmortgage commercial
loans constituted approximately 10.3% of Citizens' total loan portfolio at March
31, 1996. Consumer loans constituted approximately 21.1% of Citizens' total loan
portfolio at March 31, 1996.
Loan Portfolio Data. The following table sets forth the composition of
Citizens' loan portfolio by loan type as of the dates indicated, including a
reconciliation of gross loans receivable after consideration of the allowance
for loan losses.
<TABLE>
<CAPTION>
At December 31,
At March 31, ----------------------------------------------------------------
1996 1995 1994 1993
------------------ ------------------- ------------------ ------------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ --------
TYPE OF LOAN (Dollars in thousands) Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to four-family................... $16,573 39.4% $15,386 37.7% $ 9,465 31.4% $ 6,603 32.6%
Multi-family......................... 874 2.1 881 2.2 710 2.4 130 0.6
Construction......................... 1,988 4.7 2,484 6.1 1,821 6.0 971 4.8
Nonresidential real estate........... 9,403 22.4 7,698 18.9 5,370 17.8 3,368 16.6
Consumer loans.......................... 8,890 21.1 9,135 22.4 7,673 25.4 4,904 24.2
Commercial loans........................ 4,338 10.3 5,196 12.7 5,131 17.0 4,281 21.1
Gross loans receivable.................. 42,066 100.0 40,780 100.0 30,170 100.0 20,257 100.0
Deduct:
Allowance for loan losses............... (478) (1.1) (348) (0.9) (336) (1.1) (359) (1.8)
------- ---- ------- ---- ------- ---- ------- ----
Net loans receivable.................... $41,588 98.9% $40,432 99.1% $29,834 98.9% $19,898 98.2%
======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
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<PAGE>
The following table sets forth certain information at December 31, 1995,
regarding the dollar amount of loans maturing in Citizens' loan portfolio based
on the date that final payment is due. Demand loans having no stated schedule of
repayments and no stated maturity and overdrafts are reported as due in one year
or less. This schedule does not reflect the effects of possible prepayments or
enforcement of due-on-sale clauses. Management expects prepayments will cause
actual maturities to be shorter.
<TABLE>
<CAPTION>
Due During Years Ended December 31,
------------------------------------------------------------------------
Outstanding 1999 2001 2006 2011
December 31, to to to and
1995 1996 1997 1998 2000 2005 2010 following
---- ---- ---- ---- ---- ---- ---- ---------
(In thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to four-family............ $15,386 $ 931 $1,235 $1,226 $1,219 $1,704 $4,080 $4,991
Multi-family.................. 881 587 294 --- --- --- --- ---
Construction loans............ 2,484 2,484 --- --- --- --- --- ---
Nonresidential................ 7,698 6,786 912 --- --- --- --- ---
Consumer loans................... 9,135 2,913 2,331 1,741 889 985 276 ---
Commercial loans................. 5,196 2,897 864 398 419 208 410 ---
Total......................... $40,780 $16,598 $5,636 $3,365 $2,527 $2,897 $4,766 $4,991
</TABLE>
The following table sets forth, as of December 31, 1996, the dollar amount
of all loans due after one year that have fixed interest rates and floating or
adjustable interest rates.
<TABLE>
<CAPTION>
Due After December 31, 1996
------------------------------------------------------------
Fixed Rates Variable Rates Total
----------- -------------- -----
(In thousands)
Mortgage loans:
<S> <C> <C> <C>
One-to four-family................. $1,090 $13,365 $14,455
Multi-family....................... --- 294 294
Construction loans................. --- --- ---
Nonresidential..................... --- 912 912
Consumer loans........................ 6,222 --- 6,222
Commercial loans...................... 690 1,609 2,299
------ ------- -------
Total.............................. $8,002 $16,180 $24,182
====== ======= =======
</TABLE>
Residential Loans. Residential loans consist primarily of one- to
four-family loans. Approximately $16.6 million, or 39.4% of Citizens' portfolio
of loans at March 31, 1996, consisted of one- to four-family residential loans,
of which approximately 93.0% had adjustable rates.
Citizens currently offers adjustable-rate one- to four-family residential
ARMs which adjust annually and are indexed to the one-year U.S. Treasury
securities yields adjusted to a constant maturity. When an initial interest rate
is determined for a residential ARM loan, a margin is calculated by subtracting
the then-current index rate from the initial interest rate. Interest rate
adjustments are thereafter determined based upon fluctuations in the index rate
with a specific loan's margin remaining constant. Citizens' ARMs provide for
maximum rate adjustments per year and over the life of the loan of 1% and 5%,
respectively, and interest rate minimums of 1% below the origination rate.
Citizens' residential ARMs are amortized for terms up to 20 years. Citizens does
not currently originate one- to four-family residential ARMs if the
Loan-to-Value Ratio exceeds 90%.
Adjustable-rate loans decrease the risk associated with changes in interest
rates but involve other risks, primarily because as interest rates rise, the
payments by the borrowers may rise to the extent permitted by the terms of the
loan, thereby increasing the potential for default. Also, adjustable-rate loans
have features which restrict changes in interest rates on a short-term basis and
over the life of the loan. At the same time, the market value of the underlying
property may be adversely affected by higher interest rates.
84
<PAGE>
Citizens also currently offers fixed-rate one- to four-family residential
mortgage loans in accordance with the guidelines established by the FHLMC to
facilitate the sale of such loans to the FHLMC in the secondary market. These
loans amortize on a monthly basis with principal and interest due each month and
are written with terms of 15, 20 and 30 years. Citizens' fixed-rate residential
mortgage loans have a maximum Loan-to-Value Ratio of 80%. Citizens retains the
servicing on all loans sold to the FHLMC. At March 31, 1996, Citizens had
approximately $24 million of fixed-rate residential mortgage loans which were
sold to the FHLMC and for which Citizens provides servicing. At the same date,
Citizens had $1.1 million of fixed-rate residential mortgage loans which were
maintained in Citizens' portfolio. See "-- Origination, Purchase and Sale of
Loans." At March 31, 1996, 7.0% of Citizens' residential mortgage loans had
fixed rates.
Citizens' home equity lines of credit are adjustable-rate lines of credit
tied to the prime rate and are amortized based on a 10 year maturity. Citizens
generally allows a maximum 90% Loan-to-Value Ratio for its home equity loans
(taking into account any other mortgages on the property). Payments on such home
equity loans equal 1.5% of the outstanding principal balance per month.
At March 31, 1996, Citizens had approved $2.2 million of home equity loans,
of which $900,000 were outstanding. No home equity loans were included in
non-performing assets on that date.
Substantially all of the one- to four-family residential mortgage loans
that Citizens originates include "due-on-sale" clauses, which give Citizens the
right to declare a loan immediately due and payable in the event that, among
other things, the borrower sells or otherwise disposes of the real property
subject to the mortgage and the loan is not repaid.
At March 31, 1996, one- to four-family residential mortgage loans amounting
to $75,000, or 0.2% of total loans, were included in non-performing assets. See
"-- Non-Performing and Problem Assets."
Construction Loans. Citizens offers construction loans with respect to
owner-occupied residential real estate and multi-family and nonresidential real
estate and to builders or developers constructing such properties on a
speculative basis (i.e., before the builder/developer obtains a commitment from
a buyer).
At March 31, 1996, $2.0 million, or 4.7% of Citizens' total loan portfolio,
consisted of construction loans. The largest construction loan at March 31,
1996, totalled $129,000. No construction loans were included in non-performing
assets on that date.
Generally, construction loans are written as 12 month fixed-rate loans with
interest calculated on the amount disbursed under the loan and payable on a
monthly basis. Citizens generally requires an 80% Loan-to-Value Ratio for its
multi-family and nonresidential real estate construction loans and an 85%
Loan-to-Value Ratio for its one- to four-family residential construction loans.
Inspections are made prior to any disbursement under a construction loan, and
Citizens does not charge commitment fees for its construction loans.
While providing Citizens with a comparable, and in some cases higher, yield
than a conventional mortgage loan, construction loans involve a higher level of
risk. For example, if a project is not completed and the borrower defaults,
Citizens may have to hire another contractor to complete the premises at a
higher cost. Also, a house may be completed, but may not be salable, resulting
in the borrower defaulting and Citizens taking title to the premises.
Nonresidential Real Estate Loans. At March 31, 1996, $9.4 million, or 22.4%
of Citizens' total loan portfolio, consisted of nonresidential real estate
loans. The nonresidential real estate loans included in Citizens' portfolio are
primarily secured by real estate such as churches, farms and small business
properties. Citizens currently originates nonresidential real estate loans as
one-year adjustable-rate loans indexed to the one-year U.S. Treasury securities
yields adjusted to a constant maturity and are written for maximum terms of 15
years. When an initial interest rate is determined for an adjustable-rate
nonresidential real estate loan, a margin is calculated by subtracting the
then-current index rate from the initial interest rate. Interest rate
adjustments are thereafter determined based upon fluctuations in the index rate
with a specific loan's margin remaining constant. Citizens' adjustable-rate
nonresidential real estate loans have maximum adjustments per year and over the
life of the loan of 1.0% and 5%, respectively, and interest rate minimums of 1%
below the origination rate. Citizens generally requires Loan-to-Value Ratios of
65% to 85% for its nonresidential real estate loans, depending on the nature of
the real estate securing such loans. Citizens underwrites its nonresidential
real estate loans on a case-by-case basis and, in addition to its normal
underwriting criteria, Citizens evaluates the borrower's ability to service the
debt from the net operating income of the property. The largest nonresidential
real estate loan as of March 31, 1996 was $343,000. On the same date,
nonresidential real estate loans totalling $114,000 were included in
non-performing assets.
Loans secured by nonresidential real estate generally are larger than one-
to four-family residential loans and involve a greater degree of risk.
Nonresidential real estate loans often involve large loan balances to single
borrowers or groups of related borrowers. Payments on these loans depend to a
large degree on results of operations and management of the properties and may
be affected to a greater extent by adverse conditions in the real estate market
or the economy in general. Accordingly, the nature of the loans makes them more
difficult for management to monitor and evaluate.
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<PAGE>
Multi-Family Loans. At March 31, 1996, $874,000, or 2.1% of Citizens' total
loan portfolio, consisted of mortgage loans secured by multi-family dwellings
(those consisting of more than four units). Citizens' multi-family loans are
generally written on the same terms and conditions as Citizens' nonresidential
real estate loans. The largest multi-family loan as of March 31, 1996 was
$227,000. On the same date, there were no multi-family loans included in
non-performing assets.
Multi-family loans, like nonresidential real estate loans, involve a
greater risk than do residential loans. See "-- Nonresidential Real Estate
Loans" above. Also, the loans-to-one borrowers limitation limits the ability of
Citizens to make loans to developers of apartment complexes and other
multi-family units.
Commercial Loans. At March 31, 1996, $4.3 million, or 10.3% of Citizens'
total loan portfolio, consisted of nonmortgage commercial loans. Citizens'
commercial loans are written on either a fixed-rate or an adjustable-rate basis
with terms that vary depending on the type of security, if any. At March 31,
1996, approximately 95.6% of Citizens' commercial loans were secured by
collateral, such as equipment, inventory and crops. Citizens' adjustable-rate
commercial loans are generally indexed to the prime rate with varying margins
and terms depending on the type of collateral securing the loans and the credit
quality of the borrowers. At March 31, 1996, the largest commercial loan was
$______. As of the same date, commercial loans totalling $40,000 were included
in non-performing assets.
Commercial loans tend to bear somewhat greater risk than residential
mortgage loans, depending on the ability of the underlying enterprise to repay
the loan. Further, they are frequently larger in amount than Citizens' average
residential mortgage loans. See "Risk Factors."
Consumer Loans. Citizens' consumer loans, consisting primarily of auto,
mobile home, home improvement and unsecured installment loans, aggregated $8.9
million at March 31, 1996, or 21.1% of Citizens' total loan portfolio. Citizens
consistently originates consumer loans to meet the needs of its customers and to
assist in meeting its asset/liability management goals. All of Citizens'
consumer loans, except loans secured by deposits, are fixed-rate loans with
terms that vary depending on the collateral. At March 31, 1996, 92.0% of
Citizens' consumer loans were secured by collateral.
Citizens offers both direct and indirect automobile loans. Under Citizens'
indirect automobile program, participating automobile dealers receive loan
applications from prospective purchasers of automobiles at the point of sale and
deliver them to Citizens for immediate processing. The dealer receives a portion
of the interest payable on approved loans.
Citizens' loans secured by deposits are made up to 100% of the original
account balance and accrue at a rate of 2% over the underlying certificate of
deposit rate. Interest on loans secured by deposits is paid semi-annually.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans which are unsecured or are secured by
rapidly depreciable assets, such as automobiles and mobile homes. Further, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of greater
likelihood of damage, loss or depreciation. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. At March 31, 1996, consumer loans amounting to $33,000 were included
in non-performing assets. See "-- Non-Performing and Problem Assets." There can
be no assurances, however, that additional delinquencies will not occur in the
future.
Origination, Purchase and Sale of Loans. Citizens historically has
originated its ARM loans pursuant to its own underwriting standards which were
not in conformity with the standard criteria of the FHLMC or FNMA. If it desired
to sell its adjustable-rate mortgage loans, Citizens might therefore experience
some difficulty selling such loans quickly in the secondary market. Citizens'
ARMs vary from secondary market criteria because, among other things, Citizens
does not require current property surveys in most cases and does not permit the
conversion of those loans to fixed rate loans in the first three years of their
term.
Citizens participates in the secondary market as a seller of its fixed-rate
residential mortgage loans to the FHLMC, as described above. The loans sold by
Citizens to the FHLMC are designated for sale when originated. During the three
months ended March 31, 1996, Citizens sold $4.3 million in fixed-rate
residential mortgage loans to FHLMC, and at March 31, 1996 held no such loans
for sale.
When it sells residential mortgage loans, Citizens generally retains the
responsibility for collecting and remitting loan payments, inspecting the
properties that secure the loans, making sure that monthly principal and
interest payments and real estate tax and insurance payments are made, and
otherwise servicing the loan. Citizens receives a servicing fee in the amount of
one-fourth of 1% per annum on the outstanding principal amount of the loans
serviced. The servicing fee is recognized as income over the life of the loan.
At March 31, 1996, Citizens serviced $24 million in loans sold to the FHLMC.
86
<PAGE>
Citizens confines its loan origination activities primarily to Jefferson
County. At March 31, 1996, loans totalling $300,000 were secured by property
located outside of Indiana. Citizens' loan originations are generated from
referrals from real estate dealers and existing customers, and newspaper and
periodical advertising. Loan applications are processed and underwritten at any
of Citizens' four full-service offices.
Citizens' loan approval process is intended to assess the borrower's
ability to repay the loan, the viability of the loan and the adequacy of the
value of the property that will secure the loan. To assess the borrower's
ability to repay, Citizens studies the employment and credit history and
information on the historical and projected income and expenses of its
mortgagors. Mortgage loans up to $100,000 may be approved by Citizens' Senior
Loan Officer, and mortgage loans up to $200,000 may be approved by the
President. All other mortgage loans are approved by at least three members of
the Board of Directors. Loans secured by collateral other than real estate up to
$300,000 may be approved by Citizens' President and loans secured by collateral
other than real estate up to $100,000 may be approved by the Senior Loan
Officer. All other loans secured by collateral other than real estate are
approved by the Board of Directors. Citizens' President and Senior Loan Officer
have lending authority of up to $50,000 and $25,000, respectively, for unsecured
loans.
Citizens generally requires appraisals on all property securing its loans
and requires title insurance and a valid lien on its mortgaged real estate.
Appraisals for all real property securing mortgage loans are performed by an
independent appraiser who is a state-licensed appraiser. Citizens requires fire
and extended coverage insurance in amounts at least equal to the principal
amount of the loan and also requires flood insurance to protect the property
securing its interest if the property is in a flood plain. Citizens does not
currently require that accounts be established by its borrowers to escrow
insurance premiums and taxes for its portfolio loans.
Citizens' underwriting standards for consumer and commercial loans are
intended to protect against some of the risks inherent in making such loans.
Borrower character, paying habits and financial strengths are important
considerations.
Citizens occasionally purchases participations in nonresidential real
estate and multi-family loans from other financial institutions. At March 31,
1996, Citizens held in its loan portfolio participations in mortgage loans
aggregating $199,000 that it had purchased, all of which were serviced by
others.
The table below shows loan origination, purchase and repayment activities
of Citizens for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------------- ------------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
Loan Originations:
<S> <C> <C> <C> <C> <C>
Single family residential....................... $4,440 $1,835 $24,992 $11,814 $25,219
Multi-family residential........................ --- 417 1,117 200 ---
Nonresidential real estate...................... 559 671 2,578 1,925 1,704
Construction.................................... 989 1,075 4,050 3,389 1,240
Commercial...................................... 2,304 1,404 9,213 6,150 4,787
Consumer and other.............................. 1,211 1,890 7,433 6,571 4,664
------ ------ ------- ------- -------
Total loans originated........................ 9,503 7,292 49,383 30,049 37,614
Purchases.......................................... --- --- 200 7 ---
------ ------ ------- ------- -------
Total loans originated and purchased.......... 9,503 7,292 49,583 30,056 37,614
Sales and Loan Principal Reductions:
Loans sold...................................... 7,869 463 8,689 3,177 16,567
Loan principal reductions....................... 328 4,570 30,296 16,972 19,781
------ ------ ------- ------- -------
Total loans sold and principal reductions..... 8,197 5,033 38,985 20,149 36,348
Increase (decrease) due to other items, net........ (150) 1 --- 29 (41)
------ ------ ------- ------- -------
Net increase in loan portfolio..................... $1,156 $2,260 $10,598 $ 9,936 $ 1,225
====== ====== ======= ======= =======
</TABLE>
Origination and Other Fees. Citizens realizes income from loan origination
fees, loan servicing fees, late charges, checking account service charges, and
fees for other miscellaneous services. Late charges are generally assessed if
payment is not received within a specified number of days after it is due. The
grace period depends on the individual loan documents.
87
<PAGE>
Non-Performing and Problem Assets
All loans are written off to the extent and at such time as management
determines the loans are unsecured and uncollectible. Delinquency notices are
sent with respect to all mortgage loans contractually past due 5 to 10 days.
When loans are 30 days in default, personal contact is made with the borrower to
establish an acceptable repayment schedule. Management is authorized to commence
foreclosure proceedings for any loan upon making a determination that it is
prudent to do so. All loans for which foreclosure proceedings have been
commenced are written-off with recoveries taken upon the sale of the property
securing the loan.
Commercial and consumer loans are treated similarly. Interest income on
consumer and other nonmortgage loans is accrued over the term of the loan except
when serious doubt exists as to the collectibility of a loan, in which case the
loan is written-off or written down to the fair value of the collateral securing
the loan. It is Citizens' policy to recognize losses on these loans as soon as
they become apparent.
Loan Write-Offs. For the year ended December 31, 1995, Citizens wrote off
loans totaling $92,000, net of recoveries, compared to $40,000 for the year
ended December 31, 1994. For the three months ended March 31, 1996, Citizens
wrote off loans totaling $20,000, net of recoveries. Citizens held no REO as of
March 31, 1996.
The following table sets forth information regarding Citizens'
non-performing loans, troubled debt restructuring, and real estate acquired
through foreclosure at the dates indicated. At March 31, 1996, residential real
estate loans, nonresidential real estate loans, consumer loans and commercial
loans accounted for $75,000, $114,000, $33,000 and $40,000, respectively, of
non-performing assets.
<TABLE>
<CAPTION>
At December 31,
At March 31, ------------------------------------------
1996 1995 1994 1993
------------ ------ ------ -------
(Dollars in thousands)
Non-performing assets:
<S> <C> <C> <C> <C>
Non-performing loans (1).......................... $ 262 $ 297 $ 93 $ 36
Troubled debt restructurings...................... --- --- --- ---
----- ----- ----- -----
Total non-performing loans...................... 262 297 93 36
Foreclosed real estate............................ --- --- --- ---
----- ----- ----- -----
Total non-performing assets..................... $ 262 $ 297 $ 93 $ 36
===== ===== ===== =====
Non-performing loans to total loans.................. 0.63% 0.73% 0.31% 0.18%
==== ==== ==== ====
Non-performing assets to total assets................ 0.45% 0.54% 0.23% 0.11%
==== ==== ==== ====
</TABLE>
(1) Loans continue to accrue interest until such time as they are deemed
uncollectible. At that time, loans are written off, in the case of
unsecured loans, and written down to fair value of the collateral, in the
case of secured loans.
At March 31, 1996, Citizens held loans delinquent from 30 to 89 days
aggregating $1.6 million, or 2.7% of total assets. Citizens was not aware of any
other loans, the borrowers of which were experiencing financial difficulties. In
addition there were no other assets that would need to be disclosed as
non-performing assets.
88
<PAGE>
Delinquent Loans. The following table sets forth certain information at
March 31, 1996, and at December 31, 1995, 1994 and 1993, relating to
delinquencies in Citizens' portfolio.
<TABLE>
<CAPTION>
At March 31, 1996 At December 31, 1995
------------------------------------------------- ------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- ------------------------- ----------------------- -----------------------
Principal Principal Principal Principal
Number Balance of Number Balance of Number Balance of Number Balance of
of Loans Loans of Loans Loans of Loans Loans of Loans Loans of
-------- ----- -------- ----- -------- ----- -------- ----- --
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real
estate loans............ 4 $118 4 $ 75 3 $ 61 5 $118
Multi-family loans......... --- --- --- --- --- --- --- ---
Construction loans......... --- --- --- --- 1 390 --- ---
Non-residential
real estate loans....... 2 340 1 114 --- --- 1 114
Consumer loans............. 21 104 12 33 20 65 6 35
Commercial loans........... 2 14 1 40 1 6 1 30
-- ---- -- ---- -- ---- -- ----
Total................... 29 $576 18 $262 25 $522 13 $297
== ==== == ==== == ==== == ====
Delinquent loans to
total gross loans....... 1.99% 2.01%
==== ====
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1994 At December 31, 1993
------------------------------------------------- ------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- ------------------------- ----------------------- -----------------------
Principal Principal Principal Principal
Number Balance of Number Balance of Number Balance of Number Balance of
of Loans Loans of Loans Loans of Loans Loans of Loans Loans of
-------- ----- -------- ----- -------- ----- -------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real 1 $ 39 2 $47 3 $ 96 1 $18
estate loans............ --- --- --- --- --- --- --- ---
Multi-family loans......... --- --- --- --- --- --- --- ---
Construction loans.........
Non-residential 1 121 --- --- --- --- --- ---
real estate loans....... 9 37 9 46 17 96 4 13
Consumer loans............. 3 34 --- --- --- --- 1 5
-- ---- -- --- -- ---- - ---
Commercial loans........... 14 $231 11 $93 20 $192 6 $36
== ==== == === == ==== == ===
Total...................
Delinquent loans to 1.07% 1.13%
total gross loans....... ==== ====
</TABLE>
89
<PAGE>
Classified assets. Citizens' Asset Classification Policy provides for the
classification of loans and other assets such as debt and equity securities
considered to be of lesser quality as "substandard," "doubtful" or "loss"
assets. An asset is considered "substandard" if it is inadequately protected by
the current net worth and paying capacity of the obligor or of the collateral
pledged, if any. "Substandard" assets include those characterized by the
"distinct possibility" that the institution will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted.
An insured institution is required to establish general allowances for loan
losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. General allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount.
At March 31, 1996, the aggregate amount of Citizens' classified assets, and
of Citizens' general and specific loss allowances were as follows:
At March 31, 1996
-----------------
(In thousands)
Substandard assets................................... $ 347
Doubtful assets...................................... ---
Loss assets.......................................... ---
-----
Total classified assets.......................... $ 347
=====
General loss allowances.............................. $ 478
Specific loss allowances............................. ---
-----
Total allowances................................. $ 478
=====
Citizens regularly reviews its loan portfolio to determine whether any
loans require classification in accordance with applicable regulations. Not all
of Citizens' classified assets constitute non-performing assets.
Allowance for Loan Losses
The allowance for loan losses is maintained through the provision for loan
losses, which is charged to earnings. The provision for loan losses is
determined in conjunction with management's review and evaluation of current
economic conditions (including those of Citizens' lending area), changes in the
character and size of the loan portfolio, loan delinquencies (current status as
well as past and anticipated trends) and adequacy of collateral securing loan
delinquencies, historical and estimated net charge-offs, and other pertinent
information derived from a review of the loan portfolio. In management's
opinion, Citizens allowance for loan losses is adequate to absorb anticipated
future losses from loans at March 31, 1996. However, there can be no assurance
that regulators, when reviewing Citizens' loan portfolio in the future, will not
require increases in its allowances for loan losses or that changes in economic
conditions will not adversely affect Citizens' loan portfolio.
90
<PAGE>
The following is a summary of activity in Citizens' allowance for loan
losses for the periods indicated. The allowance for loan losses is not allocated
to any specific loan type.
<TABLE>
<CAPTION>
Three months Year Ended
ended March 31, December 31,
----------------------- ----------------------------------------
1996 1995 1995 1994 1993
------ ---- -------- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance of allowance at beginning
of period................................ $348 $336 $336 $359 $316
Charge-offs:
Single-family residential................ --- --- --- --- ---
Consumer and other....................... 24 18 147 83 70
---- ---- ---- ---- ----
Total charge-offs.................... 24 18 147 83 70
Recoveries.................................. 4 8 55 43 63
---- ---- ---- ---- ----
Net charge-offs............................. 20 10 92 40 7
Provision for losses on loans............... 150 9 104 17 50
---- ---- ---- ---- ----
Balance at end of period.................... $478 $335 $348 $336 $359
==== ==== ==== ==== ====
Allowance for loan losses as a percent
of total loans outstanding............... 1.15% 1.03% 0.86% 1.13% 1.80%
==== ==== ==== ==== ====
Ratio of net charge-offs to average
loans outstanding........................ 0.05% 0.03% 0.25% 0.17% 0.04%
==== ==== ==== ==== ====
</TABLE>
Investments and Mortgage-Backed Securities
Investments. Citizens' investment portfolio consists of U.S. government and
agency obligations, municipal securities, FHLB stock and FRB Stock. At March 31,
1996, approximately $5.0 million, or 8.6%, of Citizens' total assets consisted
of such investments, all of which was classified as available for sale.
The following table sets forth the composition of Citizens' investment
portfolio (excluding interest-bearing deposits) at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
At March 31, --------------------------------------------------------------
1996 1995 1994 1993
------------------ ------------------ ------------------- ------------------
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- ----- ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity:
U.S. Government agency obligations.....$ --- $ --- $ ---$ --- $1,465 $1,453 $ 500 $ 505
Municipal securities................... --- --- --- --- 674 604 559 562
Total held to maturity............... --- --- --- --- 2,139 2,057 1,059 1,067
Available for Sale and Equity Securities:
U. S. Treasury notes................... 2,498 2,498 --- --- --- --- --- ---
U. S. Government agency obligations.... 997 986 151 151 --- --- 500 513
Municipal securities................... 1,132 1,136 1,132 1,155 425 433 653 673
FRB stock................................. 80 80 80 80 80 80 80 80
FHLB stock................................ 271 271 271 271 118 118 107 107
----- ----- ----- ------ ------- ------ ------ -----
Total available for sale
and equity securities.............. 4,978 4,971 1,634 1,657 623 631 1,340 1,373
====== ====== ====== ====== ====== ====== ====== ======
Total.............................. $4,978 $4,971 $1,634 $1,657 $2,762 $2,688 $2,397 $2,440
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
The following table sets forth the amount of investment securities
(excluding FHLB stock and FRB stock) which mature during each of the periods
indicated and the weighted average yields for each range of maturities at March
31, 1996.
<TABLE>
<CAPTION>
Amount at March 31, 1996 which matures in
----------------------------------------------------------------------------------------------------------
Less than One Year Five Years More Than
One Year to Five Years to Ten Years Ten Years Total
------------------ ------------------ ------------------ ------------------ ------------------
Amortized Market Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
agency obligations.... $ --- $ --- $ --- $ --- $ 997 $ 986 $ --- $ --- $ 997 $ 986
U.S. Treasury notes...... --- --- 2,498 2,498 --- --- --- --- 2,498 2,498
Municipal securities..... --- --- --- --- 977 978 155 158 1,132 1,138
----- ----- ------ ------ ------ ------ ---- ---- ------ ------
Total............... $ --- $ --- $2,498 $2,498 $1,974 $1,964 $155 $158 $4,627 $4,620
===== ===== ====== ====== ====== ====== ==== ==== ====== ======
</TABLE>
91
<PAGE>
Mortgage-Backed Securities. At March 31, 1996, Citizens had approximately
$3.5 million of mortgage-backed securities outstanding, all of which were
classified as available for sale. These mortgage-backed securities may be used
as collateral for borrowings and through repayments, as a source of liquidity.
The following table sets forth the carrying value and market value of
Citizens' mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
1996 1995 1994 1993
------------------- ------------------- ------------------ -----------------
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- ----- ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to maturity:
FHLMC Participation
certificates............. $ --- $ --- $ --- $ --- $ 462 $ 430 $ 701 $ 718
FNMA Participation
certificates............. --- --- --- --- 2,256 2,093 2,833 2,848
Total mortgage backed
securities designated as
held to maturity....... --- --- --- --- 2,718 2,523 3,534 3,566
Available for sale:
Government agency
securities............... 2,619 2,576 2,728 2,699 1,579 1,459 1,575 1,595
Collaterialized mortgage
obligations.............. 879 853 879 863 879 872 899 886
------ ------ ------ ------ ------ ------ ------ ------
Total mortgage backed
securities designated as
available for sale..... 3,498 3,429 3,607 3,562 2,458 2,331 2,474 2,481
------ ------ ------ ------ ------ ------ ------ ------
Total mortgage-backed
securities........... $3,498 $3,429 $3,607 $3,S562 $5,176 $4,854 $6,008 $6,047
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The following table sets forth the amount of mortgage-backed securities
which mature during each of the periods indicated and the weighted average
yields for each range of maturities at December 31, 1995.
<TABLE>
<CAPTION>
Amount at December 31, 1995 which matures in
--------------------------------------------------------------------------------
One Year One Year to After
or Less Five Years Five Years
------------------------ ----------------------- -----------------------
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
---- ----- ---- ----- ---- -----
(Dollars in thousands)
Mortgage-backed securities
<S> <C> <C> <C> <C> <C> <C>
Available for sale........................... $--- ---% $2,609 6.99% $998 6.42%
==== === ====== ==== ==== ====
</TABLE>
The following table sets forth the changes in Citizens' mortgage-backed
securities portfolio for the three-month periods ended March 31, 1996 and 1995
and for the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
For the Three Months For the Year Ended
Ended March 31, December 31,
------------------------ -------------------------------------------
1996 1995 1995 1994 1993
------- ------ ------ ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance........................... $3,562 $5,049 $5,049 $6,008 $5,929
Purchases................................... --- 448 887 1,495 5,553
Sales....................................... --- --- (1,925) (916) (2,589)
Monthly repayments.......................... (113) (166) (494) (1,372) (2,758)
Premium and discount
amortization, net........................ 3 (3) (28) (39) (127)
Unrealized gains (losses) on securities
available for sale....................... (23) 45 73 (127) ---
------ ------ ------ ------ ------
Ending balance.............................. $3,429 $5,373 $3,562 $5,049 $6,008
====== ====== ====== ====== ======
</TABLE>
92
<PAGE>
Sources of Funds
General. Deposits have traditionally been Citizens' primary source of funds
for use in lending and investment activities. In addition to deposits, Citizens
derives funds from scheduled loan payments, loan prepayments, investment
maturities, retained earnings and income on earning assets. While scheduled loan
payments and income on earning assets are relatively stable sources of funds,
deposit inflows and outflows can vary widely and are influenced by prevailing
interest rates, market conditions and levels of competition. Borrowings from the
FHLB of Indianapolis may be used in the short-term to compensate for reductions
in deposits or deposit inflows at less than projected levels. Citizens rarely
borrows on a longer-term basis, for example, to support expanded activities or
to assist in its asset/liability management.
Deposits. Deposits are attracted, principally from within Jefferson County,
through the offering of a broad selection of deposit instruments including
fixed-rate certificates of deposit, NOW and other transaction accounts,
individual retirement accounts and savings accounts. Citizens does not actively
solicit or advertise for deposits outside of Jefferson County. Substantially all
of Citizens' depositors are residents of that county. Deposit account terms
vary, with the principal differences being the minimum balance required, the
amount of time the funds remain on deposit and the interest rate. Citizens does
not pay a fee for any deposits it receives.
Interest rates paid, maturity terms, service fees and withdrawal penalties
are established by Citizens on a periodic basis. Determination of rates and
terms are predicated on funds acquisition and liquidity requirements, rates paid
by competitors, growth goals, and applicable regulations. Citizens relies, in
part, on customer service and long-standing relationships with customers to
attract and retain its deposits, but also closely prices its deposits in
relation to rates offered by its competitors.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. The variety of deposit accounts offered by Citizens has allowed it
to be competitive in obtaining funds and to respond with flexibility to changes
in consumer demand. Citizens has become more susceptible to short-term
fluctuations in deposit flows as customers have become more interest rate
conscious. Citizens manages the pricing of its deposits in keeping with its
asset/liability management and profitability objectives. Based on its
experience, Citizens believes that its passbook, NOW and non-interest-bearing
checking accounts are relatively stable sources of deposits. However, the
ability of Citizens to attract and maintain certificates of deposit, and the
rates paid on these deposits, have been and will continue to be significantly
affected by market conditions. Citizens has experienced sustained growth in its
deposit portfolio over the past three years as a result of Citizens' emphasis on
cross-selling techniques. Management expects to continue to emphasize
cross-selling techniques in an effort to maintain growth in its deposit
portfolio, but no assurances can be given that such growth will continue in the
future.
93
<PAGE>
Deposit Accounts. The following table sets forth the deposit activities of
Citizens in dollar amounts and as percentages of total deposits at March 31,
1996.
<TABLE>
<CAPTION>
Minimum Balance at Weighted
Opening March 31, % of Average
Type of Account Balance 1996 Deposits Rate
- --------------- ------- ---- -------- ----
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C>
Demand deposits.......................... $ 100 $ 6,332 12.0% 2.18%
Savings and NOW accounts................. 100 18,282 34.7 3.22
Total withdrawable..................... 24,614 46.7 3.11
Certificates (original terms):
6 months................................. 500 1,013 1.9
9 months................................. 500 329 0.6
12 months................................ 500 10,848 20.6
24 months................................ 500 1,139 2.2
30 months ............................... 500 2,552 4.8
36 months................................ 500 2,792 5.3
48 months................................ 500 799 1.5
60 months................................ 500 619 1.2
IRAs:
12 months................................ 500 416 0.8
24 months................................ 500 293 0.6
30 months ............................... 500 53 0.1
36 months................................ 500 568 1.0
48 months................................ 500 107 0.2
60 months................................ 500 633 1.2
Jumbo certificates.......................... 100,000 5,972 11.3
------ ----
Total certificates....................... 28,133 53.3 5.90
------ ---- ----
Total deposits.............................. $52,747 100.0% 4.60%
======= ===== ====
</TABLE>
The following table presents the distribution of Citizens' time deposits by
various interest rate categories as of the dates indicated:
<TABLE>
<CAPTION>
At December 31,
At March 31, -------------------------------------------
1996 1995 1994 1993
Amount Amount Amount Amount
------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C>
3.00 to 4.00%....................... $ 338 $ 141 $ 2,573 $ 6,651
4.01 to 6.00%....................... 15,178 12,610 10,502 4,545
6.01 to 8.00%....................... 12,616 14,718 4,118 951
8.01 to 10.00%...................... 1 1 66 409
------- ------- ------- -------
Total.......................... $28,133 $27,470 $17,259 $12,556
======= ======= ======= =======
</TABLE>
94
<PAGE>
The following table represents, by various interest rate categories, the
amounts of time deposits maturing during each of the three years following March
31, 1996. Matured certificates, which have not been renewed as of March 31,
1996, have been allocated based upon certain rollover assumptions.
<TABLE>
<CAPTION>
Amounts at March 31, 1996
------------------------------------------------------------------------------
One Year Two Three Greater Than
or Less Years Years Three Years
------- ----- ----- -----------
(In thousands)
<S> <C> <C> <C> <C>
3.00 to 3.99%............................... $ 300 $ --- $ --- $ ---
4.00 to 4.99%............................... 2,100 --- --- ---
5.00 to 5.99%............................... 14,771 2,014 211 384
6.00 to 6.99%............................... 2,333 1,152 1,180 729
7.00 to 7.99%............................... 100 2,529 330 ---
8.00 to 8.99%............................... --- --- --- ---
Total.................................... $19,604 $5,695 $1,721 $1,113
</TABLE>
The following table indicates the amount of Citizens' jumbo and other
certificates of deposit of $100,000 or more by time remaining until maturity as
of March 31, 1996.
At March 31, 1996
Maturity Period -----------------
- --------------- (In thousands)
Three months or less....................................... $2,257
Greater than three months through six months............... 1,819
Greater than six months through twelve months.............. 792
Over twelve months......................................... 1,104
------
Total................................................. $5,972
======
95
<PAGE>
The following table sets forth the dollar amount of savings deposits in
the various types of deposits offered by Citizens at the dates indicated, and
the amount of increase or decrease in such deposits as compared to the previous
period.
<TABLE>
<CAPTION>
DEPOSIT ACTIVITY
--------------------------------------------------------------------------------
Balance Increase Balance Increase
at (Decrease) at (Decrease)
March 31, % of from December 31, % of from
1996 Deposits 1995 1995 Deposits 1994
---------- -------- ---------- ------------ -------- ----------
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C> <C> <C>
Demand Deposits............................... $ 6,332 12.0% $(2,619) $ 8,951 18.2% $ 108
Savings and NOW accounts...................... 18,282 34.7 5,476 12,806 26.0 895
Total withdrawable.......................... 24,614 46.7 2,857 21,757 44.2 1,003
Certificates (original terms):
6 months...................................... 1,013 1.9 (107) 1,120 2.2 (636)
9 months...................................... 329 0.6 (1,109) 1,438 2.9 1,019
12 months..................................... 10,848 20.6 709 10,139 20.6 5,833
24 months..................................... 1,139 2.2 350 789 1.6 250
30 months .................................... 2,552 4.8 30 2,522 5.1 319
36 months..................................... 2,792 5.3 78 2,714 5.5 2,511
48 months..................................... 799 1.5 61 738 1.5 58
60 months..................................... 619 1.2 (4) 623 1.3 94
IRAs:
12 months..................................... 416 0.8 (82) 498 1.0 205
24 months..................................... 293 0.6 4 289 0.6 147
30 months .................................... 53 0.1 --- 53 0.1 (3)
36 months..................................... 568 1.0 134 434 1.0 346
48 months..................................... 107 0.2 (77) 184 0.4 (20)
60 months..................................... 633 1.2 --- 633 1.3 7
Jumbo certificates............................... 5,972 11.3 676 5,296 10.7 83
------- ----- ------ ------- ----- -------
Total certificates............................ 28,133 53.3 663 27,470 55.8 10,213
------- ----- ------ ------- ----- -------
Total deposits................................... $52,747 100.0% $3,520 $49,227 100.0% $11,216
======= ===== ====== ======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
DEPOSIT ACTIVITY
-------------------------------------------------------------------
Balance Increase Balance
at (Decrease) at
December 31, % of from December 31, % of
1994 Deposits 1993 1993 Deposits
------------ -------- -------- ------------ --------
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C> <C>
Demand Deposits............................... $ 8,843 23.3% $ 181 $ 8,662 28.8%
Savings and NOW accounts...................... 11,911 31.3 3,039 8,872 29.5
------- ----- ------- ------- -----
Total withdrawable.......................... 20,754 54.6 3,220 17,534 58.3
Certificates (original terms):
6 months...................................... 1,756 4.6 (371) 2,127 7.2
9 months...................................... 419 1.1 (936) 1,355 4.5
12 months..................................... 4,306 11.4 2,013 2,293 7.6
24 months..................................... 539 1.4 (211) 750 2.5
30 months .................................... 2,203 5.9 2,198 5 *
36 months..................................... 203 0.5 (49) 252 0.8
48 months..................................... 680 1.8 132 548 1.8
60 months..................................... 529 1.4 (167) 696 2.3
IRAs:
12 months..................................... 293 0.8 9 284 0.9
24 months..................................... 142 0.4 7 135 0.4
30 months .................................... 56 (4) 60 0.2
36 months..................................... 88 0.2 5 83 0.3
48 months..................................... 204 0.5 (9) 213 0.7
60 months..................................... 626 1.6 150 476 1.6
Jumbo certificates............................... 5,213 13.7 1,935 3,278 10.9
------- ----- ------- ------- -----
Total certificates............................ 17,257 45.4 4,702 12,555 41.7
------- ----- ------- ------- -----
Total deposits................................... $38,011 100.0% $ 7,922 $30,089 100.0%
======= ===== ======= ======= =====
</TABLE>
96
<PAGE>
Borrowings. Citizens focuses on generating high quality loans and then
seeks the best source of funding from deposits, investments or borrowings. At
March 31, 1996, Citizens had $1.5 million in borrowings from the FHLB of
Indianapolis which had interest rates of 6.62%. Citizens paid off these
borrowings in April, 1996. Citizens does not anticipate any difficulty in
obtaining advances appropriate to meet its requirements in the future.
The following table presents certain information relating to the Citizens
borrowings at or for the three months ended March 31, 1996 and 1995 and at or
for the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
At or for the
Three Months At or for the Year
Ended March 31, Ended December 31,
------------------------- ---------------------------------
1996 1995 1995 1994 1993
--------- ------ ------ ------ -----
(Dollars in thousands)
FHLB Advances:
<S> <C> <C> <C> <C> <C>
Outstanding at end of period......................... $1,500 $200 $1,500 $--- $---
Average balance outstanding for period............... 1,500 78 1,134 16 ---
Maximum amount outstanding at any
month-end during the period..................... 1,500 200 1,500 --- ---
Weighted average interest rate
during the period............................... 6.67% 5.13% 6.17% 6.25% ---%
Weighted average interest rate
at end of period................................ 6.62% 6.16% 6.62% ---% ---%
</TABLE>
Properties
The following table provides certain information with respect to Citizens'
offices as of March 31, 1996.
<TABLE>
<CAPTION>
Net Book Value
of Property
Year Furniture, Approximate
Opened or Fixtures and Square
Description and Address Acquired Equipment Footage
- ------------------------ --------- -------------- ------------
(Dollars in thousands)
Offices in Madison, Indiana
Main Office:
<S> <C> <C> <C>
430 Clifty Drive................... 1983 $707 6,084
Downtown Office:
307 West Main Street.............. 1986 14 1,500
Wal-Mart Banking Center:
567 Ivy Tech Drive................. 1995 141 517
Office in Hanover, Indiana
Hanover Banking Center:
10 Medical Plaza Drive............. 1995 511 656
</TABLE>
Citizens owns computer and data processing equipment which is used for
transaction processing, loan origination, and accounting. The net book value of
electronic data processing equipment owned by Citizens was approximately $85,000
at March 31, 1996.
Citizens operates four ATMs, one at each office location. Citizens' ATMs
participate in the PLUS(R) and MAC(R) networks.
97
<PAGE>
Employees
As of March 31, 1996, Citizens employed 30 persons on a full-time basis and
5 persons on a part-time basis. None of Citizens' employees is represented by a
collective bargaining group. Management considers its employee relations to be
excellent.
Citizens' employee benefits for full-time employees include, among other
things, a 401(k) plan, major medical and long-term disability insurance.
Employee benefits are considered by management to be competitive with those
offered by other financial institutions and major employers in Citizens' area.
See "Executive Compensation and Related Transactions of Citizens."
Legal Proceedings
Although Citizens, from time to time, is involved in various legal
proceedings in the normal course of business, there are no material legal
proceedings to which Citizens is a party or to which any of its property is
subject.
MANAGEMENT OF THE HOLDING COMPANY
Directors and Executive Officers of the Holding Company
The Board of Directors of the Holding Company currently consists of six
directors, each of whom is also a director of Madison First. The directors of
the Holding Company are divided into three classes, and one-third of the Board
is to be elected at each annual meeting of the shareholders of the Holding
Company. Upon consummation of the Acquisition it is anticipated that Jonnie L.
Davis, who currently serves as a director of Citizens, will be appointed to the
Board of Directors of the Holding Company. The initial terms of the directors
expire at the Holding Company's first shareholders' meeting, which is
anticipated to be held in April, 1997. At that meeting, it is anticipated that
the directors will be nominated to serve for the following terms: the terms of
Messrs. Dorten and Johann and of Ms. Davis will expire in 1998, the terms of
Messrs. Hensley and Koehler will expire in 1999, and the terms of Messrs. Anger
and Fritz will expire in 2000.
The executive officers of the Holding Company are identified below. The
executive officers of the Holding Company are elected annually by the Holding
Company's Board of Directors.
Name Position with Holding Company
---- -----------------------------
James E. Fritz Director, President and Chief Executive Officer
Lonnie D. Collins Secretary
John Wayne Deveary Treasurer
MANAGEMENT OF MADISON FIRST
Directors of Madison First
The Board of Directors of Madison First currently consists of six persons.
Each director holds office for a term of three years, and one-third of the Board
is elected at each annual meeting of the members of Madison First. Upon
consummation of the Acquisition it is anticipated that Jonnie L. Davis, who
currently serves as a director of Citizens, will be appointed to the Board of
Directors of Madison First.
The Board of Directors of Madison First met 13 times during the fiscal year
ended December 31, 1995. No director attended fewer than 75% of the meetings of
the Board of Directors held while he served as a director and the meetings of
committees on which he served.
Listed below are the current directors of Madison First:
Director of Position
Madison First Expiration with
Director Since of Term Madison First
Robert W. Anger 1981 1997 Director and
Vice President--Lending
Cecil L. Dorten 1990 1998 Vice Chairman
James E. Fritz 1995 1997 Director, President and
Chief Executive Officer
Michael J. Hensley 1995 1999 Director
Earl W. Johann 1987 1998 Director
Fred W. Koehler 1988 1999 Chairman
98
<PAGE>
Presented below is certain information concerning the directors of Madison
First:
Robert W. Anger (age 58) has served as Madison First's Vice President --
Lending since May, 1995. Prior to that, Mr. Anger served as Madison First's
President and Chief Executive Officer. Mr. Anger also serves as a director of
First Service and McCauley.
Cecil L. Dorten (age 51) has served as the President of Ohio Valley
Contractors, Inc., a highway and utility contracting firm, since 1983, and is a
Brigadier General in the Indiana National Guard. Mr. Dorten also serves a
director of First Service and McCauley.
James E. Fritz (age 33) has served as Madison First's President and Chief
Executive Officer since August, 1995. Prior to that Mr. Fritz served as the
Chief Financial Officer of First Federal Savings Bank of Kokomo until January,
1995, and as a consultant to National City Corporation from January, 1995 to
August, 1995. Mr. Fritz also serves as a director and the Secretary-Treasurer of
First Service and a director of McCauley.
Michael J. Hensley (age 40) has practiced law since January, 1989. Prior to
that, Mr. Hensley served as a Compliance Officer, Assistant Trust Officer and
the General Counsel to The Madison Bank & Trust Company from 1980 to January,
1989. Mr. Hensley also serves as a director of First Service and McCauley.
Earl W. Johann (age 64) has served as the President and Chairman of the
Board of Madison Distributing Co. since 1979. Mr. Johann also serves as a
director of First Service and McCauley.
Fred W. Koehler (age 55) is the former owner of Koehler Tire Co., a tire
and automotive parts store in Madison, Indiana, and is the Auditor for Jefferson
County. Mr. Koehler also serves as President of First Service and as a director
of First Service and McCauley.
Madison First also has a Director Emeritus program pursuant to which former
directors of Madison First may continue to serve Madison First as an advisor to
the Board of Directors upon their retirement or resignation from the Board.
Currently, Jerry D. Allen, Madison First's Vice President -- Commercial Lending,
and Joseph Hensley serve as Directors Emeritus of Madison First. Mr. Allen is
paid fees of $600 per month for his service as a Director Emeritus, and Mr.
Hensley receives no fees in connection with service as a Director Emeritus. See
"-- Compensation of Directors."
Executive Officers of Madison First Who Are Not Directors
Presented below is certain information regarding the executive officers of
Madison First who are not directors:
Name Position
Traci A. Bridgford Vice President -- Compliance/Operations
Lonnie D. Collins Secretary
John Wayne Deveary Vice President and Treasurer
Traci A. Bridgford (age 27) has served as the Vice President --
Compliance/Operations of Madison First since January, 1996. Prior to that, Ms.
Bridgford served as Compliance Officer of Madison First from May, 1995 to
January, 1996. Ms. Bridgford served as the Senior Auditor, Controller and
Compliance Officer for Union County National Bank ("Union County") from June,
1992 to April, 1995, and as Auditor and Controller of Union County from January,
1991 to June, 1992.
Lonnie D. Collins (age 48) has served as Secretary of Madison First since
September, 1994. Mr. Collins has also practiced law since October, 1975 and has
served as Madison First's outside counsel since 1980.
John Wayne Deveary (age 42) has served as a Vice President of Madison First
since January, 1996 and as Treasurer since January, 1978. Mr. Deveary has been
employed with Madison First since 1976.
Committees of the Boards of Directors of Madison First and the Holding Company
The Loan Committee is the only committee of Madison First's Board of
Directors that meets regularly and is comprised of all members of the Board. It
meets weekly and is responsible for approving all mortgage loans.
Madison First's Audit Committee, which is comprised of all outside
directors, met one time during the fiscal year ended December 31, 1995. The
Audit Committee recommends appointment of Madison First's independent
accountants and meets with them to outline the scope, and review the results, of
each audit.
99
<PAGE>
The Chairman of the Board of Directors of Madison First is required by
Madison First's By-Laws to appoint a nominating committee consisting of three
members of Madison First 30 days prior to each annual meeting. Such Committee is
authorized to make nominations for directors in writing to Madison First's
Secretary at least 15 days prior to the annual meeting which nominations are
then posted at Madison First's office. Nominations for directors may also be
made in writing by members and delivered to Madison First's Secretary at least
10 days prior to Madison First's annual meeting.
EXECUTIVE COMPENSATION AND RELATED TRANSACTIONS OF MADISON FIRST
Remuneration of Named Executive Officer
The following table sets forth information as to annual, long-term and
other compensation for services in all capacities to the President and Chief
Executive Officer of Madison First for the fiscal year ended December 31, 1995.
There were no executive officers of Madison First, as of December 31, 1995, who
earned over $100,000 in salary and bonuses during that fiscal year.
<TABLE>
<CAPTION>
Summary Compensation Table
------------------------------------------------------------------
Annual Compensation
------------------------------------------------------------------
Name and Principal Fiscal Other Annual All Other
Position Year Salary Bonus Compensation(4) Compensation
-------- ---- ------ ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
James E. Fritz, President and 1995(1) $28,388 (3) $2,539 -- --
Chief Executive Officer
Robert W. Anger, President 1995(2) $65,045 (3) $5,784 -- --
and Chief Executive Officer
</TABLE>
(1) Mr. Fritz joined Madison First as President and Chief Executive Officer in
August, 1995.
(2) Mr. Anger served as President and Chief Executive Officer of Madison First
until August, 1995.
(3) Includes fees received for service on Madison First's Board of Directors.
Mr. Fritz's current annual salary is $65,000.
(4) Each of Mr. Fritz and Mr. Anger received certain perquisites, but the
incremental cost of providing such perquisites did not exceed the lesser of
$50,000 or 10% of his salary and bonus.
Employment Contract
Effective January 1, 1996, Madison First entered into the Fritz Agreement
with James E. Fritz, Madison First's President and Chief Executive Officer. The
Fritz Agreement is a three-year agreement and extends annually for an additional
one-year term to maintain its three-year term if Madison First's Board of
Directors determines to so extend it. Under the Fritz Agreement, Mr. Fritz
receives an initial annual salary equal to his current salary subject to
increases approved by the Board of Directors. The Fritz Agreement also provides,
among other things, for Mr. Fritz's participation in other bonus and fringe
benefit and benefits plans available to Madison First's employees. Mr. Fritz may
terminate his employment upon ninety (90) days' prior written notice to Madison
First. Madison First may discharge Mr. Fritz for just cause (as defined in the
Fritz Agreement) at any time or in certain events specified by applicable law or
regulations. If Madison First terminates Mr. Fritz's employment for other than
just cause or Mr. Fritz terminates the Fritz Agreement for reasons specified
therein and not within twelve months after a change in control of Madison First
or the Holding Company, the Fritz Agreement provides for Mr. Fritz's receipt of
a lump-sum or periodic payment of an amount equal to the sum of (A) Mr. Fritz's
base salary through the end of the then-current term, plus (B) Mr. Fritz's base
salary for an additional twelve-month period, plus (C) in Mr. Fritz's sole
discretion and in lieu of continued participation in Madison First's fringe
benefit plans, cash in an amount equal to the cost of obtaining all health,
life, disability and other benefits in which Mr. Fritz would otherwise be
eligible to participate. In the event Madison First terminates Mr. Fritz's
employment for other than just cause or Mr. Fritz terminates the Fritz Agreement
for reasons permitted therein within twelve months following a change in control
of Madison First or the Holding Company, the Fritz Agreement provides for Mr.
Fritz's receipt of a lump-sum payment of an amount equal to the difference
between (A) the product of 2.99 times his "base amount" (as defined in Section
280G(b)(3) of the Code) and (B) the sum of any other parachute payments, as
determined under Section 280G(b)(2) of the Code. If the payments provided for
under the Fritz Agreement, together with any other payments made to Mr. Fritz by
Madison First, are determined to be payments in violation of the "golden
parachute" rules of the Code, such payments will be reduced to the largest
amount which would not cause Madison First to lose a tax deduction for such
payments under those rules. As of the date hereof, the cash compensation that
would be paid to Mr. Fritz under the Fritz Agreement if such agreement were
terminated after a change in control of Madison First would be $194,000.
100
<PAGE>
Special Termination Agreements
Effective as of the date of the Conversion, Madison First will enter into
the Termination Agreements with its Covered Employees. The Termination
Agreements have terms of one year, subject to annual extension by the Board of
Directors of Madison First, and provide that upon the termination of a Covered
Employee's employment by the employer for other than cause or by the Covered
Employee for reasons specificied in the Termination Agreements, within 18 months
after the Conversion or within 12 months following a "change in control" (as
defined in the Termination Agreements) which occurs during the term of the
applicable Termination Agreement, such Covered Employee shall be entitled to a
lump sum payment of 100% of his or her base amount of compensation, as
determined pursuant to Section 280G(b)(3) of the Code (the "Termination
Benefit"). Covered Employees may elect to receive the Termination Benefit in
semi-monthly payments over a twelve month period. The Termination Agreements
also provide for continued life, health and disability coverage for Covered
Employees until the expiration of twelve months following the termination of
employment or until the Covered Employee obtains coverage from another employer,
whichever occurs first. If a Covered Employee obtains coverage from another
employer, and does not have substantially identical life, health and disability
coverage, Madison First shall maintain substantially identical coverage on
behalf of the Covered Employee for a period of twelve months.
Compensation of Directors
All directors of Madison First are entitled to receive monthly director
fees in the amount of $600 for their services. Jerry Allen also receives $600
per month as a Director Emeritus of Madison First. Outside directors of Madison
First also receive fees in the amount of $100 for each special meeting of the
Board. Total fees paid to directors of Madison First and Mr. Allen for the year
ended December 31, 1995 were approximately $56,000.
Madison First's directors and directors emeritus may, pursuant to deferred
compensation agreements, defer payment of some or all of such directors' fees or
salary for a maximum period of five years. Upon reaching the retirement age
specified in their respective joinder agreements, directors who participate in
the deferred compensation plan receive fixed monthly payments for a specific
period ranging from 60 to 180 months, depending on the specific director's
election in his joinder agreement, but may also elect to receive their benefits
in a lump sum in the event of financial hardship. The agreements also provide
for death and disability benefits.
Madison First has purchased paid-up life insurance on the lives of
directors and directors emeritus participating in the deferred compensation plan
to fund benefits payable thereunder. The insurance is provided by Pacific Mutual
and Transamerica. At March 31, 1996, the cash surrender value of the policies
was carried on the books of Madison First at an amount equal to $729,000.
Madison First expensed $10,000 in connection with these agreements for the year
ended December 31, 1995.
Directors of the Holding Company, First Service and McCauley are not
currently paid directors' fees. The Holding Company may, if it believes it is
necessary to attract qualified directors or otherwise beneficial to the Holding
Company, adopt a policy of paying directors' fees.
Benefits
Insurance Plans. Madison First's directors, officers and employees are
provided with hospitalization, major medical, major dental, life insurance,
short-term and long-term disability insurance, and other insurance benefits
under group plans sponsored by the Indiana League of Savings Institutions Group
Insurance Trust. Madison First pays all premiums for employees and their
dependents.
Pension Plan. Madison First's full-time employees are included in the
Pentegra Group retirement plan, a noncontributory multiple employer
comprehensive pension plan (the "Pension Plan"). Separate actuarial valuations
are not made for individual employer members of the Pension Plan. Madison
First's employees are eligible to participate in the plan once they have
completed six months of service for Madison First, if they complete 1,000 hours
of service in a calendar year. An employee's pension benefits are 100% vested
after five years of service.
The Pension Plan provides for monthly or lump sum retirement benefits
determined as a percentage of the employee's average salary (for his highest
five consecutive years of salary) times his years of service. Salary includes
base annual salary as of each January 1, exclusive of overtime, bonuses, fees
and other special payments. Early retirement, disability, and death benefits are
also payable under the Pension Plan, depending upon the participant's age and
years of service. Madison First expensed approximately $9,000 for the Pension
Plan during the fiscal year ended December 31, 1995.
101
<PAGE>
The estimated base annual retirement benefits presented on a straight-line
basis payable at normal retirement age (65) under the Pension Plan to persons in
specified salary and years of service classifications are as follows (benefits
noted in the table are not subject to any offset).
<TABLE>
<CAPTION>
Years of Service
Highest 5-Year ------------------------------------------------------------------------------------------
Average
Compensation 15 20 25 30 35 40 50
- -------------- ------- ------- ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 40,000 $15,000 $20,000 $25,000 $30,000 $ 35,000 $ 40,000 $ 45,000
$ 60,000 $22,500 $30,000 $37,500 $45,000 $ 52,500 $ 60,000 $ 67,500
$ 80,000 $30,000 $40,000 $50,000 $69,000 $ 70,000 $ 80,000 $ 90,000
$100,000 $37,500 $50,000 $62,500 $75,000 $ 87,500 $100,000 $112,500
$120,000 $45,000 $60,000 $75,000 $90,000 $105,000 $120,000 $135,000
</TABLE>
Benefits are currently subject to maximum Code limitations of $120,000 per
year. The years of service credited to Mr. Fritz under the Pension Plan as of
December 31, 1995 were eight. The years of service credited to Mr. Anger under
the Pension Plan as of December 31, 1995 were 23.
Severance Programs. Madison First expects to implement a severance program
as of the date of the Conversion for the benefit of all employees of Madison
First who are not covered by Termination Agreements or by employment contracts.
Pursuant to the severance program, any employee of Madison First who is
terminated within 18 months following the Conversion or within twelve months
following a change in control of the Holding Company or Madison First will be
entitled to receive a lump-sum payment in an amount equal to three weeks
compensation for every year of service with Madison First, up to a maximum of
twelve months compensation.
Transactions With Certain Related Persons
Madison First has followed a policy of offering to its directors, officers,
and employees real estate mortgage loans secured by their principal residence
and other loans. These loans are made in the ordinary course of business with
the same collateral, interest rates and underwriting criteria as those of
comparable transactions prevailing at the time and do not involve more than the
normal risk of collectibility or present other unfavorable features. Loans to
directors and executive officers totaled approximately $446,000, or 6.8% of
consolidated retained earnings at March 31, 1996.
Current law requires that all loans or extensions of credit to executive
officers, directors, and principal shareholders be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with the general public and must not involve
more than the normal risk of repayment or present other unfavorable features. In
addition, loans made to a director or executive officer in excess of the greater
of $25,000 or 5% of Madison First's capital and surplus (up to a maximum of
$500,000) must be approved in advance by a majority of the disinterested members
of the Board of Directors. Madison First's policy regarding loans to directors
and all employees meets the requirements of current law.
Lonnie D. Collins, Secretary of the Holding Company and Madison First,
serves as counsel to and provides routine legal work for Madison First. In
connection with his services in such capacity, Mr. Collins is paid an annual
retainer of $3,000. In addition, Mr. Collins received $3,000 in fees for his
legal work for Madison First for the year ended December 31, 1995. Mr. Collins
also receives $600 per month for his service as Secretary to Madison First's
Board of Directors. Madison First expects to continue using Mr. Collins'
services for routine legal work following the Conversion and the Acquisition.
Employee Stock Ownership Plan and Trust
The Holding Company has established for eligible employees of the
Institutions an ESOP effective January 1, 1996, subject to Madison First's
conversion to stock form. Employees with at least one year of employment with
the Institutions and who have attained age twenty-one are eligible to
participate. As part of the Conversion, the ESOP intends to borrow funds from
the Holding Company and use such funds to purchase a number of shares equal to
8% of the Common Stock to be issued in the Conversion. Collateral for the loan
will be the Common Stock purchased by the ESOP. The loan will be repaid
principally from the Institutions' discretionary contributions to the ESOP over
a period of 7 years. It is anticipated that the initial interest rate for the
loan will be approximately 8.25%. Shares purchased by the ESOP will be held in a
suspense account for allocation among participants as the loan is repaid.
102
<PAGE>
Contributions to the ESOP and shares released from the suspense account in
an amount proportional to the repayment of the ESOP loan will be allocated among
ESOP participants on the basis of compensation in the year of allocation. No
allocations will be made to any employee with respect to any compensation in
excess of $50,000 per year, although the maximum is subject to cost-of-living
increases. Benefits generally become 100% vested after three years of credited
service. Prior to the completion of three years of credited service, a
participant who terminates employment for reasons other than death, retirement,
or disability will not receive any benefit under the ESOP. Forfeitures will be
reallocated among remaining participating employees upon the earlier of the
forfeiting participant's death or after the expiration of at least three years
from the date on which such participant's employment was terminated. Benefits
may be payable in the form of Common Stock or cash upon death, retirement, early
retirement, disability or separation from service. The Institutions'
contributions to the ESOP are not fixed, so benefits payable under the ESOP
cannot be estimated. SOP 93-6 requires the Institutions to record compensation
expense in an amount equal to the fair market value of the shares released from
the suspense account. See "Risk Factors -- ESOP Compensation Expense."
In connection with the establishment of the ESOP, the Holding Company will
establish a committee of employees of the Institutions to administer the ESOP.
will serve as corporate trustee of the ESOP. The ESOP Committee may instruct the
trustee regarding investment of funds contributed to the ESOP. The ESOP trustee,
subject to its fiduciary duty, must vote all allocated shares held in the ESOP
in accordance with the instructions of participating employees. Under the ESOP,
nondirected shares, and shares held in the suspense account, will be voted in a
manner calculated to most accurately reflect the instructions it has received
from participants regarding the allocated stock so long as such vote is in
accordance with the provisions of ERISA.
Stock Option Plan
At a meeting of the Holding Company's shareholders to be held at least six
months after the completion of the Conversion, the Board of Directors intends to
submit for shareholder approval the Stock Option Plan for directors, officers
and employees of the Institutions and of the Holding Company. If approved by the
shareholders, Common Stock in an aggregate amount equal to 10.0% of the shares
issued in the Conversion would be reserved for issuance by the Holding Company
upon the exercise of the stock options granted under the Stock Option Plan.
Assuming the issuance of 900,000 shares in the Conversion, an aggregate of
90,000 shares would be reserved for issuance under the Stock Option Plan. No
options would be granted under the Stock Option Plan until the date on which
shareholder approval is received. At that time, it is anticipated that options
for the following number of shares will be granted to the following directors
and executive officers of the Institutions and the Holding Company:
103
<PAGE>
Percentage of Shares
Optionee Issued in Conversion
-------- --------------------
James E. Fritz
President, Chief Executive Officer
and Director (1)........................................ 1.20%
Robert D. Hoban
President, Chief Executive Officer
and Director (2)........................................ 1.00
John Wayne Deveary
Vice President and Treasurer (1)........................ 0.60
Larry C. Fouse
Chief Financial Officer
and Controller (2)...................................... 0.50
Carolyn B. Flowers
Vice President-- Compliance/Operations (2)............. 0.50
Mark A. Goley
Vice President and Senior Loan Officer (2).............. 0.50
Fred W. Koehler
Chairman (1)............................................ 0.50
Robert W. Anger
Vice President Lending and Director (1)................. 0.45
Michael J. Hensley
Director (1)............................................ 0.45
Cecil L. Dorten
Chairman (1)............................................ 0.45
Earl W. Johann
Director (1)............................................ 0.45
Lonnie D. Collins
Secretary (1)........................................... 0.40
Traci A. Bridgford
Vice President-- Compliance/Operations (1).............. 0.30
Jonnie L. Davis
Director (2)............................................ 0.30
Burton P. Chambers
Chairman (2)............................................ 0.15
Van E. Shelton
Director (2)............................................ 0.15
Ralph E. Storm
Director (2)............................................ 0.15
Other employees............................................. 1.95
-----
Total................................................... 10.00%
=====
- ----------
(1) Of Madison First.
(2) Of Citizens.
It is anticipated that these options would be granted for terms of 10 years
(in the case of incentive options) or 10 years and one day (in the case of
non-qualified options), and at an option price per share equal to the fair
market value of the shares on the date of grant of the stock options. Options
will become exercisable at a rate of 20% at the end of each twelve (12) months
of service with the Institutions after the date of grant, subject to early
vesting in the event of death or disability. Options granted under the Stock
Option Plan are adjusted for capital changes such as stock splits and stock
dividends. Unless the Holding Company decides to call an earlier special meeting
of shareholders, the date of grant of these options would be the date of the
Holding Company's annual meeting of shareholders to be held in April, 1997.
The Stock Option Plan would be administered by a Committee of disinterested
directors of the Holding Company's Board of Directors. Options granted under the
Stock Option Plan to employees could be "incentive" stock options designed to
result in a beneficial tax treatment to the employee but no tax deduction to the
Holding Company. Non-qualified stock options could also be granted under the
Stock Option Plan, and will be granted to the non-employee directors listed in
the chart above. In the event an option recipient terminated his or her
employment for reasons other than retirement, disability, or death, the options
would terminate during certain specified periods.
104
<PAGE>
RRP
At a meeting of the Holding Company's shareholders to be held at least six
months after the completion of the Conversion, the Board of Directors also
intends to submit for shareholder approval the RRP as a means of providing the
directors, officers and employees of the Institutions and of the Holding Company
with an ownership interest in the Holding Company in a manner designed to
encourage such persons to continue their service with the Institutions and the
Holding Company. The Institutions will contribute funds to the RRP from time to
time to enable it to acquire an aggregate amount of Common Stock equal to up to
4.0% of the shares of Common Stock issued in the Conversion, either directly
from the Holding Company or on the open market. In the event that additional
authorized but unissued shares would be acquired by the RRP after the
Conversion, the interests of existing shareholders would be diluted.
No awards under the RRP would be made until the date the RRP is approved by
the Holding Company's shareholders. At that time, it is anticipated that awards
of the following number of shares would be made to the following directors,
officers and employees of the Holding Company and the Institutions:
Percentage of Shares
Recipient of Issued in Conversion to be
Awards Awarded Under RRP
- ----------------------------------------- --------------------------
James E. Fritz
President, Chief Executive Officer
and Director (1).................................... 0.595%
Robert D. Hoban
President, Chief Executive Officer
and Director (2).................................... 0.500
John Wayne Deveary
Vice President and Treasurer (1).................... 0.300
Larry C. Fouse
Chief Financial Officer and Controller (2).......... 0.250
Carolyn B. Flowers
Vice President-- Compliance/Operations (2)......... 0.250
Mark A. Goley
Vice President and Senior Loan Officer (2).......... 0.250
Fred W. Koehler
Chairman (1)........................................ 0.250
Robert W. Anger
Vice President Lending and Director (1)............. 0.220
Michael J. Hensley
Director (1)........................................ 0.220
Cecil L. Dorten
Chairman (1)........................................ 0.220
Earl W. Johann
Director (1)........................................ 0.220
Lonnie D. Collins
Secretary (1)....................................... 0.200
Traci A. Bridgford
Vice President-- Compliance/Operations (1).......... 0.150
Jonnie L. Davis
Director (2)........................................ 0.150
Burton P. Chambers
Chairman (2)........................................ 0.075
Van E. Shelton
Director (2)........................................ 0.075
Ralph E. Storm
Director (2)........................................ 0.075
Other employees......................................... 0.075
-----
Total............................................... 4.000%
=====
- ----------
(1) Of Madison First.
(2) Of Citizens.
105
<PAGE>
Awards would be nontransferable and nonassignable, and during the lifetime
of the recipient could only be earned by and made to him or her. The shares
which are subject to an award would vest and be earned by the recipient at a
rate of 20% of the shares awarded at the end of each full twelve (12) months of
service with the Institutions after the date of grant of the award. Awards are
adjusted for capital changes such as stock dividends and stock splits.
Notwithstanding the foregoing, awards would be 100% vested upon termination of
employment or service due to death or disability. If employment or service were
to terminate for other reasons, the grantee's nonvested awards will be
forfeited. If employment or service is terminated for cause (as would be defined
in the RRP), or if conduct would have justified termination or removal for
cause, shares not already delivered under the RRP, whether or not vested, could
be forfeited by resolution of the Board of Directors of the Holding Company.
When shares become vested and could actually be distributed in accordance
with the RRP, the participants would also receive amounts equal to accrued
dividends and other earnings or distributions payable with respect thereto. When
shares become vested under the RRP, the participant will recognize income equal
to the fair market value of the Common Stock earned, determined as of the date
of vesting. The amount of income recognized by the participant would be a
deductible expense for tax purposes for the Holding Company. Shares not yet
vested under the RRP will be voted by the Trustee of the RRP, taking into
account the best interests of the recipients of the RRP awards.
MANAGEMENT OF CITIZENS
Directors of Citizens
The Board of Directors of Citizens currently consists of five persons. Each
director holds office for a term of one year. Upon consummation of the
Acquisiton it is anticipated that James E. Fritz and Fred W. Koehler, who
currently serve as directors of Madison First and the Holding Company, will be
appointed to the Board of Directors of Citizens.
The Board of Directors of Citizens met 13 times during the fiscal year
ended December 31, 1995. No director attended fewer than 75% of the meetings of
the Board of Directors held while he served as a director and the meetings of
committees on which he served.
Listed below are the directors of Citizens:
Director of Position
Citizens with
Director Since Citizens
Burton P. Chambers 1982 Chairman
Jonnie L. Davis 1989 Director
Robert D. Hoban 1989 Director, President and
Chief Executive Officer
Van E. Shelton 1981 Director
Ralph E. Storm 1981 Director
Presented below is certain information concerning the directors of
Citizens:
Burton P. Chambers (age 84) has served as Chairman of Citizens' Board of
Directors since 1986. Until 1992, Mr. Chambers was also the owner and operator
of C&R Parts Service, Inc. of Madison, Indiana.
Jonnie L. Davis (age 61) is currently employed as an administrative
assistant with Fewel, Pettitt and Bender, a surveying firm in Madison, Indiana.
From July 1994 to July 1995, Ms. Davis served as an accounting clerk for
Stockdale Motors, an automobile retailer in Madison, Indiana. From April 1984 to
December 1994, Ms. Davis served as a bookkeeping clerk for D&B Enterprises, a
partnership involved in owning and operating apartment complexes and other
nonresidential real estate ventures. From September 1991 to June 1993, Ms. Davis
served as a Vice President and Assistant to the President and performed all
accounting and financial functions for the Gust. K. Newberg Company, a general
construction contractor in Madison, Indiana.
Robert D. Hoban (age 54) has served as Citizens' President and Chief
Executive Officer since October 1989. Prior to that, Mr. Hoban served as
Executive Vice President of Union National Bank in New Albany, Indiana.
Van E. Shelton (age 70) has served as the President of Shelton Farms, Inc.
since 1976. Mr. Shelton also served as the Auditor for Jefferson County, Indiana
from 1986 to 1994.
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Ralph E. Storm (age 65) has served as the President of the Charters & Tours
Division of White Star Lines, Inc. since prior to January, 1991. Mr. Storm also
served as President of Zingo, Inc., a refuse disposal company in Madison,
Indiana, until October 1992.
Executive Officers of Citizens Who Are Not Directors
Presented below is certain information regarding executive officers of
Citizens who are not directors:
Name Position
Carolyn B. Flowers Vice President -- Compliance/Operations
Larry C. Fouse Chief Financial Officer and Controller
Mark A. Goley Vice President and Senior Loan Officer
Carolyn B. Flowers (age 31) has served as Citizens' Vice President --
Compliance and Operations since December 1994. Ms. Flowers joined Citizens in
February 1988 and served as Citizens' Operations and Compliance Officer from
August 1993 to December 1994. Ms. Flowers also served as Citizens' internal
auditor from January 1991 to August 1993.
Larry C. Fouse (age 51) has served as Citizens' Chief Financial Officer and
Controller since 1993. From 1989 to 1993, Mr. Fouse served as Citizens' Vice
President and Operations Officer. Mr. Fouse joined Citizens in October 1988 and
was formerly employed by the First Bank of Charlestown, Indiana.
Mark A. Goley (age 40) has served as Citizens' Vice President and Senior
Loan Officer since February 1992. Mr. Goley joined Citizens in March 1989 and
served as a loan officer for Citizens from 1991 to February 1992. Prior to
joining Citizens, Mr. Goley performed appraisal services as an independent
contractor for the Federal Housing Administration and the Farm Credit Capital
Corporation from 1987 to 1989 and served as a loan review officer with the
Federal Land Bank from 1978 to 1986.
Committees of the Boards of Directors of Citizens
The full Board of Directors acts on all matters in lieu of action by
committees of the Board.
EXECUTIVE COMPENSATION AND RELATED TRANSACTIONS
OF CITIZENS
Remuneration of Named Executive Officer
The following table sets forth information as to annual, long-term and
other compensation for services in all capacities to the President and Chief
Executive Officer of Citizens for the fiscal year ended December 31, 1995. There
were no other executive officers of Citizens, as of December 31, 1995, who
earned over $100,000 in salary and bonuses during that fiscal year.
<TABLE>
<CAPTION>
Summary Compensation Table
-----------------------------------------------------------------------------------
Annual Compensation
-----------------------------------------------
Name and Principal Fiscal Other Annual All Other
Position Year Salary Bonus Compensation(2) Compensation
-------- ---- ------ ----- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert D. Hoban, President and 1995 $100,000 ____ -- $6,000 (1)
</TABLE>
Chief Executive Officer
(1) Constitutes matching contributions made by Citizens to the 401(k) Plan (as
defined below).
(2) Mr. Hoban received certain perquisites, but the incremental cost of
providing such perquisites did not exceed the lesser of $50,000 or 10% of
his salary and bonus.
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Employment Contracts
Citizens and Mr. Hoban entered into the 1995 Agreement which is a one-year
agreement that automatically renews for an additional one-year term unless
terminated by Citizens or Mr. Hoban in accordance with the terms of the 1995
Agreement. The 1995 Agreement provides, among other things, for (i) the payment
to Mr. Hoban of a base salary subject to annual review and adjustment by
Citizens' Board of Directors; (ii) Mr. Hoban's participation in other fringe
benefit plans in the same manner and on the same basis as may be furnished to
other executive management personnel of Citizens; (iii) Mr. Hoban's use of an
automobile to be provided by Citizens; and (iv) Mr. Hoban's participation in a
performance-based bonus program to be established and maintained by Citizens'
Board of Directors. If the 1995 Agreement is terminated by Citizens or Citizens
gives notice of its intention not to renew the 1995 Agreement at any time not
following a change in control (as defined therein) of Citizens, the 1995
Agreement provides for (i) a severance payment to Mr. Hoban in an amount equal
to his then-current salary, and (ii) continued health care coverage at Citizens'
sole expense for Mr. Hoban and his eligible family members for a period of one
year. The 1995 Agreement further provides that in the event that Mr. Hoban's
duties and responsibilities are changed or the Board of Directors elects not to
renew the 1995 Agreement following a change in control of Citizens, such may, at
Mr. Hoban's election and upon written notice to Citizens, be deemed a
termination of the 1995 Agreement entitling Mr. Hoban to (i) payment of a
lump-sum amount equal to three times Mr. Hoban's then-current salary, subject to
reduction to the extent necessary to prevent it from constituting a parachute
payment under Section 280G of the Code, and (ii) continued health care coverage
at Citizens' sole expense for Mr. Hoban and his eligible family members for a
period of three years. The 1995 Agreement also contains a non-competition
provision precluding Mr. Hoban from competing with Citizens for a period of one
year after termination of the 1995 Agreement and provides for the payment of Mr.
Hoban's then-current salary in the event of Mr. Hoban's disability up to a
maximum of twelve months. As of the date hereof, the cash compensation that
would be paid to Mr. Hoban under the 1995 Agreement if such agreement were
terminated after a change in control of Citizens would be $300,000.
Effective upon consummation of the Acquisition, Citizens expects to enter
into the Hoban Agreement with Mr. Hoban. The Hoban Agreement is a three-year
agreement and extends annually for an additional one-year term to maintain its
three-year term if Citizens' Board of Directors determines to so extend it.
Under the Hoban Agreement, Mr. Hoban receives an initial annual salary equal to
his current salary subject to increases approved by the Board of Directors. The
Hoban Agreement also provides, among other things, for Mr. Hoban's participation
in other bonus and fringe benefit plans available to Citizens' employees. Mr.
Hoban may terminate his employment upon ninety (90) days' prior written notice
to Citizens. Citizens may discharge Mr. Hoban for just cause (as defined in the
Hoban Agreement) at any time or in certain events specified by applicable law or
regulations. If Citizens terminates Mr. Hoban's employment for other than just
cause and not within twelve months after a change in control of Citizens or
Holding Company, the Hoban Agreement provides for Mr. Hoban's receipt of a
lump-sum or periodic payment of an amount equal to the sum of (A) Mr. Hoban's
base salary through the end of the then-current term, plus (B) Mr. Hoban's base
salary for an additional twelve-month period, plus (C) in Mr. Hoban's sole
discretion and in lieu of continued participation in Citizens' fringe benefit
plans, cash in an amount equal to the cost of obtaining all health, life,
disability and other benefits in which Mr. Hoban would otherwise be eligible to
participate. In the event Citizens terminates Mr. Hoban's employment for other
than just cause or Mr. Hoban terminates the Hoban Agreement for reasons
specified therein within twelve months following a change in control of Citizens
or the Holding Company, the Hoban Agreement provides for Mr. Hoban's receipt of
a lump-sum payment of an amount equal to the difference between (A) the product
of 2.99 times his "base amount" (as defined in Section 280G(b)(3) of the Code)
and (B) the sum of any other parachute payments, as determined under Section
280G(b)(2) of the Code. If the payments provided for under the Hoban Agreement,
together with any other payments made to Mr. Hoban by Citizens, are determined
to be payments in violation of the "golden parachute" rules of the Code, such
payments will be reduced to the largest amount which would not cause Citizens to
lose a tax deduction for such payments under those rules.
Special Termination Agreements
Effective as of the date of consummation of the Acquisition, Citizens will
enter into the Termination Agreements with its Covered Employees. The
Termination Agreements have terms of one year, subject to annual extension by
the Board of Directors of Citizens, and provide that upon the termination of a
Covered Employee's employment by the employer for other than cause or by the
Covered Employee for reasons specified in the Termination Agreements, within 18
months following the Acquisition or within 12 months following a "change in
control" (as defined in the Termination Agreements) which occurs during the term
of the applicable Termination Agreement, such Covered Employee shall be entitled
to a lump sum payment of 100% of his or her base amount of compensation, as
determined pursuant to Section 280G(b)(3) of the Code (the "Termination
Benefit"). Covered Employees may elect to receive the Termination Benefit in
semi-monthly payments over a twelve-month period. The Termination Agreements
also provide for continued life, health and disability coverage for Covered
Employees until the expiration of twelve months following the termination of
employment or until the Covered Employee obtains coverage from another employer,
whichever occurs first. If a Covered Employee obtains other employment and does
not have substantially identical life, health and disability coverage, Citizens
shall maintain substantially identical coverage on behalf of the Covered
Employee for a period of twelve months.
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Compensation of Directors
All outside directors of Citizens are entitled to receive monthly director
fees in the amount of $125 for their services. Total fees paid to directors of
Citizens for the year ended December 31, 1995 were $4,925.
Benefits
Insurance Plans. Citizens' officers and employees are provided with
hospitalization, major medical, and other insurance benefits under group plans
with Blue Cross Blue Shield of Indiana. Employees pay $5 per month for employee
coverage and are responsible for all premiums for dependent coverage. Citizens'
officers and employees are also provided with long-term disability coverage
through UNUM Life Insurance Company of America at no cost to employees.
Non-officer employees and officers of Citizens are provided with life insurance
coverage in the amount of $20,000 and $50,000, respectively, through Accordia at
no cost to employees.
401(k) Plan. Citizens' employees also participate in the Citizens National
Bank of Madison 401(k) Plan (the "401(k) Plan"), a contributory tax-exempt trust
and savings plan. Participants may elect to make monthly contributions up to 15%
of their salary. Citizens may make a discretionary matching contribution up to
6% of an employee's salary. Citizens may also make elective non-matching
contributions under the 401(k) Plan. Contributions may be invested in a variety
of investment vehicles at the sole discretion of participants. Benefits under
the 401(k) Plan vest at a rate of 20% per year beginning after an employee's
second year of service. Participants may take benefits in a lump-sum
distribution or in installments. Participants also have an early withdrawal
option in the event employment is terminated prior to retirement. During the
fiscal year ended December 31, 1995, Citizens made contributions aggregating
approximately $26,000 to the 401(k) Plan, $6,000 of which was allocable to Mr.
Hoban.
Performance Incentives. Citizens routinely offers its non-officer employees
performance incentives which are based upon targeted goals established by
management. Citizens' executive officers other than Mr. Hoban also participate
in the 1996 Management Incentive Program adopted by Citizens' Board of Directors
(the "Management Bonus Plan"). Pursuant to the Management Bonus Plan, up to
$20,000 is available for bonuses to Mr. Fouse, Ms. Flowers and Mr. Goley if
certain performance goals for the year are met or exceeded. If some, but less
than all, of the performance goals are met, the participants are eligible to
receive a portion of the bonus pool based on the percentage of goals met for the
year.
Severance Programs. Citizens expects to implement a severance program as of
the date of the Acquisition for the benefit of all employees of Citizens who are
not covered by Termination Agreements or by employment contracts. Pursuant to
the severance program, any such employee of Citizens who is terminated within 18
months following the Acquisition or within twelve months following a change in
control of the Holding Company or Citizens will be entitled to receive a
lump-sum payment in an amount equal to three weeks compensation for every year
of service with Citizens, up to a maximum of twelve months compensation.
Transactions With Certain Related Persons
Citizens has followed a policy of offering to its directors, officers, and
employees real estate mortgage loans secured by their principal residence and
other loans. These loans are made in the ordinary course of business with the
same collateral, interest rates and underwriting criteria as those of comparable
transactions prevailing at the time and do not involve more than the normal risk
of collectibility or present other unfavorable features. Loans to directors and
executive officers totaled approximately $100,000, or 3.0% of shareholders'
equity at March 31, 1996.
Current law requires that all loans or extensions of credit to executive
officers, directors, and principal shareholders be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with the general public and must not involve
more than the normal risk of repayment or present other unfavorable features. In
addition, loans made to a director or executive officer in excess of the greater
of $25,000 or 5% of Citizens' capital and surplus (up to a maximum of $500,000)
must be approved in advance by a majority of the disinterested members of the
Board of Directors. Citizens' policy regarding loans to directors and all
employees meets the requirements of current law.
Employee Stock Ownership Plan and Trust
Eligible employees of Citizens will be permitted to participate in the ESOP
established by the Holding Company. For a description of the ESOP, see
"Executive Compensation and Related Transactions of Madison First -- Employee
Stock Ownership Plan and Trust."
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Stock Option Plan
Directors, officers and employees of Citizens will be eligible to
participate in the Stock Option Plan which will be submitted to the shareholders
of the Holding Company for approval at a meeting of such shareholders at least
six months after completion of the Conversion. For a description of the Stock
Option Plan, including anticipated grants thereunder, see "Executive
Compensation and Related Transactions of Madison First -- Stock Option Plan."
RRP
Directors and employees of Citizens will be eligible to participate in the
RRP which will be submitted to the shareholders of the Holding Company for
approval at a meeting of such shareholders at least six months after completion
of the Conversion. For a description of the RRP, including anticipated awards
thereunder, see "Executive Compensation and Related Transactions of Madison
First -- RRP."
REGULATION
General
Madison First, as a federally chartered savings and loan association, is a
member of the Federal Home Loan Bank System ("FHLB System"), its deposits are
insured by the FDIC through the SAIF. Madison First is subject to extensive
regulation by the OTS. Federal associations may not enter into certain
transactions unless certain regulatory tests are met or they obtain prior
governmental approval, and the associations must file reports with the OTS about
their activities and their financial condition. Periodic examinations of Madison
First are conducted by the OTS which has, in conjunction with the FDIC in
certain situations, examination and enforcement powers. This supervision and
regulation are intended primarily for the protection of depositors and federal
deposit insurance funds. Madison First is also subject to certain reserve
requirements under regulations of the FRB.
An OTS regulation establishes a schedule for the assessment of fees upon
all savings associations to fund the operations of the OTS. The regulation also
establishes a schedule establishing fees for the various types of applications
and filings made by savings associations with the OTS. The general assessment,
to be paid on a semiannual basis, is based upon the savings association's total
assets, including consolidated subsidiaries, as reported in a recent quarterly
thrift financial report. Currently, the assessment rates range from .0172761% of
assets for associations with assets of $67 million or less to .0045864% for
associations with assets in excess of $35 billion. Madison First's semiannual
assessment under this method of assessment, based upon assets at March 31, 1996,
is approximately $14,000.
Citizens, as a national bank, is regulated by the OCC and its deposits are
insured by the FDIC through the BIF. Periodic examinations of Citizens are
conducted by the OCC which has, in conjunction with the FDIC in certain
situations, examination and enforcement powers with respect to Citizens.
Each of Madison First and Citizens is also subject to federal and state
regulation as to such matters as loans to officers, directors, or principal
shareholders, required reserves, limitations as to the nature and amount of its
loans and investments, regulatory approval of any merger or consolidation,
issuance or retirements of their own securities, and limitations upon other
aspects of banking operations. In addition, the activities and operations of
Madison First and Citizens are subject to a number of additional detailed,
complex and sometimes overlapping federal and state 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 Community Reinvestment Act, anti-redlining legislation and antitrust laws.
Congress is considering legislation that would consolidate the supervision
and regulation of all U.S. financial institutions in one administrative body,
would expand the powers of financial institutions, and would provide regulatory
relief to financial institutions (the "Legislation"). It cannot be predicted
with certainty whether or when the Legislation will be enacted or the extent to
which Madison First, Citizens, or the Holding Company would be affected thereby.
Savings and Loan Holding Company Regulation
As the Holding Company for Madison First, the Holding Company will be
regulated as a "non-diversified savings and loan holding company" within the
meaning of the Home Owners' Loan Act of 1933, as amended ("HOLA"), and subject
to regulatory oversight of the Director of the OTS. As such, the Holding Company
is registered with the OTS and thereby subject to OTS regulations, examinations,
supervision and reporting requirements. As a subsidiary of a savings and loan
holding company, Madison First is subject to certain restrictions in its
dealings with the Holding Company and with other companies affiliated with the
Holding Company.
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HOLA generally prohibits a savings and loan company, without prior approval
of the Director of the OTS, from (i) acquiring control of any other savings
association or savings and loan holding company or controlling the assets
thereof or (ii) acquiring or retaining more than 5% of the voting shares of a
savings association or holding company thereof which is not a subsidiary.
Additionally, under certain circumstances a savings and loan holding company is
permitted to acquire, with the approval of the Director of the OTS, up to 15% of
previously unissued voting shares of an under-capitalized savings association
for cash without that savings association being deemed controlled by the holding
company. Except with the prior approval of the Director of the OTS, no director
or officer of a savings and loan holding company or person owning or controlling
by proxy or otherwise more than 25% of such company's stock, may also acquire
control of any savings institution, other than a subsidiary institution, or any
other savings and loan holding company.
The Director of the OTS may approve acquisitions resulting in the formation
of a multiple savings and loan holding company which controls savings
associations in more than one state, if the multiple savings and loan holding
company involved controls a savings association which operated a home or branch
office in the state of the association to be acquired as of March 5, 1987, or if
the laws of the state in which the institution to be acquired is located
specifically permit institutions to be acquired by state-chartered institutions
or savings and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such state-chartered
savings institutions). Also, the Director of the OTS may approve an acquisition
resulting in a multiple savings and loan holding company controlling savings
associations in more than one state in the case of certain emergency thrift
acquisitions.
Indiana law permits acquisitions of certain federal and state SAIF-insured
savings associations and their holding companies ("Savings Associations")
located in Indiana, Ohio, Kentucky, Illinois, and Michigan (the "Region") by
other Savings Associations located in the Region. Savings Associations with
their principal place of business in one of the states in the Region (other than
Indiana) may acquire Savings Associations with their principal place of business
in Indiana if, subject to certain other conditions, the state of the acquiring
association has reciprocal legislation permitting the acquisition of Savings
Associations and their holding companies in that state by Indiana Savings
Associations. Each of the states in the Region has, at least to a certain
degree, reciprocal legislation. The Indiana statute also authorizes Indiana
Savings Associations to acquire other Savings Associations in the Region.
Following the acquisition, an acquired Indiana Savings Association and any other
Indiana Savings Association subsidiary owned by the acquiror must hold no more
than 15% of the total Savings Association deposits in Indiana.
No subsidiary savings association of a savings and loan holding company may
declare or pay a dividend on its permanent or nonwithdrawable stock unless it
first gives the Director of the OTS 30 days advance notice of such declaration
and payment. Any dividend declared during such period or without giving notice
shall be invalid.
Bank Holding Company Regulation
As the holding company for Citizens, the Holding Company will be registered
as a bank holding company, and will be subject to the regulations of the FRB
under the BHCA. Bank holding companies are required to file periodic reports
with, and are subject to periodic examination by, the FRB. The FRB has issued
regulations under the BHCA requiring a bank holding company to serve as a source
of financial and managerial strength to its subsidiary banks. It is the policy
of the FRB that, pursuant to this requirement, a bank holding company should
stand ready to use its resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity. Additionally,
under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FedICIA"), a bank holding company is required to guarantee the compliance of
any insured depository institution subsidiary that may become "undercapitalized"
(as defined in the statute) with the terms of any capital restoration plan filed
by such subsidiary with its appropriate federal banking agency up to the lesser
of (i) an amount equal to 5% of the institution's total assets at the time the
institution became undercapitalized, or (ii) the amount that is necessary (or
would have been necessary) to bring the institution into compliance with all
applicable capital standards as of the time the institution fails to comply with
such capital restoration plan. Under the BHCA, the FRB has the authority to
require a bank holding company to terminate any activity or relinquish control
of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the
FRB's determination that such activity or control constitutes a serious risk to
the financial soundness and stability of any bank subsidiary of the bank holding
company.
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Under the BHCA, a bank holding company must obtain FRB approval before: (i)
acquiring, directly or indirectly, ownership or control of any voting shares of
another bank or bank holding company if, after such acquisition, it would own or
control more than 5% of such shares (unless it already owns or controls the
majority of such shares); (ii) acquiring all or substantially all of the assets
of another bank or bank holding company; or (iii) merging or consolidating with
another bank holding company.
Prior to September 29, 1995, the BHCA prohibited the FRB from approving any
direct or indirect acquisition by a bank holding company of more than 5% of the
voting shares, or of all or substantially all of the assets, of a bank located
outside of the state in which the operations of the bank holding company's
banking subsidiaries are principally located unless the laws of the state in
which the bank to be acquired is located specifically authorize such an
acquisition. Pursuant to amendments to the BHCA which took effect September 29,
1995, the FRB may now allow a bank holding company to acquire banks located in
any state of the United States without regard to geographic restriction or
reciprocity requirements imposed by state law, but subject to certain
conditions, including limitations on the aggregate amount of deposits that may
be held by the acquiring holding company and all of its insured depository
institution affiliates and state law provisions requiring the target bank to
have existed for some period of time (not exceeding five years) prior to the
date of acquisition.
The BHCA also prohibits the Holding Company, with certain exceptions noted
below, from acquiring direct of indirect ownership or control of more than 5% of
the voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing and controlling banks or
furnishing services to banks and their subsidiaries, except that bank holding
companies may engage in, and may own shares of companies engaged in, certain
businesses found by the FRB to be "so closely related to banking . . . as to be
a proper incident thereto." Under current regulations of the FRB, the Holding
Company and any non-bank subsidiaries it may control are permitted to engage in,
among other activities, such banking-related businesses as the operation of a
thrift, the operation of a trust company, sales, and consumer finance, equipment
leasing, the operation of a computer service bureau, including software
development, and mortgage banking and brokerage. The BHCA does not place
territorial restrictions on the activities of non-bank subsidiaries of bank
holding companies.
Capital Adequacy Guidelines for Bank Holding Companies
The FRB is the federal regulatory and examining authority for bank holding
companies. The FRB has adopted capital adequacy guidelines for bank holding
companies.
Bank holding companies are required to comply with the FRB's risk-based
capital guidelines which require a minimum ratio of total capital to
risk-weighted assets (including certain off-balance sheet activities such as
standby letters of credit) of 8%. At least half of the total required capital
must be "Tier I capital," consisting principally of common stockholders' equity,
noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less certain goodwill items. The remainder ("Tier II
capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, cumulative perpetual preferred stock, and a limited amount of
the general loan loss allowance. In addition to the risk-based capital
guidelines, the FRB has adopted a Tier I (leverage) capital ratio under which
the bank holding company must maintain a minimum level of Tier I capital to
average total consolidated assets of 3% in the case of bank holding companies
which have the highest regulatory examination ratings and are not contemplating
significant growth or expansion. All other bank holding companies are expected
to maintain a ratio of at least 1% to 2% above the stated minimum.
The Holding Company is expected to satisfy these requirements following the
Conversion and the Acquisition.
Federal Home Loan Bank System
Madison First and Citizens are members of the FHLB System, which consists
of 12 regional banks. The Federal Housing Finance Board ("FHFB"), an independent
agency, controls the FHLB System including the FHLB of Indianapolis. The FHLB
System provides a central credit facility primarily for member savings and loan
associations and savings banks and other member financial institutions. Each of
Madison First and Citizens are required to hold shares of capital stock in the
FHLB of Indianapolis in an amount at least equal to the greater of 1% of the
aggregate principal amount of its unpaid residential mortgage loans, home
purchase contracts and similar obligations at the end of each calendar year,
0.3% of its assets or 1/20 (or such greater fraction established by the FHLB) of
outstanding FHLB advances, commitments, lines of credit and letters of credit.
Madison First and Citizens are currently in compliance with this requirement. At
December 31, 1995, Madison First's investment in stock of the FHLB of
Indianapolis was $610,000. At March 31, 1996, Citizens' investment in stock of
the FHLB of Indianapolis was $271,000.
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In past years, Madison First and Citizens have received dividends on their
FHLB stock. All 12 FHLBs are required by law to provide funds for the resolution
of troubled savings associations and to establish affordable housing programs
through direct loans or interest subsidies on advances to members to be used for
lending at subsidized interest rates for low- and moderate-income,
owner-occupied housing projects, affordable rental housing, and certain other
community projects. These contributions and obligations could adversely affect
the FHLBs' ability to pay dividends and the value of FHLB stock in the future.
For the year ended December 31, 1995, dividends paid to Madison First and
Citizens by the FHLB of Indianapolis totaled $48,000 and $19,000, respectively,
for an annual rate of 7.88% and 7.01% respectively.
The FHLB of Indianapolis serves as a reserve or central bank for member
institutions within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
advances to members in accordance with policies and procedures established by
the FHFB and the Board of Directors of the FHLB of Indianapolis.
All FHLB advances must be fully secured by sufficient collateral as
determined by the FHLB. Eligible collateral includes first mortgage loans less
than 90 days delinquent or securities evidencing interests therein, securities
(including mortgage-backed securities) issued, insured or guaranteed by the
federal government or any agency thereof, FHLB deposits and, to a limited
extent, real estate with readily ascertainable value in which a perfected
security interest may be obtained. Other forms of collateral may be accepted as
over collateralization or, under certain circumstances, to renew outstanding
advances. All long-term advances are required to provide funds for residential
home financing and the FHLB has established standards of community service that
members must meet to maintain access to long-term advances.
Interest rates charged for advances vary depending upon maturity, the cost
of funds to the FHLB of Indianapolis and the purpose of the borrowing.
Insurance of Deposits
Deposit Insurance. The FDIC is an independent federal agency that insures
the deposits, up to prescribed statutory limits, of banks and thrifts and
safeguards the safety and soundness of the banking and thrift industries. The
FDIC administers two separate insurance funds, the BIF for commercial banks such
as Citizens and state savings banks and the SAIF for savings associations such
as Madison First and banks that have acquired deposits from savings
associations. The FDIC is required to maintain designated levels of reserves in
each fund. The reserves of the SAIF are currently below the level required by
law, primarily because a significant portion of the assessments paid into the
SAIF have been used to pay the cost of prior thrift failures, while the reserves
of the BIF met the level required by law in May, 1995. Thrifts are generally
prohibited from converting from one insurance fund to the other until the SAIF
meets its designated reserve level, except with the prior approval of the FDIC
in certain limited cases, and provided certain fees are paid. The insurance fund
conversion provisions do not prohibit a SAIF member from converting to a bank
charter or merging with a bank during the moratorium as long as the resulting
bank continues to pay the applicable insurance assessments to the SAIF during
such period and as long as certain other conditions are met.
Assessments. The FDIC is authorized to establish separate annual assessment
rates for deposit insurance for members of the BIF and members of the SAIF. The
FDIC may increase assessment rates for either fund if necessary to restore the
fund's ratio of reserves to insured deposits to the target level within a
reasonable time and may decrease such rates if such target level has been met.
The FDIC has established a risk-based assessment system for both SAIF and BIF
members. Under this system, assessments vary depending on the risk the
institution poses to its deposit insurance fund. Such risk level is determined
based on the institution's capital level and the FDIC's level of supervisory
concern about the institution.
Because of the differing reserve levels of the SAIF and the BIF, deposit
insurance assessments paid by well-capitalized BIF-insured institutions were
recently reduced significantly below the level paid by well-capitalized
SAIF-insured institutions. Assessments paid by well-capitalized SAIF-insured
institutions exceeded those paid by well-capitalized BIF-insured institutions by
approximately $0.19 per $100 in deposits in late 1995 and exceeded them by $0.23
per $100 in deposits beginning in 1996. Such premium disparity could have a
negative competitive impact on Madison First and other institutions with SAIF
deposits.
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Congress is considering legislation to recapitalize the SAIF, which would
permit the elimination of the significant premium disparity between the BIF and
the SAIF. Currently, the recapitalization plan provides for a special
assessment, which has been estimated at approximately $0.85 per $100 of SAIF
deposits held at some time in 1995, in order to increase SAIF reserves to the
level required by law. Certain BIF-insured banks holding SAIF-insured deposits
would pay a lower special assessment. In addition, the cost of prior thrift
failures would be shared by both the SAIF and the BIF. Such cost sharing might
increase BIF assessments by $0.02 to $0.025 per $100 in deposits. SAIF
assessments for well-capitalized SAIF-insured institutions would be set at a
significantly lower level after the legislation is adopted and could never be
reduced below the level set for well-capitalized BIF-insured institutions. The
recapitalization plan also provides for the merger of the SAIF and BIF on
January 1, 1998, subject to certain conditions, and contains provisions
concerning the bad debt deduction permitted for savings associations and savings
banks, including Madison First. See "Taxation -- Federal Taxation." It has also
been proposed that the savings association charter be eliminated in connection
with the proposed merger of the BIF and SAIF.
Madison First had $79.2 million in deposits at March 31, 1996. If the
one-time special assessment in the legislative proposal is enacted into law,
Madison First will pay an additional after-tax assessment of approximately
$365,000 (based upon deposits at March 31, 1996), which will reduce capital and
earnings for the quarter in which any such assessment is recorded. However, it
is expected that quarterly SAIF assessments would be reduced significantly
sometime after adoption of the legislation.
No assurances can be given that the SAIF recapitalization plan will be
enacted into law or in what form it may be enacted. In addition, the Holding
Company can give no assurances that the disparity between BIF and SAIF
assessments will be eliminated. If the proposed legislation is not adopted, SAIF
premiums may increase and the disparity between BIF and SAIF premiums may become
greater, with a resulting adverse effect on Madison First's operations.
Bank Regulatory Capital
The OCC has adopted risk-based capital ratio guidelines to which Citizens
generally is subject. The guidelines establish a systematic analytical framework
that makes regulatory capital requirements more sensitive to differences in risk
profiles among banking organizations. Risk-based capital ratios are determined
by allocating assets and specified off-balance sheet commitments to four risk
weighted categories, with higher levels of capital being required for the
categories perceived as representing greater risk.
Like the capital guidelines established by the FRB for the Holding Company,
these guidelines divide a bank's capital into two tiers. The first tier ("Tier
I") includes common shareholders' equity, certain non-cumulative perpetual
preferred stock (excluding auction rate issues) and minority interests in equity
accounts of consolidated subsidiaries, less goodwill and certain other
intangible assets (except mortgage servicing rights and purchased credit card
relationships, subject to certain limitations). Supplementary ("Tier II")
capital includes, among other items, cumulative perpetual and long-term
limited-life preferred stock, mandatory convertible securities, certain hybrid
capital instruments, term subordinated debt and the allowance for loan and lease
losses, subject to certain limitations, less required deductions. Banks are
required to maintain a total risk-based capital ratio of 8%, of which 4% must be
Tier I capital. The OCC may, however, set higher capital requirements when a
bank's particular circumstances warrant. Banks experiencing or anticipating
significant growth are expected to maintain capital ratios, including tangible
capital positions, well above the minimum levels.
In addition, the OCC established guidelines prescribing a minimum Tier I
leverage ratio (Tier I capital to adjusted total assets as specified in the
guidelines). These guidelines provide for a minimum Tier I leverage ratio of 3%
for banks that meet certain specified criteria, including that they have the
highest regulatory rating and are not experiencing or anticipating significant
growth. All other banks are required to maintain a Tier I leverage ratio of 3%
plus an additional cushion of at least 100 to 200 basis points.
Citizens currently exceeds the regulatory capital requirements imposed by
the OCC regulatory capital scheme.
Savings Association Regulatory Capital
Currently, savings associations are subject to three separate minimum
capital-to-assets requirements: (i) a leverage limit, (ii) a tangible capital
requirement, and (iii) a risk-based capital requirement. The leverage limit
requires that savings associations maintain "core capital" of at least 3% of
total assets. Core capital is generally defined as common stockholders' equity
(including retained income), noncumulative perpetual preferred stock and related
surplus, certain minority equity interests in subsidiaries, qualifying
supervisory goodwill, purchased mortgage servicing rights (which may be included
in an amount up to 50% of core capital, but which are to be reported on an
association's balance sheet at the lesser of 90% of their fair market value, 90%
of their original purchase price, or 100% of their unamortized book value), and
purchased credit card relationships (which may be included in an amount up to
25% of core capital) less nonqualifying intangibles. Under the tangible capital
requirement, a savings association must maintain tangible capital (core capital
less all intangible assets except purchased mortgage servicing rights which may
be included after making the above-noted adjustment in an amount up to 100% of
tangible capital) of at least 1.5% of total assets. Under the risk-based capital
requirements, a minimum amount of capital must be maintained by a savings
association to account for the relative risks inherent in the type and amount of
assets held by the savings association. The risk-based capital requirement
requires a savings association to maintain capital (defined generally for these
purposes as core capital plus general valuation allowances and permanent or
maturing capital instruments such as preferred stock and subordinated debt less
assets required to be deducted) equal to 8.0% of risk-weighted assets. Assets
are ranked as to risk in one of four categories (0-100%) with a credit risk-free
asset such as cash requiring no risk-based capital and an asset with a
significant credit risk such as a non-accrual loan being assigned a factor of
100%. At March 31, 1996, Madison First was in compliance with all capital
requirements imposed by law.
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The OTS has promulgated a rule which sets forth the methodology for
calculating an interest rate risk component to be incorporated into the OTS
regulatory capital rule, although it has delayed the implementation of this
rule. Under the new rule, only savings associations with "above normal" interest
rate risk (institutions whose portfolio equity would decline in value by more
than 2% of assets in the event of a hypothetical 200-basis-point move in
interest rates) will be required to maintain additional capital for interest
rate risk under the risk-based capital framework. In addition, most institutions
with less than $300 million in assets and a risk-based capital ratio in excess
of 12%, such as Madison First, are subject to less stringent reporting
requirements and are exempt from the interest rate component of the new rule.
If an association is not in compliance with the capital requirements, the
OTS is required to prohibit asset growth and to impose a capital directive that
may restrict, among other things, the payment of dividends and officers'
compensation. In addition, the OTS and the FDIC generally are authorized to take
enforcement actions against a savings association that fails to meet its capital
requirements, which actions may include restrictions on operations and banking
activities, the imposition of a capital directive, a cease and desist order,
civil money penalties or harsher measures such as the appointment of a receiver
or conservator or a forced merger into another institution.
Prompt Corrective Regulatory Action
FedICIA requires, among other things, federal bank regulatory authorities
to take "prompt corrective action" with respect to institutions that do not meet
minimum capital requirements. For these purposes, FedICIA establishes five
capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. At March 31,
1996, Madison First and Citizens were categorized as "well capitalized."
An institution is deemed to be "well capitalized" if it has a total
risk-based capital ratio of 10% or greater, a Tier I risk-based capital ratio of
6% or greater, and a leverage ratio of 5% 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% or greater, a Tier
I risk-based capital ratio of 4% or greater, and generally a leverage ratio 4%
or greater. An institution is deemed to be "undercapitalized" if it has a total
risk-based capital ratio of less than 8%, a Tier I risk-based capital ratio of
less than 4%, or generally a leverage ratio of less than 4%; and (d)
"significantly undercapitalized" if it has a total risk-based capital ratio of
less than 6%, a Tier I risk-based capital ratio of less than 3%, or a leverage
ratio of less than 3%. 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%.
"Undercapitalized" institutions are subject to growth limitations and are
required to submit a capital restoration plan. A bank's compliance with such
plan is required to be guaranteed by any company that controls the
undercapitalized institution as described above. See "-- Bank Holding Company
Regulation." If an "undercapitalized" institution fails to submit, or fails to
implement in a material respect, an acceptable plan, it is treated as if it is
"significantly undercapitalized." "Significantly undercapitalized" institutions
are subject to one or more of a number of requirements and restrictions,
including an order by the FDIC to sell sufficient voting stock to become
adequately capitalized, requirements to reduce total assets and cease receipt of
deposits from correspondent banks, and restrictions on compensation of executive
officers. "Critically undercapitalized" institutions may not, beginning 60 days
after becoming "critically undercapitalized," make any payment of principal or
interest on certain subordinated debt or extend credit for a highly leveraged
transaction or enter into any transaction outside the ordinary course of
business. In addition, "critically undercapitalized" institutions are subject to
appointment of a receiver or conservator.
Dividend Limitations
Under FRB supervisory policy, a bank holding company generally should not
maintain its existing rate of cash dividends on common shares unless (i) the
organization's net income available to common shareholders over the past year
has been sufficient to fully fund the dividends and (ii) the prospective rate of
earnings retention appears consistent with the organization's capital needs,
asset quality, and overall financial condition. The FDIC also has authority
under the Financial Institutions Supervisory Act to prohibit a bank from paying
dividends if, in its opinion, the payment of dividends would constitute an
unsafe or unsound practice in light of the financial condition of the bank.
Under Indiana law, the Holding Company is precluded from paying cash dividends
if, after giving effect to such dividends, the Holding Company would be unable
to pay its debts as they become due or the Holding Company's total assets would
be less than its liabilities and obligations to preferential shareholders.
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An OTS regulation imposes limitations upon all "capital distributions" by
savings associations, including cash dividends, payments by an institution to
repurchase or otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged against
capital. The regulation establishes a three-tiered system of regulation, with
the greatest flexibility being afforded to well-capitalized institutions. A
savings association which has total capital (immediately prior to and after
giving effect to the capital distribution) that is at least equal to its fully
phased-in capital requirements would be a Tier 1 institution ("Tier 1
Institution"). An institution that has total capital at least equal to its
minimum capital requirements, but less than its capital requirements, would be a
Tier 2 institution ("Tier 2 Institution"). An institution having total capital
that is less than its minimum capital requirements would be a Tier 3 institution
("Tier 3 Institution"). However, an institution which otherwise qualifies as a
Tier 1 Institution may be designated by the OTS as a Tier 2 or Tier 3
Institution if the OTS determines that the institution is "in need of more than
normal supervision." Madison First is currently a Tier 1 Institution.
A Tier 1 Institution could, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year up to the greater of
100% of its net income to date during the calendar year or 75% of its net income
over the most recent four-quarter period plus an amount that would reduce by
one-half its "surplus capital ratio" (the smallest excess over its capital
requirements) at the beginning of the calendar year. Any additional amount of
capital distributions would require prior regulatory approval. Accordingly, at
March 31, 1996, Madison First had available approximately $1.8 million for
distribution, without consideration of any capital infusion from the Conversion.
The OTS has proposed revisions to these regulations which would permit
savings associations to declare dividends in amounts which would assure that
they remain adequately capitalized following the dividend declaration. Savings
associations in a holding company system which are rated Camel 1 or 2 and which
are not in troubled condition would need to file a prior notice with the OTS
concerning such dividend declaration.
Pursuant to the Plan of Conversion, Madison First will establish a
liquidation account for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders. See "The Conversion -- Principal Effects of
Conversion." Madison First will not be permitted to pay dividends to the Holding
Company if its net worth would be reduced below the amount required for the
liquidation account.
Citizens is subject to OCC limits on its dividends. The approval of the OCC
is required for any dividend by a national bank if the total of all dividends,
including any proposed dividend declared by the national bank in any calendar
year, exceeds the total of its net profits (as defined by the OCC) for that year
combined with its retained net profits for the preceding two years, less any
required transfers to surplus. Moreover, a national bank may not pay a dividend
on its common stock if the dividend would exceed net undivided profits then on
hand. In certain cases, even if prior approval of the OCC is not required, the
OCC may find a dividend payment to be an unsafe and unsound practice.
Limitations on Repurchase of Common Stock of Holding Company
Regulations promulgated by the FRB provide that a bank holding company must
file written notice with the FRB prior to any repurchase of its equity
securities if the gross consideration for the purchase, when aggregated with the
net consideration paid by the bank holding company for all repurchases during
the preceding 12 months, is equal to 10% or more of the bank holding company's
consolidated net worth. This notice requirement is not applicable, however, to a
bank holding company that exceeds the thresholds established for a well
capitalized bank and that satisfies certain other regulatory requirements.
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OTS regulations currently provide that the Holding Company is prohibited
from repurchasing any of its shares within one year of the Conversion. So long
as Madison First continues to meet certain capitalization requirements, the
Holding Company may repurchase shares in an open-market repurchase program
(which cannot exceed 5% of its outstanding shares in a twelve-month period)
during the second and third years following the Conversion by giving appropriate
prior notice to the OTS. The OTS has the authority to waive these restrictions
under certain circumstances. Unless repurchases are permitted under the
foregoing regulations, the Holding Company may not, for a period of three years
from the date of the Conversion, repurchase any of its capital stock from any
person, except in the event of an offer to purchase by the Holding Company on a
pro rata basis from all of its shareholders which is approved in advance by the
OTS or except in exceptional circumstances established to the satisfaction of
the OTS.
Under Indiana law, the Holding Company will be precluded from repurchasing
its equity securities if, after giving effect to such repurchase, the Holding
Company would be unable to pay its debts as they become due or the Holding
Company's assets would be less than its liabilities and obligations to
preferential shareholders.
Limitations on Rates Paid for Deposits
Regulations promulgated by the FDIC pursuant to FedICIA place limitations
on the ability of insured depository institutions to accept, renew or roll over
deposits by offering rates of interest which are significantly higher than the
prevailing rates of interest on deposits offered by other insured depository
institutions having the same type of charter in such depository institution's
normal market area. Under these regulations, "well-capitalized" depository
institutions may accept, renew or roll such deposits over without restriction,
"adequately capitalized" depository institutions may accept, renew or roll such
deposits over with a waiver from the FDIC (subject to certain restrictions on
payments of rates) and "undercapitalized" depository institutions may not
accept, renew or roll such deposits over. The regulations contemplate that the
definitions of "well capitalized," "adequately capitalized" and
"undercapitalized" will be the same as the definition adopted by the agencies to
implement the corrective action provisions of FedICIA. Madison First and
Citizens do not believe that these regulations will have a materially adverse
effect on their current operations.
Federal Reserve System
FRB regulations require member institutions to maintain reserves against
their transaction accounts (primarily NOW accounts) and certain nonpersonal time
deposits. The reserve requirements are subject to adjustment by the FRB. As of
March 31, 1995, Madison First and Citizens were in compliance with the
applicable reserve requirements of the FRB.
Liquidity
For each calendar month, Madison First is required to maintain an average
daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances, specified United States Government, state or federal agency
obligations, shares of certain mutual funds and certain corporate debt
securities and commercial paper) equal to an amount not less than a specified
percentage of its net withdrawable deposit accounts plus short-term borrowings
during the preceding calendar month. This liquidity requirement may be changed
from time to time by the OTS to any amount within the range of 4% to 10%
depending upon economic conditions and the savings flows of member institutions,
and is currently 5%. OTS regulations also require each member savings
institution to maintain an average daily balance of short-term liquid assets at
a specified percentage (currently 1%) of the total of its net withdrawable
deposit accounts and short-term borrowings during the preceding calendar month.
Monetary penalties may be imposed for failure to meet these liquidity
requirements. The monthly average liquidity of Madison First for March, 1996 was
33.5% which exceeded the then applicable 5% liquidity requirement. Its average
short-term liquidity for March, 1996 was 10.6%. Madison First has never been
subject to monetary penalties for failure to meet its liquidity requirements.
Safety and Soundness Standards
On February 2, 1995, the federal banking agencies adopted final safety and
soundness standards for all insured depository institutions. The standards,
which were issued in the form of guidelines rather than regulations, relate to
internal controls, information systems, internal audit systems, loan
underwriting and documentation, compensation and interest rate exposure. In
general, the standards are designed to assist the federal banking agencies in
identifying and addressing problems at insured depository institutions before
capital becomes impaired. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result in enforcement
proceedings. The federal banking agencies have also published for comment
proposed asset quality and earning standards which, if adopted, would be added
to the safety and soundness guidelines.
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Real Estate Lending Standards
OTS regulations require savings associations to establish and maintain
written internal real estate lending policies. Each association's lending
policies must be consistent with safe and sound banking practices and
appropriate to the size of the association and the nature and scope of its
operations. The policies must establish loan portfolio diversification
standards; establish prudent underwriting standards, including loan-to-value
limits, that are clear and measurable; establish loan administration procedures
for the association's real estate portfolio; and establish documentation,
approval, and reporting requirements to monitor compliance with the
association's real estate lending policies. The association's written real
estate lending policies must be reviewed and approved by the association's Board
of Directors at least annually. Further, each association is expected to monitor
conditions in its real estate market to ensure that its lending policies
continue to be appropriate for current market conditions. Similar standards
apply to national banks under OCC regulations.
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Loans to One Borrower
Under OTS regulations, a federally-chartered savings association,
including Madison First, may not make a loan or extend credit to a single or
related group of borrowers in excess of 15% of the association's unimpaired
capital and surplus. Additional amounts may be lent, not in excess of 10% of
unimpaired capital and surplus, if such loans or extensions of credit are fully
secured by readily-marketable collateral, including certain debt and equity
securities but not including real estate. Similar loans-to-one borrower limits
apply to national banks, including Citizens. At March 31, 1996, neither of the
Institutions had loans or extensions of credit to a single or related group of
borrowers in excess of its lending limits.
Qualified Thrift Lender
Under current OTS regulations, the QTL test requires that a savings
association have at least 65% of its portfolio assets invested in "qualified
thrift investments" on a monthly average basis in 9 out of every 12 months.
Qualified thrift investments under the QTL test include: (i) loans made to
purchase, refinance, construct, improve or repair domestic residential housing
or manufactured housing; (ii) home equity loans; (iii) mortgage-backed
securities; (iv) direct or indirect existing obligations of either the FDIC or
the Federal Savings and Loan Insurance Corporation ("FSLIC") for ten years from
the date of issuance, if issued prior to July 1, 1989; (v) obligations of the
FDIC, FSLIC, FSLIC Resolution Fund and the Resolution Trust Corporation (the
"RTC") entered into on or after July 1, 1989, for the five-year period beginning
on the date such obligations were issued; (vi) FHLB stock; (vii) 50% of the
dollar amount of residential mortgage loans originated and sold within 90 days
of origination; (viii) investments in service corporations that derive at least
80% of their gross revenues from activities directly related to purchasing,
refinancing, constructing, improving or repairing domestic residential real
estate or manufactured housing; (ix) 200% of the dollar amount of loans and
investments made to acquire, develop and construct one to four-family residences
that are valued at no more than 60% of the median value of homes constructed in
the area; (x) 200% of the dollar amount of loans for the acquisition or
improvement of residential real property, churches, schools, and nursing homes
located within, and loans for any purpose to any small business located within,
an area where credit needs of its low and moderate income residents are
determined not to have been adequately met; (xi) loans for the purchase,
construction, improvement or upkeep of churches, schools, nursing homes and
hospitals not qualified under (x); (xii) up to 10% of portfolio assets held in
consumer loans or loans for educational purposes; and (xiii) FHLMC and FNMA
stock. However, the aggregate amount of investments in categories (vii)-(xiii)
which may be taken into account for the purpose of whether an institution meets
the QTL test cannot exceed 20% of portfolio assets. Portfolio assets under the
QTL test include all of an association's assets less (i) goodwill and other
intangibles, (ii) the value of property used by the association to conduct its
business, and (iii) its liquid assets as required to be maintained under law up
to 20% of total assets.
A savings association which fails to meet the QTL test must either convert
to a bank (but its deposit insurance assessments and payments will be those of
and paid to SAIF) or be subject to the following penalties: (i) it may not enter
into any new activity except for those permissible for a national bank and for a
savings association; (ii) its branching activities shall be limited to those of
a national bank; (iii) it shall not be eligible for any new FHLB advances; and
(iv) it shall be bound by regulations applicable to national banks respecting
payment of dividends. Three years after failing the QTL test the association
must (i) dispose of any investment or activity not permissible for a national
bank and a savings association and (ii) repay all outstanding FHLB advances. If
such a savings association is controlled by a savings and loan holding company,
then such holding company must, within a prescribed time period, become
registered as a bank holding company and become subject to all rules and
regulations applicable to bank holding companies (including restrictions as to
the scope of permissible business activities).
A savings association failing to meet the QTL test may requalify as a QTL
if it thereafter meets the QTL test. In the event of such requalification it
shall not be subject to the penalties described above. A savings association
which subsequently again fails to qualify under the QTL test shall become
subject to all of the described penalties without application of any waiting
period.
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At March 31, 1996, approximately 84.3% of Madison First's portfolio assets
(as defined on that date) were invested in qualified thrift investments (as
defined on that date), and Madison First met this standard in each of the prior
twelve months. Therefore Madison First's asset composition was in excess of the
amount required to qualify Madison First as a QTL. Madison First does not expect
to significantly change its lending or investment activities in the near future,
and therefore expects to continue to qualify as a QTL, although there can be no
such assurance.
Acquisitions or Dispositions and Branching
The BHCA specifically authorizes a bank holding company, upon receipt of
appropriate approvals from the FRB and the Director of the OTS, to acquire
control of any savings association or holding company thereof wherever located.
Similarly, a savings and loan holding company may now acquire control of a bank.
Moreover, subject to the moratorium provisions concerning conversions of SAIF to
BIF members and vice versa, federal savings associations may acquire or be
acquired by any insured depository institution. Pursuant to rules promulgated by
the FRB, a savings association acquired by a bank holding company (i) may, so
long as the savings association continues to meet the QTL test, continue to
branch to the same extent as permitted to other non-affiliated savings
associations similarly chartered in the state, and (ii) cannot continue any
non-banking activities not authorized for bank holding companies. Saving
associations acquired by a bank holding company may, if located in a state where
the bank holding company is legally authorized to acquire a bank, be converted
to the status of a bank but deposit insurance assessments and payments continue
to be paid by the association to the SAIF. A savings association so converted to
a bank becomes subject to the branching restrictions applicable to banks. Also
any insured depository institution may merge with, acquire the assets of, or
assume the liabilities of any other insured depository institution with the
appropriate regularity approvals if (i) continued payments of deposit insurance
are made on the acquired depository institution's deposits (including an assumed
rate of growth in such deposits) to SAIF (if the acquired institution was a SAIF
member) or to BIF (if the acquired institution was a BIF member), and (ii) the
acquiring institution and any holding company in control thereof meet all
applicable capital requirements at the time of the transaction.
A bank or savings association may sell branches and transfer deposit
liabilities to a savings association or bank that is a member of an insurance
fund which differs from the fund of the transferor without violating the
moratorium on switching insurance funds that is described above in "--Insurance
of Deposits." To be permitted, the transfer must be approved by the FDIC and the
amount for deposits transferred must not exceed 35% of the lesser of (a) the
transferor's deposits as of May 1, 1989 (plus net interest on those accounts) or
(b) the transferor's total deposits on the date of transfer. Exit and entrance
fees are payable in connection with such dispositions. There are also special
entrance and exit fees for insured deposits transfers in failed savings
association resolutions. The resulting to acquiring institution is liable for
the fees.
Subject to certain exceptions, commonly controlled banks and savings
associations must reimburse the FDIC for any losses suffered in connection with
a failed bank or savings association affiliate. Institutions are commonly
controlled if one is owned by another or if both are owned by the same holding
company. Such claims by the FDIC under this provision are subordinate to claims
of depositors, secured creditors, and holders of subordinates debt, other than
affiliates.
The OTS has adopted regulations which permit nationwide branching to the
extent permitted by federal statute. Federal statutes permit federal savings
associations to branch outside of their home state if the association meets the
domestic building and loan test in ss.7701(a)(19) of the Code or the asset
composition test of ss.7701(c) of the Code. Branching that would result in the
formation of a multiple savings and loan holding company controlling savings
associations in more than one state is permitted if the law of the state in
which the savings association to be acquired is located specifically authorizes
acquisitions of its state-chartered associations by state-chartered associations
or their holding companies in the state where the acquiring association or
holding company is located.
Moreover, Indiana banks and savings associations are permitted to acquire
other Indiana banks and savings associations and to establish branches
throughout Indiana.
In addition, The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Riegle-Neal Act") permits bank holding companies to acquire
banks in other states and, with state consent and subject to certain
limitations, allows banks to acquire out-of-state branches either through merger
or de novo expansion. The State of Indiana recently passed a law establishing
interstate branching provisions for Indiana state-chartered banks consistent
with those established by the Riegle-Neal Act (the "Indiana Branching Law"). The
Indiana Branching Law authorizes Indiana banks to branch interstate by merger or
de novo expansion. The Indiana Branching Law became effective March 15, 1996,
provided that prior to June 1, 1997 interstate mergers and de novo branches are
not permitted to out-of-state banks unless the laws of their home states permit
Indiana banks to merge or establish de novo branches on a reciprocal basis.
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Transactions with Affiliates
Madison First and Citizens are subject to Sections 22(h), 23A and 23B of
the Federal Reserve Acts, which restrict financial transactions between banks
and affiliated companies. The statute limits credit transactions between a bank
and its executive officers and its affiliates, prescribes terms and conditions
for bank affiliate transactions deemed to be consistent with safe and sound
banking practices, and restricts the types of collateral security permitted in
connection with a bank's extension of credit to an affiliate.
Federal Securities Law
The shares of Common Stock of the Holding Company will be registered with
the SEC under the 1934 Act. The Holding Company will be subject to the
information, proxy solicitation, insider trading restrictions and other
requirements of the 1934 Act and the rules of the SEC thereunder. After three
years following Madison First's conversion to stock form, if the Holding Company
has fewer than 300 shareholders, it may deregister its shares under the 1934 Act
and cease to be subject to the foregoing requirements.
Shares of Common Stock held by persons who are affiliates of the Holding
Company may not be resold without registration unless sold in accordance with
the resale restrictions of Rule 144 under the Securities Act of 1933, as amended
(the "1933 Act"). If the Holding Company meets the current public information
requirements under Rule 144, each affiliate of the Holding Company who complies
with the other conditions of Rule 144 (including the two-year holding period and
those that require the affiliate's sale to be aggregated with those of certain
other persons) would be able to sell in the public market, without registration,
a number of shares not to exceed, in any three-month period, the greater of (i)
1% of the outstanding shares of the Holding Company or (ii) the average weekly
volume of trading in such shares during the preceding four calendar weeks.
Community Reinvestment Act Matters
Federal law requires that ratings of depository institutions under the
Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes
both a four-unit descriptive rating -- outstanding, satisfactory, needs to
improve, and substantial noncompliance -- and a written evaluation of each
institution's performance. Each FHLB is required to establish standards of
community investment or service that its members must maintain for continued
access to long-term advances from the FHLBs. The standards take into account a
member's performance under the CRA and its record of lending to first-time home
buyers. The examiners have determined that Madison First and Citizens have a
satisfactory record of meeting community credit needs.
TAXATION
Federal Taxation
Savings associations, such as Madison First, are permitted to compute bad
debt deductions using either the bank experience method or the percentage of
taxable income method. In the case of the percentage of taxable income method,
the portion of taxable income (as specially adjusted for purposes of application
of this method) that may be deducted as an addition to a reserve for bad debts
is set at 8%. Any savings association which holds 60% of its assets in
qualifying assets, defined as loans which are secured by an interest in improved
real property or secured by an interest in real property that is to be improved
out of the proceeds of the loan, will be eligible for the full 8% of taxable
income deduction. The 8% amount must be reduced (but not below zero) by the
amount determined to be a reasonable addition to the reserve for losses on
nonqualifying loans. Reserves for nonqualifying loans are computed on the basis
of a six-year moving average of the institution's own experience.
The excess of the percentage of taxable income deduction over the deduction
that would have been allowable on the basis of actual experience is treated as a
preference item for the purpose of computing the corporate minimum tax.
In addition, the bad debt deduction cannot exceed the amount necessary to
increase the year end balance in the bad debt reserve accumulated for
"qualifying real property loans" to an amount equal to 6% of such loans
outstanding at the end of the taxable year. The bad debt reserve deduction is
also limited to the amount by which 12% of deposits at year-end exceeds the sum
of the institution's surplus, undivided profits, and reserves, as defined for
federal income tax purposes, at the beginning of the year.
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A savings association organized in stock form that utilizes the percentage
method bad debt reserve deduction described above will be subject to recapture
taxes on such reserve in the event it makes certain types of distributions to
its shareholders. Cash dividends may be paid out of unappropriated retained
earnings without the imposition of any tax on a savings association to the
extent that the amounts paid as dividends do not exceed such savings
association's current or accumulated earnings and profits as calculated for
federal income tax purposes. Stock redemptions, dividends paid in excess of a
savings association's current or accumulated earnings and profits as calculated
for tax purposes, and other distributions made with respect to a savings
association's stock, however, are deemed under applicable provisions of the Code
to be made from the savings association's tax bad debt reserve. To the extent
additions to a savings association's bad debt reserves for "qualifying real
property loans" deducted for federal income tax purposes exceed the allowable
amount of such reserves computed under the experience method and to the extent
of the savings association's supplemental reserves for losses on loans
("Excess"), such Excess may not, without adverse tax consequences, be utilized
for payment of cash dividends or other distributions to a shareholder (including
distributions on redemption, dissolution or liquidation) or for any other
purpose (except to absorb bad debt losses). Distribution of a cash dividend by a
savings association to a shareholder is treated as made: first out of the
savings association's current and post-1951 accumulated earnings and profits;
second out of the Excess; and third out of such other amounts as may be proper.
To the extent a distribution to a shareholder by the savings association is
deemed paid out of its Excess under these rules, the Excess would be reduced and
the savings association's gross income for tax purposes would be increased by
the amount which, when reduced by the income tax, if any, attributable to the
inclusion of such amount in its gross income, equals the amount deemed paid out
of the Excess. The amount of tax that would be payable upon any distribution
which is being treated as having been made from a savings association's bad debt
reserve could result in a tax which is equal to approximately 40% of the amount
of such distributions, unless offset by net operating losses. At March 31, 1996,
Madison First had approximately $2.4 million of retained earnings, cash
dividends paid from which would cause federal income tax to be paid by Madison
First.
Congress recently passed legislation prospectively repealing the percentage
of taxable income method and further requiring, generally, that reserves taken
after 1987 using the percentage of taxable income method must be included in
future taxable income of the institution over a six-year period, although a
two-year delay may be permitted for institutions meeting a residential mortgage
loan origination test. This legislation requires smaller thrifts (i.e., less
than $500 million in assets) to use the experience method and larger thrifts
(i.e., more than $500 million in assets) to use the charge-off method.
The Holding Company cannot be certain of the impact of the proposed change
in tax accounting for bad debt reserves until the legislation requiring such
change becomes law.
Depending on the composition of its items of income and expense, a savings
association may be subject to the alternative minimum tax. A savings association
must pay an alternative minimum tax equal to the amount (if any) by which 20% of
alternative minimum taxable income ("AMTI"), as reduced by an exemption varying
with AMTI, exceeds the regular tax due. AMTI equals regular taxable income
increased or decreased by certain tax preferences and adjustments, including
depreciation deductions in excess of that allowable for alternative minimum tax
purposes, tax-exempt interest on most private activity bonds issued after August
7, 1986 (reduced by any related interest expense disallowed for regular tax
purposes), the amount of the bad debt reserve deduction claimed in excess of the
deduction based on the experience method and 75% of the excess of adjusted
current earnings over AMTI (before this adjustment and before any alternative
tax net operating loss). AMTI may be reduced only up to 90% by net operating
loss carryovers, but alternative minimum tax paid can be credited against
regular tax due in later years.
For federal income tax purposes, Madison First has been reporting its
income and expenses on the accrual method of accounting. Madison First's federal
income tax returns have not been audited in recent years.
Citizens, as a national banking association, is ineligible to use the
percentage of taxable income method of accounting for its bad debts, and instead
must use the method described above. The bank experience method is not available
to "large" banks, as defined by the Code. Large banks are not permitted to
deduct a reserve for bad debts, and instead must use the specific charge-off
method. Citizens does not expect to be classified as a large bank in the
foreseeable future. Citizens could also be subject to the AMTI described above.
For federal income tax purposes, Citizens has been reporting its income and
expenses on the accrual method of accounting. Citizens' federal income tax
returns have not been audited in recent years.
The Holding Company, Madison First and Citizens do not anticipate electing
to file a consolidated federal income tax return for 1996 or 1997.
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State Taxation
Madison First and Citizens are subject to Indiana's Financial Institutions
Tax ("FIT"), which is imposed at a flat rate of 8.5% on "adjusted gross income."
"Adjusted gross income," for purposes of FIT, begins with taxable income as
defined by Section 63 of the Code and, thus, incorporates federal tax law to the
extent that it affects the computation of taxable income. Federal taxable income
is then adjusted by several Indiana modifications. Other applicable state taxes
include generally applicable sales and use taxes plus real and personal property
taxes.
Madison First's state income tax returns have not been audited in recent
years.
For further information relating to the tax consequences of the Conversion,
see "The Conversion -- Principal Effects of Conversion -- Tax Effects."
THE CONVERSION
THE BOARDS OF DIRECTORS OF MADISON FIRST AND THE HOLDING COMPANY AND THE
OTS HAVE APPROVED THE PLAN OF CONVERSION SUBJECT TO APPROVAL BY THE MEMBERS OF
MADISON FIRST AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. OTS APPROVAL
DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY THE OTS.
General
On March 5, 1996, the Board of Directors of Madison First adopted a Plan of
Conversion pursuant to which Madison First will convert from a federal mutual
savings and loan association to a federal stock savings and loan association,
all the outstanding shares of which will be held by the Holding Company formed
under Indiana law. The Plan has also been approved by the Board of Directors of
the Holding Company and by the OTS, subject to approval of the Plan by Madison
First's members. A Special Meeting of Members has been scheduled for that
purpose on _____________, 1996. Such approval by the OTS does not constitute a
recommendation or endorsement of the Plan by the OTS.
In connection with the Special Meeting, Madison First has mailed to each
person eligible to vote at the Special Meeting a proxy statement (the "Proxy
Statement"). The Proxy Statement contains information concerning the business
purposes of the Conversion and the effects of the Plan and the Conversion with
respect to voting rights, liquidation rights, continuation of Madison First's
business and of existing savings accounts, FDIC insurance and loans. The Proxy
Statement also describes the manner in which the Plan may be amended or
terminated.
The following is a summary of all of the pertinent aspects of the Plan, the
Subscription Offering, and the Direct Community Offering. The Plan should be
consulted for a more detailed description of its terms.
Reasons for Conversion
As a stock institution, Madison First will be structured in the form used
by commercial banks, most business entities, and a growing number of savings
associations. Converting to the stock form is intended to have a positive effect
on the future growth and performance of Madison First by: (i) affording
depositors, other customers and employees of Madison First the opportunity to
become shareholders of the Holding Company and thereby participate more directly
in both Madison First's and the Holding Company's future; (ii) providing the
Holding Company with the flexibility through mergers and acquisitions by
permitting the offering of equity participations to the shareholders of acquired
companies; (iii) providing substantially increased net worth and equity capital
for investment in its business, thus enabling management to pursue new and
additional lending and investment opportunities and to expand operations; (iv)
providing future access to capital markets through the sale of stock of the
Holding Company in order to generate additional capital to accommodate or
promote future growth; and (v) providing the capital necessary to acquire the
Citizens Shares in the Acquisition. Madison First believes that the increased
capital and operating flexibility will enhance its competitiveness with other
types of financial services organizations. Although Madison First's current
members will, upon Conversion, lose the voting and liquidation rights they
presently have as members (except to the limited extent of their rights in the
liquidation account established in the Conversion), they are being offered a
priority right to purchase shares in the Conversion and thereby obtain voting
and liquidation rights in the Holding Company.
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The net proceeds to Madison First from the sale of Common Stock offered
hereby, after retention by the Holding Company of 60% of the net proceeds after
accounting for the loan to the ESOP, estimated at $3.1 million, based upon the
sale of 900,000 shares at $10.00 per share, will increase Madison First's
existing net worth and thus provide an even stronger capital base to support
Madison First's lending and investment activities. Although Madison First's
regulatory capital at March 31, 1996, exceeded its capital requirements, Madison
First's Board of Directors believes that it is desirable to increase regulatory
capital for the foregoing purposes in view of the competitive and changing
financial conditions in which Madison First operates and the new opportunities
created and higher levels of regulatory capital required by the OTS and
regulations applicable to Madison First. The Holding Company will also
contribute up to $1.5 million to the capital of Citizens, thereby increasing its
regulatory capital, which will also exceed all of Citizens' capital
requirements.
In addition, the Conversion will provide Madison First with new
opportunities to attract and retain talented and experienced personnel through
offering stock incentive programs.
The Board of Directors of Madison First believes that the Conversion to a
holding company structure is the best way to enable Madison First to diversify
its business activities should it choose to do so. The Holding Company will be
able to engage in banking-related activities permitted under the BHCA.
Currently, there are no plans, written or oral, for the Holding Company to
engage in any material activities apart from holding the shares of Madison First
to be acquired in connection with the Conversion, holding the Citizens Shares to
be acquired in connection with the Acquisition and loaning funds to the ESOP to
purchase shares of Common Stock in the Conversion, although the Board may
determine to further expand the Holding Company's activities after the
Conversion.
The preferred stock and additional Common Stock of the Holding Company
being authorized in the Conversion will be available for future acquisitions
(although the Holding Company has no current discussions, arrangements or
agreements with respect to any acquisition other than in connection with the
Acquisition) and for issuance and sale to raise additional equity capital,
subject to market conditions and generally without shareholder approval. The
Holding Company's ability to raise additional funds through the sale of debt
securities to the public or institutional investors should also be enhanced by
the increase in its equity capital base provided by the Conversion. Although the
Holding Company currently has no plans with respect to future issuances of
equity or debt securities, the more flexible operating structure provided by the
Holding Company and the stock form of ownership is expected to assist Madison
First in competing aggressively with other financial institutions in its market
area.
The Conversion will also permit Madison First's members who subscribe for
shares of Common Stock to become shareholders of the Holding Company, thereby
allowing members to indirectly own stock in the financial organization in which
they maintain deposit accounts. Such ownership may encourage shareholders to
promote Madison First to others, thereby further contributing to Madison First's
growth.
Principal Effects of Conversion
General. Each savings depositor in a mutual savings and loan association
such as Madison First has both a savings account and a pro rata ownership in the
net worth of that institution, based upon the balance in his or her savings
account, which has no tangible market value separate from the savings account.
Any other depositor who opens a savings account obtains a pro rata interest in
the net worth of the association without any additional payment beyond the
amount of the deposit. A depositor who reduces or closes his or her account
receives a portion or all of the balance in the account but nothing for his or
her ownership interest, which is lost to the extent that the balance in the
account is reduced. As a result, depositors normally can only realize the value
of their ownership in the unlikely event that the mutual association is
liquidated. In such event, the depositors of record at that time, as owners,
would share pro rata in any residual retained earnings (any remaining net worth)
after other claims are paid.
Upon conversion to stock form, the ownership of Madison First's net worth
will be represented by the outstanding shares of stock to be owned by the
Holding Company. Certificates are issued to evidence ownership of the capital
stock. The stock certificates are transferable and, therefore, the shares may be
transferred with no effect on any account the seller may hold in the savings
association.
Continuity. While the Conversion is being accomplished, the normal business
of Madison First in accepting deposits and making loans will be continued
without interruption. After the Conversion, Madison First will continue to
provide services for account holders and borrowers under current policies
carried on by its present management and staff.
The directors serving Madison First at the time of Conversion will continue
to serve in such capacity after the Conversion until the expiration of their
current terms, and thereafter, if reelected. Following the Conversion and the
Acquisition, Jonnie L. Davis, a director of Citizens, will be added to the Board
of Directors of Madison First. See "Management -- Directors of Madison First."
All executive officers of Madison First at the time of Conversion will retain
their positions after the Conversion.
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Effect on Deposit Accounts. Under the Plan, each holder of a deposit
account in Madison First at the time of the Conversion will automatically
continue as a deposit account holder in Madison First after the Conversion to
stock form, and each such deposit account will remain the same with respect to
deposit balance, interest rate and other terms. Each such account will be
insured by the FDIC in exactly the same way as before. Depositors will continue
to hold their existing certificates, passbooks and other evidence of their
accounts.
Effect on Loans of Borrowers. No loan from Madison First will be affected
by the Conversion. The amount, interest rate, maturity and security for each
loan will be unchanged.
Effect on Voting Rights of Members. Currently, all depositors and borrowers
of Madison First are members of, and have voting rights in, Madison First as to
all matters requiring membership action. Each depositor has one vote for each
$100, or fraction thereof, of the withdrawal value (deposit balance) of accounts
held by such member. Each borrower has one vote. However, no member may cast
more than 1,000 votes.
Following the Conversion, Madison First's members will cease to be members
and will no longer have voting rights in Madison First, and therefore will not
be able to elect directors of Madison First or control its affairs. All voting
rights in Madison First will be vested in the Holding Company as the sole
shareholder of Madison First. Voting rights in the Holding Company will be
vested exclusively in its shareholders, with one vote for each share of Common
Stock. Neither the Common Stock to be sold in the Conversion nor the capital
stock of Madison First will be insured by the FDIC or any other government
entity.
Effect on Liquidation Rights. If Madison First were to liquidate as a
mutual savings association, all claims of creditors (including those of deposit
account holders, to the extent of their deposit balances) would be paid first
and, if there were any assets remaining, account holders would then receive such
remaining assets, pro rata, based upon the deposit balances in their deposit
accounts just prior to liquidation. If Madison First were to liquidate after the
Conversion, all claims of creditors (including those of deposit account holders,
to the extent of their deposit balances) would also be paid first, followed by
distribution of the "liquidation account" to certain deposit account holders (as
described below), with any assets remaining thereafter distributed to the
Holding Company as the sole shareholder of Madison First.
Current federal regulations and the Plan of Conversion provide for the
establishment of a "liquidation account" by Madison First for the benefit of its
deposit account holders with balances of no less than $50.00 on December 31,
1994 ("Eligible Account Holders"), and its deposit account holders with balances
of no less than $50.00 on [June 30, 1996] ("Supplemental Eligible Account
Holders"), who continue to maintain their accounts in Madison First after
Conversion. The liquidation account will be credited with the net worth of
Madison First as reflected in the latest statement of financial condition in the
final prospectus used in the Conversion. Each Eligible Account Holder and
Supplemental Eligible Account Holder will, with respect to each deposit account
held, have a related inchoate interest in a portion of the balance of the
liquidation account. This inchoate interest is referred to in the Plan as a
"subaccount balance." In the event of a complete liquidation of Madison First
after the Conversion (and only in such event), Eligible Account Holders and
Supplemental Eligible Account Holders of Madison First would be entitled to a
distribution from the liquidation account in an amount equal to the then current
adjusted subaccount balance then held, before any liquidation distribution would
be made to the Holding Company as sole shareholder of Madison First. Management
believes that a liquidation of Madison First is unlikely.
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Each Eligible Account Holder will have a subaccount balance in the
liquidation account for each deposit account held as of December 31, 1994 (the
"Eligibility Record Date"). Each Supplemental Eligible Account Holder will have
a subaccount balance in the liquidation account for each deposit account held as
of [June 30, 1996] (the "Supplemental Eligibility Record Date"). Each initial
subaccount balance will be the amount determined by multiplying the total
opening balance in the liquidation account by a fraction, the numerator of which
is the amount of the qualifying deposit (a deposit of at least $50 as of
December 31, 1994, or [June 30, 1996], respectively) of such deposit account,
and the denominator of which is the total of all qualifying deposits on that
date. If the amount in the deposit account on any subsequent annual closing date
of Madison First is less than the balance in such deposit account on any other
annual closing date, or the balance in such account on the Eligibility Record
Date or the Supplemental Eligibility Record Date, as the case may be, this
interest in the liquidation account will be reduced by an amount proportionate
to any such reduction, and will not thereafter be increased despite any
subsequent increase in the related deposit account. An Eligible Account
Holder's, as well as a Supplemental Eligible Account Holder's, interest in the
liquidation account will cease to exist if the deposit account is closed. The
liquidation account will never increase and will be correspondingly reduced as
the interests in the liquidation account are reduced or cease to exist. In the
event of liquidation, any assets remaining after the above liquidation rights of
Eligible Account Holders and Supplemental Eligible Account Holders are satisfied
will be distributed to the Holding Company as the sole shareholder of Madison
First.
A merger, consolidation, sale of bulk assets, or similar combination or
transaction in which Madison First is not the surviving entity would not be
considered to be a "liquidation" under which distribution of the liquidation
account could be made, provided the surviving institution is an FDIC-insured
institution. In such a transaction, the liquidation account would be assumed by
the surviving institution. The OTS has stated that the consummation of a
transaction of the type described in the preceding sentence in which the
surviving entity is not an FDIC-insured institution would be reviewed on a
case-by-case basis to determine whether the transaction should constitute a
"complete liquidation" requiring distribution of any then-remaining balance in
the liquidation account.
The creation and maintenance of the liquidation account will not restrict
the use of or application of any of the net worth accounts of Madison First,
except that Madison First may not declare or pay a cash dividend on or
repurchase its capital stock if the effect of such dividend or repurchase would
be to cause its net worth to be reduced below the aggregate amount then required
for the liquidation account.
Tax Effects. Madison First intends to proceed with the Conversion on the
basis of an opinion from its special counsel, Barnes & Thornburg, Indianapolis,
Indiana, as to certain tax matters. The opinion is based, among other things, on
certain representations made by Madison First, including the representation that
the exercise price of the subscription rights to purchase Holding Company Common
Stock will be approximately equal to the fair market value of the stock at the
time of the completion of the Conversion. With respect to the subscription
rights, Madison First has received an opinion of Keller which, based on certain
assumptions, concludes that the subscription rights to be received by Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members do not
have any economic value at the time of distribution or the time the subscription
rights are exercised, whether or not a Direct Community Offering takes place,
and Barnes & Thornburg's opinion is given in reliance thereon. Barnes &
Thornburg's opinion provides substantially as follows:
1. The change in form of Madison First from a mutual savings and loan
association to a stock savings and loan association will qualify as a
reorganization under Section 368(a)(1)(F) of the Code and no gain or
loss will be recognized to Madison First in either its mutual form or
its stock form by reason of the Conversion.
2. No gain or loss will be recognized by the converted savings association
upon receipt of money from the Holding Company for the converted
savings association's capital stock, and no gain or loss will be
recognized to the Holding Company upon the receipt of money for Common
Stock of the Holding Company.
3. The basis of the assets of the converted savings association will be
the same as the basis in Madison First's hands prior to the
Conversion.
4. The holding period of the assets of the converted savings association
will include the period during which the assets were held by Madison
First in its mutual form prior to Conversion.
5. No gain or loss will be realized by the deposit account holders of
Madison First, upon the constructive issuance to them of withdrawable
deposit accounts of the converted savings association immediately after
the Conversion, interests in the liquidation account, and/or on the
distribution to them of nontransferable subscription rights to purchase
Holding Company Common Stock.
6. The basis of an account holder's deposit accounts in the converted
savings association after the Conversion will be the same as the basis
of his or her deposit account in Madison First prior to the Conversion.
7. The basis of each account holder's interest in the liquidation account
will be zero. The basis of the non-transferable subscription rights
will be zero.
8. The basis of the Holding Company Common Stock to its shareholders will
be the actual purchase price ($10.00) thereof, and a shareholder's
holding period for Holding Company Common Stock acquired through the
exercise of subscription rights will begin on the date on which the
subscription rights are exercised.
9. No taxable income will be realized by Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members as a result of
the exercise of the nontransferable subscription rights.
10. The converted savings association in its stock form will succeed to and
take into account the earnings and profits or deficit in earnings and
profits of Madison First, in its mutual form, as of the date of
Conversion.
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The opinion also concludes in effect that:
1. No taxable income will be realized by Madison First on the issuance of
subscription rights to eligible subscribers to purchase shares of
Holding Company Common Stock at fair market value.
2. The converted savings association will succeed to and take into account
the dollar amounts of those accounts of Madison First in its mutual
form which represent bad debt reserves in respect of which Madison
First in its mutual form has taken a bad debt deduction for taxable
years on or before the date of the transfer.
3. The creation of the liquidation account will have no effect on Madison
First's taxable income, deductions, or additions to bad debt reserves
or distributions to shareholders under Section 593 of the Code.
Barnes & Thornburg has also issued an opinion stating in essence that the
Conversion will not be a taxable transaction to the Holding Company or Madison
First under any Indiana tax statute imposing a tax on income, and that Madison
First's depositors and borrowers will be treated under such laws in a manner
similar to the manner in which they will be treated under federal income tax
law.
The opinions of Barnes & Thornburg and Keller, unlike a letter ruling
issued by the Internal Revenue Service, are not binding on the Service and the
conclusions expressed herein may be challenged at a future date. The Service has
issued favorable rulings for transactions substantially similar to the proposed
Conversion, but any such ruling may not be cited as precedent by any taxpayer
other than the taxpayer to whom the ruling is addressed. Madison First does not
plan to apply for a letter ruling concerning the transactions described herein.
Offering of Holding Company Common Stock
Under the Plan of Conversion, up to 1,035,000 shares of Common Stock are
being offered for sale, initially through the Subscription Offering (subject to
a possible increase to 1,190,250 shares). See "-- Subscription Offering." The
Plan of Conversion requires, with certain exceptions, that a number of shares
equal to at least 765,000 be sold in order for the Conversion to be effective.
Shares will also be offered to the public in a Direct Community Offering which
will commence concurrently with the Subscription Offering. The Direct Community
Offering may expire as early as , or at any time thereafter (until , unless
extended by Madison First and the Holding Company) when orders for at least
765,000 shares have been received in the Subscription Offering and Direct
Community Offering, if any. The offering may be extended, subject to OTS
approval, until 24 months following the members' approval of the Plan of
Conversion, or until _______, 1998. The actual number of shares to be sold in
the Conversion will depend upon market and financial conditions at the time of
the Conversion, provided that no fewer than 765,000 shares or more than
1,190,250 shares will be sold in the Conversion. The per share price to be paid
by purchasers in the Direct Community Offering for any remaining shares will be
$10.00, the same price paid by subscribers in the Subscription Offering. See "--
Stock Pricing."
The Subscription Offering expires at _____ p.m., Madison time, on _______,
1996. OTS regulations and the Plan of Conversion require that Madison First
complete the sale of Common Stock within 45 days after the close of the
Subscription Offering. This 45-day period expires on _______, 1996. In the event
Madison First is unable to complete the sale of Common Stock within the 45-day
period, an extension of this time period may be requested of the OTS. No single
extension granted by the OTS, however, may exceed 90 days. No assurance can be
given that an extension would be granted if requested. The OTS has, however,
granted extensions due to the inability of mutual financial institutions to
complete the sale as a result of the development of adverse conditions in the
stock market. If an extension is granted, Madison First will promptly notify
subscribers of the granting of the extension of time and will promptly return
subscriptions unless subscribers affirmatively elect to continue their
subscriptions during the period of extension. Such extensions may not be made
beyond _______, 1998.
As permitted by OTS regulations, the Plan of Conversion provides that if,
for any reason, purchasers cannot be found for an insignificant residue of
unsubscribed shares of the Common Stock, the Board of Directors of Madison First
will seek to make other arrangements for the sale of the remaining shares. Such
other arrangements will be subject to the approval of the OTS. If such other
purchase arrangements cannot be made, the Plan of Conversion will terminate. In
the event that the Conversion is not effected, Madison First will remain a
mutual savings and loan association, all subscription funds will be promptly
returned to subscribers with interest earned thereon at the passbook rate, which
is currently 3.00% per annum, or 3.04 APY (except for payments to have been made
through withdrawal authorizations which will have continued to earn interest at
the contractual account rates), and all withdrawal authorizations will be
canceled.
Subscription Offering
In accordance with OTS regulations, nontransferable rights to subscribe for
the purchase of the Holding Company's Common Stock have been granted under the
Plan of Conversion to the following persons in the following order of priority:
(1) depositors of Madison First with balances no less than $50.00 as of December
31, 1994 ("Eligible Account Holders"); (2) the ESOP; (3) depositors of Madison
First with balances no less than $50.00 as of [June 30, 1996] ("Supplemental
Eligible Account Holders"); and (4) depositor and borrower members of Madison
First other than Eligible Account Holders and Supplemental Eligible Account
Holders, at the close of business on _______, 1996, the voting record date for
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the Special Meeting ("Other Members"). All subscriptions received will be
subject to the availability of Common Stock after satisfaction of all
subscriptions of all persons having prior rights in the Subscription Offering,
and to the maximum and minimum purchase limitations set forth in the Plan of
Conversion (and described below). The December 31, 1994, date for determination
of Eligible Account Holders and the [June 30, 1996] date for determination of
Supplemental Eligible Account Holders were selected in accordance with federal
regulations applicable to the Conversion. Shareholders, depositors and borrowers
of Citizens do not have subscription rights under the Plan unless such persons
otherwise qualify for subscription rights as a member of Madison First.
Category I: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, nontransferable subscription rights to
subscribe for up to 10,000 shares of the Common Stock for each deposit account
held on December 31, 1994; provided, however, that no Eligible Account Holder
may purchase alone or with his or her Associates (as defined in the Plan, and
including relatives living in the same household) and persons acting in concert,
more than 20,000 shares of Common Stock.
If sufficient shares are not available in this Category I, shares will be
allocated in a manner that will allow each Eligible Account Holder, to the
extent possible, to purchase a number of shares sufficient to make his or her
allocation consist of the lesser of 100 shares or the amount subscribed for.
Thereafter, unallocated shares will be allocated to subscribing Eligible Account
Holders in the proportion that the amounts of their respective qualifying
deposits bear to the total amount of qualifying deposits of all subscribing
Eligible Account Holders.
The "qualifying deposits" of an Eligible Account Holder is the amount of
the deposit balances (provided such aggregate balance is not less than $50.00)
in his or her deposit accounts as of the close of business on December 31, 1994.
Subscription rights received by directors and officers in this category based
upon their increased deposits in Madison First during the year preceding
December 31, 1994, are subordinated to the subscription rights of other Eligible
Account Holders. Notwithstanding the foregoing, shares of Common Stock with a
value in excess of $10,350,000, the maximum of the Estimated Valuation Range,
may be sold to the ESOP before fully satisfying the subscriptions of Eligible
Account Holders.
Category II: The ESOP. The ESOP will receive, without payment therefor,
nontransferable subscription rights to purchase up to 10% of the total number of
shares of Common Stock offered in the Conversion on behalf of participants,
provided that shares remain available after satisfying the subscription rights
of Eligible Account Holders up to the maximum of the Estimated Valuation Range
as described above. The ESOP currently intends to purchase 8% of the shares sold
in the Conversion. If the ESOP is unable to purchase all or part of the shares
of Common Stock for which it subscribes, the ESOP may purchase such shares on
the open market or may purchase authorized but unissued shares of the Holding
Company. If the ESOP purchases authorized but unissued shares, such purchases
could have a dilutive effect on the interests of the Holding Company's
shareholders.
Category III: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, nontransferable
subscription rights to subscribe for up to 10,000 shares of the Common Stock for
each deposit account held on [June 30, 1996]; provided, however, that no
Supplemental Eligible Account Holder may purchase alone or with his or her
Associates (as defined in the Plan, and including relatives living in the same
household) and persons acting in concert, more than 20,000 shares of Common
Stock. Such subscription rights will be applicable only to such shares as remain
available after the subscriptions of the Eligible Account Holders and the ESOP
have been satisfied. Any subscription rights received by a person as a result of
his or her status as an Eligible Account Holder will reduce to the extent
thereof the subscription rights granted to such person as a result of his or her
status as a Supplemental Eligible Account Holder.
If sufficient shares are not available in this Category III, shares will be
allocated in a manner that will allow each Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares sufficient to make his or
her allocation consist of the lesser of 100 shares or the amount subscribed for.
Thereafter, unallocated shares will be allocated to subscribing Supplemental
Eligible Account Holders in the proportion that the amounts of their respective
qualifying deposits bear to the total amount of qualifying deposits of all
subscribing Supplemental Eligible Account Holders.
The "qualifying deposits" of a Supplemental Eligible Account Holder is the
amount of the deposit balances (provided such aggregate balance is not less than
$50) in his or her deposit accounts as of the close of business on [June 30,
1996].
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Category IV: Other Members. The Other Members of Madison First will
receive, without payment therefor, nontransferable subscription rights to
subscribe for up to 10,000 shares of the Common Stock for each deposit account
held and each loan owed as of ____________, 1996; provided, however, that no
Other Member may purchase alone or with his or her Associates (as defined in the
Plan, and including relatives living in the same household) and persons acting
in concert, more than 20,000 shares of Common Stock. Such subscription rights
will be applicable only to such shares as remain available after the
subscriptions of Eligible Account Holders, the ESOP and Supplemental Eligible
Account Holders have been satisfied.
If sufficient shares are not available in this Category IV, shares will be
allocated pro rata among subscribing Other Members in the same proportion that
the number of shares subscribed for by each Other Member bears to the total
number of shares subscribed for by all Other Members.
Timing of Offering and Method of Payment. The Subscription Offering will
expire at _____ p.m., Madison time, on , 1996 (the "Expiration Date"). The
Expiration Date may be extended by Madison First and the Holding Company for
successive 90-day periods, subject to OTS approval, to , 1998.
Subscribers must, before the Expiration Date, or such date to which the
Expiration Date may be extended, return Order Forms to Madison First, properly
completed, together with checks or money orders in an amount equal to the
Purchase Price ($10.00 per share) multiplied by the number of shares for which
subscription is made. Payment for stock purchases can also be accomplished
through authorization on the order form of withdrawals from accounts (including
a certificate of deposit but excluding IRA accounts). Madison First has the
right to reject any orders transmitted by facsimile and any payments made by
wire transfer. The beneficiaries of IRA accounts are deemed to have the same
subscription rights as other depositors. However, the IRA accounts maintained in
Madison First do not permit investment in the Common Stock. A depositor
interested in using his IRA funds to purchase Common Stock must do so through a
self-directed IRA account. Since Madison First does not offer such accounts, it
will allow such a depositor to make a trustee-to-trustee transfer of the IRA
funds on deposit at Madison First that he wishes to invest. There will be no
early withdrawal or IRS interest penalties for such transfers. The new trustee
would hold the Common Stock in a self-directed account in the same manner as
Madison First now holds the depositor's IRA funds. An annual administrative fee
would be payable to the new trustee.
Depositors interested in using funds in a Madison First IRA to purchase
Common Stock should contact Madison First at (812) 265-3421 as soon as possible
so that the necessary forms may be forwarded for execution and returned prior to
the Expiration Date of the Subscription Offering.
Until completion or termination of the Conversion, subscribers who elect to
make payment through authorization of withdrawal from accounts with Madison
First will not be permitted to reduce the deposit balance in any such accounts
below the amount required to purchase the shares for which they subscribed. In
such cases interest will continue to be credited on deposits authorized for
withdrawal until the completion of the Conversion. Interest at the passbook
rate, which is currently 3.00% per annum, for an APY of 3.04%, will be paid on
amounts submitted by check. Authorized withdrawals from certificate accounts for
the purchase of Common Stock will be permitted without the imposition of early
withdrawal penalties or loss of interest. However, withdrawals from certificate
accounts that reduce the balance of such accounts below the required minimum for
specific interest rate qualification will cause the cancellation of the
certificate accounts at the effective date of the Conversion, and the remaining
balance will earn interest at the passbook savings rate. Stock subscriptions
received by Madison First may not be withdrawn by the subscriber before , 1996,
and, if accepted by Madison First, are final until that date.
Members in Non-Qualified States or Foreign Countries. Madison First and the
Holding Company will make reasonable efforts to comply with the securities laws
of all states in the United States in which persons entitled to subscribe for
stock pursuant to the Plan reside. However, no person will be offered or sold or
receive any stock pursuant to the Subscription Offering if such person resides
in a foreign country or resides in a state in the United States with respect to
which all of the following apply: (i) a small number of persons otherwise
eligible to subscribe for shares of Common Stock reside in such state; (ii) the
granting of subscription rights or the offer or sale of Common Stock to such
persons would require Madison First or the Holding Company or their respective
officers and directors, under the securities laws of such state, to register as
a broker, dealer, salesman or selling agent, or to register or otherwise qualify
the Common Stock for sale in such state; and (iii) such registration,
qualification or filing in the judgment of the Holding Company and Madison First
would be impracticable or unduly burdensome for reasons of cost or otherwise.
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To assist in the Subscription and Direct Community Offerings, the Holding
Company has established a Stock Information Center ((812) 273-4949). Callers to
the Stock Information Center will be able to request a Subscription and Direct
Community Offering Prospectus and other information relating to the offering.
Direct Community Offering
Commencing concurrently with the Subscription Offering, Madison First is
offering shares of Holding Company Common Stock in the Direct Community Offering
to the general public, with preference given to residents of Jefferson County,
to the extent such shares remain available after satisfaction of all orders
received in the Subscription Offering. The right of any person to purchase
shares in the Direct Community Offering is subject to the right of Madison First
to accept or reject such purchase in whole or in part. Madison First has the
right to terminate the Direct Community Offering as soon as it has received
orders for at least the minimum number of shares available for purchase in the
Conversion.
The Direct Community Offering may expire as early as , 1996, or at any time
thereafter (until , 1996, unless extended by Madison First and the Holding
Company) when orders for at least 765,000 shares have been received in the
Subscription Offering and Direct Community Offering. Accordingly, persons
wishing to purchase stock in the Direct Community Offering directly from the
Holding Company should return the Order Form on or before , 1996, to Madison
First, properly completed, together with check or money order in the amount
equal to the Purchase Price ($10.00 per share) multiplied by the number of
shares which that person desires to purchase. Order Forms will be accepted in
the Direct Community Offering until its completion, which is expected to occur
on or after , 1996, and before , 1996. However, as mentioned above, Madison
First may terminate the Direct Community Offering as soon as it has received
orders for at least the minimum number of shares available for purchase in the
Conversion. Therefore, persons who submit a Order Form after , 1996, may be
precluded from purchasing stock in the Direct Community Offering because the
Direct Community Offering may have been terminated before the Order Form is
submitted.
Order Forms received during the Direct Community Offering will be filled up
to a maximum of 10,000 shares of Common Stock offered in the Conversion, with
any remaining unfilled purchase orders to be allocated on an equal number of
shares basis. The maximum number of shares of Common Stock which may be
purchased in the Direct Community Offering by any person (including such
person's Associates) or persons acting in concert is 10,000 in the aggregate. A
member who, together with his Associates and persons acting in concert, has
subscribed for shares in the Subscription Offering may subscribe for a number of
additional shares in the Direct Community Offering that does not exceed the
lesser of (i) 10,000 shares or (ii) the number of shares which, when added to
the number of shares subscribed for by the member (and his Associates and
persons acting in concert) in the Subscription Offering, would not exceed
20,000. Madison First reserves the right to reject any orders received in the
Direct Community Offering in whole or in part.
If all the Holding Company Common Stock offered in the Subscription
Offering is subscribed for, no Holding Company Common Stock will be available
for purchase in the Direct Community Offering and all funds submitted pursuant
to the Direct Community Offering will be promptly refunded, with interest, as
hereafter described. Purchase orders received during the Direct Community
Offering will be filled up to a maximum of 2% of the total number of shares of
Common Stock issued in the Conversion, with any remaining unfilled purchase
orders to be allocated on an equal number of shares basis. If the Direct
Community Offering extends beyond 45 days following the expiration of the
Subscription Offering, subscribers will have the right to increase, decrease or
rescind subscriptions for stock previously submitted. All sales of Holding
Company Common Stock in the Direct Community Offering will be at the same price
per share as the sales of Holding Company Common Stock in the Subscription
Offering.
Cash and checks received in the Direct Community Offering will be placed in
a special savings account at Madison First, and will earn interest at the
passbook rate, which is currently 3.00% per annum, for an APY of 3.04%, from the
date of deposit until completion or termination of the Conversion. In the event
that the Conversion is not consummated for any reason, all funds submitted
pursuant to the Direct Community Offering will be promptly refunded with
interest as described above.
Delivery of Certificates
Certificates representing shares issued in the Subscription Offering and in
the Direct Community Offering pursuant to Order Forms will be mailed to the
persons entitled to them at the last addresses of such persons appearing on the
books of Madison First or to such other addresses as may be specified in
properly completed Order Forms as soon as practicable following consummation of
the Conversion. Any certificates returned as undeliverable will be held by the
Holding Company until claimed by the person legally entitled to them or
otherwise disposed of in accordance with applicable law.
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Agent
To assist Madison First and the Holding Company in marketing the Holding
Company Common Stock offered hereby, Madison First has retained the services of
Trident Securities, Inc. as its exclusive agent (the "Agent"). The Agent is a
broker-dealer registered with the SEC and a member of the National Association
of Securities Dealers, Inc. (the "NASD"). The Agent will assist Madison First in
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the Conversion as follows: (1) in training and educating Madison First's
employees regarding the mechanics and regulatory requirements of the conversion
process; (2) in conducting informational meetings for subscribers and other
potential purchasers; (3) in keeping records of all stock subscriptions; and (4)
in obtaining proxies from Madison First's members with respect to the Special
Meeting. The Agent will also serve as an advisor to the Holding Company and
Madison First in connection with the Acquisition. For providing these services,
Madison First has agreed to pay the Agent a management fee equal to 0.5% of the
aggregate dollar amount of shares of Common Stock sold in the Conversion and
commissions in an amount equal to 2.0% of the aggregate dollar amount of shares
of Common Stock sold in the Conversion other than shares sold to the ESOP,
officers and directors of the Institutions and their Associates. The Agent will
also be reimbursed for out-of-pocket expenses which are not to exceed $12,000
without Madison First's consent and for legal fees and expenses which are not to
exceed $35,000 without Madison First's consent. Offers and sales in the Direct
Community Offering will be on a best efforts basis and, as a result, the Agent
is not obligated to purchase any shares of the Common Stock. The Agent intends
to make a market in the Common Stock, although it is under no obligation to do
so.
Madison First and the Holding Company have also agreed to indemnify the
Agent, under certain circumstances, against liabilities and expenses (including
legal fees) arising out of the Agent's engagement by Madison First, including
liabilities under the 1933 Act.
Madison First also engaged Trident Financial Corporation ("Trident
Financial"), an affiliate of the Agent, to serve as its financial advisor in
connection with the Acquisition. Madison First has agreed to pay Trident
Financial fees based on Trident Financial's standard hourly rates and to
reimburse Trident Financial for reasonable out-of-pocket expenses.
Selected Dealers
Upon a determination by Madison First and the Agent, the Agent may enter
into an agreement with certain dealers chosen by Madison First and the Agent
(together, the "Selected Dealers") to assist in the sale of shares in the Direct
Community Offering. Selected Dealers will receive commissions at an agreed upon
rate, not to exceed 4.5%, for all shares sold by such Selected Dealers. During
the Direct Community Offering, Selected Dealers may only solicit indications of
interest from their customers to place orders with Madison First as of a certain
date (the "Order Date") for the purchase of shares of Common Stock. When and if
Madison First and the Agent believe that enough indications of interest and
orders have been received in the Subscription Offering and Direct Community
Offering to consummate the Conversion, the Agent will request, as of the Order
Date, Selected Dealers to submit orders to purchase shares for which they have
previously received indications of interest from the customers. Selected Dealers
will send confirmations of the orders to such customers on the next business day
after the Order Date. Selected Dealers will debit the accounts of their
customers on the date which will be three business days from the Order Date (the
"Settlement Date"). On the Settlement Date, funds received by Selected Dealers
will be remitted to Madison First. It is anticipated that the Conversion will be
consummated on the Settlement Date. However, if consummation is delayed after
payment has been received by Madison First from Selected Dealers, funds will
earn interest at the passbook rate, which is currently 3.00% per annum, for an
APY of 3.04%, until the completion of the offering. Funds will be returned
promptly in the event the Conversion is not consummated.
Limitations on Common Stock Purchases
The Plan includes a number of limitations on the number of shares of Common
Stock which may be purchased during the Conversion. These are summarized below:
(1) No fewer than 25 shares may be purchased by any person purchasing shares of
Common Stock in the Conversion (provided that sufficient shares are available).
(2) No subscribing member may purchase more than 10,000 shares of Common Stock
with respect to each deposit account held as of December 31, 1994, June 30, 1996
or ___________, 1996, as applicable, and each loaned owed as of ____________,
1996. For this purpose, joint account holders or borrowers collectively may not
exceed the 10,000 share limit. Notwithstanding the foregoing sentences, no
Eligible Account Holder, Supplemental Eligible Account Holder or Other Member,
by himself or herself, or with an Associate or group of persons acting in
concert, may purchase more than 20,000 shares of Common Stock in the Conversion
(except for the ESOP which may purchase up to 10% of the total number of shares
of Common Stock offered in the Conversion). The maximum number of shares of
Common Stock which may be purchased in the Direct Community Offering by any
person (including such person's Associates) or persons acting in concert is
10,000 in the aggregate. A member who, together with his Associates and persons
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acting in concert, has subscribed for shares in the Subscription Offering may
subscribe for a number of additional shares in the Direct Community Offering
that does not exceed the lesser of (i) 10,000 shares or (ii) the number of
shares which, when added to the number of shares subscribed for by the member
(and his Associates and persons acting in concert) in the Subscription Offering,
would not exceed 20,000. Madison First's and the Holding Company's Boards of
Directors may, however, in their sole discretion, increase the maximum purchase
limitation set forth above up to 9.99% of the shares of Common Stock sold in the
Conversion, provided that orders for shares exceeding 5% of the shares of Common
Stock sold in the Conversion may not exceed, in the aggregate, 10% of the shares
sold in the Conversion, except that the ESOP may purchase in the aggregate up to
10% of the shares of Common Stock sold in the Conversion and not be included in
the order limit. If the Boards of Directors decide to increase the purchase
limitation, all persons who subscribe for the maximum number of shares of Common
Stock offered in the Conversion will be, and certain other large subscribers in
the sole discretion of Madison First may be, given the opportunity to increase
their subscriptions accordingly, subject to the rights and preferences of any
person who has priority subscription rights. The overall purchase limitation may
be reduced in the sole discretion of the Board of Directors of Madison First.
(3) No more than 34% of the shares of Common Stock may be purchased in the
Conversion by directors and officers of Madison First and the Holding Company
and their Associates (excluding shares allocable to such persons under the
ESOP).
OTS regulations define "acting in concert" as (i) knowing participation in
a joint activity or interdependent conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or (ii) a combination or
pooling of voting or other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise.
The term "Associate" of a person is defined to mean (i) any corporation or
organization (other than Madison First or its subsidiaries or the Holding
Company) of which such person is a director, officer, partner or 10%
stockholder; (ii) any trust or other estate in which such person has a
substantial beneficial interest or serves as trustee or in a similar fiduciary
capacity; provided, however that such term shall not include any employee stock
benefit plan of the Holding Company or Madison First in which such a person has
a substantial beneficial interest or serves as a trustee or in a similar
fiduciary capacity, and (iii) any relative or spouse of such person, or relative
of such spouse, who either has the same home as such person or who is a director
or officer of Madison First or its subsidiaries or the Holding Company.
Directors are not treated as Associates of one another solely because of their
board membership. Compliance with the foregoing limitations does not necessarily
constitute compliance with other regulatory restrictions on acquisitions of the
Common Stock. For a further discussion of limitations on purchases of the
Holding Company Common Stock during and subsequent to Conversion, see "--
Restrictions on Sale of Stock by Directors and Officers," "-- Restrictions on
Purchase of Stock by Directors and Officers Following Conversion," and
"Restrictions on Acquisition of the Holding Company."
Restrictions on Repurchase of Stock by Holding Company
Repurchases of its shares by the Holding Company will be restricted for a
period of three years from the date of the Conversion. OTS regulations currently
provide that the Holding Company is prohibited from repurchasing any of its
shares within one (1) year following the Conversion except in exceptional
circumstances. So long as Madison First continues to meet certain capitalization
requirements, the Holding Company may repurchase shares in an open-market
repurchase program (which cannot exceed 5% of its outstanding shares in a
twelve-month period except in exceptional circumstances) during the second and
third year following the Conversion by giving appropriate prior notice to the
OTS. The OTS has authority to waive these restrictions under certain
circumstances. Unless repurchases are permitted under the foregoing regulations,
the Holding Company may not, for a period of three years from the date of the
Conversion, repurchase any of its capital stock from any person, except in the
event of an offer to purchase by the Holding Company on a pro rata basis from
all of its shareholders which is approved in advance by the OTS, except in
exceptional circumstances established to the satisfaction of the OTS, or except
for purchases of shares required to fund the ESOP or the RRP.
Further, the Holding Company may not repurchase any of its capital stock if
the effect of such purchase would be to cause Madison First's net worth to be
reduced below the amount required for the liquidation account. The Holding
Company may use some of the net proceeds received from the sale of the Common
Stock offered by this Prospectus to repurchase such Common Stock, subject to OTS
requirements.
Regulations promulgated by the FRB provide that a bank holding company must
file written notice with the FRB prior to any repurchase of its equity
securities if the gross consideration for the purchase, when aggregated with the
net consideration paid by the bank holding company for all repurchases during
the preceding 12 months, is equal to 10% or more of the bank holding company's
consolidated net worth. This notice requirement is not applicable, however, to a
bank holding company that exceeds the thresholds established for a well
capitalized bank and that satisfies certain other regulatory requirements.
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Under Indiana law, the Holding Company will be precluded from repurchasing
its equity securities if, after giving effect to such repurchase, the Holding
Company would be unable to pay its debts as they become due or the Holding
Company's assets would be less than its liabilities and obligations to
preferential shareholders.
Restrictions on Sale of Stock by Directors and Officers
All shares of the Common Stock purchased by directors and officers of
Madison First or the Holding Company in the Conversion will be subject to the
restriction that such shares may not be sold or otherwise disposed of for value
for a period of one year following the date of purchase, except for any
disposition of such shares (i) following the death of the original purchaser or
(ii) by reason of an exchange of securities in connection with a merger or
acquisition approved by the applicable regulatory authorities. Sales of shares
of the Common Stock by the Holding Company's directors and officers will also be
subject to certain insider trading and other transfer restrictions under the
federal securities laws. See "Regulation -- Federal Securities Laws" and
"Description of Capital Stock."
Each certificate for such restricted shares will bear a legend prominently
stamped on its face giving notice of the restrictions on transfer, and
instructions will be issued to the Holding Company's transfer agent to the
effect that any transfer within such time period of any certificate or record
ownership of such shares other than as provided above is a violation of the
restriction. Any shares of Common Stock issued pursuant to a stock dividend,
stock split or otherwise with respect to restricted shares will be subject to
the same restrictions on sale.
Restrictions on Purchase of Stock by Directors and Officers Following Conversion
OTS regulations provide that for a period of three years following the
Conversion, without prior written approval of the OTS, neither directors nor
officers of Madison First or the Holding Company nor their Associates may
purchase shares of the Common Stock of the Holding Company, except from a dealer
registered with the SEC. This restriction does not, however, apply to negotiated
transactions involving more than one percent of the Holding Company's
outstanding Common Stock, to shares purchased pursuant to stock option or other
incentive stock plans approved by the Holding Company's shareholders, or to
shares purchased by employee benefit plans maintained by the Holding Company
which may be attributable to individual officers or directors.
Restrictions on Transfer of Subscription Rights and Common Stock
Prior to the completion of the Conversion, OTS regulations and the Plan of
Conversion prohibit any person with subscription rights, including Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members of
Madison First, from transferring or entering into any agreement or understanding
to transfer the legal or beneficial ownership of the subscription rights issued
under the Plan or the shares of Common Stock to be issued upon their exercise.
Such rights may be exercised only by the person to whom they are guaranteed and
only for his/her account. Each person exercising such subscription rights will
be required to certify that he/she is purchasing shares solely for his/her own
account and that he/she has no agreement or understanding regarding the sale or
transfer of such shares. The regulations also prohibit any person from offering
or making an announcement of an offer or intent to make an offer to purchase
such subscription rights or shares of Common Stock prior to the completion of
the Conversion. Madison First and the Holding Company will pursue any and all
legal and equitable remedies in the event they become aware of the transfer of
subscription rights and will not honor orders known by them to involve the
transfer of such rights. In addition, persons who violate the purchase
limitations may be subject to sanctions and penalties imposed by the OTS.
Stock Pricing
The aggregate purchase price of the Holding Company Common Stock being sold
in the Conversion will be based on the appraised aggregate pro forma market
value of the Common Stock, as determined by an independent valuation. Keller &
Company, Inc. ("Keller"), which is experienced in the valuation and appraisal of
financial institutions, including savings institutions involved in the
conversion process, was retained by Madison First to prepare an appraisal.
Keller will receive a fee of $17,000 for its appraisal, plus expenses not to
exceed $500. Keller has also prepared a business plan for Madison First for a
fee of $5,000. Madison First has agreed to indemnify Keller, under certain
circumstances, against liabilities and expenses (including legal fees) arising
out of Keller's engagement by Madison First.
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Keller has prepared an appraisal of the estimated pro forma market value of
the Common Stock. Keller's appraisal concluded that as of May 3, 1996, the
appropriate valuation range (the "Estimated Valuation Range") for the estimated
pro forma market value of the Common Stock was from a minimum of $7,650,000 to a
maximum of $10,350,000, with a midpoint of $9,000,000. A copy of the appraisal
is on file and available for inspection at the offices of the OTS, 1700 G
Street, N.W., Washington, D.C. 20552 and the Central Regional Office of the OTS,
111 East Wacker Drive, Suite 800, Chicago, Illinois 60601. The appraisal has
also been filed as an exhibit to the Holding Company's Registration Statement
with the SEC, and may be reviewed at the SEC's public reference facilities. See
"Additional Information." The appraisal involved a comparative evaluation of the
operating and financial statistics of the Institutions with those of other
financial institutions. The appraisal also took into account such other factors
as the market for savings institutions generally, prevailing economic
conditions, both nationally and in Indiana, which affect the operations of
savings institutions, the competitive environment within which the Institutions
operate, and the effect of the Institutions becoming subsidiaries of the Holding
Company. No detailed individual analysis of the separate components of the
Institutions' and the Holding Company's assets and liabilities was performed in
connection with the evaluation. The Board of Directors reviewed with management
Keller's methods and assumptions and accepted Keller's appraisal as reasonable
and adequate. The Holding Company, in consultation with the Agent, has
determined to offer the Common Stock in the Conversion at a price of $10.00 per
share. The Holding Company's decision regarding the Purchase Price was based
solely on its determination that $10.00 per share is a customary purchase price
in conversion transactions. The Estimated Valuation Range may be increased or
decreased to reflect market and financial conditions prior to the completion of
the Conversion.
Promptly after the completion of the Subscription Offering and the Direct
Community Offering, if any, Keller will confirm to Madison First that, to the
best of Keller's knowledge and judgment, nothing of a material nature has
occurred which would cause Keller to conclude that the amount of the aggregate
proceeds received from the sale of the Common Stock in the Conversion was
incompatible with its estimate of the total pro forma market value of Madison
First at the time of the sale. If, however, the facts do not justify such a
statement, a new Estimated Valuation Range and price per share may be set. Under
such circumstances, the Holding Company will be required to resolicit
subscriptions. In that event, subscribers would have the right to modify or
rescind their subscriptions and to have their subscription funds returned
promptly with interest and holds on funds authorized for withdrawal from deposit
accounts would be released or reduced; provided that if the pro forma market
value of Madison First upon Conversion has increased to an amount which does not
exceed $11,902,500 (15% above the maximum of the Estimated Valuation Range), the
Holding Company and Madison First do not intend to resolicit subscriptions
unless it is determined after consolation with the OTS that a resolicitation is
required.
Depending upon market and financial conditions, the number of shares issued
may be more or less than the range in number of shares shown above. A change in
the number of shares to be issued in the Conversion will not affect subscription
rights, which are based on the1,035,000 shares being offered in the Subscription
Offering. In the event of an increase in the maximum number of shares being
offered, persons who exercise their maximum subscription rights will be notified
of such increase and of their right to purchase additional shares. Conversely,
in the event of a decrease in the maximum number of shares being offered,
persons who exercise their maximum subscription rights will be notified of such
decrease and of the concomitant reduction in the number of shares for which
subscriptions may be made. In the event of a resolicitation, subscribers will be
afforded the opportunity to increase, decrease or maintain their previously
submitted order. The Holding Company will be required to resolicit if the price
per share is changed such that the total aggregate purchase price is not within
the minimum and 15% above the maximum of the Estimated Valuation Range.
THE INDEPENDENT VALUATION IS NOT INTENDED AND MUST NOT BE CONSTRUED AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF VOTING TO APPROVE THE
CONVERSION OR OF PURCHASING THE SHARES OF THE COMMON STOCK. MOREOVER, BECAUSE
SUCH VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER
OF MATTERS (INCLUDING CERTAIN ASSUMPTIONS AS TO THE AMOUNT OF NET PROCEEDS AND
THE EARNINGS THEREON), ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO
ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING SHARES IN THE CONVERSION WILL
THEREAFTER BE ABLE TO SELL THE SHARES AT PRICES RELATED TO THE FOREGOING
VALUATION OF THE PRO FORMA MARKET VALUE.
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Number of Shares to be Issued
It is anticipated that the total offering of Common Stock (the number of
shares of Common Stock issued in the Conversion multiplied by the Purchase Price
of $10.00 per share) will be within the current minimum and 15% above the
maximum of the Estimated Valuation Range. Unless otherwise required by the OTS,
no resolicitation of subscribers will be made and subscribers will not be
permitted to modify or cancel their subscriptions so long as the change in the
number of shares to be issued in the Conversion, in combination with the
Purchase Price, results in an offering within the minimum and 15% above the
maximum of the Estimated Valuation Range.
An increase in the total number of shares of Common Stock to be issued in
the Conversion would decrease both a subscriber's ownership interest and the
Holding Company's pro forma net worth and net income on a per share basis while
increasing (assuming no change in the per share price) pro forma net income and
net worth on an aggregate basis. A decrease in the number of shares to be issued
in the Conversion would increase both a subscriber's ownership interest and the
Holding Company's pro forma net worth and net income on a per share basis while
decreasing (assuming no change in the per share price) pro forma net income and
net worth on an aggregate basis. For a presentation of the effects of such
changes, see "Pro Forma Data."
Interpretation and Amendment of the Plan
To the extent permitted by law, all interpretations of the Plan by Madison
First and the Holding Company will be final. The Plan provides that, if deemed
necessary or desirable by the Boards of Directors of the Holding Company and
Madison First, the Plan may be substantively amended by the Boards of Directors,
as a result of comments from regulatory authorities or otherwise, with the
concurrence of the OTS. Moreover, if the Plan of Conversion is so amended,
subscriptions which have been received prior to such amendment will not be
refunded unless otherwise required by the OTS.
Conditions and Termination
Completion of the Conversion requires the approval of the Plan by the
affirmative vote of not less than a majority of the total number of votes of the
members of Madison First eligible to be cast at the Special Meeting and the sale
of all shares of the Common Stock within 24 months following approval of the
Plan by the members. If these conditions are not satisfied, the Plan will be
terminated and Madison First will continue its business in the mutual form of
organization. The Plan may be terminated by the Boards of Directors of Madison
First and the Holding Company at any time prior to the Special Meeting and, with
the approval of the OTS, by such Boards of Directors at any time thereafter.
Furthermore, OTS regulations and the Plan of Conversion require that the Holding
Company complete the sale of Common Stock within 45 days after the close of the
Subscription Offering. The OTS may grant an extension of this time period if
necessary, but no assurance can be given that an extension would be granted. See
"-- Offering of Holding Company Common Stock."
Completion of the Conversion is also conditioned upon the Acquisition. The
Conversion will not become effective until such time as all conditions precedent
to the Acquisition are satisfied. If at any time it becomes clear that any
condition precedent to the Acquisition will not be satisfied, the Conversion and
the Plan of Conversion will terminate. See "The Acquisition."
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
General
Although the Boards of Directors of Madison First and the Holding Company
are not aware of any effort that might be made to obtain control of the Holding
Company after the Conversion, the Boards of Directors believe that it is
appropriate to include certain provisions in the Holding Company's Articles of
Incorporation (the "Articles") to protect the interests of the Holding Company
and its shareholders from unsolicited changes in the control of the Holding
Company in circumstances under which the Board of Directors of the Holding
Company concludes will not be in the best interests of Madison First, the
Holding Company or the Holding Company's shareholders.
Although the Holding Company's Board of Directors believes that the
restrictions on acquisition described below are beneficial to shareholders, the
provisions may have the effect of rendering the Holding Company less attractive
to potential acquirors thereby discouraging future takeover attempts which would
not be approved by the Board of Directors but which certain shareholders might
deem to be in their best interest or pursuant to which shareholders might
receive a substantial premium for their shares over then current market prices.
These provisions will also render the removal of the incumbent Board of
Directors and of management more difficult. The Board of Directors has, however,
concluded that the potential benefits of these restrictive provisions outweigh
the possible disadvantages.
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The following general discussion contains a summary of the material
provisions of the Articles, the Holding Company's Code of By-Laws (the
"By-Laws"), and certain other regulatory provisions, that may be deemed to have
an effect of delaying, deferring or preventing a change in the control of the
Holding Company. The following description of certain of these provisions is
general and not necessarily complete, and with respect to provisions contained
in the Articles and By-Laws, reference should be made in each case to the
document in question, each of which is part of Madison First's application for
approval of the Conversion or the Holding Company's Registration Statement filed
with the SEC. See "Additional Information."
Provisions of the Holding Company's Articles and By-Laws
Directors. Certain provisions in the Articles and By-Laws will impede
changes in majority control of the Board of Directors of the Holding Company.
The Articles provide that the Board of Directors of the Holding Company will be
divided into three classes, with directors in each class elected for three-year
staggered terms. Therefore, it would take two annual elections to replace a
majority of the Holding Company's Board.
The Articles also provide that the size of the Board of Directors shall
range between five and fifteen directors, with the exact number of directors to
be fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors of the Holding
Company.
The Articles provide that any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, shall be
filled for the remainder of the unexpired term only by a majority vote of the
directors then in office. Finally, the By-Laws impose certain notice and
information requirements in connection with the nomination by shareholders of
candidates for election to the Board of Directors or the proposal by
shareholders of business to be acted upon at an annual meeting of shareholders.
The Articles provide that a director or the entire Board of Directors may
be removed only for cause and only by the affirmative vote of at least 80% of
the shares eligible to vote generally in the election of directors. Removal for
"cause" is limited to the grounds for termination in the OTS regulation relating
to employment contracts of federally-insured savings associations.
Restrictions on Call of Special Meetings. The Articles provide that a
special meeting of shareholders may be called only by the Chairman of the Board
of the Holding Company or pursuant to a resolution adopted by a majority of the
total number of directors of the Holding Company. Shareholders are not
authorized to call a special meeting.
No Cumulative Voting. The Articles provide that there shall be no
cumulative voting rights in the election of directors.
Authorization of Preferred Stock. The Articles authorize 2,000,000 shares
of preferred stock, without par value. The Holding Company is authorized to
issue preferred stock from time to time in one or more series subject to
applicable provisions of law, and the Board of Directors is authorized to fix
the designations, powers, preferences and relative participating, optional and
other special rights of such shares, including voting rights (if any and which
could be as a separate class) and conversion rights. In the event of a proposed
merger, tender offer or other attempt to gain control of the Holding Company not
approved by the Board of Directors, it might be possible for the Board of
Directors to authorize the issuance of a series of preferred stock with rights
and preferences that would impede the completion of such a transaction. An
effect of the possible issuance of preferred stock, therefore, may be to deter a
future takeover attempt. The Board of Directors has no present plans or
understandings for the issuance of any preferred stock and does not intend to
issue any preferred stock except on terms which the Board of Directors deems to
be in the best interests of the Holding Company and its shareholders.
Limitations on 10% Shareholders. The Articles provide that: (i) no person
shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of equity security of the Holding
Company (provided that such limitation shall not apply to the acquisition of
equity securities by any one or more tax-qualified employee stock benefit plans
maintained by the Holding Company, if the plan or plans beneficially own no more
than 25% of any class of such equity security of the Holding Company); and that
(ii) shares beneficially owned in violation of the stock ownership restriction
described above shall not be entitled to vote and shall not be voted by any
person or counted as voting stock in connection with any matter submitted to a
vote of shareholders. For these purposes, a person (including management) who
has obtained the right to vote shares of the Common Stock pursuant to revocable
proxies shall not be deemed to be the "beneficial owner" of those shares if that
person is not otherwise deemed to be a beneficial owner of those shares.
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Evaluation of Offers. The Articles of the Holding Company provide that the
Board of Directors of the Holding Company, when determining to take or refrain
from taking corporate action on any matter, including making or declining to
make any recommendation to the Holding Company's shareholders, may, in
connection with the exercise of its judgment in determining what is in the best
interest of the Holding Company, the Institutions and the shareholders of the
Holding Company, give due consideration to all relevant factors, including,
without limitation, the social and economic effects of acceptance of such offer
on the Holding Company's customers and the Institutions' present and future
account holders, borrowers, employees and suppliers; the effect on the
communities in which the Holding Company and the Institution operate or are
located; and the effect on the ability of the Holding Company to fulfill the
objectives of a holding company and of the Institutions or future financial
institution subsidiaries to fulfill the objectives of a stock savings
association under applicable statutes and regulations. The Articles of the
Holding Company also authorize the Board of Directors to take certain actions to
encourage a person to negotiate for a change of control of the Holding Company
or to oppose such a transaction deemed undesirable by the Board of Directors
including the adoption of so-called shareholder rights plans. By having these
standards and provisions in the Articles of the Holding Company, the Board of
Directors may be in a stronger position to oppose such a transaction if the
Board concludes that the transaction would not be in the best interest of the
Holding Company, even if the price offered is significantly greater than the
then market price of any equity security of the Holding Company.
Procedures for Certain Business Combinations. The Articles require that
certain business combinations between the Holding Company (or any majority-owned
subsidiary thereof) and a 10% or greater shareholder either be approved (i) by
at least 80% of the total number of outstanding voting shares of the Holding
Company or (ii) by a majority of certain directors unaffiliated with such 10% or
greater shareholder or involve consideration per share generally equal to the
higher of (A) the highest amount paid by such 10% shareholder or its affiliates
in acquiring any shares of the Common Stock or (B) the "Fair Market Value"
(generally, the highest closing bid paid for the Common Stock during the thirty
days preceding the date of the announcement of the proposed business combination
or on the date the 10% or greater shareholder became such, whichever is higher).
Amendments to Articles and Bylaws. Amendments to the Articles must be
approved by a majority vote of the Holding Company's Board of Directors and also
by a majority of the outstanding shares of the Holding Company's voting shares;
provided, however, that approval by at least 80% of the outstanding voting
shares is required for certain provisions (i.e., provisions relating to number,
classification, and removal of directors; amendment of the By-Laws; call of
special shareholder meetings; criteria for evaluating certain offers; certain
business combinations; and amendments to provisions relating to the foregoing).
The provisions concerning limitations on the acquisition of shares may be
amended only by an 80% vote of the Holding Company's outstanding shares unless
at least two-thirds of the Holding Company's Continuing Directors (directors of
the Holding Company on May 24, 1996, or directors recommended for appointment or
election by a majority of such directors) approve such amendments in advance of
their submission to a vote of shareholders (in which case only a majority vote
of shareholders is required).
The By-Laws may be amended only by a majority vote of the total number of
directors of the Holding Company.
Purpose and Effects of the Anti-Takeover Provisions of the Holding Company
Articles and By-Laws. The Holding Company's Board of Directors believes that the
provisions described above are prudent and will reduce the Holding Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by its Board of Directors. These provisions
will also assist in the orderly deployment of the Conversion proceeds into
productive assets during the initial period after the Conversion. The Board of
Directors believes these provisions are in the best interest of the Institutions
and the Holding Company and its shareholders. In the judgment of the Board of
Directors, the Holding Company's Board of Directors will be in the best position
to determine the true value of the Holding Company and to negotiate more
effectively for what may be in the best interests of the Holding Company and its
shareholders. The Board of Directors believes that these provisions will
encourage potential acquirors to negotiate directly with the Board of Directors
of the Holding Company and discourage hostile takeover attempts. It is also the
view of the Board of Directors that these provisions should not discourage
persons from proposing a merger or other transaction at prices reflecting the
true value of the Holding Company and which is in the best interests of all
shareholders.
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Attempts to take over financial institutions and their holding companies
have recently increased. Takeover attempts that have not been negotiated with
and approved by the Board of Directors present to shareholders the risk of a
takeover on terms that may be less favorable than might otherwise be available.
A transaction that is negotiated and approved by the Board of Directors, on the
other hand, can be carefully planned and undertaken at an opportune time to
obtain maximum value for the Holding Company and its shareholders, with due
consideration given to matters such as the management and business of the
acquiring corporation and maximum strategic development of the Holding Company's
assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it to undertake defensive measures at a
great expense. Although a tender offer or other takeover attempt may be made at
a price substantially above then current market prices, such offers are
sometimes made for less than all of the outstanding shares of a target company.
As a result, shareholders may be presented with the alternative of partially
liquidating their investment at a time that may be disadvantageous, or retaining
their investment in an enterprise which is under different management and whose
objective may not be similar to that of the remaining shareholders. The
concentration of control, which could result from a tender offer or other
takeover attempt, could also deprive the Holding Company's remaining
shareholders of the benefits of certain protective provisions of the 1934 Act,
if the number of beneficial owners becomes less than the 300 required for
continued registration under the 1934 Act.
Despite the belief of the Holding Company's Board of Directors in the
benefits to shareholders of the foregoing provisions, the provisions may also
have the effect of discouraging future takeover attempts which would not be
approved by the Board of Directors, but which certain shareholders might deem to
be in their best interest or pursuant to which shareholders might receive a
substantial premium for their shares over then current market prices. As a
result, shareholders who might desire to participate in such a transaction may
not have an opportunity to do so. These provisions will also render the removal
of the incumbent Board of Directors and of management more difficult. The Board
of Directors has, however, concluded that the potential benefits of these
restrictive provisions outweigh the possible disadvantages.
Other Restrictions on Acquisition of the Holding Company and the Institutions
State Law. Several provisions of the Indiana Business Corporation Law, as
amended (the "IBCL"), could affect the acquisition of shares of the Common Stock
or otherwise affect the control of the Holding Company. Chapter 43 of the IBCL
prohibits certain business combinations, including mergers, sales of assets,
recapitalizations, and reverse stock splits, between corporations such as the
Holding Company (assuming that it has over 100 shareholders) and an interested
shareholder, defined as the beneficial owner of 10% or more of the voting power
of the outstanding voting shares, for five years following the date on which the
shareholder obtained 10% ownership unless the acquisition was approved in
advance of that date by the board of directors. If prior approval is not
obtained, several price and procedural requirements must be met before the
business combination can be completed. These requirements are similar to those
contained in the Holding Company Articles and described in " -- Provisions of
the Holding Company's Articles and By-Laws -- Procedures for Certain Business
Combinations". In general, the price requirements contained in the IBCL may be
more stringent than those imposed in the Holding Company Articles. However, the
procedural restraints imposed by the Holding Company Articles are somewhat
broader than those imposed by the IBCL. Also, the provisions of the IBCL may
change at some future date, but the relevant provisions of the Holding Company
Articles may only be amended by an 80% vote of the shareholders of the Holding
Company.
In addition, the IBCL contains provisions designed to assure that minority
shareholders have some say in their future relationship with Indiana
corporations in the event that a person made a tender offer for, or otherwise
acquired, shares giving that person more than 20%, 33 1/3%, and 50% of the
outstanding voting securities of corporations having 100 or more shareholders
(the "Control Share Acquisitions Statute"). Under the Control Share Acquisitions
Statute, if an acquiror purchases those shares at a time that the corporation is
subject to the Control Share Acquisitions Statute, then until each class or
series of shares entitled to vote separately on the proposal, by a majority of
all votes entitled to be cast by that group (excluding shares held by officers
of the corporation, by employees of the corporation who are directors thereof
and by the acquiror), approves in a special or annual meeting the rights of the
acquiror to vote the shares which take the acquiror over each level of ownership
as stated in the statute, the acquiror cannot vote these shares. An Indiana
corporation otherwise subject to the Control Share Acquisitions Statute may
elect not to be covered by the statute by so providing in its Articles of
Incorporation or By-Laws. The Holding Company, however, will be subject to this
statute following the Conversion because of its desire to discourage
non-negotiated hostile takeovers by third parties.
The IBCL specifically authorizes Indiana corporations to issue options,
warrants or rights for the purchase of shares or other securities of the
corporation or any successor in interest of the corporation. These options,
warrants or rights may, but need not be, issued to shareholders on a pro rata
basis.
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The IBCL specifically authorizes directors, in considering the best
interest of a corporation, to consider the effects of any action on
shareholders, employees, suppliers, and customers of the corporation, and
communities in which offices or other facilities of the corporation are located,
and any other factors the directors consider pertinent. As described above, the
Holding Company Articles contain a provision having a similar effect. Under the
IBCL, directors are not required to approve a proposed business combination or
other corporate action if the directors determine in good faith that such
approval is not in the best interest of the corporation. In addition, the IBCL
states that directors are not required to redeem any rights under or render
inapplicable a shareholder rights plan or to take or decline to take any other
action solely because of the effect such action might have on a proposed change
of control of the corporation or the amounts to be paid to shareholders upon
such a change of control. The IBCL explicitly provides that the different or
higher degree of scrutiny imposed in Delaware and certain other jurisdictions
upon director actions taken in response to potential changes in control will not
apply. The Delaware Supreme Court has held that defensive measures in response
to a potential takeover must be "reasonable in relation to the threat posed".
In taking or declining to take any action or in making any recommendation
to a corporation's shareholders with respect to any matter, directors are
authorized under the IBCL to consider both the short-term and long-term
interests of the corporation as well as interests of other constituencies and
other relevant factors. Any determination made with respect to the foregoing by
a majority of the disinterested directors shall conclusively be presumed to be
valid unless it can be demonstrated that such determination was not made in good
faith.
Because of the foregoing provisions of the IBCL, the Board will have
flexibility in responding to unsolicited proposals to acquire the Holding
Company, and accordingly it may be more difficult for an acquiror to gain
control of the Holding Company in a transaction not approved by the Board.
Federal Limitations. For three years following the Conversion, OTS
regulations prohibit any person (including entities), without the prior approval
of the OTS, from offering to acquire or acquiring more than 10% of any class of
equity security, directly or indirectly, of a converted savings association or
its holding company. This restriction does not apply to the acquisition by any
one or more tax-qualified employee stock benefit plans maintained by Madison
First or the Holding Company, provided that the plan or plans do not have
beneficial ownership in the aggregate of more than 25% of any class of equity
security of the Holding Company. For these purposes, a person (including
management) who has obtained the right to vote shares of the Common Stock
pursuant to revocable proxies shall not be deemed to be the "beneficial owner"
of those shares if that person is not otherwise deemed to be a beneficial owner
of those shares.
The Change in Bank Control Act provides that no "person," acting directly
or indirectly, or through or in concert with one or more persons, other than a
company, may acquire control of a savings association, a savings and loan
holding company or a bank holding company unless at least 60 days prior written
notice is given to the OTS or FRB (as appropriate) and the OTS or FRB (as
appropriate) has not objected to the proposed acquisition.
The Savings and Loan Holding Company Act also prohibits any "company,"
directly or indirectly or acting in concert with one or more other persons, or
through one or more subsidiaries or transactions, from acquiring control of an
insured savings institution without the prior approval of, the OTS. In addition,
any company that acquires such control becomes a "savings and loan holding
company" subject to registration, examination and regulation as a savings and
loan holding company by the OTS.
The Bank Holding Company Act also prohibits any "company," directly or
indirectly or acting in concert with one or more other persons, or through one
or more subsidiaries or transactions, from acquiring control of an insured bank
without the prior approval of the FRB. In addition, any company that acquires
such control becomes a "bank holding company" subject to registration,
examination and regulation as a bank holding company by the FRB.
The term "control" for purposes of the Change in Bank Control Act, Bank
Holding Company Act and the Savings and Loan Holding Company Act includes the
power, directly or indirectly, to vote more than 25% of any class of voting
stock of the savings association or to control, in any manner, the election of a
majority of the directors of the savings association. It also includes a
determination by the FRB or the OTS, as appropriate, that such company or person
has the power, directly or indirectly, to exercise a controlling influence over
or to direct the management or policies of the savings association.
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OTS regulations also set forth certain "rebuttable control determinations"
which arise (i) upon an acquisition of more than 10% of any class of voting
stock of a savings association; or (ii) upon an acquisition of more than 25% of
any class of voting or nonvoting stock of a savings association; provided that,
in either case, the acquiror is subject to any of eight enumerated "control
factors," which are: (1) the acquiror would be one of the two largest holders of
any class of voting stock of the association; (2) the acquiror would hold more
than 25% of the association's total stockholders' equity of the association; (3)
the acquiror would hold more than 35% of the combined debt securities and
stockholders' equity of the savings association; (4) the acquiror is a party to
any agreement pursuant to which the acquiror possesses a material economic stake
in the savings association or which enables the acquiror to influence a material
aspect of the management or policies of the association; or (5) the acquiror
would have the ability, other than through the holding of revocable proxies, to
direct the votes of more than 25% of a class of the voting stock or to vote in
the future more than 25% of such voting stock upon the occurrence of a future
event; (6) the acquiror would have the power to direct the disposition of more
than 25% of the association's voting stock in a manner other than a widely
dispersed or public offering; (7) the acquiror and/or his representative would
constitute more than one member of the association's board of directors; or (8)
the acquiror would serve as an executive officer or in a similar policy-making
position with the association. For purposes of determining percentage share
ownership, a person is presumed to be acting in concert with certain specified
persons and entities, including members of the person's immediate family,
whether or not those family members share the same household with the person.
The regulations also specify the criteria which the OTS uses to evaluate
control applications. The OTS is empowered to disapprove an acquisition of
control if it finds, among other things, that (i) the acquisition would
substantially lessen competition, (ii) the financial condition of the acquiring
person might jeopardize the institution or its depositors, or (iii) the
competency, experience, or integrity of the acquiring person indicates that it
would not be in the interest of the depositors, the institution, or the public
to permit the acquisition of control by such person.
FRB regulations also set forth certain "rebuttable control determinations"
which arise upon (a) the acquisition of any voting securities of a state member
bank or bank holding company if, after the transaction, the acquiring person (or
persons acting in concert) owns, controls, or holds with power to vote 25
percent or more of any class of voting securities of the institution; or (b) the
acquisition of any voting securities of a state member bank or bank holding
company if, after the transaction, the acquiring person (or persons acting in
concert) owns, controls, or holds with power to vote 10 percent or more (but
less than 25 percent) of any class of voting securities of the institution, and
if (i) the institution has registered securities under Section 12 of the 1934
Act or (ii) no other person will own a greater percentage of that class of
voting securities immediately after the transaction.
The regulations also specify the criteria which the FRB uses to evaluate
control applications. The FRB is empowered to disapprove an acquisition of
control if it finds, among other things, that (i) the acquisition would
substantially lessen competition, (ii) the financial condition of the acquiring
person might jeopardize the institution or its depositors, or (iii) the
competency, experience, or integrity of the acquiring person indicates that it
would not be in the interest of the depositors, the institution, or the public
to permit the acquisition of control by such person.
DESCRIPTION OF CAPITAL STOCK
The Holding Company is authorized to issue 5,000,000 shares of Holding
Company Common Stock, without par value, all of which have identical rights and
preferences, and 2,000,000 shares of preferred stock, without par value. The
Holding Company expects to issue up to 1,190,250 shares of Common Stock and no
shares of preferred stock in the Conversion. The Holding Company has received an
opinion of its counsel that the shares of Common Stock issued in the Conversion
will be validly issued, fully paid, and not liable for further call or
assessment. This opinion was filed with the SEC as an exhibit to the Holding
Company's Registration Statement under the 1933 Act.
Shareholders of the Holding Company will have no preemptive rights to
acquire additional shares of Holding Company Common Stock which may be
subsequently issued. The Common Stock will represent nonwithdrawable capital,
will not be of an insurable type and will not be federally insured by the FDIC
or any government entity.
Under Indiana law, the holders of the Common Stock will possess exclusive
voting power in the Holding Company, unless preferred stock is issued and voting
rights are granted to the holders thereof. Each shareholder will be entitled to
one vote for each share held on all matters voted upon by shareholders, subject
to the limitations discussed under the caption "Restrictions on Acquisition of
the Holding Company."
In the unlikely event of the liquidation or dissolution of the Holding
Company, the holders of the Common Stock will be entitled to receive after
payment or provision for payment of all debts and liabilities of the Holding
Company, all assets of the Holding Company available for distribution, in cash
or in kind. See "The Conversion -- Principal Effects of Conversion -- Effect on
Liquidation Rights." If preferred stock is issued subsequent to the Conversion,
the holders thereof may have a priority over the holders of Common Stock in the
event of liquidation or dissolution.
The Board of Directors of the Holding Company will be authorized to issue
preferred stock in series and to fix and state the voting powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of each such series and the qualifications, limitations and restrictions
thereof. Preferred stock may rank prior to the Common Stock as to dividend
rights, liquidation preferences, or both, and may have full or limited voting
rights. The holders of preferred stock will be entitled to vote as a separate
class or series under certain circumstances, regardless of any other voting
rights which such holders may have.
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Except as discussed elsewhere herein, the Holding Company has no specific
plans for the issuance of the additional authorized shares of Common Stock or
for the issuance of any shares of preferred stock. In the future, the authorized
but unissued and unreserved shares of Common Stock will be available for general
corporate purposes including, but not limited to, possible issuance as stock
dividends or stock splits, in future mergers or acquisitions, under a cash
dividend reinvestment and stock purchase plan, or in future underwritten or
other public or private offerings. The authorized but unissued shares of
preferred stock will similarly be available for issuance in future mergers or
acquisitions, in future underwritten public offerings or private placements or
for other general corporate purposes. Except as described above or as otherwise
required to approve the transaction in which the additional authorized shares of
Common Stock or authorized shares of preferred stock would be issued, no
shareholder approval will be required for the issuance of these shares.
Accordingly, the Holding Company's Board of Directors without shareholder
approval can issue preferred stock with voting and conversion rights which could
adversely affect the voting power of the holders of Common Stock.
The offering and sale of Common Stock in the Conversion will be registered
under the 1933 Act. The subsequent sale or transfer of Common Stock is governed
by the 1933 Act, which requires that sales or exchanges of subject securities be
made pursuant to an effective registration statement or qualified for an
exemption from registration requirements of the 1933 Act. Similarly, the
securities laws of the various states also require generally the registration of
shares offered for sale unless there is an applicable exemption from
registration.
The Holding Company, as a newly organized corporation, has never issued
capital stock, and, accordingly, there is no market for the Common Stock. See
"Market for the Common Stock." See "Restrictions on Acquisition of the Holding
Company -- Provisions of the Holding Company's Articles and By-Laws" for a
description of certain provisions of the Holding Company's Articles and By-Laws
which may affect the ability of the Holding Company's shareholders to
participate in certain transactions relating to acquisitions of control of the
Holding Company. Also, see "Dividend Policy" for a description of certain
matters relating to the possible future payment of dividends on the Common
Stock.
TRANSFER AGENT
_____________________________________will act as transfer agent and
registrar for the Common Stock____________________. phone number is ___________.
REGISTRATION REQUIREMENTS
Upon the Conversion, the Holding Company's Common Stock will be registered
pursuant to Section 12(g) of the 1934 Act and will not be deregistered for a
period of at least three years following the Conversion. As a result of the
registration under the 1934 Act, certain holders of Common Stock will be subject
to certain reporting and other requirements imposed by the 1934 Act. For
example, beneficial owners of more than 5% of the outstanding Common Stock will
be required to file reports pursuant to Section 13(d) or Section 13(g) of the
1934 Act, and officers, directors and 10% shareholders of the Holding Company
will generally be subject to reporting requirements of Section 16(a) and to the
liability provisions for profits derived from purchases and sales of Holding
Company Common Stock occurring within a six-month period pursuant to Section
16(b) of the 1934 Act. In addition, certain transactions in Common Stock, such
as proxy solicitations and tender offers, will be subject to the disclosure and
filing requirements imposed by Section 14 of the 1934 Act and the regulations
promulgated thereunder.
LEGAL AND TAX MATTERS
Barnes & Thornburg, 1313 Merchants Bank Building, 11 South Meridian Street,
Indianapolis, Indiana 46204, special counsel to Madison First, will pass upon
the legality and validity of the shares of Common Stock being issued in the
Conversion. Barnes & Thornburg has issued an opinion concerning certain federal
and state income tax aspects of the Conversion and that the Conversion, as
140
<PAGE>
proposed, constitutes a tax-free reorganization under federal and Indiana law.
Barnes & Thornburg have consented to the references herein to their opinions.
Certain legal matters related to this offering will be passed upon for the Agent
by Thacher Proffitt & Wood, 1500 K. Street, N.W., Washington, D.C. 20005.
EXPERTS
The consolidated financial statements of Madison First as of and for the
years ended December 31, 1995, 1994, and 1993, included herein and elsewhere in
the registration statement, have been audited by Grant Thornton LLP, independent
certified public accountants, and included herein and in the registration
statement in reliance upon the report of Grant Thornton LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of such firm as experts in accounting and auditing.
The financial statements of Citizens as of and for the years ended December
31, 1995 and 1994, included herein and elsewhere in the registration statement,
have been audited by Sherman, Barber & Mullikin, independent certified public
accountants, and included herein and in the registration statement in reliance
upon the report of Sherman, Barber & Mullikin, independent certified public
accountants, appearing elsewhere herein, and upon the authority of such firm as
experts in accounting and auditing.
The financial statements of Citizens as of and for the year ended December
31, 1993, included herein and elsewhere in the registration statement, have been
audited by Alexander X. Kuhn & Co., independent certified public accountants,
and included herein and in the registration statement in reliance upon the
report of Alexander X. Kuhn & Co., independent certified public accountants,
appearing elsewhere herein, and upon the authority of such firm as experts in
accounting and auditing.
Keller has consented to the publication of the summary herein of its
appraisal report as to the estimated pro forma market value of the Common Stock
of the Holding Company to be issued in the Conversion, to the reference to its
opinion relating to the value of the subscription rights, and to the filing of
the appraisal report as an exhibit to the registration statement filed by the
Holding Company under the 1933 Act.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a registration statement under
the 1933 Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information can be
inspected and copied at the Commission's public reference facilities located at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional
Offices in New York (Seven World Trade Center, 13th Floor, New York, New York
00048) and Chicago (Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511) and copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.
Madison First has filed with the OTS an Application for Conversion from a
federal mutual savings and loan association to a federal stock savings and loan
association, and the Holding Company has filed with the OTS an Application to
become a savings and loan holding company. This Prospectus omits certain
information contained in such Applications. The Applications may be inspected at
the offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552 and at the
Central Regional Office of the OTS, 111 East Wacker Drive, Suite 800, Chicago,
Illinois 60601.
The Holding Company has also filed with the FRB of Chicago an Application
to Form a Holding Company on Form FR Y-3 in connection with its aquisition of
the Citizens Shares in the Acquisition. This Prospectus omits certain
information contained in such Application. The Application may be inspected at
the offices at the FRB of Chicago, 230 South LaSalle Street, Chicago, Illinois
60604-1413.
141
<PAGE>
CONTENTS
MADISON FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(As of March 31, 1996 (unaudited) and
December 31, 1995 and 1994) F-3
CONSOLIDATED STATEMENTS OF INCOME
(For the three months ended March 31, 1996 and 1995 (unaudited)
and the years ended December 31, 1995, 1994 and 1993) F-4
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(For the three months ended March 31, 1996 and 1995 (unaudited)
and the years ended December 31, 1995, 1994 and 1993) F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(For the three months ended March 31, 1996 and 1995 (unaudited)
and the years ended December 31, 1995, 1994 and 1993) F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(For the three months ended March 31, 1996 and 1995 (unaudited)
and the years ended December 31, 1995, 1994 and 1993) F-8
CITIZENS NATIONAL BANK OF MADISON
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-32
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-33
FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL CONDITION
(As of December 31, 1995 and 1994)F-34
STATEMENTS OF INCOME
(For the years ended December 31, 1995, 1994 and 1993) F-36
STATEMENTS OF RETAINED EARNINGS
(For the years ended December 31, 1995, 1994 and 1993) F-38
STATEMENTS OF CASH FLOWS
(For the years ended December 31, 1995, 1994 and 1993) F-39
NOTES TO FINANCIAL STATEMENTS
(For the years ended December 31, 1995, 1994 and 1993) F-41
STATEMENT OF FINANCIAL CONDITION
(As of March 31, 1996 (unaudited))F-56
STATEMENTS OF INCOME
(For the three months ended March 31, 1996 and 1995 (unaudited)) F-57
STATEMENTS OF CASH FLOWS
(For the three months ended March 31, 1996 and 1995 (unaudited)) F-59
NOTES TO FINANCIAL STATEMENTS
(For the three months ended March 31, 1996 and 1995 (unaudited)) F-60
Financial statements of River Valley Bancorp are not presented as such
corporation was not active during any of the periods presented.
SCHEDULES: All schedules are omitted as the required information is not
applicable or is included in the consolidated financial statements.
F-1
<PAGE>
[GRANT THORNTON LOGO]
Report of Independent Certified Public Accountants
Board of Directors
Madison First Federal Savings and Loan Association
We have audited the accompanying consolidated statements of financial condition
of Madison First Federal Savings and Loan Association and Subsidiary as of
December 31, 1995 and 1994, and the related consolidated statements of earnings,
retained earnings, and cash flows for each of the three years in the period
ended December 31, 1995. These consolidated financial statements are the
responsibility of the Association's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Madison First
Federal Savings and Loan Association and Subsidiary as of December 31, 1995 and
1994, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
As discussed in Notes A-2 and B to the consolidated financial statements, the
Association changed its method of accounting for investments in certain debt and
equity securities in 1994. Additionally, as more fully explained in Notes A-9
and H to the consolidated financial statements, the Association changed its
method of accounting for Federal income taxes in 1993.
/s/ Grant Thornton
Cincinnati, Ohio
January 19, 1996 (except for Note L as to which the date is March 5, 1996)
F-2
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands)
<TABLE>
<CAPTION>
December 31,
March 31, ------------------
ASSETS 1996 1995 1994
- ------ ---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash and due from banks $ 8,557 $ 2,389 $ 2,066
Certificates of deposit in other financial institutions 200 300 350
Investment securities designated as available for sale - at market value 3,959 5,018 101
Investment securities - at amortized cost,
approximate market value of $5,909, $7,930 and
$13,120 as of March 31, 1996, and December 31, 1995 and 1994 6,000 8,000 13,996
Mortgage-backed and related securities - at cost,
approximate market value of $9,068, $9,941 and
$10,715 as of March 31, 1996, and December 31, 1995 and 1994 9,146 9,917 11,328
Loans receivable - net 57,393 57,945 56,287
Office premises and equipment - at
depreciated cost 953 966 988
Federal Home Loan Bank stock - at cost 610 610 610
Accrued interest receivable on loans 293 313 246
Accrued interest receivable on mortgage-backed and related securities 46 51 58
Accrued interest receivable on investments
and interest-bearing deposits 95 241 237
Goodwill, net of accumulated amortization
of $140, $139 and $132 as of March 31, 1996, and
December 31, 1995 and 1994 147 148 156
Cash surrender value of life insurance 729 535 510
Prepaid expenses and other assets 110 124 118
Prepaid income taxes --- 26 21
Deferred tax asset 69 21 ---
------- ------- -------
TOTAL ASSETS $88,307 $86,604 $87,072
======= ======= =======
LIABILITIES AND RETAINED EARNINGS
Deposits $79,254 $75,233 $75,458
Advances from the Federal Home Loan Bank 2,000 4,471 4,986
Advances by borrowers for taxes and insurance 93 63 63
Accrued interest payable 73 68 62
Other liabilities 242 195 169
Accrued income taxes 46 --- ---
Deferred income taxes --- --- 30
------- ------- -------
TOTAL LIABILITIES 81,708 80,030 80,768
COMMITMENTS --- --- ---
Retained earnings - substantially restricted 6,626 6,562 6,304
Unrealized gain (loss) on securities designated as available for sale,
net of related tax effects (27) 12 ---
------- ------- -------
Total retained earnings 6,599 6,574 6,304
------- ------- -------
TOTAL LIABILITIES AND RETAINED EARNINGS $88,307 $86,604 $87,072
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31, Year ended December 31,
------------------ ------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
Interest income
<S> <C> <C> <C> <C> <C>
Loans $1,117 $1,046 $4,240 $3,851 $4,149
Mortgage-backed and related securities 149 172 670 743 866
Investment securities 150 206 777 713 494
Interest-bearing deposits and other 43 18 107 112 175
------ ------ ------ ------ ------
Total interest income 1,459 1,442 5,794 5,419 5,684
Interest expense
Deposits 854 778 3,419 2,842 3,041
Borrowed funds 36 47 175 12 1
------ ------ ------ ------ ------
Total interest expense 890 825 3,594 2,854 3,042
------ ------ ------ ------ ------
Net interest income 569 617 2,200 2,565 2,642
Provision for loan losses 6 --- 150 29 55
------ ------ ------ ------ ------
Net interest income after provision for
loan losses 563 617 2,050 2,536 2,587
Other income
Insurance commissions 60 48 175 181 182
Service fees, charges and other operating 48 46 187 189 182
------ ------ ------ ------ ------
Total other income 108 94 362 370 364
Other expenses
Employee compensation and benefits 294 241 998 888 869
Occupancy and equipment 44 33 212 193 212
Federal deposit insurance premiums 45 44 177 178 117
Data processing 70 60 237 243 234
Other operating 100 85 342 336 340
Provision for valuation decline on
mortgage-related securities --- --- --- 20 30
------ ------ ------ ------ ------
Total other expenses 553 463 1,966 1,858 1,802
------ ------ ------ ------ ------
Income before income taxes and cumulative
effect of change in accounting method 118 248 446 1,048 1,149
Income taxes
Current 82 99 245 411 468
Deferred (28) 3 (57) 1 (12)
------ ------ ------ ------ ------
54 102 188 412 456
------ ------ ------ ------ ------
Income before cumulative effect of change
in accounting method 64 146 258 636 693
Cumulative effect of change in method of accounting
for income taxes --- --- --- --- 25
------ ------ ------ ------ ------
NET INCOME $ 64 $ 146 $ 258 $ 636 $ 718
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In thousands)
<TABLE>
<CAPTION>
Three months ended Year ended December 31,
March 31, -------------------------------
1996 1995 1994 1993
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Balance at beginning of period $6,574 $6,304 $5,668 $4,950
Net earnings for the period 64 258 636 718
Unrealized gain (loss) on securities designated as
available for sale - net of related tax effects (39) 12 --- ---
------ ------ ------ ------
Balance at end of period $6,599 $6,574 $6,304 $5,668
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31, Year ended December 31,
------------------ --------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income $ 64 $ 146 $ 258 $ 636 $ 718
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Amortization (accretion) of premiums and discounts on
investments and mortgage-backed securities - net 3 (4) (9) (14) 28
Provision for valuation decline on
mortgage-related securities --- --- --- 20 30
Amortization of deferred loan origination costs 7 2 85 86 150
Provision for losses on loans 6 --- 150 29 55
Depreciation and amortization 13 14 68 67 79
Amortization of goodwill 1 2 7 7 7
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 20 (17) (67) (4) 45
Accrued interest receivable on mortgage-backed
securities 5 2 7 14 8
Accrued interest receivable on investments and
interest-bearing deposits 146 91 (4) (54) (70)
Prepaid expenses and other assets 14 (33) (6) 19 (6)
Accrued interest payable 5 17 6 1 (2)
Other liabilities 47 6 26 17 (44)
Income taxes
Current 72 79 (5) (51) (99)
Deferred (28) 3 (57) 1 (37)
------ ------ ------- ------- -------
Net cash provided by operating activities 375 308 459 774 862
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 3,000 --- 1,000 --- 4,500
Purchase of investment securities --- --- --- (4,592) (8,499)
Sale of investment securities designated as available
for sale --- 101 101 --- ---
Purchase of mortgage-backed and related securities --- --- --- --- (3,918)
Principal repayments on mortgage-backed and
related securities 768 299 1,417 2,576 3,399
Loan principal repayments 3,036 2,594 13,708 14,973 25,670
Loan disbursements (2,497) (2,746) (15,600) (19,419) (24,108)
Proceeds from sale of real estate acquired
through foreclosure --- --- --- 17 48
Capital expenditures on real estate acquired through
foreclosure --- --- --- --- (9)
Purchase of real estate held for investment --- --- --- (10) (4)
Purchase of office equipment --- (13) (46) (40) (74)
Purchase of Federal Home Loan Bank stock --- --- --- --- (44)
(Increase) decrease in certificates of deposit in other
financial institutions - net 100 --- 50 (50) 168
Purchase of single premium life insurance policies (188) --- --- --- (480)
Increase in cash surrender value of life insurance policies (6) (8) (26) (25) (5)
------ ------ ------- ------- -------
Net cash provided by (used in)
investing activities 4,213 227 604 (6,570) (3,356)
------ ------ ------- ------- -------
Net cash provided by (used in) operating and
investing activities (subtotal carried forward) 4,588 535 1,063 (5,796) (2,494)
====== ====== ======= ======= =======
</TABLE>
F-6
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31, Year ended December 31,
------------------ --------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating and
investing activities (subtotal brought forward) 4,588 535 1,063 (5,796) (2,494)
Cash flows provided by (used in) financing activities:
Increase (decrease) in deposit accounts 4,021 1,613 (224) (2,624) 1,393
Proceeds from Federal Home Loan Bank advances --- --- 2,000 4,986 ---
Repayment of Federal Home Loan Bank advances (2,471) (2,932) (2,515) --- ---
Advances by borrowers for taxes and insurance 30 29 (1) (3) 2
------ ------ ------- ------- -------
Net cash provided by (used in) financing activities 1,580 (1,290) (740) 2,359 1,395
------ ------ ------- ------- -------
Net increase (decrease) in cash and cash equivalents 6,168 (755) 323 (3,437) (1,099)
Cash and cash equivalents at beginning of period 2,389 2,066 2,066 5,503 6,602
------ ------ ------- ------- -------
Cash and cash equivalents at end of period $8,557 $1,311 $ 2,389 $ 2,066 $ 5,503
====== ====== ======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ --- $ --- $ 191 $ 377 $ 468
====== ====== ======= ======= =======
Interest on deposits and borrowings $ 885 $ 842 $ 3,588 $ 2,853 $ 3,045
====== ====== ======= ======= =======
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired
through foreclosure $ --- $ --- $ --- $ 15 $ 35
====== ====== ======= ======= =======
Transfer of investment securities to an available for sale
classification in accordance with SFAS No. 115 $ --- $ --- $ 5,000 $ --- $ ---
====== ====== ======= ======= =======
Unrealized gain (loss) on securities designated as available
for sale, net of related tax effects $ (39) $ --- $ 12 $ --- $ ---
====== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Madison First Federal Savings and Loan Association (the Association) is a
federally-chartered mutual financial institution with four offices located in
Jefferson County, Indiana. The Association owns 100% of the outstanding capital
stock of Madison First Service Corporation which owns 100% of the outstanding
capital stock of McCauley Insurance Agency, Inc. (McCauley), which operates a
consumer insurance agency. Condensed consolidated financial statements of
Madison First Service Corporation (First Service) as of and for the periods
ended December 31, 1995 and 1994 are presented in Note J. Future references are
made to either the Association, First Service or McCauley, as applicable.
The Association conducts a general banking business in southeastern Indiana
which consists of attracting deposits from the general public and applying those
funds to the origination of loans for consumer and residential purposes. The
Association's profitability is significantly dependent on net interest income
which is the difference between interest income generated from interest-earning
assets (i.e. loans and investments) and the interest expense paid on
interest-bearing liabilities (i.e. customer deposits and borrowed funds). Net
interest income is affected by the relative amount of interest-earning assets
and interest-bearing liabilities and the interest received or paid on these
balances. The level of interest rates paid or received by the Association can be
significantly influenced by a number of environmental factors, such as
governmental monetary policy, that are outside of management's control.
The consolidated financial information presented herein has been prepared in
accordance with generally accepted accounting principles (GAAP) and general
accounting practices within the financial services industry. In preparing
financial statements in accordance with GAAP, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from such estimates.
The following is a summary of significant accounting policies which, with the
exception of the policy described in Note A-2 and A-9, have been consistently
applied in the preparation of the accompanying consolidated financial
statements.
1. Principles of Consolidation
The statements include the accounts of Madison First Federal Savings and Loan
Association and its subsidiary, Madison First Service Corporation and its
wholly-owned subsidiary, McCauley Insurance Agency, Inc. All significant
intercompany balances and transactions have been eliminated in the accompanying
consolidated financial statements.
F-8
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2. Investments and Mortgage-Backed and Related Securities
Prior to January 1, 1994, investments and mortgage-backed and related securities
were stated at the unpaid principal balance (cost), adjusted for unamortized
premiums and discounts. Premiums and discounts on investments and
mortgage-backed and related securities are amortized and accreted to operations
using the interest method over the estimated life of the investment security or
of the underlying loans collateralizing the securities, respectively.
Investments and mortgage-backed and related securities held for portfolio
investments were carried at cost, rather than the lower of cost or market, as it
was management's intent, and the Association had the ability to hold the
securities until maturity. Investments and mortgage-backed and related
securities which would be held for indefinite periods of time, or used as part
of the Association's asset/liability management strategy, or that may be sold in
response to changes in interest rates, prepayment risk or the perceived need to
increase regulatory capital were classified as held for sale and were carried at
the lower of aggregate cost or market.
In May 1993, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (the Statement). SFAS No. 115
requires that investments be categorized as held-to-maturity, trading, or
available for sale. Securities classified as held-to-maturity are carried at
cost only if the Association has the positive intent and ability to hold these
securities to maturity. Trading securities and securities designated as
available for sale are carried at market value with resulting unrealized gains
or losses recorded to operations or retained earnings, respectively. The
Association adopted the Statement as of January 1, 1994, without material effect
on consolidated financial condition or results of operations. In November 1995,
the FASB issued a "Special Report on the Implementation of SFAS No. 115", which
permitted the reclassification of securities between held-to-maturity and
available-for-sale without calling into question management's prior intent with
respect to such securities. The Association transferred approximately $5.0
million of investment securities previously identified as held-to-maturity to an
available for sale classification. At March 31, 1996, retained earnings included
$27,000 of unrealized losses on securities designated as available for sale, net
of related tax effects.
Realized gains and losses on the sale of investment and mortgage-backed
securities are recognized using the specific identification method.
3. Loans Receivable
Loans held in portfolio are stated at the principal amount outstanding, adjusted
for deferred loan origination costs and the allowance for loan losses. Interest
is accrued as earned unless the collectibility of the loan is in doubt.
Uncollectible interest on loans that are contractually past due is charged off,
or an allowance is established based on management's periodic evaluation. The
allowance is established by a charge to interest income equal to all interest
previously accrued, and income is subsequently recognized only to the extent
that cash payments are received until, in management's judgment, the borrower's
ability to make periodic interest and principal payments has returned to normal,
in which case the loan is returned to accrual status. If the ultimate
collectibility of the loan is in doubt, in whole or in part, all payments
received on nonaccrual loans are applied to reduce principal until such doubt is
eliminated.
F-9
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
4. Loan Origination Fees and Costs
The Association accounts for loan origination fees and costs in accordance with
the provisions of Statement of Financial Accounting Standards No. 91 (SFAS No.
91) "Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases". Pursuant to the provisions
of SFAS No. 91, origination fees received from loans, net of direct origination
costs, are deferred and amortized to interest income using the level-yield
method, giving effect to actual loan prepayments. Additionally, SFAS No. 91
generally limits the definition of loan origination costs to the direct costs
attributable to originating a loan, i.e., principally actual personnel costs.
Fees received for loan commitments that are expected to be drawn upon, based on
the Association's experience with similar commitments, are deferred and
amortized over the life of the related loan using the interest method. Fees for
other loan commitments are deferred and amortized over the loan commitment
period on a straight-line basis.
5. Allowance for Losses on Loans
It is the Association's policy to provide valuation allowances for estimated
losses on loans based on past loss experience, current trends in the level of
delinquent and specific problem loans, loan concentrations to single borrowers,
changes in the composition of the loan portfolio, adverse situations that may
affect the borrower's ability to repay, the estimated value of any underlying
collateral and current and anticipated economic conditions in its primary
lending areas. When the collection of a loan becomes doubtful, or otherwise
troubled, the Association records a loan loss provision equal to the difference
between the fair value of the property securing the loan and the loan's carrying
value. Major loans and major lending areas are reviewed periodically to
determine potential problems at an early date. The allowance for loan losses is
increased by charges to earnings and decreased by charge-offs (net of
recoveries).
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This Statement, which was
amended by SFAS No. 118 as to certain income recognition and financial statement
disclosure provisions, requires that impaired loans be measured based upon the
present value of expected future cash flows discounted at the loan's effective
interest rate or, as an alternative, at the loans observable market price or
fair value of the collateral if the loan is collateral dependent. The
Association adopted the Statement effective January 1, 1995, without material
effect on consolidated financial condition or results of operations.
F-10
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
5. Allowance for Losses on Loans (continued)
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement. In
applying the provisions of SFAS No. 114, the Association considers its
investment in one-to-four family residential loans and consumer installment
loans to be homogeneous and, therefore, excluded from separate identification
for evaluation of impairment. With respect to the Association's investment in
impaired nonresidential and multifamily residential real estate loans, such
loans are generally collateral dependent and, as a result, are carried as a
practical expedient at the lower of cost or fair value.
It is the Association's policy to charge off unsecured credits that are more
than ninety days delinquent. Additionally, collateral dependent loans which are
more than ninety days delinquent are considered to constitute more than a
minimum delay in repayment and are evaluated for impairment under SFAS No. 114
at that time.
At March 31, 1996 and December 31, 1995, the Association had no loans that would
be defined as impaired under SFAS No. 114.
6. Office Premises and Equipment
Office premises and equipment are carried at cost and include expenditures which
extend the useful lives of existing assets. Maintenance, repairs and minor
renewals are expensed as incurred. For financial reporting, depreciation and
amortization are provided primarily using the straight-line method over the
useful lives of the assets, estimated to be thirty to forty-five years for
buildings, three to ten years for furniture and equipment, and three years for
automobiles. An accelerated depreciation method is used for tax reporting
purposes.
7. Real Estate Acquired through Foreclosure
Real estate acquired through foreclosure is carried at the lower of the loan's
unpaid principal balance (cost) or fair value less estimated selling expenses at
the date of acquisition. The loan loss allowance is charged for any writedown in
the loan's carrying value to fair value at the date of acquisition. Loss
provisions are recorded if the property's fair value subsequently declines below
the value determined at the recording date. In determining the lower of cost or
fair value at acquisition, costs relating to development and improvement of
property are considered. Costs relating to holding real estate acquired through
foreclosure, net of rental income, are charged against earnings as incurred.
F-11
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
8. Intangible Assets
The FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" in March 1995. This
Statement requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In performing the review for recoverability, the Association is
required to estimate the future cash flows expected to result from the use of
the asset and its eventual disposition. If the sum of the expected future cash
flows (undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized. Measurement of an
impairment loss for long-lived assets and identifiable intangibles that an
entity expects to hold and use should be based on the fair value of the asset.
This Statement is effective for financial statements for fiscal years beginning
after December 31, 1995. Earlier application is encouraged. The Association
adopted SFAS No. 121 effective January 1, 1996, without material effect on
consolidated financial condition or results of operations.
Amortization of goodwill arising from First Service's acquisition of McCauley is
provided using the straight-line method over an estimated life of forty years.
9. Income Taxes
Effective January 1, 1993, the Association changed its method of accounting for
income taxes pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109). The cumulative effect of prior
years of adopting SFAS No. 109, totaling $25,000, was reflected in the
Association's 1993 consolidated statement of income. There was no material
effect associated with adopting SFAS No. 109 in the 1993 consolidated statement
of income. SFAS No. 109 established financial accounting and reporting standards
for the effects of income taxes that result from the Association's activities
within the current and previous years. Pursuant to the provisions of SFAS No.
109, a deferred tax liability or deferred tax asset is computed by applying the
expected statutory tax rates to net taxable or deductible differences between
the tax basis of an asset or liability and its reported amount in the
consolidated financial statements that will result in taxable or deductible
amounts in future periods. Deferred tax assets are recorded only to the extent
that the amount of net deductible temporary differences or carryforward
attributes may be utilized against current period earnings, carried back against
prior years' earnings, offset against taxable temporary differences reversing in
future periods, or utilized to the extent of management's estimate of future
taxable income. A valuation allowance is provided for deferred tax assets to the
extent that the value of net deductible temporary differences and carryforward
attributes exceeds management's estimates of taxes payable on future taxable
income. Deferred tax liabilities are provided on the total amount of net
temporary differences taxable in the future.
F-12
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
9. Income Taxes (continued)
Deferral of income taxes results primarily from different methods of accounting
for deferred loan origination costs, the allowance for valuation decline on
mortgage-related securities, the general loan loss allowance, the percentage of
earnings bad debt deduction and certain components of retirement expense.
Additionally, a temporary difference is recognized for depreciation utilizing
accelerated methods for income tax purposes.
10. Retirement and Incentive Plans
Qualified employees of the Association and McCauley are covered by
noncontributory retirement plans. There were no unfunded past service
liabilities at March 31, 1996 and December 31, 1995 and 1994. First Service has
no qualified employees.
Employees of the Association are covered by the Pentgra Group, previously the
Financial Institutions Retirement Fund (the Fund), which is a defined benefit
pension plan to which contributions are made for the benefit of the employees.
Contributions are determined to cover the normal cost of pension benefits, the
one-year cost of the pre-retirement death and disability benefits and the
amortization of any unfunded accrued liabilities.
The Fund had previously advised the Association that the pension plan meets the
criteria of a multi-employer pension plan as defined in Financial Accounting
Standards Board Statement No. 87, "Employers' Accounting for Pensions". In
accordance with the Statement, net pension cost is recognized for any required
contribution for the period. A liability is recognized for any contributions due
and unpaid. During 1993, the Association acquired additional benefits for all
qualified employees under the plan which were paid for by reducing the
overfunded amount. Because of the overfunded status, no contributions were made
to the pension plan during the three months ended March 31, 1996, or the years
ended December 31, 1995 or 1994. The provision for pension expense was computed
by the Fund's actuaries utilizing the projected unit credit cost method and
assuming a 7.5% return on Fund assets.
McCauley Insurance Agency, Inc. contributes to IRA accounts for its full-time
employees on an annual basis. These employer contributions are discretionary and
totaled approximately $3,000 for each of the years ended December 31, 1995, 1994
and 1993. No contributions have been made for the three month periods ending
March 31, 1996 and 1995.
In addition to providing employees with noncontributory retirement plans, the
Association undertook a supplemental retirement plan in 1993, which provides
retirement benefits to all directors. The Association's obligations under the
plan have been funded via the purchase of $1.1 million face value key man life
insurance policies, of which the Association is the beneficiary. Costs of the
purchase of the single premium life insurance policies amounted to $676,000.
Expense under the supplemental retirement plan totaled approximately $6,000,
$10,000, $41,000, $42,000 and $6,000 for the three months ended March 31, 1996
and 1995, and the years ended December 31, 1995, 1994 and 1993, respectively.
F-13
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
11. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents includes cash
and due from banks.
12. Reclassifications
Certain prior year amounts have been reclassified to conform to the 1995
consolidated financial statement presentation.
13. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", (SFAS No. 107), requires disclosure of the fair
value of financial instruments, both assets and liabilities whether or not
recognized in the consolidated statement of financial condition, for which it is
practicable to estimate that value. For financial instruments where quoted
market prices are not available, fair values are based on estimates using
present value and other valuation methods.
The present value methods utilized are greatly affected by the assumptions
applied, including the discount rate and estimates of future cash flows.
Therefore, the fair values presented may not represent amounts that could be
realized in an exchange for certain financial instruments.
The following methods and assumptions were used by the Association in estimating
its fair value disclosures for financial instruments at December 31, 1995:
Cash and due from banks and certificates of deposit in other financial
institutions: the carrying amounts presented in the consolidated statement
of financial condition for cash and due from banks and certificates of
deposit in other financial institutions are deemed to approximate fair
value.
Investments and mortgage-backed and related securities: for investments and
mortgage-backed and related securities, fair value is deemed to equal the
quoted market price.
Loans receivable: the loan portfolio has been segregated into categories
with similar characteristics for underlying collateral, such as one-to-four
family residential, multi-family residential and nonresidential real
estate. These categories were further delineated into fixed-rate and
adjustable-rate loans. The fair values for the resultant categories were
computed via discounted cash flow analysis, using current interest rates
offered for loans with similar terms to borrowers of similar credit
quality. For loans on deposit accounts, and consumer and other loans, fair
values were deemed to equal the historic carrying values. The historical
carrying amount of accrued interest on loans is deemed to approximate fair
value.
F-14
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
14. Fair Value of Financial Instruments (continued)
Federal Home Loan Bank stock: The carrying amount presented in the
consolidated statement of financial condition is deemed to approximate fair
value.
Deposits: The fair value of NOW and super NOW accounts, passbook accounts,
money market demand accounts and advances by borrowers are deemed to
approximate the amount payable on demand at December 31, 1995. Fair values
for fixed-rate certificates of deposit have been estimated using a
discounted cash flow calculation using the interest rates currently offered
for deposits of similar remaining maturities.
Federal Home Loan Bank advances: The fair value of Federal Home Loan Bank
advances have been estimated using discounted cash flow analysis, based on
the interest rates currently offered for advances of similar remaining
maturities.
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Association's financial instruments are as follows at December 31,
1995:
Carrying Fair
value value
-------- -------
(In thousands)
Financial assets
Cash and due from banks $ 2,389 $ 2,389
Certificates of deposit in other
financial institutions 300 300
Investment securities designated
as available for sale 5,018 5,018
Investment securities held to maturity 8,000 7,930
Mortgage-backed securities 9,917 9,941
Loans receivable 58,398 58,756
Federal Home Loan Bank stock 610 610
------- -------
$84,632 $84,944
======= =======
Financial liabilities
Deposits $75,233 $72,375
Advances from Federal Home Loan Bank 4,471 4,483
Advances by borrowers 63 63
------- -------
$79,767 $76,921
======= =======
F-15
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED) Three months ended
March 31, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE B - INVESTMENTS AND MORTGAGE-BACKED AND RELATED SECURITIES
Amortized cost and approximate market values of investment securities are
summarized as follows:
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------------------------------
1996 1995 1994
------------------- ------------------ ------------------
Amortized Market Amortized Market Amortized Market
cost value cost value cost value
---- ----- ---- ----- ---- -----
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Held to maturity:
U.S. Government
agency obligations $ 6,000 $5,909 $ 8,000 $ 7,930 $13,996 $13,120
Available for sale:
U.S. Government
agency obligations 4,000 3,959 5,000 5,018 --- ---
Asset management funds --- --- --- --- 101 101
------- ------ ------- ------- ------- -------
Total investments $10,000 $9,868 $13,000 $12,948 $14,097 $13,221
======= ====== ======= ======= ======= =======
</TABLE>
At March 31, 1996, the cost carrying value of the Association's investment
securities held to maturity exceeded fair value (market value) by $91,000
consisting solely of gross unrealized losses.
At December 31, 1995 and 1994, the cost carrying value of the Association's
investment securities held to maturity exceeded fair value (market value) by
$70,000 and $876,000, respectively, comprised solely of gross unrealized losses.
The amortized cost and market value of U. S. Government and agency obligations
designated as held-to-maturity by term to maturity are shown below. Maturity
dates do not reflect the potential effects of call provisions in the bonds'
contractual terms.
<TABLE>
<CAPTION>
December 31,
March 31, -------------------------------------------------
1996 1995 1994
------------------- ------------------ --------------------
Amortized Market Amortized Market Amortized Market
cost value cost value cost value
---- ----- ---- ----- ---- -----
(Unaudited) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Due in one year or less $ 2,500 $ 2,486 $ 500 $ 497 $ 2,999 $ 2,829
Due in one to three years 3,500 3,423 4,500 4,468 7,997 7,530
Due in three to five years --- --- 3,000 2,965 3,000 2,761
-------- ------- -------- ------- -------- --------
$ 6,000 $ 5,909 $ 8,000 $ 7,930 $ 13,996 $ 13,120
======== ======= ======== ======= ======== ========
</TABLE>
The amortized cost and market value of U.S. Government and agency obligations
designated as available for sale at March 31, 1996, by term to maturity are
shown below.
March 31, 1996 December 31, 1995
-------------------- ---------------------
Amortized Market Amortized Market
cost value cost value
---- ----- ---- -----
(In thousands)
Due in one to three years $1,500 $1,500 $2,500 $2,517
Due in three to five years 2,500 2,459 2,500 2,501
------ ------ ------ ------
$4,000 $3,959 $5,000 $5,018
====== ====== ====== ======
F-16
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE B - INVESTMENTS AND MORTGAGE-BACKED AND RELATED SECURITIES (continued)
The amortized cost, gross unrealized gains, gross unrealized losses and market
values of mortgage-backed and related securities designated as held to maturity
at March 31, 1996, and December 31, 1995 and 1994 are shown below.
<TABLE>
<CAPTION>
March 31, 1996
-----------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
--------- ---------- ---------- ------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation
Participation certificates $ 5,784 $ 2 $(118) $ 5,668
Government National Mortgage Association
Participation certificates 2,036 38 --- 2,074
Federal National Mortgage Association
Participation certificates 1,269 4 (4) 1,269
Interest-only certificates 57 --- --- 57
-------- ----- ----- --------
$ 9,146 $ 44 $(122) $ 9,068
======== ===== ===== ========
December 31, 1995
-----------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
--------- ---------- ---------- ------
(In thousands)
Federal Home Loan Mortgage Corporation
Participation certificates $ 6,330 $ 44 $ (49) $ 6,325
Government National Mortgage Association
Participation certificates 2,121 43 (10) 2,154
Federal National Mortgage Association
Participation certificates 1,426 9 (13) 1,422
Interest-only certificates 40 --- --- 40
-------- ----- ----- --------
$ 9,917 $ 96 $ (72) $ 9,941
======== ===== ===== ========
December 31, 1994
-----------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
--------- ---------- ---------- ------
(In thousands)
Federal Home Loan Mortgage Corporation
Participation certificates $ 7,330 $ --- $(484) $ 6,846
Government National Mortgage Association
Participation certificates 2,381 --- (104) 2,277
Federal National Mortgage Association
Participation certificates 1,567 2 (27) 1,542
Interest-only certificates 50 --- --- 50
-------- ----- ----- --------
$ 11,328 $ 2 $(615) $ 10,715
======== ===== ===== ========
</TABLE>
F-17
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE B - INVESTMENTS AND MORTGAGE-BACKED AND RELATED SECURITIES (continued)
The amortized cost of mortgage-backed securities at March 31, 1996, and December
31, 1995, by contractual terms to maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may generally prepay
obligations without prepayment penalties.
March 31, 1996 December 31, 1995
Amortized cost Amortized cost
-------------- ------------------
(Unaudited) (In thousands)
Due within one year $ 559 $ 139
Due after one to three years 3,371 3,906
Due after three to five years 2,422 2,924
Due after five to ten years 16 15
Due after ten to twenty years 394 50
Due after twenty years 2,384 2,883
------- -------
$ 9,146 $ 9,917
======= =======
The market value of the Association's investment in Federal National Mortgage
Association interest-only certificates is adversely affected by the level of
actual prepayments on the loans collateralizing such securities, as well as the
market's perception as to the future level of such prepayments. During 1994 and
1993, these prepayment factors resulted in market value declines which
management viewed as other than temporary. Accordingly, the Association charged
operations in 1994 and 1993 for $20,000 and $30,000, respectively, representing
management's estimate as to the amount of such declines deemed to be other than
temporary.
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio is as follows:
March 31, December 31,
1996 1995 1994
---------- ---- ----
(Unaudited) (In thousands)
Residential real estate
One-to-four family residential $44,492 $44,417 $46,378
Multi-family residential 1,597 1,613 1,242
Construction 2,132 2,489 748
Nonresidential real estate and land 6,718 7,563 5,774
Consumer and other 2,791 2,816 2,269
Deposit accounts 668 590 527
58,398 59,488 56,938
------- ------- -------
Add (deduct):
Undisbursed portion of loans
in process (818) (1,370) (642)
Deferred loan origination costs 226 234 243
Allowance for loan losses (413) (407) (252)
------- ------- -------
$57,393 $57,945 $56,287
======= ======= =======
F-18
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE C - LOANS RECEIVABLE (continued)
As depicted above, the Association's lending efforts have historically focused
on one-to-four family residential and multi-family residential real estate
loans, which comprise approximately $47.4 million, or 83%, of the total loan
portfolio at March 31, 1996, approximately $47.1 million, or 81%, of the total
loan portfolio at December 31, 1995 and approximately $47.7 million, or 85%, of
the total loan portfolio at December 31, 1994. Generally, such loans have been
underwritten on the basis of no more than an 80% loan-to-value ratio, which has
historically provided the Association with adequate collateral coverage in the
event of default. Nevertheless, the Association, as with any lending
institution, is subject to the risk that residential real estate values could
deteriorate in its primary lending areas of southeastern Indiana and
northwestern Kentucky, thereby impairing collateral values. However, management
is of the belief that residential real estate values in the Association's
primary lending areas are presently stable.
In the ordinary course of business, the Association has granted loans to some of
the officers, directors and their related business interests. Related party
loans are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons and do not involve more than the normal risk of
collectibility. The aggregate dollar amount of loans outstanding to related
parties was approximately $446,000, $571,000 and $365,000 at March 31, 1996,
December 31, 1995 and 1994.
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Three months ended
March 31, Year ended December 31,
------------------ ------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited) (In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $407 $252 $252 $227 $262
Provision for loan losses 6 --- 150 29 55
Charge-offs of loans --- --- --- (4) (100)
Recoveries of losses on loans --- --- 5 --- 10
---- ---- ---- ---- ----
Balance at end of period $413 $252 $407 $252 $227
==== ==== ==== ==== ====
</TABLE>
As of March 31, 1996, and December 31, 1995, the Association's allowance for
loan losses was comprised of a general loan loss allowance of approximately
$406,000 and $399,000, which was includible as a component of regulatory
risk-based capital, and specific loan loss allowances of approximately $7,000
and $8,000, respectively.
At march 31, 1996 and 1995, and december 31, 1995, 1994 and 1993, nonperforming
loans totaled $30,000, $10,000, $8,000, $13,000 and $7,000, respectively.
F-19
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment is comprised of the following:
December 31,
March 31, --------------------
1996 1995 1994
---- ------ ------
(Unaudited) (In thousands)
Land and improvements $ 377 $ 377 $ 377
Office buildings and improvements 1,242 1,242 1,225
Leasehold improvements 6 6 6
Furniture, fixtures and equipment 623 623 593
Automobiles 4 4 4
------- ------- -------
2,252 2,252 2,205
Less accumulated depreciation (1,299) (1,286) (1,217)
------- ------- -------
$ 953 $ 966 $ 988
======= ======= =======
F-20
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED) Three months ended
March 31, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE F - DEPOSITS
Deposits consist of the following major classifications:
<TABLE>
<CAPTION>
December 31,
March 31, --------------------------------------------
1996 1995 1994
----------------- ----------------- -------------------
Deposit type and Amount % Amount % Amount %
weighted-average interest rate -------- ---- -------- ---- -------- ----
(Unaudited) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
NOW accounts
1996 - 2.63% $ 8,828 11.1
1995 - 2.24% $ 7,941 10.6
1994 - 2.28% $ 7,412 9.8
Super NOW accounts
1996 - 2.72% 1,076 1.4
1995 - 2.65% 1,063 1.4
1994 - 2.67% 731 1.0
Money market demand accounts
1996 - 3.00% 7,238 9.1
1995 - 3.00% 7,141 9.5
1994 - 2.90% 7,652 10.1
Passbook accounts
1996 - 3.05% 17,189 21.7
1995 - 3.04% 17,911 23.8
1994 - 3.03% 19,430 25.8
Total demand, transaction and
passbook deposits 34,331 43.3 34,056 45.3 35,225 46.7
-------- ----- -------- ----- -------- -----
Certificates of deposit
3.00 - 3.99%
3.35% in 1994 --- --- --- --- 443 .6
4.00 - 4.99%
4.69% in 1996 4,381 5.5
4.21% in 1995 98 .1
4.70% in 1994 30,882 40.9
5.00 - 5.99%
5.46% in 1996 26,279 33.2
5.65% in 1995 30,116 40.0
5.44% in 1994 5,276 7.0
6.00 - 6.99%
6.39% in 1996 13,682 17.3
6.38% in 1995 10,731 14.3
6.40% in 1994 3,365 4.5
7.00 - 7.99%
7.35% in 1996 581 .7
7.86% in 1995 232 .3
7.88% in 1994 267 .3
-------- ----- -------- ----- -------- -----
Total certificates 44,923 56.7 41,177 54.7 40,233 53.3
-------- ----- -------- ----- -------- -----
Total deposit accounts $ 79,254 100.0 $ 75,233 100.0 $ 75,458 100.0
======== ===== ======== ===== ======== =====
</TABLE>
The aggregate amount of short-term certificates of deposit with minimum
denominations of $100,000 totaled approximately $7.1 million, $4.8 million and
$5.3 million at March 31, 1996, December 31, 1995 and 1994, respectively.
F-21
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED) Three months ended
March 31, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE F - DEPOSITS (continued)
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
----------------- ---------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited) (In thousands)
<S> <C> <C> <C> <C> <C>
Passbook $134 $139 $ 524 $ 634 $ 754
NOW accounts 40 42 176 170 135
Money market deposit accounts 60 61 243 259 269
Certificates of deposit 620 536 2,476 1,779 1,883
---- ---- ------ ------ ------
$854 $778 $3,419 $2,842 $3,041
==== ==== ====== ====== ======
</TABLE>
Maturities of outstanding certificates of deposit are summarized as follows:
March 31, December 31,
----------- --------------------
1996 1995 1994
---- ---- ----
(Unaudited) (In thousands)
Less than one year $34,967 $29,578 $31,625
One year to three years 8,778 10,425 5,921
More than three years 1,178 1,174 2,687
------- ------- -------
$44,923 $41,177 $40,233
======= ======= =======
NOTE G - ADVANCES FROM FEDERAL HOME LOAN BANK
At March 31, 1996, Federal Home Loan Bank advances consisted of a $2.0 million,
5.63% advance maturing on April 11, 1996. At December 31, 1995, Federal Home
Loan Bank advances consisted of 6.02% daily variable-rate cash management
borrowings totaling approximately $2.5 million (of an available $7.0 million
line of credit), and the $2.0 million 5.63% advance maturing on April 11, 1996.
At March 31, 1996, the advances were collateralized by certain residential
mortgage loans totaling $3.4 million and the Association's investment in Federal
Home Loan Bank stock.
NOTE H - INCOME TAXES
The provision for income taxes on earnings differs from that computed at the
expected statutory corporate tax rate as follows:
<TABLE>
<CAPTION>
March 31, December 31,
------------------ -------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited) (In thousands)
<S> <C> <C> <C> <C> <C>
Income taxes computed at
the 34% expected statutory rate $ 40 $ 84 $152 $356 $391
State taxes, net of federal benefits 9 19 39 56 65
Increase (decrease) in taxes resulting from:
Amortization of goodwill --- 1 2 2 2
Other 5 (2) (5) (2) (2)
----- ---- ---- ---- ----
Income tax provision per consolidated
financial statements $ 54 $102 $188 $412 $456
===== ==== ==== ==== ====
Effective tax rate 45.8% 41.1% 42.2% 39.3% 39.7%
===== ==== ==== ==== ====
</TABLE>
F-22
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE H - INCOME TAXES (continued)
The composition of the Association's net deferred tax asset (liability) is as
follows:
December 31,
March 31, -------------------
1996 1995 1994
Taxes (payable) refundable on temporary ---- ---- ----
differences at statutory rate: (Unaudited) (In thousands)
Deferred tax liabilities:
Deferred loan origination costs $ (77) $ (80) $ (83)
Difference between book and
tax depreciation (32) (32) (31)
Percentage of earnings bad debt deduction (119) (116) (104)
Unrealized gain on securities designated
as available for sale --- (6) ---
------ ------ ------
Total deferred tax liabilities (228) (234) (218)
Deferred tax assets:
Deferred compensation 32 28 14
Allowance for valuation decline on
mortgage-related securities 90 90 90
General loan loss allowance 138 135 84
Unrealized loss on securities
designated as available for sale 14 --- ---
Other 23 2 ---
------ ------ ------
Total deferred tax assets 297 255 188
------ ------ ------
Net deferred tax asset (liability) $ 69 $ 21 $ (30)
====== ====== ======
The Association is allowed a special bad debt deduction based on a percentage of
earnings generally limited to 8% of otherwise taxable income, or the amount of
qualifying and nonqualifying loans outstanding and subject to certain
limitations based on aggregate loans and savings account balances at the end of
the year. Retained earnings at March 31, 1996 and December 31, 1995 includes
approximately $2.4 million for which Federal income taxes have not been
provided. If the amounts that qualify as deductions for Federal income tax
purposes are later used for purposes other than for bad debt losses, including
distributions in liquidation, such distributions will be subject to Federal
income taxes at the then current corporate income tax rate. The approximate
amount of unrecognized deferred tax liability relating to the cumulative bad
debt deduction was approximately $710,000 at March 31, 1996 and December 31,
1995.
F-23
<PAGE>
Madison First Federal Savings and Loan Association
and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE I - COMMITMENTS AND CONTINGENCIES
The Association is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of their customers
including commitments to extend credit. Such commitments involve, to varying
degrees, elements of credit and interest-rate risk in excess of the amount
recognized in the consolidated statement of financial condition. The contract or
notional amounts of the commitments reflect the extent of the Association's
involvement in such financial instruments.
The Association's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The
Association uses the same credit policies in making commitments and conditional
obligations as those utilized for on-balance-sheet instruments.
At March 31, 1996, and December 31, 1995, the Association had outstanding
commitments of approximately $594,000 and $257,000 to originate residential
one-to-four family real estate loans, of which $102,000 and $185,000 were
comprised of fixed-rate loans, respectively, and $492,000 and $72,000 were
comprised of variable rate loans, respectively. Additionally, the Association
had unused lines of credit under home equity loans of approximately $186,000 and
$181,000 at March 31, 1996 and December 31, 1995, respectively. In the opinion
of management, all loan commitments equaled or exceeded prevalent market
interest rates as of March 31, 1996 and December 31, 1995, and such commitments
have been underwritten on the same basis as that of the existing loan portfolio.
Management believes that all loan commitments are able to be funded through cash
flow from operations and existing excess liquidity. Fees received in connection
with these commitments have not been recognized in earnings.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments may expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Association evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained, if it is deemed
necessary by the Association, upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral on loans may vary but the
preponderance of loans granted generally include a mortgage interest in real
estate as security.
F-24
<PAGE>
Madison First Federal Savings and Loan Association
and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE J - CONDENSED FINANCIAL STATEMENTS OF CONSOLIDATED
SUBSIDIARY
The following condensed consolidated financial statements summarize the
financial position of Madison First Service Corporation and Subsidiary at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the years ended December 31, 1995, 1994 and 1993.
Madison First Service Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31,
ASSETS 1996 1995 1994
(Unaudited) (In thousands)
Cash and interest-bearing deposits $379 $265 $156
Certificates of deposit 200 300 350
Office premises and equipment, net 20 21 26
Goodwill, net 147 148 156
Other assets 56 40 56
---- ---- ----
Total assets $802 $774 $744
==== ==== ====
LIABILITIES AND STOCKHOLDER'S EQUITY
Other liabilities $ 69 $ 68 $ 69
Accrued income taxes 32 22 21
---- ---- ----
101 90 90
Stockholder's equity
Common stock 350 350 350
Retained earnings 351 334 304
---- ---- ----
Total stockholder's equity 701 684 654
---- ---- ----
Total liabilities and
stockholder's equity $802 $774 $744
==== ==== ====
F-25
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE J - CONDENSED FINANCIAL STATEMENTS OF CONSOLIDATED
SUBSIDIARY (continued)
Madison First Service Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended Year ended
March 31, December 31,
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited) (In thousands)
<S> <C> <C> <C> <C> <C>
Income
Interest income $ 6 $ 7 $ 27 $ 16 $ 14
Insurance commissions 58 47 166 169 182
Other operating 1 1 3 4 3
---- ---- ----- ----- -----
Total income 65 55 196 189 199
Other expenses
Employee compensation and benefits 25 27 104 102 107
Occupancy and equipment 4 5 14 17 21
Franchise taxes 3 1 5 4 4
General and administrative 5 6 18 18 17
Amortization of goodwill 1 2 7 7 7
---- ---- ----- ----- -----
Total other expenses 38 41 148 148 156
---- ---- ----- ----- -----
Income before income taxes 27 14 48 41 43
Income taxes 10 5 18 16 17
---- ---- ----- ----- -----
NET INCOME $ 17 $ 9 $ 30 $ 25 $ 26
==== ==== ===== ===== =====
</TABLE>
F-26
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE J - CONDENSED FINANCIAL STATEMENTS OF CONSOLIDATED
SUBSIDIARY (continued)
Madison First Service Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended Year ended
March 31, December 31,
------------------ -------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited) (In thousands)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 17 $ 9 $ 30 $ 25 $ 26
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1 2 5 5 6
Amortization of goodwill 1 2 7 7 7
Increases (decreases) in cash due to changes in:
Other assets (16) (3) 17 9 (5)
Other liabilities 1 (3) --- 3 ---
Income taxes:
Current 10 (12) 1 17 1
Deferred --- --- --- (1) (1)
---- ---- ---- ---- ----
Net cash provided by (used in) operating activities 14 (5) 60 65 34
Cash flows provided by (used in) investing activities:
Purchase of office equipment --- --- (1) (4) ---
(Increase) decrease in certificates of deposits in
other financial institutions - net 100 --- 50 (50) (125)
---- ---- ---- ---- ----
Net cash provided by (used in) investing activities 100 --- 49 (54) (125)
---- ---- ---- ---- ----
Net increase (decrease) in cash and cash equivalents 114 (5) 109 11 (91)
Cash and interest-bearing deposits at beginning of period 265 156 156 145 236
---- ---- ---- ---- ----
Cash and interest-bearing deposits at end of period $379 $151 $265 $156 $145
==== ==== ==== ==== ====
</TABLE>
F-27
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE K - RETAINED EARNINGS AND REGULATORY CAPITAL
The Association is subject to minimum regulatory capital standards promulgated
by the Office of Thrift Supervision. Such minimum capital standards generally
require the maintenance of regulatory capital sufficient to meet each of three
tests, hereinafter described as the tangible capital requirement, the core
capital requirement and the risk-based capital requirement. The tangible capital
requirement provides for minimum tangible capital (defined as retained earnings
less all intangible assets) equal to 1.5% of adjusted total assets. The core
capital requirement provides for minimum core capital (tangible capital plus
certain forms of supervisory goodwill and other qualifying intangible assets)
equal to 3.0% of adjusted total assets. An OTS proposal, if adopted in present
form, would increase the core capital requirement to a range of 4.0% - 5.0% of
adjusted total assets for substantially all savings associations. Management
anticipates no material change to the Association's excess regulatory capital
position as a result of this proposed change in the regulatory capital
requirement. The risk-based capital requirement currently provides for the
maintenance of core capital plus general loss allowances equal to 8.0% of
risk-weighted assets. In computing risk-weighted assets, the Association
multiplies the value of each asset on its statement of financial condition by a
defined risk-weighting factor, e.g., one-to-four family residential loans carry
a risk-weighted factor of 50%.
As of March 31, 1996 and December 31, 1995, the Association's regulatory capital
exceeded all minimum capital requirements as shown in the following tables:
<TABLE>
<CAPTION>
March 31, 1996
Regulatory capital
----------------------------------------------------------------------
Tangible Core Risk-based
capital Percent Capital Percent capital Percent
-------- ------- ------- ------- ---------- -------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Capital under generally accepted
accounting principles $6,599 $6,599 $6,599
Nonallowable assets:
Goodwill (147) (147) (147)
Unrealized losses on securities
designated as available for sale, net 27 27 27
Additional capital items:
General valuation allowances - limited --- --- 405
------ --- ------ --- ------ ----
Regulatory capital - computed 6,479 7.3 6,479 7.3 6,884 16.3
Minimum capital requirement 1,325 1.5 2,650 3.0 3,385 8.0
------ --- ------ --- ------ ----
Regulatory capital - excess $5,154 5.8% $3,829 4.3% $3,499 8.3%
====== === ====== === ====== ====
</TABLE>
F-28
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE K - RETAINED EARNINGS AND REGULATORY CAPITAL (continued)
<TABLE>
<CAPTION>
December 31, 1995
Regulatory capital
----------------------------------------------------------------------
Tangible Core Risk-based
capital Percent capital Percent capital Percent
-------- ------- ------- ------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Capital under generally accepted
accounting principles $6,574 $6,574 $6,574
Nonallowable assets:
Goodwill (148) (148) (148)
Unrealized gains on securities
designated as available for sale, net (12) (12) (12)
Additional capital items:
General valuation allowances - limited --- --- 399
------ --- ------ --- ------ ----
Regulatory capital - computed 6,414 7.4 6,414 7.4 6,813 16.0
Minimum capital requirement 1,299 1.5 2,598 3.0 3,402 8.0
------ --- ------ --- ------ ----
Regulatory capital - excess $5,115 5.9% $3,816 4.4% $3,411 8.0%
====== === ====== === ====== ====
</TABLE>
The deposit accounts of the Association and of other savings associations are
insured by the FDIC in the Savings Association Insurance Fund ("SAIF"). The
reserves of the SAIF are below the level required by law, because a significant
portion of the assessments paid into the fund are used to pay the cost of prior
thrift failures. The deposit accounts of commercial banks are insured by the
FDIC in the Bank Insurance Fund ("BIF"), except to the extent such banks have
acquired SAIF deposits. The reserves of the BIF met the level required by law in
May 1995. As a result of the respective reserve levels of the funds, deposit
insurance assessments paid by healthy savings associations exceeded those paid
by healthy commercial banks during 1995 by approximately $.19 per $100 in
deposits. In 1996, no BIF assessments will be required for healthy commercial
banks except for a $2,000 minimum fee.
Congress is considering legislation to recapitalize the SAIF and eliminate the
significant premium disparity. Currently, that recapitalization plan provides
for a special assessment of approximately $.85 per $100 of SAIF deposits held at
March 31, 1995, in order to increase SAIF reserves to the level required by law.
In addition, the cost of prior thrift failures would be shared by both the SAIF
and the BIF. This would likely increase BIF assessments by $.02 to $.025 per
$100 in deposits. SAIF assessments would initially be set at the same level as
BIF assessments and could never be reduced below the level for BIF assessments.
These projected assessment levels may change if commercial banks holding SAIF
deposits are provided some relief from the special assessment or are allowed to
transfer SAIF deposits to the BIF.
F-29
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE K - RETAINED EARNINGS AND REGULATORY CAPITAL (continued)
A component of the recapitalization plan provides for the merger of the SAIF and
BIF on January 1, 1998. However, the SAIF recapitalization legislation currently
provides for an elimination of the thrift charter or of the separate federal
regulation of thrifts prior to the merger of the deposit insurance funds. As a
result, the Association would be regulated as a bank under Federal laws which
would subject it to the more restrictive activity limits imposed on national
banks. If the Association becomes a bank, the Association may be required to
recapture approximately $340,000 of its bad debt reserve, which represents the
post-1987 additions to the reserve (for which deferred taxes have been
provided), and would be unable to utilize the percentage of earnings method to
compute its reserve in the future. The Association would be permitted to
amortize the recapture of its bad debt reserve over six years.
The Association had $77.2 million in deposits at March 31, 1995. If the special
assessment is finalized at $.85 per $100 in deposits, the Association will pay
an additional assessment of $656,000. This assessment should be tax deductible,
but it will reduce earnings and capital for the quarter in which it is recorded.
No assurances can be given that the SAIF recapitalization plan will be enacted
into law or in what form it may be enacted. In addition, the Association can
give no assurances that the disparity between BIF and SAIF assessments will be
eliminated and cannot predict the impact of being regulated as a bank, or the
change in tax accounting for bad debt reserves, until the legislation requiring
such change is enacted.
NOTE L - BUSINESS COMBINATION AND CONVERSION TO STOCK FORM
On March 5, 1996, the Association's Board of Directors adopted an overall plan
of conversion and reorganization (the Plan) whereby the Association would
convert to the stock form of ownership, followed by the issuance of all of the
Association's outstanding stock to a newly formed holding company, River Valley
Bancorp. Pursuant to the Plan, the Association will offer for sale common shares
to its depositors and members of the community based on the appraised value on
the offering date. The costs of issuing the common stock will be deferred and
deducted from the sale proceeds of the offering. If the conversion is
unsuccessful, all deferred costs will be charged to operations. At March 31,
1996, the Association had incurred approximately $2,000 in conversion costs.
F-30
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1996 and
1995 (unaudited) and years ended
December 31, 1995, 1994 and 1993
NOTE L - BUSINESS COMBINATION AND CONVERSION TO STOCK FORM (continued)
At the date of the conversion, the Association will establish a liquidation
account in an amount equal to retained earnings reflected in the statement of
financial condition used in the conversion offering circular. The liquidation
accounts will be maintained for the benefit of eligible savings account holders
who maintained deposit accounts in the Association after conversion.
In the event of a complete liquidation (and only in such event), each eligible
savings account holder will be entitled to receive a liquidation distribution
from the liquidation account in the amount of the then current adjusted balance
of deposit accounts held, before any liquidation distribution may be made with
respect to the common shares. Except for the repurchase of stock and payment of
dividends by the Association, the existence of the liquidation account will not
restrict the use or further application of such retained earnings.
The Association may not declare or pay a cash dividend on, or repurchase any of
its common shares if the effect thereof would cause the Association's
shareholders' equity to be reduced below either the amount required for the
liquidation account or the regulatory capital requirements for insured
institutions.
In December 1995, the Association had entered into a purchase agreement (the
Agreement) with the majority shareholder of Citizens National Bank of Madison.
The agreement, as subsequently amended, states that the Association's newly
formed holding company will purchase approximately 120,000 shares, representing
95% of Citizen's outstanding common stock, for total cash consideration of
approximately $3.0 million. The Association's performance under the Agreement
will be funded via net cash proceeds from the conversion. The business
combination will be accounted for as a purchase and is expected to be completed
in the latter part of 1996. The purchase agreement is subject to regulatory
approval.
F-31
<PAGE>
[SHERMAN, BARBER & MILLIKIN LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
of Citizens National Bank
of Madison, Indiana
We have audited the accompanying Statements of Financial Condition of Citizens
National Bank of Madison as of December 31, 1995 and December 31, 1994 and the
related Statements of Income, Stockholders' Equity and Cash Flows for the years
then ended. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Citizens National
Bank for the year ended December 31, 1993 were audited by other auditors whose
report dated January 28, 1994 epxressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Citizens National Bank of
Madison at December 31, 1995 and December 31, 1994 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As described in Notes 1 and 5, the Bank changed its methods of accounting for
investment securities and income taxes during 1994 and adopted new accounting
standards during 1995 in accordance with Statements of Financial Accounting
Standards Nos. 107 and 114.
/S/ Sherman, Barber & Mullikin
SHERMAN, BARBER & MULLIKIN
Certified Public Accountants
March 1, 1996
F-32
<PAGE>
Board of Directors
Citizens National Bank of Madison
Madison, Indiana
We have audited the accompanying Comparative Balance Sheet of Citizens National
Bank of Madison as of December 31, 1993 and 1992, and the related Comparative
Statements of Income, Changes in Equity Capital and Cash Flows for the years
then ended. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the 1993 and 1992 financial statements referred to above present
fairly, in all material respects, the comparative financial statements of
Citizens National Bank of Madison as of December 31, 1993 and 1992, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying schedules A and B are presented
for the purposes of additional analysis and are not a required part of the basic
financial statements, and, in our opinion are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Respectfully submitted,
/s/ Alexander X. Kuhn & Co.
--------------------------------
Certified Public Accountants
Dated: January 28, 1994
Oakbrook Terrace, Illinois
F-33
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Statements of Financial Condition
December 31, 1995 December 31, 1994
----------------- -----------------
ASSETS
Cash and Cash Equivalents:
Cash and Due from Banks $ 2,348,509 $ 1,516,721
Federal Funds Sold 2,775,000 675,000
----------- -----------
Total Cash and Cash Equivalents 5,123,509 2,191,721
Interest-Bearing Time Deposits 1,702,862 0
Investment Securities:
Federal Agencies 150,891 1,465,002
Municipal Bonds 1,155,342 1,106,183
Mortgage-Backed Securities
(primarily government
agency guaranteed) 3,562,364 5,048,907
Federal Reserve Stock 79,950 79,950
Federal Home Loan Bank Stock 270,800 118,400
----------- -----------
Total Investment Securities 5,219,347 7,818,442
Loans:
Loans, Net of Unearned Interest 40,779,738 30,169,863
Less: Allowance for Loan Losses (347,793) (335,738)
Net Loans 40,431,945 29,834,125
Premises and Equipment, Net 1,403,601 890,056
Accrued Interest Receivable 451,917 352,337
Deferred Income Tax Asset 75,829 119,856
Other Assets 94,157 45,654
----------- -----------
TOTAL ASSETS $54,503,167 $41,252,191
=========== ===========
See Notes to Financial Statements.
F-34
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Statements of Financial Condition
(Continued)
December 31, 1995 December 31, 1994
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand Deposits $ 5,345,925 $ 4,200,596
Savings & NOW Accounts 16,411,201 16,551,092
Certificates of Deposit
over $100,000 5,698,897 5,317,053
Other Time Deposits 21,771,068 11,942,011
----------- -----------
Total Deposits 49,227,091 38,010,752
FHLB Advances 1,500,000 0
Accrued Interest Payable 204,645 109,610
Income Tax Payable 116,981 27,951
Other Liabilities 58,409 103,734
----------- -----------
Total Liabilities 51,107,126 38,252,047
Stockholders' Equity
Common Stock ($8 Par Value: 150,000
Shares Authorized; 126,037 Shares
Issued & Outstanding) 1,008,296 1,008,296
Surplus 1,656,567 1,656,567
Undivided Profits 749,563 407,936
Unrealized Losses on Investment
Securities Available-for-Sale (18,385) (72,655)
----------- -----------
Total Stockholders' Equity 3,396,041 3,000,144
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $54,503,167 $41,252,191
=========== ===========
See Notes to Financial Statements.
F-35
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Statements of Income
For the Years Ended,
<TABLE>
<CAPTION>
12-31-95 12-31-94 12-31-93
-------- -------- --------
<S> <C> <C> <C>
Interest Income
Interest & Fees on Loans $3,194,437 $2,035,853 $1,679,455
Interest on Investment Securities:
Investment Securities-Taxable 132,509 132,319 301,593
Investment Securities-Nontaxable 59,306 60,460 38,412
---------- ---------- ----------
Total Interest on Investment Securities 191,815 192,779 340,005
---------- ---------- ----------
Interest on Federal Funds Sold 78,190 30,319 77,445
Interest on Mortgage-Back Securities 230,315 256,235 0
Interest on Deposits with Banks 0 9,387 2,640
---------- ---------- ----------
Total Interest Income 3,694,757 2,524,573 2,099,545
---------- ---------- ----------
Interest Expense
Interest on Deposits 1,750,429 1,023,679 879,952
Interest on Federal Funds Purchased 2,680 542 0
Interest on Other Borrowed Funds 67,318 847 0
---------- ---------- ----------
Total Interest Expense 1,820,427 1,025,068 879,952
---------- ---------- ----------
Net Interest Income 1,874,330 1,499,505 1,219,593
Less: Provision for Loan Losses (104,000) (17,000) (50,000)
---------- ---------- ----------
Net Interest Income After Provision
for Loan Losses 1,770,330 1,482,505 1,169,593
---------- ---------- ----------
Other Income
Service Charges on Deposit Accounts 292,990 218,835 214,524
Other Service Charges & Fees 157,076 143,420 309,107
Gain on Disposal of Assets 4,555 0 0
Realized Gains (Losses) on Investments 3,946 (70,987) (396)
Intangible Tax Refund 34,001 0 0
Other Operating Income 70,541 52,890 24,738
---------- ---------- ----------
Total Other Income 563,109 344,158 547,973
---------- ---------- ----------
Other Expenses
Salaries & Employee Benefits 830,792 677,333 612,154
Premises & Equipment Expenses 292,460 279,431 225,597
Advertising 82,653 58,791 73,301
Business Services 87,436 67,367 54,636
Office Supplies & Postage 93,111 59,449 65,685
FDIC & Comptroller Assessment 60,360 85,754 87,634
Amortization-Dealer Reserve Cost 58,523 23,872 0
Other Operating Expenses 263,016 207,889 236,620
---------- ---------- ----------
Total Other Expenses 1,768,351 1,459,886 1,355,627
========== ========== ==========
</TABLE>
See Notes to Financial Statements.
F-36
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Statements of Income
(Continued)
For the Years Ended,
<TABLE>
<CAPTION>
12-31-95 12-31-94 12-31-93
-------- -------- --------
<S> <C> <C> <C>
Net Income Before Income Tax 565,088 366,777 361,939
---------- ---------- ----------
Income Tax
Franchise Tax 57,175 34,019 33,612
Federal Income Tax 166,286 94,384 58,586
---------- ---------- ----------
Total Income Tax 223,461 128,403 92,198
---------- ---------- ----------
Net Income Before Cumulative Effect
of Change in Accounting Principal 341,627 238,374 269,741
Cumulative Effect of Change in
Accounting Principle 0 85,761 0
---------- ---------- ----------
NET INCOME $ 341,627 $ 324,135 $ 269,741
========== ========== ==========
Earnings Per Share:
Before Cumulative Change in
Accounting Principle $ 2.71 $ 1.89 $ 2.14
========== ========== ==========
Net Income $ 2.71 $ 2.57 $ 2.14
========== ========== ==========
Average Shares Outstanding 126,037 126,037 126,037
========== ========== ==========
</TABLE>
See Notes to Financial Statements.
F-37
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
Unrealized
Losses on
Invest. Secur. Total
Common Capital Undivided Available- Stockholders'
Stock Surplus Profits For-Sale Equity
---------- ---------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $1,008,296 $1,656,567 $(185,940) $2,478,923
Net Income for 1993 269,741 269,741
---------- ---------- --------- --------- ----------
Balance, December 31, 1993 1,008,296 1,656,567 83,801 2,748,664
Net Income for 1994 324,135 324,135
Unrealized Losses on
Investments $(72,655) (72,655)
---------- ---------- --------- --------- ----------
Balance, December 31, 1994 1,008,296 1,656,567 407,936 (72,655) 3,000,144
Net Income for 1995 341,627 341,627
Unrealized Gains on
Investments 54,270 54,270
---------- ---------- --------- --------- ----------
Balance, December 31, 1995 $1,008,296 $1,656,567 $ 749,563 $(18,385) $3,396,041
========== ========== ========= ========= ==========
</TABLE>
See Notes to Financial Statements.
F-38
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Statements of Cash Flows
For the Years Ended,
<TABLE>
<CAPTION>
12-31-95 12-31-94 12-31-93
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income $ 341,627 $ 324,135 $ 269,742
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for Loan Losses 104,000 17,000 50,000
Depreciation 127,460 108,675 132,838
Amortization-Dealer Reserve 58,523 23,872 0
Premium Amortization on Investments
(Net of Discount Accretion) 17,959 27,041 168,719
(Gain) Loss on Sale of Securities (3,946) 70,987 397
Gain on Sale of Fixed Assets (4,555) 0 0
Net Loans Charged Off (7,116)
Changes in Assets & Liabilities
Affecting Operating Activities:
Interest Receivable (99,580) (92,924) 17,286
Interest Payable 95,035 28,029 1,594
Other Assets & Liabilities (4,801) 159,008 6,371
Deferred Tax Assets 7,496 (151,901) 0
------------- ------------ ------------
Net Cash Provided by Operating Activities 639,218 513,922 639,831
------------- ------------ ------------
Cash Flow from Investing Activities
Net Change in Interest-Bearing Deposits (1,702,862) 600,000 (300,000)
Net Change in Loans (10,760,343) (9,977,419) (1,267,065)
Purchases of Premises & Equipment (641,004) (149,523) (137,576)
Proceeds from Sale of Fixed Assets 4,555 0 0
Proceeds from Sale/Maturity of Securities
Available-for-Sale 3,270,799 3,467,217
Proceeds from Maturity of Securities
Held-to-Maturity 1,476,924 500,000
Purchase of Securities Available-for-Sale (1,919,438) (1,684,458)
Purchase of Securities Held-to-Maturity 0 (1,900,950)
Net Change in Security Investments-Net of
Premium Amortization (1,562,462)
Purchase of FHLB Stock (152,400) (11,000)
------------- ------------ ------------
Net Cash Used in Investing Activities (10,423,769) (9,156,133) (3,267,103)
------------- ------------ ------------
Cash Flows from Financing Activities
Proceeds from FHLB Advances 1,500,000 0 0
Net Change in Noninterest-Bearing Deposits 1,145,329 558,801 17,953
Net Change in Interest-Bearing Deposits 10,071,010 7,362,786 1,243,222
------------- ------------ ------------
Net Cash Provided by Financing Activities 12,716,339 7,921,587 1,261,175
------------- ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-39
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Statements of Cash Flows
(Continued)
For the Years Ended,
<TABLE>
<CAPTION>
12-31-95 12-31-94 12-31-93
-------- -------- --------
<S> <C> <C> <C>
Net Increase (Decrease) in Cash
& Cash Equivalents 2,931,788 (720,624) (1,366,097)
Cash & Cash Equivalents, January 1 2,191,721 2,912,345 4,278,442
------------- ------------ ------------
Cash & Cash Equivalents, December 31 $ 5,123,509 $ 2,191,721 $ 2,912,345
============= ============ ============
Supplemental Information
Interest Paid $ 1,725,391 $ 1,001,618 $ 879,952
============= ============ ============
Taxes Paid $ 126,934 $ 190,054 $ 58,586
============= ============ ============
Loans Charged Off $ 146,944 $ 89,263
============= ============
</TABLE>
For 1995:
Sale of Fixed Asset (fully depreciated) at original cost of $13,977
For 1994:
Retirement of Fixed Assets (fully depreciated) at original cost of $153,218
See Notes to Financial Statements.
F-40
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes to Financial Statements
December 31, 1995, December 31, 1994 and December 31, 1993
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Citizens National Bank was organized under the laws of the
state of Indiana in 1982. The Bank provides various financial
services to both individual and corporate entities through its
main location and branches in the Madison and Hanover, Indiana
area. The Bank's primary deposits are interest-bearing time
deposits and the primary lending products are mortgage and
commercial loans.
Investment Securities
Effective January 1, 1994, the Bank adopted Statement of
Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities. As a result, the
Bank classifies its marketable debt and equity securities as
held-to-maturity if it has the positive intent and ability to
hold the securities to maturity. All other marketable debt and
equity securities are classified as available-for-sale.
Securities classified as available-for-sale are carried in the
financial statements at fair value. Unrealized holding gains
and losses, net of tax effect, are reported as a separate
component of stockholders' equity. Securities classified as
held-tomaturity are carried at amortized cost. The effect on
stockholders' equity of initially applying SFAS No. 115 has
been reported as the effect of a change in accounting
principle in the manner described in paragraph 20 of APB
Opinion No. 20, Accounting Changes.
The Financial Accounting Standards Board allowed a one-time
transfer of securities from held-to-maturity to
available-for-sale during 1995. On December 31, 1995,
substantially all securities classified as held-to-maturity
were reclassified as available-for-sale. These securities had
a book value of $2,995,082 at the time of transfer. The market
value of this group of securities was $2,964,225 at December
31, 1995.
Discounts and premiums are recognized as adjustments to
interest income over the lives of applicable securities using
primarily the effective interest method. Gains and losses on
disposition are based on the net proceeds and the adjusted
carrying value of the securities sold using the specific
identification method.
The Federal Reserve and Federal Home Loan Bank stocks are
nonmarketable equity securities, required to be held by the
Bank as a member of the Federal Reserve Bank System and as a
borrower of Federal Home Loan Bank advances, respectively.
These securities are carried at par (cost).
F-41
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes to Financial Statements
December 31, 1995, December 31, 1994 and December 31, 1993
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment
Premises and equipment are carried at cost net of accumulated
depreciation. Depreciation is computed using the straight-line
method or 200% decliningbalance method for premises and
equipment based on the estimated useful lives of the assets.
Maintenance and repairs are expensed as incurred while major
additions and improvements are capitalized. Gains and losses
on dispositions are included in current operations. Note 4
details current asset additions and depreciation provisions.
Other Real Estate
Other real estate is carried at the lower of cost (loan's
principal balance) or estimated fair market value, less
estimated selling expenses. When other real estate is
acquired, any excess of the loan amount over the estimated
fair market value of such property is charged to the allowance
for loan losses. Any subsequent write downs and/or gains and
losses on the sale of other real estate are included in
current operations.
Loans, Allowance for Loan Losses and Loan Fees
Loans are stated at the amount of unpaid principal, reduced by
unearned discount and a reserve for loan losses. Interest
income is accrued on the principal balances of loans, except
that the sum-of-the-digits method is used for installment
loans with add-on interest. The reserve for loan losses is
established through a provision for loan losses charged to
expense. Loans are charged against the reserve for possible
loan losses when management believes that the collectibility
of principal is unlikely. The reserve is an amount that
management believes will be adequate to absorb possible losses
on existing loans that may become uncollectible, based on
evaluations of the collectibility of the loans and prior loan
loss experience. The evaluations take into consideration such
factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific
problem loans and current economic conditions and trends that
may affect borrowers' ability to pay. Accrual of interest is
discontinued when various economic and business conditions
indicate that the collection of interest is not likely. Loan
origination fees collected, net of direct loan origination
costs, are deferred and amortized as an adjustment of interest
income over the estimated life of the loans.
On January 1, 1995, the Bank adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan," (SFAS 114) which requires that impaired
loans be measured at the present value of expected cash flows
discounted at the loan's effective interest rate, the loan's
observable market price or the fair value of the collateral if
the loan is collateral dependent or foreclosure is probable.
It amends previously issued statements to clarify that the
collectibility of both contractual principal and interest
should be evaluated when determining the need for a loss
accrual. The Statement provides that a loan is impaired when
it is probable that all amounts due under the loan agreement
will not be collected. It also specifies that a delinquent
loan is not impaired if the creditor expects to collect all
amounts due including interest accrued at the contractual rate
during the period of delinquency. Adoption of the Standard did
not have a material effect on the Bank's financial position or
results of operations.
F-42
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes to Financial Statements
December 31, 1995, December 31, 1994 and December 31, 1993
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Tax
Income tax in the statement of income includes deferred income
tax provisions or credits for all significant timing
differences in recognizing income and expenses for financial
reporting and income tax purposes, as summarized in Note 5.
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, all cash on hand,
demand deposits and federal funds sold are included in cash
and cash equivalents.
Reclassifications
Certain amounts in 1993 and 1994 have been reclassified to
conform with the 1995 presentation.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to
significant change relate to the determination of the reserve
for loan losses. While management uses available information
to recognize losses on loans and foreclosed real estate,
future additions to the reserves may be necessary based on
changes in local economic conditions. Therefore, it is
reasonably possible that the reserve for losses on loans may
change materially in the near term.
F-43
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes to Financial Statements
December 31, 1995, December 31, 1994 and December 31, 1993
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Values of Financial Instruments
Effective January 1, 1995, Statement of Financial Accounting
Standards No. 107, Disclosures about Fair Value of Financial
Instruments (SFAS 107), requires disclosure of fair value
information about financial instruments, whether or not
recognized in the statement of financial condition. In cases
where quoted market prices are not available, fair values are
based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate
settlement of the instruments. SFAS 107 excludes certain
financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value
of the Corporation.
The following methods and assumptions were used by the Bank in
estimating its fair value disclosures for financial
instruments:
Cash and Cash Equivalents and Interest-bearing Deposits: The
carrying amounts reported in the statements of financial
condition for cash and cash equivalents and interest-bearing
deposits approximate those assets' fair values.
Investment Securities (including mortgage-backed securities):
Fair values for investment securities are based on quoted
market prices, where available. Ifquoted market prices are not
available, fair values are based on quoted market prices of
comparable instruments. The fair value of Federal Reserve
stock and FHLB stock approximates the carrying value.
Loans: For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are
based on carrying amounts. The fair values for other loans
(for example, fixed rate commercial real estate and rental
property mortgage loans and commercial and industrial loans)
are estimated using discounted cash flow analysis, based on
interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Loan fair value
estimates include judgments regarding future expected loss
experience and risk characteristics. The carrying amount of
accrued interest receivable approximates it fair value.
F-44
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes to Financial Statements
December 31, 1995, December 31, 1994 and December 31, 1993
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Values of Financial Instruments (Continued)
Deposits: The fair values disclosed for demand deposits (for
example, interest-bearing checking accounts and passbook
accounts) are, by definition, equal to the amount payable on
demand at the reporting date (that is, their carrying
amounts). The fair values for certificates of deposit are
estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates
to a schedule of aggregated contractual maturities on such
time deposits. The carrying amount of accrued interest payable
approximates fair value.
Federal Funds Purchased, FHLB Advances and Other Short-term
Borrowings: The carrying amounts of these borrowings
approximate their fair values.
F-45
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes To Financial Statements
December 31, 1995, December 31, 1994 and December 31, 1993
NOTE 2. INVESTMENT SECURITIES
The amortized cost and approximate fair values of investment
securities as shown in the Statement of Financial Condition of
the Bank at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995
--------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ ------
<S> <C> <C> <C> <C>
Securities Available-
for-Sale:
Federal Agencies $ 150,560 $ 331 $ 150,891
Municipal Bonds 1,132,213 23,129 1,155,342
Mortgage-Backed Secur. 3,615,332 $ (52,968) 3,562,364
---------- ------- ---------- ----------
Total Available-for-Sale 4,898,105 23,460 (52,968) 4,868,597
Federal Reserve &
FHLB Stock 350,750 350,750
---------- ------- ---------- ----------
Total All Securities $5,248,855 $23,460 $ (52,968) $5,219,347
========== ======= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ ------
<S> <C> <C> <C> <C>
Securities Held-to-
Maturity:
Federal Agencies $1,465,002 $ (12,297) $1,452,705
Municipal Bonds 673,587 (69,693) 603,894
Mortgage-Backed Secur. 2,718,696 (195,829) 2,522,867
Total Held-to-Maturity 4,857,285 (277,819) 4,579,466
---------- ------- ---------- ----------
Securities Available-
for-Sale:
Municipal Bonds 425,048 $ 7,548 432,596
Mortgage-Backed Secur. 2,458,068 (127,857) 2,330,211
---------- ------- ---------- ----------
Total Available-for-Sale 2,883,116 7,548 (127,857) 2,762,807
---------- ------- ---------- ----------
Federal Reserve &
FHLB Stock 198,350 198,350
---------- ------- ---------- ----------
Total All Securities $7,938,751 $ 7,548 $ (405,676) $7,540,623
========== ======= ========== ==========
</TABLE>
F-46
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes to Financial Statements
December 31, 1995, December 31, 1994 and December 31, 1993
INVESTMENT SECURITIES (Continued)
The carrying amount of investment securities at December 31,
1995 and December 31, 1994 is:
1995 1994
---- ----
Securities Held-to-Maturity
(at Amortized Cost) $ 0 $4,857,285
Securities Available-for-Sale
(at Approximate Fair Value) 4,868,597 2,762,807
Federal Reserve & FHLB Stock
(at cost) 350,750 198,350
---------- ----------
Total Carrying Value $5,219,347 $7,818,442
========== ==========
Securities carried at $461,151 at December 31, 1995 and
$114,835 at December 31, 1994 were pledged to secure Treasury
Tax and Loan deposits. Securities carried at $1,238,015 at
December 31, 1995 and $370,000 at December 31, 1994 were
pledged to federal funds sold of $2,775,000 at December 31,
1995 and $675,000 at December 31, 1994. In addition, FHLB has
a blanket collateral agreement pledging the remaining
mortgaged-backed securities, not pledged elsewhere, against
the advances outstanding of $1,500,000.
The maturities of investment debt securities (all
available-for-sale) at December 31, 1995 were:
Carrying Fair
Amount Value
----------- -----------
Due from 1 to 5 Years $ 150,891 $ 150,891
Due from 5 to 10 Years 1,155,342 1,155,342
Mortgage-Backed Securities 3,562,364 3,562,364
----------- -----------
Total Investment Securities $ 4,868,597 $ 4,868,597
=========== ===========
During 1995, securities available-for-sale and
held-to-maturity were sold and/or called for proceeds of
$2,779,409 and $1,476,924, respectively, resulting in gross
realized gains of approximately $4,294 and gross realized
losses of approximately $348. Principal reduction was received
on mortgage-backed securities of $491,390.
During 1994, securities available-for-sale and
held-to-maturity were sold and/or called for proceeds of
$3,467,217 and $500,000, respectively, resulting in realized
gains of approximately $4,256 and gross realized losses of
approximately $75,243 on securities available-for-sale.
F-47
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes to Financial Statements
December 31, 1995, December 31, 1994 and December 31, 1993
NOTE 3. LOANS AND LOSS ALLOWANCE
Types of loans at December 31 (in thousands) are as follows:
1995 1994
---- ----
(Dollars in thousands)
Commercial & Industrial Loans $ 3,600 $ 3,841
Real Estate Loans (Includes $3,165
& $2,028 Secured by Farm Land) 26,449 17,366
Agricultural Production Financing
& Other Loans to Farmers 1,596 1,290
Individuals' Loans for Household
& Other Personal Expenditures 9,115 7,621
Other Loans 20 52
------- -------
Total Loans $40,780 $30,170
======= =======
Loan maturities and repricing information as of December 31,
1995 is presented below (in thousands):
<TABLE>
<CAPTION>
3 Months 3 Months Over
Or To 1 to Five
Less 12 Months 5 Years Years Total
-------- --------- ------- ----- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Fixed Rate Maturities $5,350 $16,752 $1,431 $ 0 $23,533
Floating Rate Repricing 3,407 4,454 8,419 967 17,247
------ ------- ------ ---- -------
Totals $8,757 $21,206 $9,850 $967 $40,780
====== ======= ====== ==== =======
</TABLE>
An analysis of the Allowance for Loan Losses for each year
follows (in thousands for 1993):
1995 1994 1993
---- ---- ----
Balances, January 1 $ 335,738 $358,853 $316
Provision for Loan Losses 104,000 17,000 50
Recoveries on Loans 54,999 49,148 63
Loans Charged Off (146,944) (89,263) (70)
--------- -------- ----
Balances, December 31 $ 347,793 $335,738 $359
========= ======== ====
As of December 31, 1995 there were no impaired loans or loans
upon which interest was not being accrued. Loans of
$11,876,372 at December 31, 1995 serve as collateral for FHLB
advances of $1,500,000.
F-48
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes to Financial Statements
December 31, 1995, December 31, 1994 and December 31, 1993
NOTE 4. PREMISES AND EQUIPMENT
1995 1994
---- ----
Cost at December 31:
Land $ 187,000 $ 187,000
Buildings & Land Improvements 1,003,754 687,748
Furniture, Fixtures,
Equipment & Vehicles 1,007,940 811,849
Leasehold Improvements 114,931 0
---------- ----------
Total Cost 2,313,625 1,686,597
Accumulated Depreciation (910,024) (796,541)
---------- ----------
Net, Premises and Equipment $1,403,601 $ 890,056
========== ==========
Total fixed asset purchases for 1995 and 1994, respectively,
were $641,004 and $149,523. Total depreciation expense for the
years 1995 and 1994 was $127,460 and $108,675, respectively.
NOTE 5. INCOME TAXES
The Bank adopted Statement of Financial Accounting Standards
No. 109 on January 1, 1994. Under this accounting standard,
future tax benefits, as well as expenses resulting from timing
differences between recognition for financial reporting and
tax reporting, are recorded as deferred tax assets and
liabilities. The cumulative effect of applying SFAS No. 109
was an increase in equity of $85,761, which was reported as
income in 1994.
The components of federal income tax expense for the years
ended December 31, 1995 and 1994 were as follows:
1995 1994
---- ----
Current Tax Expense $ 160,399 $ 86,138
Deferred Tax Expense 5,887 8,246
---------- ----------
Federal Income Tax Expense $ 166,286 $ 94,384
========== ==========
F-49
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes to Financial Statements
December 31, 1995, December 31, 1994 and December 31, 1993
INCOME TAXES (Continued)
The provision for federal income taxes differs from that
computed by applying federal statutory rates to income before
federal income tax expense, as indicated in the following
analysis for 1995 and 1994:
1995 1994
---- ----
Expected Tax Provision at
Statutory Rates $182,735 $122,973
Tax Effect of Exempt Income
and Nondeductible Expenses (16,449) (28,589)
-------- --------
Federal Income Tax Expenses $166,286 $ 94,384
======== ========
The components of state income tax expense for the years ended
December 31, 1995 and 1994 were as follows:
1995 1994
---- ----
Current Tax Expense $ 55,566 $ 28,706
Deferred Tax Expense 1,609 5,313
-------- --------
State Income Tax Expense $ 57,175 $ 34,019
======== ========
The provision for state income taxes differs from that
computed by applying state statutory rates to income before
federal and state income tax expense, as indicated in the
following analysis for 1995 and 1994:
1995 1994
---- ----
Income Tax at Statutory Rates $ 50,725 $ 31,176
Refund of Prior Years Tax Effect
of Exempt Income and
Nondeductible Expenses 6,450 2,843
-------- --------
State Income Tax Expense $ 57,175 $ 34,019
======== ========
The reconciliation of federal statutory to actual tax expense
for 1993, in thousands, is as follows:
Federal Statutory Income Tax $ 125
Net Operating Loss Carryforward (Benefit) (66)
------
Actual Tax Expense $ 59
======
F-50
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes to Financial Statements
December 31, 1995, December 31, 1994 and December 31, 1993
INCOME TAXES (Continued)
In 1989, as a result of an ownership change of 91% of the
corporate stock, for income tax purposes only, certain
limitations were imposed on the net operating loss carryforwards
available to the Bank for future use. At December 31, 1993, the
Bank had no remaining net operating loss carryforwards. Deferred
income tax assets and liabilities at December 31, 1995 and 1994
are as follows:
1995 1994
---- ----
Federal
Deferred Tax Assets:
Provision for Loan Loss $80,404 $ 76,309
Unrealized Losses on Available-
for-Sale Securities 8,617 37,428
------- --------
Total Federal Deferred Tax Assets 89,021 113,737
------- --------
Deferred Tax Liabilities:
Depreciation of Fixed Assets 30,224 19,693
Franchise Tax Deferred 7,482 8,029
------- --------
Total Federal Deferred Tax Liability 37,706 27,722
------- --------
Net Federal Deferred Tax Assets $51,315 $ 86,015
======= ========
State
Deferred Tax Assets:
Provision for Loan Loss $29,562 $ 28,538
Unrealized Losses on Available-
for-Sale Securities 2,508 10,226
------- --------
Total State Deferred Tax Assets 32,070 38,764
Deferred Tax Liabilities:
Depreciation of Fixed Assets 7,556 4,923
------- --------
Net State Deferred Tax Liabilities $24,514 $ 33,841
======= ========
NOTE 6. FEDERAL HOME LOAN BANK ADVANCES
The Bank entered into an agreement with the Federal Home Loan
Bank of Indianapolis on November 18, 1993 to borrow funds
against eligible collateral consisting of 1-4 family whole
mortgage loans, government and agency securities, private
mortgage-backed securities and Federal Home Loan Bank
Deposits. The Board of Directors has authorized the borrowing
of up to $5,000,000 under this agreement. There were
$1,500,000 of FHLB advances outstanding at December 31, 1995
at 6.62% interest rate, due April 9, 1996.
F-51
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes to Financial Statements
December 31, 1995, December 31, 1994 and December 31, 1993
NOTE 7. STOCKHOLDERS' EQUITY
The Bank has 150,000 shares of common stock authorized and
126,037 shares issued and outstanding at December 31, 1995.
The par value of the stock is $8/share.
Without prior approval of the Comptroller of the Currency, the
Bank is restricted by national banking laws as to the maximum
amount of dividends it can pay in any calendar year from the
Bank's retained net profits (as defined) for that year plus
the two preceding years. As a practical matter, the Bank
restricts dividends to a lesser amount because of the need to
maintain an adequate capital structure. There were no
dividends paid in 1995 or 1994.
The Bank is required to maintain minimum amounts of capital to
total "risk weighted" assets, as defined by banking
regulation. At December 31, 1995, the Bank is required to have
minimum Tier I and total capital ratios of 4.0% and 8.0%,
respectively. The Bank's actual ratios at that date were 6.2%
and 9.9%, respectively. The Bank's leverage ratio at December
31, 1995 was 6.2%.
NOTE 8. RELATED PARTIES
The Bank has entered into transactions with its directors and
officers. Such transactions were made in the ordinary course
of business on substantially the same terms and conditions,
including interest rates and collateral, as those prevailing
at the same time for comparable transactions with other
customers and did not, in the opinion of management, involve
more than normal credit risk or present other unfavorable
features. The aggregate amount of loans to such related
parties at December 31, 1995 and 1994 was $285,972 and
$441,062, respectively. During 1995, new loans to such related
parties amounted to $80,990 and repayments amounted to
$236,080. Related parties had $333,913 and $4,347,086 on
deposit with the Bank at December 31, 1995 and 1994,
respectively. In addition, during 1994, the Bank purchased
land from its majority stockholder for its expansion project
in Hanover at a price of $25,000.
NOTE 9. FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK
In order to effectively service its customers, the Bank
exposes itself to risk beyond the amount recorded on the
Statement of Financial Condition through issuance of loan
commitments. The Bank was exposed to additional credit loss to
the extent of the notional principal amount of commitments
outstanding at December 31, 1995. The Bank evaluates the
recipients of
F-52
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes to Financial Statements
December 31, 1995, December 31, 1994 and December 31, 1993
FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK (Continued)
commitments using the same criteria used to evaluate
recipients of loans recorded on the Statement of Financial
Condition. Commitments outstanding, including letters of
credit and unused lines of credit, totalled $2,955,725 at
December 31, 1995 and included a mix of unsecured amounts as
well as amounts secured by real estate, equipment, inventory
and accounts receivable.
The Bank is a Freddie Mac Approved Seller/Servicer and was
servicing 478 loans at December 31, 1995 with an outstanding
balance of $22,053,867. These loans have previously been sold
to FHLMC. The Bank receives 1/4% interest on all outstanding
balances as a servicing fee. The Bank originated and sold
$5,636,592 of loans during 1995 and received an average of 1%
loan origination fees for these loans. FHLMC has recourse
against Citizens National Bank for any losses it incurs in
collection of a problem loan if the Bank has not complied with
all loan origination requirements.
NOTE 10. CONCENTRATIONS OF CREDIT RISK
Citizens National Bank grants various types of loans to
individuals and businesses located, primarily, in Madison and
surrounding counties in both Indiana and Kentucky. Although
the Bank's customers have a somewhat diversified background,
they are dependent, to some extent, on local industrial
manufacturing companies and the agricultural sector of the
local economy for the ability to repay their loans.
NOTE 11. EMPLOYEE DEFINED CONTRIBUTION PLANS
The Bank employees are allowed to participate in the Citizens
National Bank of Madison 401K Plan if certain criteria are met
regarding length of service and full-time employment status.
The Bank has full discretion over contributions made by the
Bank. The employees may elect to participate in a deferred or
"CODA" arrangement. Under this arrangement, employees dedicate
part of their wages as pre-tax contributions to their
individual accounts. The Bank has elected to participate by
matching part of the employee contribution. Total
contributions made by the Bank in 1995, 1994 and 1993 were
$25,829, $25,833 and $12,133, respectively.
F-53
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes to Financial Statements
December 31, 1995, December 31, 1994 and December 31, 1993
NOTE 12. LEASE COMMITMENTS
The Bank occupies a branch location in downtown Madison under
a lease which has a term of twelve months from January 1, 1995
to December 31, 1995 with an option to renew the lease for an
additional year. The monthly leaseobligation was $475 for 1995
and $500 if renewed for 1996. The minimum lease commitment
under this lease is $6,000 for 1996. Total lease payments in
1995, 1994 and 1993 amounted to $5,700, $5,280 and $5,280,
respectively.
The Bank also leases an automobile. The lease was executed in
December 1995 for 24 months. Monthly lease payments are $690.
The minimum lease commitment for the next two years is $8,275
per year.
The Bank entered into a lease agreement on September 23, 1994
with Wal-Mart to operate a banking facility in the Wal-Mart
Supercenter located in Madison. The bank opened the facility
in January of 1995. The lease term is for five years and
provides for an option to renew the lease for two consecutive
five-year terms. The minimum lease payments are $2,111.25 per
month. A nonrefundable fee of $40,000 was paid upon execution
of this lease for the right to operate the facility. The fee
is being amortized over 15 years.
NOTE 13. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments
are as follows:
Net Carrying Fair Market
Value Value
----- -----
Financial Assets
Cash & Due from Banks $ 2,348,509 $ 2,348,509
Federal Funds Sold 2,775,000 2,775,000
Interest-bearing Deposits 1,702,862 1,702,862
Investment Securities 5,219,347 5,219,347
Loans 40,431,945 40,453,945
Accrued Interest Receivable 451,917 451,917
----------- -----------
Total Financial Assets $52,929,580 $52,951,580
=========== ===========
Financial Liabilities
Deposits $49,227,091 $49,264,091
FHLB Advances 1,500,000 1,500,000
Accrued Interest Payable 204,645 204,645
----------- -----------
Total Financial Liabilities $50,931,736 $50,968,736
=========== ===========
The carrying amounts in the preceding table are included in
the Statement of Financial Condition under the applicable
captions.
F-54
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes to Financial Statements
December 31, 1995, December 31, 1994 and December 31, 1993
NOTE 14. OWNERSHIP CHANGE
On December 29, 1995, management was informed that Madison
First Federal Savings and Loan Association, a mutual savings
thrift located in Madison, had reached an agreement to
purchase 95.5% of the Bank's stock from its major shareholder.
F-55
<PAGE>
Citizens National Bank of Madison
STATEMENT OF FINANCIAL CONDITION
March 31, 1996
(Unaudited)
(In thousands)
ASSETS
Cash and cash equivalents
Cash and due from banks $ 1,698
Federal funds sold 1,775
-------
Total cash and cash equivalents 3,473
Interest-bearing deposits 2,362
Investment securities:
Federal agencies 3,484
Municipal bonds 1,136
Mortgage-backed investments 3,429
Federal Reserve stock 80
Federal Home Loan Bank stock 271
-------
Total investment securities 8,400
Loans:
Loans, net of unearned interest 42,066
Less: allowance for loan losses 478
-------
Net loans 41,588
Premises and equipment, net 1,373
Accrued interest receivable 473
Deferred income tax asset 100
Other assets 286
-------
Total assets $58,055
=======
F-56
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand deposits $ 6,332
Savings and NOW accounts 18,282
Certificates of deposit over $100,000 5,972
Other time deposits 22,161
-------
Total deposits 52,747
Federal Home Loan Bank advances 1,500
Accrued interest payable 184
Other liabilities 179
-------
Total liabilities 54,610
STOCKHOLDERS' EQUITY
Common stock ($8 par value, 150,000 shares
authorized; 126,037 shares issued and outstanding) 1,008
Surplus 1,657
Undivided profits 831
Unrealized losses on investment securities
available for sale (51)
-------
Total stockholders' equity 3,445
-------
Total liabilities and stockholders' equity $58,055
=======
Three months ended
March 31,
------------------------------
1996 1995
---- ----
EARNINGS PER SHARE
Net income $ .17 $ .93
======== ========
Average shares outstanding 126,037 126,037
======== ========
The accompanying notes are an integral part of this statement.
F-57
<PAGE>
Citizens National Bank of Madison
STATEMENTS OF INCOME
(Unaudited)
(In thousands)
Three months ended
March 31,
----------------------------
1996 1995
---- ----
Interest income:
Interest and fees on loans $ 899 $666
Interest on investment securities:
Investment securities - taxable 7 11
Investment securities - nontaxable 14 17
------- ----
Total investment on investment securities 21 28
Interest on federal funds sold 57 6
Interest on mortgage-backed securities 57 84
Interest on deposits with banks and other 36 3
------- ----
Total interest income 1,070 787
Interest expense:
Interest of deposits 548 345
Interest on other borrowed funds 23 1
------- ----
Total interest expense 573 346
------- ----
Net interest income 497 441
Less: provision for loan losses 150 9
------- ----
Net interest income after provision for
loan losses 347 432
Other income:
Service charges on deposit accounts 81 69
Other service charges and fees 60 30
Gain on disposal of assets --- 4
Realized gains (losses) on investments) --- 3
Intangible tax refund --- 34
Other operating income 11 13
------- ----
Total other income 152 153
Other expenses:
Salaries and employee benefits 227 183
Premises and equipment expenses 76 59
Advertising 16 20
Business services 27 21
Office supplies and postage 27 21
FDIC and comptroller assessment 8 16
Amortization - dealer reserve cost 13 9
Other operating expenses 68 74
------- ----
Total other expenses 461 403
------- ----
Net income before income tax 38 182
Income tax:
Franchise tax 3 12
Federal income tax 13 53
------- ----
Total income tax 16 65
------- ----
NET INCOME $ 22 $117
======= ====
F-58
<PAGE>
Citizens National Bank of Madison
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three months ended
March 31,
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 22 $ 117
Adjustments to reconcile net
income to net cash
provided by operating expenses:
Provision for loan losses 150 9
Depreciation 31 24
Amortization - dealer reserve 13 9
Premium amortization on investments
(net of discount accretion) (3) (16)
Gain (loss) on sale of securities --- (3)
Gain on sale of fixed assets --- (4)
Changes in assets and liabilities:
Interest receivable (21) (34)
Interest payable (21) 7
Other assets and liabilities (189) (61)
Deferred tax assets (5) (3)
------- --------
Net cash provided by
operating activities (23) 45
Cash flows from investment activities:
Net change in interest-bearing deposits (659) ---
Net change in loans (1,259) (2,614)
Purchases of premises and equipment --- (166)
Proceeds from sale of fixed assets --- 4
Proceeds from sale/ maturity of securities
available for sale 113 1,772
Proceeds from maturity of securities
held to maturity --- ---
Purchase of securities available for sale (3,343) (1,326)
Purchase of securities held to maturity --- ---
------- --------
Net cash used in investing activities (5,148) (2,330)
Cash flows from financing activities:
Proceeds from Federal Home Loan Bank advances --- 200
Net change in noninterest-bearing deposits 8,593 (565)
Net change in interest-bearing deposits (5,072) 2,123
------- --------
Net cash provided by
financing activities 3,521 1,758
------- --------
Net increase (decrease) in cash
and cash equivalents (1,650) (527)
Cash and cash equivalents at
beginning of period 5,123 2,192
------- --------
Cash and cash equivalents at
end of period $ 3,473 $ 1,665
======= ========
Supplemental information:
Interest paid $ 594 $ 339
======= ========
Taxes paid $ 7 $ -
======= ========
Loans charged off $ 25 $ 18
======= ========
For 1995:
Sale of fixed asset (fully depreciated)
at original cost of $13,977) $ 4
========
The accompanying notes are an integral part of these statements.
F-59
<PAGE>
Citizens National Bank of Madison
NOTES TO FINANCIAL STATEMENTS
March 31, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Basis of Presentation
The accompanying unaudited financial statements were not prepared in accordance
with instructions for Form 10-QSB and, therefore, do not include information or
footnotes necessary for a complete presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. Accordingly, these financial statements should be read in
conjunction with the financial statements and notes thereto of Citizens National
Bank of Madison's annual audited financial statements for the year ended
December 31, 1995. However, all adjustments (consisting only of normal recurring
accruals) which, in the opinion of management, are necessary for a fair
presentation of the financial statements have been included. The results of
operations for the three month periods ended March 31, 1996 and 1995 are not
necessarily indicative of the results which may be expected for the entire year.
2. Effects of Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 entitled
"Accounting for Stock-Based Compensation". SFAS No. 123 establishes a fair value
based method of accounting for stock-based compensation paid to employees. SFAS
No. 123 recognizes the fair value of an award of stock or stock options on the
grant date. Citizens adopted this Statement on January 1, 1996, without material
effect on financial condition or results of operations.
3. Reclassifications
Certain reclassifications have been made to the March 31, 1995 consolidated
financial statements to conform to the March 31, 1996
presentation.
F-60
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representation other than as contained in this Prospectus and, if given or made,
such information or representation must not be relied upon as having been
authorized by the Holding Company or Madison First. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any security
other than the shares Common Stock offered hereby to any person in any
jurisdiction in which such offer or solicitation is not authorized, or in which
the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus nor any sale hereunder shall, under any
circumstances, create any implication that information herein is correct as of
any time subsequent to the date hereof.
TABLE OF CONTENTS
Page
Prospectus Summary..................................................... 5
Selected Consolidated Financial Data of
Madison First Federal Savings and Loan
Association and Subsidiaries........................................ 16
Selected Financial Data of Citizens National
Bank of Madison..................................................... 17
Risk Factors........................................................... 18
River Valley Bancorp................................................... 24
Madison First Federal Savings and Loan Association..................... 25
Citizens National Bank of Madison...................................... 26
The Acquisition........................................................ 26
Unaudited Pro Forma Condensed Combined
Financial Statements................................................ 28
Market Area............................................................ 33
Use of Proceeds........................................................ 33
Dividend Policy........................................................ 34
Market for the Common Stock............................................ 35
Competition............................................................ 35
Anticipated Management Purchases....................................... 37
Capitalization......................................................... 38
Pro Forma Data......................................................... 39
Management's Discussion and Analyis of
Financial Condition and Results of Operations of
Madison First Federal Savings and Loan Association.................. 43
Business of Madison First.............................................. 55
Management's Discussion and Analyis of
Financial Condition and Results of Operations of
Citizens National Bank of Madison................................... 73
Business of Citizens................................................... 83
Management of the Holding Company...................................... 98
Management of Madison First............................................ 98
Executive Compensation and Related Transactions
of Madison First.................................................... 100
Management of Citizens................................................. 106
Executive Compensation and Related
Transactions of Citizens............................................ 107
Regulation............................................................. 110
Taxation............................................................... 120
The Conversion......................................................... 122
Restrictions on Acquisition of the Holding Company..................... 134
Description of Capital Stock........................................... 139
Transfer Agent......................................................... 140
Registration Requirements.............................................. 140
Legal and Tax Matters.................................................. 140
Experts................................................................ 141
Additional Information................................................. 141
Index to Financial Statements.......................................... F-1
Until ________, 1996, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================
<PAGE>
================================================================================
Up to 1,035,000 Shares
River Valley
Bancorp
(Proposed Holding Company for
Madison First Federal Savings
and Loan Association and
Citizens National Bank of Madison)
----------
Common Stock
(without par value)
----------
SUBSCRIPTION AND DIRECT
COMMUNITY OFFERING
PROSPECTUS
Trident Securities, Inc.
, 1996
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution(1).
Blue Sky Legal Services and Registration Fees $ 20,000
OTS Filing Fees $ 8,400
NASD Filing Fee $ 1,691
Securities and Exchange Commission Registration Fee $ 4,104
NASDAQ Small Cap Market Listing Fee $ 6,191
Legal Services and Disbursements - Issuer's counsel $ 140,000
Auditing and Accounting Services $ 60,000
Appraisal fees and expenses $ 17,500
Business plan fees and expenses $ 5,000
Conversion agent fees and expenses $ 8,250
Printing costs $ 50,000
Postage and mailing $ 20,000
Commissions and other offering fees (2) $ 189,640
Expenses of Sales Agents
(Including Counsel Fees and Disbursements) $ 47,000
Advertising $ 10,000
Transfer agent fees $ 2,000
Other expenses $ 2,224
TOTAL (3) $ 592,000
(1) Costs represented by salaries and wages of regular employees and officers
of the Registrant are excluded.
(2) Assumes that the Common Stock is sold for $9,000,000, the midpoint of the
Estimated Valuation Range, that no shares of stock will be sold through
brokers, that all shares are sold in the Subscription Offering, and that
executive officers and directors of the Registrant and of Citizens National
Bank of Madison and their Associates and the River Valley Bancorp Employee
Stock Ownership Plan acquire 176,800 shares.
(3) All the above items, except the Registration, OTS and NASD Filing Fees, are
estimated.
Item 14. Indemnification of Directors and Officers.
Section 21 of the Indiana Business Corporation Law, as amended (the "BCL"),
grants to each corporation broad powers to indemnify directors, officers,
employees or agents against expenses incurred in certain proceedings if the
conduct in question was found to be in good faith and was reasonably believed to
be in the corporation's best interests. This statute provides, however, that
this indemnification should not be deemed exclusive of any other indemnification
rights provided by the articles of incorporation, by-laws, resolution or other
authorization adopted by a majority vote of the voting shares then issued and
outstanding. Section 10.05 and Article 13 of the Articles of Incorporation of
the Registrant state as follows:
Section 10.05. Limitation of Liability and Reliance on Corporate Records
and Other Information.
Clause 10.051. General Limitation. No Director, member of any committee
of the Board of Directors, or of another committee appointed by the Board,
Officer, employee or agent of the Corporation ("Corporate Person") shall be
liable for any loss or damage if, in taking or omitting to take any action
causing such loss or damage, either (1) such Corporate Person acted (A) in
good faith, (B) with the care an ordinarily prudent person in a like
position would have exercised under similar circumstances, and (C) in a
manner such Corporate Person reasonably believed was in the best interests
of the Corporation, or (2) such Corporate Person's breach of or failure to
act in accordance with the standards of conduct set forth in Clause
10.051(1) above (the "Standards of Conduct") did not constitute willful
misconduct or recklessness.
S-1
<PAGE>
Clause 10.052. Reliance on Corporate Records and Other Information. Any
"Corporate Person" shall be fully protected, and shall be deemed to have
complied with the Standards of Conduct, in relying in good faith, with
respect to any information contained therein, upon (1) the Corporate
Records, or (2) information, opinions, reports or statements (including
financial statements and other financial data) prepared or presented by (A)
one or more other Corporate Persons whom such Corporate Person reasonably
believes to be competent in the matters presented, (B) legal counsel,
public accountants or other persons as to matters that such Corporate
Person reasonably believes are within such person's professional or expert
competence, (C) a committee of the Board of Directors or other committee
appointed by the Board of Directors, of which such Corporate Person is not
a member, if such Corporate Person reasonably believes such committee of
the Board of Directors or such appointed committee merits confidence, or
(D) the Board of Directors, if such Corporate Person is not a Director and
reasonably believes that the Board merits confidence.
ARTICLE 13
Indemnification
Section 13.01. General. The Corporation shall, to the fullest extent to
which it is empowered to do so by the Act, or any other applicable laws, as
from time to time in effect, indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, by reason of the fact that he
is or was a Director, Officer, employee or agent of the Corporation, or
who, while serving as such Director, Officer, employee or agent of the
Corporation, is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, whether for profit or not, against expenses (including
counsel fees), judgments, settlements, penalties and fines (including
excise taxes assessed with respect to employee benefit plans) actually or
reasonably incurred by him in accordance with such action, suit or
proceeding, if he acted in good faith and in a manner he reasonably
believed, in the case of conduct in his official capacity, was in the best
interest of the Corporation, and in all other cases, was not opposed to the
best interests of the Corporation, and, with respect to any criminal action
or proceeding, he either had reasonable cause to believe his conduct was
lawful or no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not meet the prescribed standard of conduct.
Section 13.02. Authorization of Indemnification. To the extent that a
Director, Officer, employee or agent of the Corporation has been
successful, on the merits or otherwise, in the defense of any action, suit
or proceeding referred to in Section 13.01 of this Article, or in the
defense of any claim, issue or matter therein, the Corporation shall
indemnify such person against expenses (including counsel fees) actually
and reasonably incurred by such person in connection therewith. Any other
indemnification under Section 13.01 of this Article (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific
case, upon a determination that indemnification of the Director, Officer,
employee or agent is permissible in the circumstances because he has met
the applicable standard of conduct. Such determination shall be made (1) by
the Board of Directors by a majority vote of a quorum consisting of
Directors who were not at the time parties to such action, suit or
proceeding; or (2) if a quorum cannot be obtained under subdivision (1), by
a majority vote of a committee duly designated by the Board of Directors
(in which designation Directors who are parties may participate),
consisting solely of two or more Directors not at the time parties to such
action, suit or proceeding; or (3) by special legal counsel: (A) selected
by the Board of Directors or its committee in the manner prescribed in
subdivision (1) or (2), or (B) if a quorum of the Board of Directors cannot
be obtained under subdivision (1) and a committee cannot be designated
under subdivision (2), selected by a majority vote of the full Board of
Directors (in which selection Directors who are parties may participate);
or (4) by the Shareholders, but shares owned by or voted under the control
of Directors who are at the time parties to such action, suit or proceeding
may not be voted on the determination.
S-2
<PAGE>
Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as
to reasonableness of expenses shall be made by those entitled under
subsection (3) to select counsel.
Section 13.03. Good Faith Defined. For purposes of any determination
under Section 13.01 of this Article 13, a person shall be deemed to have
acted in good faith and to have otherwise met the applicable standard of
conduct set forth in Section 13.01 if his action is based on information,
opinions, reports, or statements, including financial statements and other
financial data, if prepared or presented by (1) one or more Officers or
employees of the Corporation or another enterprise whom he reasonably
believes to be reliable and competent in the matters presented; (2) legal
counsel, public accountants, appraisers or other persons as to matters he
reasonably believes are within the person's professional or expert
competence; or (3) a committee of the Board of Directors of the Corporation
or another enterprise of which the person is not a member if he reasonably
believes the committee merits confidence. The term "another enterprise" as
used in this Section 13.03 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other
enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent.
The provisions of this Section 13.03 shall not be deemed to be exclusive or
to limit in any way the circumstances in which a person may be deemed to
have met the applicable standards of conduct set forth in Section 13.01 of
this Article 13.
Section 13.04. Payment of Expenses in Advance. Expenses incurred in
connection with any civil or criminal action, suit or proceeding may be
paid for or reimbursed by the Corporation in advance of the final
disposition of such action, suit or proceeding, as authorized in the
specific case in the same manner described in Section 13.02 of this
Article, upon receipt of a written affirmation of the Director, Officer,
employee or agent's good faith belief that he has met the standard of
conduct described in Section 13.01 of this Article and upon receipt of a
written undertaking by or on behalf of the Director, Officer, employee or
agent to repay such amount if it shall ultimately be determined that he did
not meet the standard of conduct set forth in this Article 13, and a
determination is made that the facts then known to those making the
determination would not preclude indemnification under this Article13.
Section 13.05. Provisions Not Exclusive. The indemnification provided
by this Article shall not be deemed exclusive of any other rights to which
a person seeking indemnification may be entitled under these Articles of
Incorporation, the Corporation's Code of By-Laws, any resolution of the
Board of Directors or Shareholders, any other authorization, whenever
adopted, after notice, by a majority vote of all Voting Stock then
outstanding, or any contract, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a Director, Officer, employee
or agent, and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 13.06. Vested Right to Indemnification. The right of any
individual to indemnification under this Article shall vest at the time of
occurrence or performance of any event, act or omission giving rise to any
action, suit or proceeding of the nature referred to in Section 13.01 of
this Article 13 and, once vested, shall not later be impaired as a result
of any amendment, repeal, alteration or other modification of any or all of
these provisions. Notwithstanding the foregoing, the indemnification
afforded under this Article shall be applicable to all alleged prior acts
or omissions of any individual seeking indemnification hereunder,
regardless of the fact that such alleged acts or omissions may have
occurred prior to the adoption of this Article. To the extent such prior
acts or omissions cannot be deemed to be covered by this Article 13, the
right of any individual to indemnification shall be governed by the
indemnification provisions in effect at the time of such prior acts or
omissions.
S-3
<PAGE>
Section 13.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, Officer,
employee or agent of the Corporation, or who is or was serving at the
request of the Corporation as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against any liability
asserted against or incurred by the individual in that capacity or arising
from the individual's status as a Director, Officer, employee or agent,
whether or not the Corporation would have power to indemnify the individual
against the same liability under this Article.
Section 13.08. Additional Definitions. For purposes of this Article,
references to "the Corporation" shall include any domestic or foreign
predecessor entity of the Corporation in a merger or other transaction in
which the predecessor's existence ceased upon consummation of the
transaction.
For purposes of this Article, serving an employee benefit plan at the
request of the Corporation shall include any service as a Director,
Officer, employee or agent of the Corporation which imposes duties on, or
involves services by such Director, Officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries. A
person who acted in good faith and in a manner he reasonably believed to be
in the best interests of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the
best interest of the Corporation" referred to in this Article.
For purposes of this Article, "party" includes any individual who is or
was a plaintiff, defendant or respondent in any action, suit or proceeding,
or who is threatened to be made a named defendant or respondent in any
action, suit or proceeding.
For purposes of this Article, "official capacity," when used with
respect to a Director, shall mean the office of director of the
Corporation; and when used with respect to an individual other than a
Director, shall mean the office in the Corporation held by the Officer or
the employment or agency relationship undertaken by the employee or agent
on behalf of the Corporation. "Official capacity" does not include service
for any other foreign or domestic corporation or any partnership, joint
venture, trust, employee benefit plan, or other enterprise, whether for
profit or not.
Section 13.09. Payments a Business Expense. Any payments made to any
indemnified party under this Article under any other right to
indemnification shall be deemed to be an ordinary and necessary business
expense of the Corporation, and payment thereof shall not subject any
person responsible for the payment, or the Board of Directors, to any
action for corporate waste or to any similar action.
Under the Act, an Indiana corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
enterprise, against any liability asserted against him or incurred by him
in any such capacity, or arising out of his status as such, whether or not
the corporation would have the power to indemnify him against such
liability under the provisions of the Act. The Registrant has purchased
insurance designed to protect and indemnify the Registrant and its officers
and directors in case they are required to pay any amounts arising from
certain claims, including claims under the Securities Act of 1933, which
might be made against the officers and directors by reason of any actual or
alleged act, error, omission, misstatement, misleading statement, neglect,
or breach of duty while acting in their respective capacities as officers
or directors of the Registrant.
S-4
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
Because the Registrant was only recently incorporated to act as a holding
company upon the completion of the offering registered by means of this
Registration Statement, the Registrant has not yet issued any shares of its
capital stock or other securities.
Item 16. Exhibits and Financial Statement Schedules.
(a) The exhibits furnished with this Registration Statement are listed
beginning on page E-l.
(b) No financial statement schedules are required.
Item 17. Undertakings.
(1) The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table on the effective registration
statement; and
(iii)To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(b) 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.
(c) 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.
(2) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as
required by the underwriter to permit prompt delivery to each
purchaser.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of an action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
S-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Madison, State of
Indiana, on May ___, 1996.
RIVER VALLEY BANCORP
By /s/ James E. Fritz
-------------------------------------
James E. Fritz
President and Chief Executive Officer
Each person whose signature appears below hereby authorizes James E. Fritz
and John Wayne Deveary, and each of them, to file one or more amendments
(including post-effective amendments) to the registration statement, which
amendments may make such changes in the registration statement as either of them
deem appropriate, and each such person hereby appoints James E. Fritz and John
Wayne Deveary, and each of them, as attorney-in-fact to execute in the name and
on the behalf of each person individually, and in each capacity stated below,
any such amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
- --------------------------------------------------------------------------------
(1) Principal Executive Officer:
/s/ James E. Fritz
------------------------- )
James E. Fritz President and )
Chief Executive Officer )
)
)
(2) Principal Financial and )
Accounting Officer: )
)
/s/ John Wayne Deveary )
------------------------- )
John Wayne Deveary Treasurer )
)
) May 31, 1996
)
(3) The Board of Directors: )
)
/s/ Robert W. Anger )
------------------------- )
Robert W. Anger Director )
)
)
/s/ Cecil L. Dorten )
------------------------- )
Cecil L. Dorten Director )
)
)
/s/ James E. Fritz )
------------------------- )
James E. Fritz Director )
)
)
S-6
<PAGE>
/s/ Michael J. Hensley )
------------------------- )
Michael J. Hensley Director )
)
)
/s/ Earl W. Johann )
------------------------- ) May 31, 1996
Earl W. Johann Director )
)
)
/s/ Fred W. Koehler )
------------------------- )
Fred W. Koehler Director )
)
S-7
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
1 Form of Agency Agreement to be entered
into among Registrant, Madison First
Federal Savings and Loan Association,
and Trident Securities, Inc.
2 Plan of Conversion
3 (1) Registrant's Articles of Incorporation
(2) Registrant's Code of By-Laws
4 Form of Stock Certificate
5 Opinion of Barnes & Thornburg re legality of
securities being registered
8 (1) Opinion of Barnes & Thornburg re tax matters
(2) Opinion of Keller & Company, Inc. re economic
value of Subscription Rights
10 (1) Letter Agreements entered into between Registrant
and Keller & Company, Inc.
relating to appraisal and business plan
(2) River Valley Bancorp Stock Option Plan
(3) River Valley Bancorp Recognition and
Retention Plan and Trust
(4) River Valley Bancorp Employee Stock Ownership
Plan and Trust Agreement
(5) Employment Agreement between Madison First Federal
Savings and Loan Association and James E. Fritz
(6) Proposed Employment Agreement between Citizens
National Bank of Madison and Robert D. Hoban
(7) Existing Employment Agreement between Citizens
National Bank of Madison and Robert D. Hoban
(8) Director Deferred Compensation Master Agreement
(9) Director Deferred Compensation Joinder
Agreement -- Jerry D. Allen
(10) Director Deferred Compensation Joinder
Agreement -- Robert W. Anger
(11) Director Deferred Compensation Joinder
Agreement -- Cecil L. Dorten
(12) Director Deferred Compensation Joinder
Agreement -- Earl W. Johann
(13) Director Deferred Compensation Joinder
Agreement -- Frederick W. Koehler
(14) Director Deferred Compensation Joinder
Agreement -- James E. Fritz
(15) Director Deferred Compensation Joinder
Agreement -- Michael Hensley
(16) Special Termination Agreement between Madison
First Federal Savings and Loan
Association and Traci A. Bridgford
(17) Special Termination Agreement between Madison
First Federal Savings and Loan
Association and John Wayne Deveary
(18) Special Termination Agreement between Madison
First Federal Savings and Loan
Association and Robert W. Anger.
(19) Special Termination Agreement between Citizens
National Bank of Madison and Carolyn Flowers
(20) Special Termination Agreement between Citizens
National Bank of Madison and Larry Fouse
(21) Special Termination Agreement between Citizens
National Bank of Madison and Mark Goley
(22) Exempt Loan and Share Purchase Agreement between
Trust under River Valley Bancorp Employee Stock
Ownership Plan and Trust Agreement and
River Valley Bancorp
(23) Amended and Restated Stock Purchase Agreement
between Eloise A. Durocher and Madison First
Federal Savings and Loan Association dated as
of March 4, 1996
21 Subsidiaries of the Registrant
E-1
<PAGE>
23(1) Consent of Keller & Company, Inc.
(2) Consent of Grant Thornton LLP
(3) Consent of Sherman, Barber & Mullikan
(4) Consent of Alexander X. Kuhn & Co.
(5) Consent of Barnes & Thornburg
(included in Exhibit 5)
24 Power of Attorney included on page S-6 of the
Registration Statement
99(1) Appraisal Report of Keller & Company, Inc.*
(2) Stock Order Form
*To be filed by amendment
E-2
EXHIBIT 1
RIVER VALLEY BANCORP
765,000 to 1,035,000 Shares
of
COMMON STOCK
(without par value)
Subscription Price $10.00 Per Share
SALES AGENCY AGREEMENT
_________, 1996
Trident Securities, Inc.
Suite 400
4601 Six Forks Road
Raleigh, North Carolina 27609
Gentlemen:
River Valley Bancorp, a corporation formed under the laws of Indiana
(hereinafter referred to as the "Company"), and Madison First Federal Savings
and Loan Association, a federal savings and loan association formed under the
laws of the United States (hereinafter referred to as the "Association"), hereby
confirm their respective agreements with Trident Securities, Inc., a corporation
formed under the laws of North Carolina (hereinafter referred to as "Trident"),
as follows:
1. The Offering. The Company was incorporated on May 22, 1996, for the
purpose of serving as a savings and loan holding company and a bank holding
company which will own of record all of the shares of common stock to be issued
by the Association in the conversion of the Association from the mutual form to
the capital stock form of organization (hereinafter referred to as the
"Conversion") pursuant to a Plan of Conversion adopted by the Board of Directors
of the Association on March 5, 1996 (hereinafter referred to as the "Plan of
Conversion"), and in accordance with the regulations of the Office of Thrift
Supervision (hereinafter referred to as the "OTS"). As set forth in the Plan of
Conversion, the Company intends to conduct a subscription offering in which a
minimum of 765,000 and a maximum of 1,035,000 shares (subject to a possible
increase to 1,190,250 shares) of common stock of the Company, without par value
(hereinafter referred to as the "Shares"), will be offered to certain eligible
subscribers at a purchase price of $10.00 per Share (hereinafter referred to as
the "Subscription Offering") in accordance with the terms and subject to the
conditions of the Plan of Conversion and the Prospectus (hereinafter defined).
Simultaneously with the Subscription Offering, the Company intends to offer the
Shares to the public in a direct community offering (hereinafter referred to as
the "Community Offering").
<PAGE>
In a transaction which is currently expected to occur simultaneously with
the consummation of the Conversion, the Company will acquire 120,429 shares of
common stock, $8.00 par value per share, of Citizens National Bank of Madison
("Citizens"), a national banking association (the "Citizens Shares"), which
constitute 95.6% of Citizens' issued and outstanding capital stock, pursuant to
the terms of an Amended and Restated Stock Purchase Agreement dated March 4,
1996 ("Purchase Agreement"). The Company's acquisition of the Citizens Shares
pursuant to the Purchase Agreement is hereinafter referred to as the
"Acquisition." Upon consummation of the Acquisition, the Company will own of
record the Citizens Shares and will act as the bank holding company of Citizens.
The Association and Citizens are hereinafter referred to as the
"Institutions."
The Company has been advised by Trident that Trident will utilize its best
efforts to assist the Company and the Association in the completion of the
Conversion and to assist the Company and the Association with the sale of the
Shares in the Subscription Offering and in the Community Offering. Trident is a
registered selling agent in the jurisdictions listed on Exhibit A hereto. At the
time of the execution of this Sales Agency Agreement (hereinafter referred to as
this "Agreement"), the Company delivered to Trident the Prospectus for use in
the Subscription Offering and in the Community Offering. The Prospectus contains
information with respect to the Company, the Association and the Shares.
2. Representations and Warranties. The Company and the Association, jointly
and severally, represent and warrant to Trident that:
(a) The Company has filed with the Securities and Exchange
Commission (hereinafter referred to as the "Commission") a Registration
Statement on Form S-1 (Registration No. ________) and an amendment or
amendments thereto, in respect of the registration of the Shares under
the Securities Act of 1933, as amended (hereinafter referred to as the
"Act"). The Registration Statement complies in all material respects
with the Act and the Regulations (as hereinafter defined). The
Registration Statement became effective under the Act on
_______________, and no stop order has been issued with respect thereto
and no proceedings therefor have been initiated or, to the knowledge of
the Company, threatened by the Commission. Except as the context may
otherwise require, such Registration Statement, as amended, on file
with the Commission at the time the Registration Statement became
effective, including the Prospectus, financial statements, schedules,
exhibits and all other documents filed as part thereof, is herein
referred to as the "Registration Statement" and the Prospectus on file
with the Commission at the time the Registration Statement became
effective is herein referred to as the "Prospectus"; provided, however,
that if the prospectus filed by the Company with the Commission
pursuant to Rule 424(b) of the rules and regulations of the Commission
promulgated under the Act (herein referred to as the "Regulations")
differs from the form of Prospectus on file at the time the
Registration Statement became effective, the term "Prospectus" shall
refer to the Rule 424(b) prospectus from and after the time such
prospectus is filed with or mailed for filing to the Commission and
shall
2
<PAGE>
include any amendments or supplements thereto from and after their
dates of effectiveness or use, respectively.
(b) The Association has filed with the OTS an Application for
Approval of Conversion on Form AC, including exhibits and amendments
and/or supplements thereto (hereinafter referred to as the "Form AC").
The Form AC complies in all material respects with the rules and
regulations of the OTS. The Form AC has been approved by the OTS and
such approval is in full force and effect. The Proxy Statement, which
is included in the Form AC as Form PS, and the Prospectus, which is
included in the Form AC as Form OC, have been approved for use by the
OTS and such approval is in full force and effect. No order has been
issued by the OTS preventing or suspending the use of such Proxy
Statement or the Prospectus. No action by or before the OTS revoking
such approvals or orders of effectiveness is pending or, to the
knowledge of the Association, threatened.
(c) The Company has filed with the OTS an Application on Form
H-(e)1-S, including exhibits and amendments and/or supplements thereto
(hereinafter referred to as the "Form H-(e)1-S"), for approval of the
acquisition of the common stock to be issued by the Association in
connection with the Conversion. The Form H-(e)1-S complies in all
material respects with the rules and regulations of the OTS. On the
Closing Date (hereinafter defined), the Form H-(e)1-S and the
acquisition by the Company of all of the common stock of the
Association to be issued by the Association in connection with the
Conversion will each have received the approval of the OTS.
(d) The Company has filed with the Board of Governors of the
Federal Reserve Board ("FRB") an Application To Form Holding Company on
Form FR Y-3, including exhibits and amendments and/or supplements
thereto (hereinafter referred to as the "Form FR Y-3"), to become a
bank holding company and for approval of the acquisition of the
Citizens Shares pursuant to the Purchase Agreement. The Form FR Y-3
complies in all material respects with the Bank Holding Company Act
("BHCA"), the rules and regulations promulgated thereunder or any other
applicable rules or regulations of the FRB. On the Closing Date
(hereinafter defined), the Form FR Y-3 and the acquisition by the
Company of the Citizens Shares pursuant to the Purchase Agreement will
each have received the approval of the FRB. No action by or before the
FRB revoking such approvals or orders of effectiveness is pending or,
to the knowledge of the Company, threatened.
(e) As of the effective date, the Registration Statement (as
amended or supplemented, if amended or supplemented) did not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of the date of the Prospectus, the Prospectus (as
amended or supplemented, if amended or supplemented) did not contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary
3
<PAGE>
to make the statements therein, in the light of the circumstances under
which they were made, not misleading. Representations or warranties in
this subparagraph (e) shall not apply to statements or omissions which
relate to Trident and which were made in reliance upon and in
conformity with written information furnished to the Company or the
Association by or on behalf of Trident expressly for use in the
Registration Statement and/or the Prospectus.
(f) The Company is a corporation duly organized and validly
existing under the laws of the State of Indiana with full power and
authority to own its properties and conduct its business as set forth
in the Prospectus. The Company has all necessary corporate power and
authority to enter into this Agreement, to perform all of its
obligations hereunder and to consummate the transactions contemplated
hereby. The Company has obtained all licenses, permits and other
governmental authorizations currently required for the conduct of its
business, all of which are in full force and effect, and the Company is
in all material respects complying therewith.
(g) The Association is a mutual savings association duly
organized, validly existing and in good standing under the laws of the
United States with full power and authority to own its properties and
conduct its business as set forth in the Prospectus and is a member in
good standing of the Federal Home Loan Bank of Indianapolis. The
Association has all necessary corporate power and authority to enter
into this Agreement, to perform all of its obligations hereunder and to
consummate the transactions contemplated hereby. The deposit accounts
of the Association are insured up to applicable limits by the Federal
Deposit Insurance Corporation (hereinafter referred to as the "FDIC").
The Association has obtained all licenses, permits and other
governmental authorizations currently required for the conduct of its
business, all of which are in full force and effect, and the
Association is in all material respects complying therewith.
(h) The Plan of Conversion has been adopted by the Boards of
Directors of the Association and the Company and, before the Closing
Date, will be adopted by the members of the Association. As of the date
of this Agreement, no person has sought to obtain review of the final
action of (i) the OTS in approving the Plan of Conversion, the
Conversion or the Form H-(e)1-S pursuant to the Home Owners' Loan Act
("HOLA"), as amended, or any other statute or regulation or (ii) the
FRB in approving the Company's application to acquire the Citizens
Shares or the Form FR Y-3 pursuant to the BHCA or any other applicable
rule or regulation.
(i) Upon the effectiveness of the amendment of the
Association's Charter and Bylaws in accordance with the rules and
regulations of the OTS, and the completion of the sale by the Company
of the Shares as contemplated by the Prospectus and the Plan of
Conversion, (i) the Association will be converted pursuant to the Plan
of Conversion to a capital stock savings and loan association duly
organized, validly existing and in good standing under the laws of the
United States with full power and authority to own
4
<PAGE>
its property and conduct its business as described in the Prospectus;
(ii) all of the outstanding capital stock of the Association will be
owned of record and beneficially by the Company, free and clear of all
liens, charges, encumbrances or restrictions, and (iii) the Company
will have no directly-owned wholly-owned subsidiaries other than the
Association (and Citizens, if the Acquisition closes on the date of
consummation of the Conversion) and will own no equity securities in
any entity or business enterprise other than the shares of the
Association, the Citizens Shares and the shares of the Subsidiaries (as
hereinafter defined) or as otherwise disclosed in the Prospectus.
(j) Each of the Company and the Association is duly qualified
and in good standing as a foreign corporation in all jurisdictions in
which the conduct of its business requires such qualification or, if
not so qualified and in good standing, failure to so qualify would not
have any material adverse effect on either the Company or the
Association.
(k) The Subsidiaries (as hereinafter defined) are the
wholly-owned direct or indirect subsidiaries of the Association. The
Subsidiaries have been duly organized and are validly existing and in
good standing under the laws of the State of Indiana with full power
and authority to own their properties and conduct their businesses as
described in the Prospectus, and the Subsidiaries are not required to
be qualified to do business as foreign corporations in any jurisdiction
where non-qualification would have a material adverse effect on the
Association, the Subsidiaries and the Company taken as a whole. Each of
the Subsidiaries hold all material licenses, certificates and permits
from governmental authorities necessary for the conduct of its business
as described in the Prospectus, and all such licenses, certificates and
permits are in full force and effect and the Subsidiaries are in all
material respects complying therewith. All of the outstanding stock of
the Subsidiaries has been duly authorized and is fully paid and
nonassessable, and such stock is owned directly or indirectly by the
Association free and clear of any liens or encumbrances. The activities
of the Subsidiaries are permitted to subsidiaries of a federally
chartered savings association by virtue of the applicable rules and
regulations of the OTS and Indiana law (except as to such specific
exceptions as may have been granted by any of such agencies); provided,
however, that the operations of the Subsidiaries may require
divestiture as a result of the Holding Company's acquisition of the
Citizens Shares. The Subsidiaries have good and marketable title to all
assets material to their businesses and to those assets described in
the Prospectus, if any, free and clear of all material liens, charges,
encumbrances or restrictions.
(l) Each of the Company and the Association has good,
marketable and insurable title to all assets material to their
respective businesses and to those assets described in the Prospectus
as owned by the Company or the Association, free and clear of all
material liens, charges, encumbrances or restrictions, except as set
forth in the Prospectus. All of the leases and subleases material to
the business of the Company and the Association under which any one of
them holds properties, including those set forth in the Prospectus, are
in full force and effect as described therein.
5
<PAGE>
(m) This Agreement has been duly and validly authorized,
executed and delivered by each of the Company and the Association and
constitutes the valid and legally binding obligation of each of the
Company and the Association, enforceable against each of them in
accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium, receivership, conservatorship
or other laws affecting creditors' rights generally and as may be
limited by the exercise of judicial discretion in applying principles
of equity and except as the obligations of the Company and the
Association under the indemnification and contribution provisions of
Sections 7 and 8 hereof may be unenforceable or against public policy.
(n) The Conversion will constitute a tax free reorganization
under the Internal Revenue Code of 1986, as amended, and will not be a
taxable transaction under the laws of Indiana to the Association or to
persons receiving subscription rights in accordance with the Plan of
Conversion. The Association and Trident have received the opinion of
Barnes & Thornburg, special counsel to the Association, with respect to
the federal and Indiana state tax consequences of the Conversion, a
copy of which is included as Exhibit 8(1) to the Registration
Statement. The facts relied upon by such counsel as set forth in such
opinion are accurate and complete as of the date of such opinion.
(o) Each of the Company and the Association has all such
power, authority, authorizations, approvals and orders as may be
required to enter into this Agreement and to carry out the terms and
conditions hereof. Without limiting the generality of the foregoing
sentence, the Company has the power, authority, authorizations,
approvals and orders to issue and sell the Shares to be sold by the
Company in accordance with this Agreement and the Association has the
power, authority, authorizations, approvals and orders to issue and
sell the shares of its capital stock to the Company as provided in the
Plan of Conversion, subject to the issuance to the Association of an
amended Charter in the form required for a federal stock savings and
loan association (hereinafter referred to as the "Stock Charter"). The
form of the Stock Charter has been approved by the OTS.
(p) Each of the Company and the Association has all such
power, authority, authorizations, approvals and orders as may be
required to enter into the Purchase Agreement and to carry out the
terms and conditions thereof. Without limiting the generality of the
foregoing sentence, the Company and the Association have the power,
authority, authorizations, approvals and orders to acquire the Citizens
Shares in accordance with the Purchase Agreement and the Company has
the power, authority, authorizations, approvals and orders to become
the bank holding company for Citizens as provided in the Form FR Y-3.
The obligations of the Purchase Agreement constitute a valid and
legally binding obligation of each of the Company and the Association,
enforceable against each of them in accordance with its terms, except
as may be limited by bankruptcy, insolvency, reorganization,
moratorium, receivership, conservatorship or other laws affecting
creditors' rights generally and as may be limited by the exercise of
judicial discretion in applying principles of equity.
6
<PAGE>
(q) Neither the Company nor the Association is in violation of
any rule or regulation of the Commission, the OTS or the FDIC which
might materially and adversely affect the condition (financial or
otherwise), operations, businesses, assets or properties of the Company
or the Association. The Association is not subject to any directive
from the OTS or the FDIC (or their predecessors) to make any change in
the method of conducting its business or affairs and has conducted its
business in material compliance with all applicable statutes and
regulations (including, without limitation, all regulations, decisions,
directives and order of the FHLB of Indianapolis, the OTS and the FDIC,
or their predecessors). Except as set forth in the Prospectus, there is
not pending or, to the knowledge of the Company or the Association,
threatened any litigation, charge, investigation, action, suit or
proceeding before or by any court, regulatory authority or governmental
agency or body which, individually or in the aggregate, might affect
the performance of the terms and conditions of this Agreement or the
consummation of the transactions contemplated hereby or which,
individually or in the aggregate, might result in any material adverse
change in the condition (financial or otherwise), business, prospects
or results of operations of the Company or the Institutions considered
as one enterprise.
(r) The financial statements of the Association which are
included in the Registration Statement and are part of the Prospectus
fairly present the statements of financial condition, statements of
income, statements of changes in equity capital and statements of cash
flows of the Association and its wholly-owned subsidiaries, Madison
First Service Corporation and McCauley Insurance Agency, Inc.
("Subsidiaries") at the respective dates thereof and for the respective
periods covered thereby and comply in all material respects with the
applicable accounting requirements of the Commission and the OTS. Such
financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the
periods involved, except as specifically noted in such financial
statements, and are true, complete and correct and fairly present the
financial position of the Association. The tabular information in the
Prospectus accurately presents the information purported to be shown
thereby at the respective dates and for the respective periods covered
thereby.
(s) There has been no material adverse change in the condition
(financial or otherwise) of the Company or the Association or in the
assets, properties, operations, earnings or business prospects of the
Company or the Association since the latest date as of which such
condition is set forth in the Prospectus, except as referred to
therein. The capitalization, assets, properties and business of each of
the Company and the Association conform in all material respects to the
descriptions thereof contained in the Prospectus as of the date
specified and, since such date, there has been no material adverse
change in either the condition (financial or otherwise) of the Company
or the Association or in the assets, properties, operations, earnings
or business prospects of the Company or the Association, except as
referred to therein. Neither the Company nor the Association has any
material contingent liabilities of any kind, except as set forth in the
Prospectus.
7
<PAGE>
(t) No material default exists, and no event has occurred
which, with notice or lapse of time, or both, would constitute a
default, on the part of either the Company or the Association or, to
their knowledge, on the part of any other party, including Citizens, in
the due performance and observance of any term, covenant or condition
of any agreement which is material to the condition (financial or
otherwise) of the Company or the Association. Such agreements are in
full force and effect, and no other party to any such agreement has
instituted or, to their knowledge, threatened any action or proceeding
wherein the Company or the Association would or might be alleged to be
in default thereunder.
(u) Neither the Company nor the Association is in violation of
their respective charter, articles of incorporation, code of bylaws or
bylaws or in default in any material respect in the performance of any
material obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness by which it is
bound. The execution, delivery and fulfillment of the terms of this
Agreement and the consummation of the transactions contemplated hereby
do not and will not violate or conflict with the respective charter,
articles of incorporation, code of bylaws or bylaws of the Company or
the Association or, in any material respect, violate, conflict with or
constitute a breach of, or default (or an event which, with notice or
lapse of time, or both, would constitute a default) under any
agreement, indenture or other instrument by which the Company or the
Association is bound, or under any governmental license or permit or
any law, administrative regulation or authorization, approval, order or
court decree, injunction or order to which the Company or the
Association is subject.
(v) Subsequent to the respective dates as of which information
is given in the Prospectus and prior to the Closing Date (hereinafter
defined), except as otherwise may be indicated or contemplated therein,
neither the Company nor the Association will issue any securities or
incur any liability or obligation, direct or contingent, for borrowed
money, except borrowings from the Federal Home Loan Bank of
Indianapolis and other borrowings in the ordinary course of business,
or enter into any other transaction not in the ordinary course of
business which is material in light of the businesses and properties of
the Company or the Institutions considered as one enterprise.
(w) No equity or debt securities of the Company have ever been
issued or are outstanding. Upon the consummation of the Conversion, the
authorized, issued and outstanding equity capital of the Company shall
be as set forth in the Prospectus under the caption "Capitalization,"
adjusted to give effect to the actual sale of the Shares. The offer,
sale and issuance of the Shares have been duly authorized by all
necessary action of the Company and approved by the OTS. When issued in
accordance with the terms of the Plan of Conversion, the Shares will be
validly issued, fully paid and nonassessable, will conform to the
description thereof set forth in the Prospectus and will be issued in
full compliance with all securities laws applicable to the Company or
the Association. The issuance of the Shares is not subject to
preemptive rights. Good title to the Shares will be transferred to the
purchasers thereof upon issuance thereof against
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payment therefor, free and clear of all claims, encumbrances, security
interests and liens created by the Company or the Association. The
certificates evidencing the Shares will conform with the requirements
of applicable laws and regulations.
(x) No equity securities of the Association have ever been
issued or are outstanding. The sale and issuance of the capital stock
of the Association to the Company have been duly authorized by all
necessary action of the Association and the Company and approved by the
OTS. Immediately after the Closing Date, the authorized capital of the
Association will consist of 1,000 shares of common stock, par value
$.01 per share, 1,000 of which will be issued to and held of record by
the Company, and 1,000,000 shares of preferred stock, par value $1.00
per share, none of which will be issued or outstanding. When issued to
the Company in accordance with the terms of the Plan of Conversion,
such shares of common stock will be validly issued, fully paid and
nonassessable and will be issued in full compliance with all securities
laws applicable to the Association or the Company. There are no
preemptive rights or rights to subscribe for or to purchase any
securities of the Association. None of the shares of such capital stock
will be issued in violation of any rights of any member of the
Association. Good title to such capital stock will be transferred to
the Company upon issuance thereof against the payment to the
Association of all but 60% of the net proceeds of the sale of the
Shares, after giving effect to the loan to be made by the Holding
Company to its employee stock ownership plan (the "ESOP Loan"), in
cash, free and clear of all claims, encumbrances, security interests
and liens whatsoever. Upon the consummation of the Conversion, the
liquidation account will be duly established in accordance with the
requirements of the OTS and the Plan of Conversion.
(y) At the Closing Date, the Company and the Association will
have satisfied all conditions precedent to, and conducted the
Conversion in all material respects in accordance with the Plan of
Conversion, the Regulations and all other applicable laws, regulations,
decisions and orders, including all terms, conditions, requirements and
provisions precedent to the consummation of the transactions
contemplated by the Plan of Conversion, the Acquisition, the approval
of the Form AC and the Form H-(e)l-S imposed upon them by the OTS.
(z) At the Closing Date, the Company and the Association will
have satisfied all conditions precedent to, and conducted the
Acquisition in all material respects in accordance with the Purchase
Agreement, the Form FR Y-3, and all other applicable laws, regulations,
decisions and orders, including all terms, conditions, requirements and
provisions precedent to the consummation of the Acquisition and the
approval of the Form FR Y-3 imposed upon them by the FRB.
(aa) Upon consummation of the Acquisition, the purchase of the
Citizens Shares by the Company, the authorized capital stock of
Citizens will consist of 150,000 shares of common stock, par value
$8.00 per share, 120,429 of which will be owned of record and held by
the Company. When purchased by the Company in accordance with
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the terms of the Purchase Agreement, the Citizens Shares will be
validly issued, fully paid and nonassessable and will be held by the
Company in full compliance with all applicable securities laws. There
are no preemptive rights or rights to subscribe for or to purchase any
securities of Citizens. Good title to the Citizens Shares will be
transferred to the Company upon issuance thereof against the payment
pursuant to the Purchase Agreement of $3,010,715 of the gross proceeds
of the sale of the Shares, in cash, free and clear of all claims,
encumbrances, security interests and liens whatsoever.
(bb) Appropriate arrangements for placing the funds received
from subscriptions for Shares in special interest-bearing accounts with
the Association until all Shares are sold and paid for (hereinafter
referred to as the "Escrow Account") were made before the commencement
of the Subscription Offering, with provision (i) for prompt refund to
the subscribers if the minimum number of Shares is not sold within the
period prescribed by the Plan of Conversion and Prospectus or if the
transactions contemplated by the Prospectus and Plan of Conversion are
otherwise not consummated or (ii) for delivery to the Company if the
minimum number of Shares is sold and the transactions contemplated by
the Prospectus and Plan of Conversion are consummated.
(cc) No approval of any regulatory or supervisory or other
public authority is required in connection with the execution and
delivery of this Agreement or the issuance and sale of the Shares,
except (i) the approval of the OTS and FRB, (ii) the declaration of
effectiveness of any required post-effective amendment to the
Registration Statement by the Commission and approval thereof by the
OTS, (iii) the issuance to the Association of the Stock Charter by the
OTS, (iv) the approval of the Form H-(e)1-S, (v) the approval by the
National Association of Securities Dealers, Inc. of the fairness of the
compensation to be paid to Trident pursuant to this Agreement, (vi) the
approval of the Form FR Y-3, (vii) the listing of the Shares on the
NASDAQ Small Cap Market, and (viii) as may be otherwise required under
the securities laws of various jurisdictions.
(dd) All contracts and other documents required to be filed as
exhibits to the Registration Statement, the Form AC, the Form H-(e)1-S
and/or the Form FR Y-3 have been filed with the Commission, the OTS
and/or the FRB.
(ee) Grant Thornton LLP, the public accounting firm which has
certified the financial statements and supporting schedules of the
Association included in the Prospectus, are independent certified
public accountants within the meaning of the Code of Professional
Ethics of the American Institute of Certified Public Accountants
("AICPA") and 12 C.F.R. ss. 571.2(c)(3). Sherman, Barber & Mulliken and
Alexander X. Kuhn & Co., the public accounting firms which have
certified the financial statements and supporting schedules of Citizens
included in the Prospectus are independent certified public accountants
within the meaning of the Code of Professional Ethics of the AICPA and
12 C.F.R. ss. 571.2(c)(3).
(ff) Each of the Company and the Association has (i) timely
filed all required
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federal, state and foreign tax returns and no deficiency has been
asserted with respect to such returns by any taxing authorities, (ii)
paid all taxes that have become due and (iii) made adequate reserves
for similar future tax liabilities.
(gg) The records of account holders, depositors, borrowers and
other members of the Association delivered to Trident by the
Association or its agent for use during the Conversion are reliable and
accurate.
(hh) The Association has not engaged in any transaction in
connection with which the Association or the Company could be subject
to either a civil penalty assessed pursuant to Section 502(i) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
or a tax imposed by Section 4975 of the Internal Revenue Code of 1986,
as amended. No material liability to the Pension Benefit Guaranty
Corporation has been or is expected by the Association to be incurred
by the Company or the Association with respect to any pension plan
subject to ERISA (a "Pension Plan"). There has been no "reportable
event" (within the meaning of Section 4043(b) of ERISA) with respect to
any Pension Plan and no event or condition which presents a material
risk of the termination of any Pension Plan by the Pension Benefit
Guaranty Corporation. Full payment has been made of all amounts which
the Association is required, under the terms of any Pension Plan, to
have paid as contributions to such Pension Plan as of the date hereof,
and no "accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, exists with
respect to any Pension Plan.
(ii) Keller & Company, Inc. (the "Appraiser"), the corporation
which prepared an appraisal of the estimated pro forma fair market
value of the Company and the Association, has advised the Company and
the Association that the Appraiser is independent with respect to each
of them within the meaning of the Conversion Regulations.
(jj) The Company and the Association are in compliance with
all laws, rules and regulations relating to environmental protection,
and neither the Company nor the Association has any reason to believe
that the Company or the Association is subject to liability under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, or any similar law, except for violations which, if
asserted, would not have a material adverse effect on the Company and
the Association. There are no actions, suits, regulatory investigations
or other proceedings pending or, to the best knowledge of the Company
or the Association, threatened against the Company or the Association
relating to environmental protection. No disposal, release or discharge
of hazardous or toxic substances, pollutants or contaminants, including
petroleum and gas products, as any of such terms may be defined under
federal, state or local law, has been caused by the Company or the
Association or, to their best knowledge, has occurred on, in, at or
about any of the facilities or properties of the Company or the
Association, except such disposal, release or discharge which, if
discovered, would not have a material adverse effect on the Company and
the Association.
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(kk) The seller of the Citizens Shares identified in the
Purchase Agreement has good and marketable title to these shares and
has authority to sell the Citizens Shares to the Company pursuant to
the Purchase Agreement.
(ll) All of the loans represented as assets of the Association
on the most recent financial statements of the Association included in
the Prospectus meet or are exempt from all requirements of federal,
state or local law pertaining to lending, including without limitation
truth in lending (including the requirements of 12 C.F.R. Part 226
("Regulation Z")), real estate settlement procedures, consumer credit
protection, equal credit opportunity and all disclosure laws applicable
to such loans, except for violations which, if asserted, would not have
a material adverse effect on the Company or the Association, taken as a
whole.
(mm) Neither the Company nor the Association nor any employee
of the Company or the Association, has made any payment of funds of the
Company or the Association prohibited by law, and no funds of the
Company or the Association have been set aside to be used for any
payment prohibited by law.
(nn) No labor dispute with the employees of the Company or the
Association exists or, to the actual knowledge of the Company or the
Association, is imminent; and the Company is not aware of any existing
or imminent labor disturbance by the employees of any of its principal
suppliers or contractors which might be expected to result in any
material adverse change in the financial condition, results of
operations or business of the Company and the Association, taken as a
whole.
(oo) The Company and the Association are in compliance in all
material respects with the applicable financial recordkeeping and
reporting requirements of the currency and Foreign Transaction
Reporting Act of 1970, as amended, and the rules and regulations
thereunder.
(pp) The Company has received approval, subject to regulatory
approval to consummate the Conversion and issue the Shares and subject
to certain other standard conditions, to have the Securities quoted
through the NASDAQ-Small Cap Market effective on the Closing Date.
3. Retention of Trident. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company and the Association hereby agree with Trident as follows:
(a) Assistance with Conversion. The Association and the Company
hereby retain Trident to assist the Association and the Company in the
Conversion by (i) training and educating the Association's employees
in respect of the mechanics and regulatory
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requirements of the conversion process; (ii) keeping records of all
subscriptions for the Shares; and (iii) obtaining proxies from the
Association's members for use at the Special Meeting of Members at
which the Conversion is to be considered.
(b) Assistance with Community Offering. The Association and
the Company hereby retain Trident to act as the exclusive agent of the
Association and the Company in assisting in the sale of the Shares in
the Community Offering; provided, however, that the Association and the
Company acknowledge and agree that Trident may offer to other
NASD-registered broker dealers selected by the Association and Trident
("Selected Dealers") the opportunity to solicit subscriptions for the
Shares to be sold in the Community Offering on a best efforts basis
pursuant to the terms and conditions of Selected Dealer Agreements
between Trident and such Selected Dealers. Trident and the Association
will determine the Selected Dealers to assist the Association during
the Community Offering. Preference in the Community Offering shall be
given to residents of Jefferson County, Indiana.
(c) Other Matters. Subscriptions shall be offered in the
Subscription Offering only during the subscription period by means of
Order Forms as described in the Prospectus and may be offered in the
Community Offering by means of Order Forms or by solicitations of
indications of interest from customers of Trident or Selected Dealers
residing in those states in which the Shares may be qualified for offer
and sale. The Association and the Company shall notify Trident promptly
after the expiration of the Subscription Offering of the number of
Shares sold in the Subscription Offering and the aggregate number of
Shares remaining available to be sold in the Community Offering. The
Association and the Company shall provide Trident with any information
(which shall be accurate and reliable) necessary to assist Trident in
allocating the Shares in the event of an oversubscription. The
Association and the Company, jointly and severally, shall indemnify and
hold harmless each of Trident and the Selected Dealers against any
losses, claims, damages or liabilities resulting from reliance under
any records of depositors, borrowers and other members of the
Association delivered to Trident by the Association or its agents for
use during the Conversion.
Trident agrees that any Selected Dealer Agreements between
Trident and Selected Dealers will provide that Selected Dealers will
solicit indications of interest from their customers to place orders
for the purchase of Shares as of a certain date (the "Order Date") and,
upon request by Trident, (i) submit orders to purchase Shares, for
which they have previously received indications of interest from their
customers, (ii) mail confirmations of receipt of orders to each
subscriber confirming interest on the business day following the Order
Date, (iii) debit accounts of such subscribers on the third business
day from the Order Date ("Settlement Date"), and (iv) forward completed
Order Forms together with such funds to the Association on the
Settlement Date for deposit in a segregated account.
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(d) Fees and Expenses.
(i) As compensation for Trident's services hereunder,
the Company and the Association, jointly and severally, agree
to pay Trident compensation and reimbursement as follows: (I)
a management fee in the amount of one-half of one percent
(0.5%) of the aggregate dollar amount of shares sold in the
Subscription Offering and the Community Offering; (II) a
commission equal to two percent (2.0%) of the aggregate dollar
amount of shares sold in the Subscription Offering, excluding
any Shares sold to the Association's or Citizens' directors,
executive officers (including shares sold to "associates" as
that term is defined in the Plan of Conversion) or employee
stock ownership plan; and (III) a commission equal to two
percent of the aggregate dollar amount of shares sold in the
Community Offering, but excluding such shares sold by Selected
Dealers. In connection with shares sold by Selected Dealers,
the total commission shall not exceed four and one-half
percent (4.5%).
(ii) In addition to the fees described in
subparagraph (i) of this Section 3(d), the Company and the
Association jointly and severally, agree to reimburse Trident
for all reasonable out-of-pocket expenses (including fees and
disbursements of counsel) incurred by Trident in connection
with the Conversion, which expenses shall not exceed $47,000
(of which $10,000 has previously been paid to Trident as an
advance) without the Association's consent; provided, however,
that such $47,000 shall be exclusive of fees and disbursements
of counsel and any expenses payable by the Association and the
Company pursuant to subparagraph (iii) of this Section 3(d) to
the extent incurred in the first instance by Trident. The
expenses to be reimbursed hereunder, including fees and
disbursements of Trident's counsel, shall be payable by the
Association and the Company as they are incurred by Trident
and billed to the Association, and shall be payable whether or
not the Closing occurs or this Agreement is terminated for any
reason.
(iii) Whether or not the Closing occurs or this
Agreement is terminated for any reason, (I) the Company and
the Association will pay all expenses incident to the
performance of their obligations in connection with the
Conversion, including, without limitation, all fees and
disbursements of their counsel, all expenses incurred in the
preparation, printing, filing and distribution of all
documents relating to the Conversion, telephone charges, air
freight, rental equipment, supplies, marketing materials, all
fees and expenses of the Company's transfer agent and all
transfer taxes payable with respect to the sale of the Shares,
(II) the Company and the Association will reimburse Trident
for all expenses required to be reimbursed pursuant to
subparagraph (d)(ii) of this Section 3 and (III) the Company
and the Association will reimburse Trident for any
out-of-pocket accountable expenses (including fees and
disbursements of counsel) incurred by them in connection with
the matters referred to in Section 5(d) of this
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Agreement and the preparation of memoranda relating thereto
and for any filing fees of the NASD relating to the Shares.
The expenses to be reimbursed to Trident pursuant to
subparagraph (d)(iii)(I) and (III) of this Section 3 shall be
in addition to, and not subject to the limitations on, the
expenses to be reimbursed to Trident pursuant to (ii) above.
(e) Termination. The employment of Trident hereunder shall
terminate upon the first to occur of the following: (i) the forty-fifth
day after the expiration of the Subscription Offering, unless the
Association and the Company, with the approval of the OTS, are
permitted to extend such date; (ii) the Closing; or (iii) the
termination of this Agreement pursuant to Section 10 hereof.
4. Closing.
(a) Subject to the terms and upon the conditions of the
Agreement, the closing of the purchase and sale of the Shares (herein
referred to as the "Closing") shall take place at the offices of Barnes
& Thornburg, 11 South Meridian Street, Indianapolis, Indiana, at 10:00
a.m., Indianapolis time, on a business day which is agreed upon by the
parties hereto, but which is not later than the fifth business day
after the date upon which the Association certifies to the OTS that at
least the minimum number of Shares permitted to be sold in the
Conversion has been sold against payment therefor (herein referred to
as the "Closing Date").
(b) In accordance with the regulations of the OTS and the
Regulations, before the commencement of the Subscription Offering,
appropriate arrangements will be made for placing the funds received in
payment for the shares of Common Stock in the Escrow Account until such
shares are sold and paid for at the Closing. If the Closing does not
occur within the time specified in Section 3(e)(i) of this Agreement,
the Association will promptly refund all funds in the Escrow Account to
the persons who have the beneficial interests therein.
(c) At the Closing, the Shares will be issued by the Company
against payment of the purchase price therefor by wire transfer in
immediately available funds from the Escrow Account. Certificates
representing the Shares shall be prepared in definitive form and in
such denominations and registered in such names as set forth in the
Order Forms or, in the case of Shares not subscribed for pursuant to
Order Forms, in such names as Trident (or Selected Dealers, if
applicable) may request, upon at least two business days' prior notice
to the Association, and shall be, (i) in the case of Shares subscribed
for pursuant to Order Forms, delivered by the Company directly to the
purchasers thereof as promptly as practicable following the Closing,
and (ii) in the case of Shares not subscribed for pursuant to Order
Forms, made available for checking and packaging at least one business
day before the Closing at a location to be designated by Trident.
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5. Further Agreements. The Company and the Association, jointly and
severally, covenant and agree that:
(a) The Company will deliver to Trident, from time to time,
such number of copies of the Prospectus as Trident may reasonably
require. The Company hereby authorizes and directs Trident to use the
Prospectus in connection with the offer and sale of the Shares.
(b) The Company will notify Trident immediately upon obtaining
knowledge thereof, and confirm the notice in writing: (i) when any
post-effective amendment to the Registration Statement becomes
effective or when any supplement to the Prospectus has been filed with
the Commission; (ii) of the issuance by the Commission of any stop
order relating to the Registration Statement or of the initiation or
the threat of any proceedings for such purpose; (iii) of the receipt of
any notice with respect to the suspension of the qualification of the
Shares for offering or sale in any jurisdiction; (iv) of the receipt of
any comments from the staff of the Commission relating to the
Registration Statement or from the staff of the OTS relating to the
Form AC or the Form H-(e)1-S; and (v) of the receipt of any comments
from the staff of the FRB relating to the Form FR Y-3. In the event the
Commission enters a stop order relating to the Registration Statement
at any time, the Company will make every reasonable effort to obtain
the lifting of such order at the earliest possible moment.
(c) During the time when a prospectus is required to be
delivered under the Act, the Company will comply with all requirements
of the Act, as now in effect and as hereafter amended, and with the
Regulations, as from time to time in force, so far as necessary to
permit the continuance of offers and sales of or dealings in the Shares
in accordance with the provisions hereof and the Prospectus. If, during
the period when the Prospectus is used in connection with the offer and
sale of the Shares, any event relating to or affecting the Company, the
Association or Citizens shall occur as a result of which it is
necessary, in the opinion of counsel for the Company or counsel for
Trident, to amend, or supplement the Prospectus in order to make the
Prospectus not false or misleading in light of the circumstances
existing at the time the Prospectus is delivered to a purchaser of the
Shares, the Company shall forthwith prepare and furnish to Trident a
reasonable number of copies of an amendment or amendments or of a
supplement or supplements to the Prospectus (in form and substance
reasonably satisfactory to counsel for Trident) which shall amend or
supplement the Prospectus so that, as amended or supplemented, the
Prospectus will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances existing at the time the
Prospectus is delivered to a purchaser of the Shares, not misleading.
The Company will not file or use any amendment or supplement to the
Registration Statement or the Prospectus of which Trident has not first
been furnished a copy or as to which Trident shall reasonably object
after having been furnished such copy. For the purposes of this
subsection (c), the Company, the Association and Citizens shall furnish
such information with respect to themselves as Trident from time to
time reasonably may request.
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(d) The Company will take all reasonably necessary action as
may be required to qualify or register the Shares for offer and sale by
the Company under the securities or "blue sky" laws of such
jurisdictions as Trident and the Company or its counsel may agree upon;
provided, however, that the Company will not be obligated to qualify as
a foreign corporation under the laws of any such jurisdiction. In each
jurisdiction in which such qualification or registration will be
effected, the Company, unless Trident agrees that such action is not
necessary or advisable in connection with the distribution of the
Shares, will file and make such statements or reports as are, or
reasonably may be, required by the laws of such jurisdiction.
(e) The liquidation account for the benefit of eligible
account holders as of December 31, 1994 and supplemental eligible
account holders as of [June 30, 1996], will be duly established and
maintained in accordance with the requirements of the OTS and such
eligible account holders and supplemental eligible account holders who
continue to maintain their savings accounts in the Association will
have an inchoate interest in their pro rata portion of the liquidation
account which shall have a priority superior to that of the holders of
the Shares in the event of a complete liquidation of the Association.
(f) The Company will file a registration statement for the
Shares under Section 12(g) of the Securities Exchange Act of 1934, as
amended (hereinafter referred to as the "Exchange Act"), upon
completion of the Subscription Offering and the Community Offering
pursuant to the Plan of Conversion and will request that such
registration statement become effective upon the completion of the
Conversion. The Company will maintain the effectiveness of such
registration under Section 12(g) of the Exchange Act for not less than
three (3) years or such shorter period as may be required by the OTS'
approval of the Form AC.
(g) For a period of three (3) years from the date of this
Agreement, the Company will furnish the following to Trident:
(i) As soon as publicly available after the end of each
fiscal year, a copy of its Annual Report to Shareholders for
such year;
(ii) As soon as publicly available, a copy of each
report or definitive proxy statement of the Company filed
with the Commission under the Exchange Act or mailed to
shareholders; and
(iii) From time to time, such other public information
concerning the Company as Trident may reasonably request.
(h) The Company will use the net proceeds from the sale of the
Shares in the manner set forth in the Prospectus under the caption
"Use of Proceeds."
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(i) The Company will not deliver the Shares until each and
every condition set forth in Section 6 of this Agreement has been
satisfied in full, unless such condition is waived in writing by
Trident.
(j) The Company will provide Trident with any information
necessary to assist Trident in allocating the Shares in the event of an
oversubscription. Such information will be accurate and reliable. The
Company will indemnify and hold harmless Trident from and against any
liability arising out of any records of account holders, other
depositors, borrowers or other members of the Association delivered to
Trident by the Company or the Association or their agents for use
during the Conversion.
(k) The Company and the Association will take such actions and
furnish such information as are reasonably requested by Trident in
order for Trident to ensure compliance with the NASD's "Interpretation
Relating to Free Riding and Withholding."
6. Conditions of Trident's Obligations. The obligations of Trident set
forth in this Agreement shall be subject to the accuracy of the representations
and warranties contained in Section 2 of this Agreement as of the date hereof
and as of the Closing Date, to the accuracy of the statements of officers and
directors of the Company and the Association made pursuant to the provisions
hereof, to the performance by the Company and the Association of their
obligations hereunder, and to the following additional conditions:
(a) At the Closing Date, the Company and the Association will
have satisfied the conditions precedent to, and will have conducted the
Conversion in all material respects in accordance with the Plan of
Conversion and all applicable laws, regulations, decisions and orders,
including all terms, conditions, requirements and conditions precedent
to the Conversion imposed by, among other authorities, the OTS and/or
the Commission.
(b) At the Closing Date, the Company and the Association will
have satisfied the conditions precedent to, and will have effected the
Acquisition in all material respects in accordance with the Purchase
Agreement and all applicable laws, regulations, decisions and orders,
including all terms, conditions, requirements and conditions precedent
to the Acquisition imposed by, among other authorities, the FRB, the
OTS and/or the Commission.
(c) On the Closing Date, Trident shall receive an opinion of
Barnes & Thornburg, special counsel for the Company and the Association
(hereinafter referred to as "Special Counsel"), dated as of the Closing
Date, addressed to Trident, in form and substance reasonably
satisfactory to counsel for Trident and to the effect that:
(i) The Company is a corporation duly organized and
validly existing under the laws of the State of Indiana with
full power and authority to own its properties and conduct
its business as set forth in the Prospectus. The Company
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has all necessary corporate power and authority to enter into
this Agreement, to perform all of its obligations hereunder
and to consummate the transactions contemplated hereby. To
their knowledge, the Company has obtained all licenses,
permits and other governmental authorizations currently
required for the conduct of its business, all of which are in
full force and effect, and the Company is in all material
respects complying therewith.
(ii) The Association is a mutual savings association
validly existing and in good standing under the laws of the
United States with full power and authority to own its
properties and conduct its business as set forth in the
Prospectus and is a member in good standing of the Federal
Home Loan Bank of Indianapolis. The Association has all
necessary corporate power and authority to enter into this
Agreement, to perform all of its obligations hereunder and to
consummate the transactions contemplated hereby. The deposit
accounts of the Association are insured up to applicable
limits by the FDIC. To their knowledge, the Association has
obtained all licenses, permits and other governmental
authorizations currently required for the conduct of its
business, all of which are in full force and effect, and the
Association is in all material respects complying therewith.
(iii) The Company has all necessary corporate power
and authority to enter into the Purchase Agreement, to perform
all of its obligations thereunder and to consummate the
Acquisition contemplated thereby. To their knowledge, the
Company has obtained all licenses, permits and other
governmental authorizations currently required for it to act
as the holding company of Citizens, all of which are in full
force and effect, and the Company is in all material respects
complying therewith.
(iv) The Plan of Conversion has been adopted by the
Board of Directors and members of the Association and approved
by the Board of Directors of the Company. As of the date of
this Agreement, no person has sought to obtain review of the
final action of the OTS in approving the Plan of Conversion,
the Conversion or the Form H-(e)1-S pursuant to the HOLA, as
amended, or any other statute or regulation.
(v) The Purchase Agreement has been adopted and
approved by the Board of Directors of the Company. As of the
date of this Agreement, no person has sought to obtain review
of the final action of the FRB in approving the Acquisition,
the Company's application to become the bank holding company
for Citizens or the Form FR Y-3 pursuant to the BHCA, as
amended, or any other statute or regulation.
(vi) Upon the effectiveness of the amendment of the
Association's Charter and Bylaws in accordance with the rules
and regulations of the OTS and the completion of the sale by
the Company of the Shares as contemplated by the Prospectus
and the Plan of Conversion,
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(I) the Association and the Plan of Conversion, will be
converted pursuant to the Plan of Conversion to a capital
stock savings association duly organized, validly existing
and in good standing under the laws of the United States
with full power and authority to own its property and
conduct its business as described in the Prospectus; (II)
all of the outstanding capital stock of the Association will
be owned of record and beneficially by the Company; and
(III) the Company will have no direct subsidiaries other
than the Association and Citizens.
(vii) Each of the Company and the Association is duly
qualified and in good standing to do business as a foreign
corporation in all jurisdictions in which the conduct of its
business requires such qualification or, if not so qualified
and in good standing, failure to so qualify would not have
any material adverse effect on either the Company or the
Association.
(viii) Each of the Association and the Subsidiaries has
obtained all licenses, permits and other governmental
authorizations currently required for the conduct of its
business, except where the failure to obtain such licenses,
permits and other governmental authorizations would not have
a material adverse effect on its financial condition,
business or results of its operations; and all such
licenses, permits and other governmental authorizations are
in full force and effect.
(ix) The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby
have been fully and validly authorized by all necessary
action on the part of each of the Company and the
Association. This Agreement is a legal, valid and binding
obligation of each of the Company and the Association,
enforceable against each of them in accordance with its
terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium, receivership, conservatorship or
other laws affecting creditors' rights generally and as may
be limited by the exercise of judicial discretion in
applying principles of equity and except as the obligations
of the Company and the Association under the indemnification
and contribution provisions of Sections 7 and 8 hereof may
be unenforceable or against public policy, as to which no
opinion need be rendered.
(x) Each of the Company and the Association has all
such power, authority, authorizations, approvals and orders
as may be required to enter into this Agreement and to carry
out the terms and conditions hereof. Without limiting the
generality of the foregoing sentence, the Company has the
power, authority, authorizations, approvals and orders (I)
to issue and sell the Shares to be sold by the Company in
accordance with this Agreement, (II) upon consummation of
the Acquisition, to hold the Citizens Shares as owner of
record and (III) to become the bank holding company for
Citizens. The Association has
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the power, authority, authorizations, approvals and orders to
issue and sell the shares of its capital stock to the Company
as provided in the Plan of Conversion, subject to the issuance
of an amended Charter in the form required for a federal stock
savings and loan association (hereinafter referred to as the
"Stock Charter"). The form of the Stock Charter has been
approved by the OTS.
(xi) To their knowledge, neither the Company nor the
Association is in violation of any rule or regulation of the
Commission or the OTS, which might materially and adversely
affect the condition (financial or otherwise), operations,
businesses, assets, or properties of the Company or the
Association. To their knowledge, the Association is not
subject to any written directive from the OTS or the FDIC (or
their predecessors) to make any material change in the method
of conducting its business or affairs and has conducted its
business in material compliance with all applicable statutes
and regulations (including, without limitation, all
regulations, decisions, directives and orders of the FHLB of
Indianapolis, the OTS, and the FDIC, or their predecessors).
Except as set forth in the Prospectus, to their knowledge,
there is not pending or threatened any litigation, charge,
investigation, action, suit or proceeding before or by any
court, regulatory authority or governmental agency or body
which might affect the performance of the terms and conditions
of this Agreement or the consummation of the transactions
contemplated hereby or which might result in any material
adverse change in the condition (financial or otherwise),
business, prospects or results of operations of the Company or
the Association.
(xii) To their knowledge, no material default exists,
and no event has occurred which, with notice or lapse of time,
or both, would constitute a default, on the part of either the
Company or the Association in the due performance and
observance of any term, covenant or condition of any agreement
which is material to the condition (financial or otherwise) of
the Company or the Association. To their knowledge, such
agreements are in full force and effect, and no other party to
any such agreement has instituted or threatened any action or
proceeding wherein the Company or the Association would or
might be alleged to be in default thereunder.
(xiii) To their knowledge, neither the Company nor
the Association is in violation of their respective charter,
articles of incorporation or bylaws or in default in any
material respect in the performance of any material
obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness. The
execution, delivery and fulfillment of the terms of this
Agreement and the consummation of the transactions
contemplated hereby do not and will not violate or conflict
with the respective charter, articles of incorporation or
bylaws of the Company or the Association or, in any material
respect, violate, conflict with or constitute a breach of, or
default (or an event which, with notice or lapse of time, or
both, would constitute a default) under
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any material agreement, indenture or other instrument by which
either the Company or the Association is bound, or under any
governmental license or permit or any law, administrative
regulation or authorization, approval or order, court decree,
injunction or order to which the Company or the Association is
subject.
(xiv) No equity or debt securities of the Company
have ever been issued or are outstanding. Upon the
consummation of the Conversion, the authorized, issued and
outstanding equity capital of the Company shall be as set
forth in the Prospectus under the caption "Capitalization,"
adjusted to give effect to the actual sale of the Shares. The
offer, sale and issuance of the Shares have been duly
authorized by all necessary action of the Company and approved
by the OTS. When issued in accordance with the terms of the
Plan of Conversion, the Shares will be validly issued, fully
paid and nonassessable and will conform to the description
thereof set forth in the Prospectus. The issuance of the
Shares is not subject to preemptive rights. Good title to the
Shares will be transferred to the purchasers thereof upon
issuance thereof against payment therefor. The certificates
evidencing the Shares will conform in all material respects
with the requirements of applicable laws and regulations.
(xv) No equity securities of the Association have
ever been issued or are outstanding. The offer, sale and
issuance of the capital stock of the Association to the
Company have been duly authorized by all necessary action of
the Association and the Company and approved by the OTS.
Immediately after the Closing Date, the authorized capital of
the Association will consist of 1,000 shares of common stock,
par value $.01 per share, 1,000 of which will be issued to the
Company, and 1,000,000 shares of preferred stock, par value
$1.00 per share, none of which will be issued or outstanding.
When issued in accordance with the terms of the Plan of
Conversion, such common stock will be validly issued, fully
paid and nonassessable. There are no preemptive rights or
rights to subscribe for or to purchase any capital stock of
the Association. None of the shares of such capital stock will
be issued in violation of any rights of any member of the
Association. Good title to such capital stock will be
transferred to the Company upon issuance thereof against the
payment to the Association of all but 60% of the net proceeds
of the sale of the Shares, after giving effect to the ESOP
Loan, in cash, free and clear of all claims, encumbrances,
security interests and liens whatsoever. Upon the consummation
of the Conversion, the liquidation account will be duly
established in accordance with the requirements of the OTS and
the Plan of Conversion.
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<PAGE>
(xvi) At the Closing Date, the Company and the
Association will have satisfied all material conditions
precedent to, and conducted the Conversion in all material
respects in accordance with, the Plan of Conversion, the
Regulations and all other applicable laws, regulations,
decisions and orders, including all terms, conditions,
requirements and provisions precedent to the consummation of
the transactions contemplated by the Plan of Conversion and
the approval of the Form AC and the Form H-(e)l-S imposed
upon them by the OTS.
(xvii) No approval of any regulatory or supervisory or
other public authority is required in connection with the
execution and delivery of this Agreement or the issuance and
sale of the Shares, except (i) the approval of the OTS, (ii)
the declaration of effectiveness of any required
post-effective amendment to the Registration Statement by
the Commission and approval thereof by the OTS, (iii) the
issuance to the Association of the Stock Charter by the OTS,
(iv) the approval of the Form H-(e)1-S, (v) the approval of
the National Association of Securities Dealers, Inc. of the
fairness of the compensation to be paid to Trident pursuant
to this Agreement, (vi) the approval of the FRB, (vii) the
listing of the Shares on the NASDAQ Small Cap Market, and
(viii) as may be otherwise required under the securities
laws of various jurisdictions.
(xviii) The Company may offer, issue and sell the
Shares in the Subscription Offering and, if necessary, in
the Community Offering without registration of the Company
or its directors, officers or employees as brokers, dealers,
salesmen or investment advisors under the Exchange Act or
the Investment Company Act of 1940.
(xix) The statements in the Prospectus under the
captions "Dividend Policy," "Capitalization," "Regulation,"
"Taxation," "The Conversion," "Restrictions on Acquisition
of the Holding Company" and "Description of Capital Stock,"
insofar as they are, or refer to, statements of law or legal
conclusions, have been prepared or reviewed by such Special
Counsel and are correct in all material respects.
(xx) The Form AC and the Form H-(e)l-S have been
approved by the OTS and the Prospectus has been authorized
by the OTS and the Commission. The Stock Charter has been
approved by the OTS. The Registration Statement and any
post-effective amendment thereto have been declared
effective by the Commission. No proceedings are pending by
or before the Commission or the OTS seeking to revoke or
rescind the orders declaring the Registration Statement or
the Prospectus effective nor, to their knowledge, are any
such proceedings contemplated or threatened.
(xxi) The Form AC, the Registration Statement and the
Prospectus (in each case as amended or supplemented, if so
amended or supplemented) comply as to form in all material
respects with the requirements of the Act, and the
applicable rules, regulations, and all written decisions and
orders of the OTS and the Commission, as the case may be
(except as to financial statements, notes to financial
statements, financial tables and other financial and
statistical data
23
<PAGE>
included therein as to which no opinion need be expressed).
All documents and exhibits required to be filed with the Form
AC and the Registration Statement (in each case as amended or
supplemented, if so amended or supplemented) have been so
filed, the description in the Form AC and the Registration
Statement of such documents and exhibits is accurate in all
material respects and presents fairly the information required
to be shown. To their knowledge, there are no contracts or
other documents of a character required to be described in the
Registration Statement or the Prospectus which are not
described and there are no statutes or regulations applicable
to, certificates, permits or other authorizations from
governmental regulatory officials or bodies required to be
obtained or maintained by, or legal or governmental
proceedings, past, pending or threatened, against the Company
or the Association of a character required to be disclosed in
the Form AC, the Registration Statement or the Prospectus
which have not been so disclosed and properly described
therein.
(xxii) In connection with the preparation of the
Registration Statement and Prospectus, Special Counsel has
participated in conferences with certain officers, employees
and other representatives of, and certain representatives of
the independent public accountants for, the Company, and the
Association as well as reviewed various documents and other
information deemed relevant thereto and, in connection
therewith, nothing has come to the attention of Special
Counsel that would lead them to believe (I) that the
Registration Statement, as amended or supplemented, if amended
or supplemented (except as to financial statements, notes to
financial statements, financial tables and other financial and
statistical data contained therein, as to which Special
Counsel need not express an opinion), at the time it became
effective, at the time any post-effective amendment thereto
became effective and at the Closing Date, contained any untrue
statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements made therein not misleading, or (II) that the
Prospectus, as amended or supplemented, if amended or
supplemented (except as to financial statements, notes to
financial statements, financial tables and other financial and
statistical data contained therein, as to which Special
Counsel need not express an opinion), at the time the
Registration Statement became effective or at the time any
amendment or supplement to the Prospectus was filed with the
Commission or transmitted to the Commission for filing,
contained any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading. In rendering such opinion, Special
Counsel may state that they have not undertaken to verify
independently the information in the Registration Statement or
Prospectus and, therefore, do not assume any responsibility
for the accuracy or completeness thereof.
In giving such opinion, such counsel may rely as to certain
matters of fact on certificates of officers and directors of the
Company and the Association, and certificates
24
<PAGE>
of public officials delivered pursuant hereto and on the opinion of
qualified local counsel, satisfactory to Trident, with respect to
matters particularly within the knowledge and scope of representation
of such counsel. Such opinion may be governed by, and interpreted in
accordance with, the Legal Opinion Accord of the ABA Section of
Business Law (1991).
(d) On the Closing Date, Trident shall have received such
opinion of Thacher Proffitt & Wood, counsel for Trident, with respect
to certain matters as Trident may reasonably request, and such counsel
shall have received such documents, papers and records as they request
for the purpose of enabling them to pass upon such matters.
(e) Counsel for Trident shall have been furnished such
documents as they reasonably may require for the purpose of enabling
them to review or pass upon the matters required by Trident and for the
purpose of evidencing the accuracy, completeness or satisfaction of any
of the representations, warranties or conditions herein contained,
including, but not limited to, resolutions of the Board of Directors of
the Company and the Association regarding the authorization of this
Agreement and the transactions contemplated hereby.
(f) Prior to and at the Closing Date, in the reasonable
opinion of Trident: (i) there shall have been no material adverse
change in the financial or other condition of the Company or the
Institutions considered as one enterprise from that as of the latest
date as of which such condition is set forth in the Prospectus; (ii)
there shall have been no material transaction entered into by the
Company or the Institutions from the latest date as of which the
financial condition of the Company or the Institutions is set forth in
the Prospectus, other than transactions referred to or contemplated
therein and transactions in the ordinary course of business; (iii)
neither the Company nor the Association shall have received from the
OTS any direction (oral or written) to make any material change in the
method of conducting their respective businesses with which they have
not complied (which direction, if any, shall have been disclosed to
Trident) or which materially and adversely would affect the business,
operations, financial condition or income of the Company or the
Association; (iv) Citizens shall not have received from the OCC any
direction (oral or written) to make any material change in the method
of conducting its business with which it has not complied (which
direction, if any, shall have been disclosed to Trident) or which
materially and adversely would affect the business, operations,
financial condition or income of Citizens; (v) no action, suit or
proceeding, at law or in equity, or before or by any federal or state
commission, board or other administrative agency, or before any
arbitrator or arbitrators, shall be pending or threatened against the
Company or the Institutions or affecting any of their respective assets
wherein an unfavorable decision, ruling or finding materially and
adversely would affect the business, operations, financial condition or
income of the Company or the Institutions; and (vi) the Shares shall
have been qualified or registered for offering and sale by the Company
under the securities or "blue sky" laws of each jurisdiction upon which
Trident and the Company shall have agreed.
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<PAGE>
(g) At the Closing Date, Trident shall receive a certificate
of the President and the Principal Financial Officer of each of the
Company and the Association (hereinafter referred to as the
"Officers"), dated the Closing Date, to the effect that: (i) the
Officers have carefully examined the Prospectus and at the time the
Prospectus became authorized for final use, the Prospectus did not
contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(ii) since the date the Prospectus became authorized for final use, no
event has occurred which should have been set forth in an amendment or
supplement to the Prospectus which has not been so set forth,
including, without limitation, any material adverse change in the
business, financial condition, income or operations of the Company or
the Association and the conditions set forth in clauses (ii) through
(iv) inclusive of subsection (f) of this Section 6 have been satisfied;
(iii) no order has been issued by the Commission, the OTS or the FRB to
suspend the approval of the Acquisition, the effectiveness of the
Prospectus or to terminate the Subscription Offering or the Community
Offering and, to the best knowledge of the Officers, no action for such
purposes has been instituted or threatened by the Commission, the OTS
or the FRB; (iv) to the best knowledge of the Officers, no person has
sought to obtain review of the final action of the OTS approving the
Plan pursuant to Section 5(i)(2)(B) of the Home Owners' Loan Act of
1933, as amended; (v) to the best knowledge of the Officers, no person
has sought to obtain review of the final action of the FRB approving
the Acquisition and Purchase Agreement pursuant to the BHCA; and (vi)
all of the representations and warranties contained in Section 2 of
this Agreement are true and correct with the same force and effect as
though expressly made on the Closing Date.
(h) At the Closing Date, Trident shall receive, among other
documents, (i) a copy of the letter from the OTS approving the
Conversion and authorizing the use of the Prospectus, (ii) a copy of
the order of the Commission declaring the Registration Statement
effective; (iii) a copy of a letter from the OTS evidencing the good
standing of the Association; (iv) a copy of a Certificate of Existence
in respect of the Company from the Indiana Secretary of State; (v) a
copy of the Company's articles of incorporation certified by the
Indiana Secretary of State; (vi) a copy of the letter from the OTS
approving the Association's Stock Charter; and (vii) a copy of the
letter from the FRB approving the Acquisition.
(i) As soon as available after the Closing Date, Trident shall
receive a certified copy of the Association's Stock Charter executed by
the OTS.
(j) Concurrently with the execution of this Agreement, Trident
shall have received letters from Grant Thornton LLP, independent
certified public accountants, dated the date hereof and addressed to
Trident: (i) confirming that Grant Thornton LLP is a firm of
independent public accountants within the meaning of the Act and the
Regulations and 12 C.F.R. ss. 571.2(c)(3) and stating in effect that in
Grant Thornton LLP's opinion the financial statements of the
Association and the Subsidiaries as are
26
<PAGE>
included in the Prospectus comply as to form in all material respects
with the applicable accounting requirements of the Regulations and
generally accepted accounting principles; (ii) stating in effect that,
on the basis of certain agreed upon procedures (but not an audit
examination in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited interim
financial statements of the Association prepared by the Association, a
reading of the minutes of the meetings of the Board of Directors of the
Association, meetings of members of the Association and consultations
with officers of the Association responsible for financial and
accounting matters, nothing came to their attention which caused them
to believe that: (A) such unaudited financial statements are not in
conformity with generally accepted accounting principles applied on a
basis substantially consistent with that of the audited financial
statements included in the Prospectus; or (B) during the period from
the date of the latest unaudited financial statements included in the
Prospectus to a specified date not more than three business days prior
to the date hereof, there was any material increase in borrowings,
defined as advances from the FHLB of Indianapolis, securities sold
under agreements to repurchase and any other form of debt other than
deposits of the Association (increases in borrowings will not be deemed
to be material if such increase in total borrowings outstanding does
not exceed $1,000,000); (C) there was any decrease in retained earnings
of the Association at the date of such letter as compared with amounts
shown in the latest unaudited statement of condition included in the
Prospectus; or (D) there was any decrease in net income or net interest
income of the Association for the number of full months commencing
immediately after the period covered by the latest unaudited income
statement included in the Prospectus, and ended on the latest month end
prior to the date of the Prospectus or of such letter as compared to
the corresponding period in the preceding year; and (iii) stating that,
in addition to the audit examination of the Association referred to in
its opinion included in the Prospectus and the performance of the
procedures referred to in clause (ii) of this subsection (j), they have
compared with the general accounting records of the Association, which
are subject to the internal controls of the Association, accounting
system and other data prepared by the Association, directly from such
accounting records, to the extent specified in such letter, such
amounts and/or percentages set forth in the Prospectus as Trident may
reasonably request; and they have found such amounts and percentages to
be in agreement therewith (subject to rounding).
(k) Concurrently with the execution of this Agreement, Trident
shall have received a letter from Grant Thornton LLP, independent
certified public accountants, dated the date hereof and addressed to
Trident, stating in effect that: (i) on the basis of certain agreed
upon procedures (but not an audit examination in accordance with
generally accepted auditing standards) consisting of a reading of the
latest available unaudited interim financial statements of Citizens
prepared by Citizens, a reading of the minutes of the meetings of the
Board of Directors of Citizens, and consultations with officers of
Citizens responsible for financial and accounting matters, nothing came
to their attention which caused them to believe that: (A) during the
period from the date of the latest unaudited financial statements
included in the Prospectus to a specified date not
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more than three business days prior to the date hereof, there was any
material increase in borrowings, defined as advances from the FHLB of
Indianapolis, securities sold under agreements to repurchase and any
other form of debt other than deposits of Citizens (increases in
borrowings will not be deemed to be material if such increase in total
borrowings outstanding does not exceed $1,000,000); (B) there was any
decrease in retained earnings of Citizens at the date of such letter as
compared with amounts shown in the latest unaudited statement of
condition included in the Prospectus; or (C) there was any decrease in
net income or net interest income of Citizens for the number of full
months commencing immediately after the period covered by the latest
unaudited income statement included in the Prospectus, and ended on the
latest month end prior to the date of the Prospectus or of such letter
as compared to the corresponding period in the preceding year; and (ii)
stating that, in addition to the performance of the procedures referred
to in clause (i) of this subsection (k), they have compared with the
general accounting records of Citizens, to the extent specified in such
letter, such amounts and/or percentages set forth in the Prospectus as
Trident may reasonably request; and they have found such amounts and
percentages to be in agreement therewith (subject to rounding).
(l) Concurrently with the execution of this Agreement, Trident
shall have received letters from the public accounting firms of
Sherman, Barber & Mulliken and Alexander X. Kuhn & Co., which shall
confirm that: (i) each of Sherman Barber & Mulliken and Alexander X.
Kuhn & Co. is a firm of independent public accountants within the
meaning of the Act and the Regulations and 12 C.F.R. ss. 571.2(c)(3)
and stating in effect that in each of their opinions the financial
statements of Citizens as are included in the Prospectus comply as to
form in all material respects with the applicable accounting
requirements of the Regulations and generally accepted accounting
principles. Concurrently with the execution of this Agreement, Trident
also shall have received a letter from Sherman, Barber & Mulliken
stating in effect that, on the basis of certain agreed upon procedures
(but not an audit examination in accordance with generally accepted
auditing standards) consisting of a reading of the latest available
unaudited interim financial statements of Citizens prepared by
Citizens, a reading of the minutes of the meetings of the Board of
Directors of Citizens and consultations with officers of Citizens
responsible for financial and accounting matters, nothing came to their
attention which caused them to believe that such unaudited financial
statements are not in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of the
audited financial statements included in the Prospectus.
(m) At the Closing Date, Trident shall receive a letter in
form and substance satisfactory to counsel for Trident from Grant
Thornton LLP, independent certified public accountants, dated the
Closing Date and addressed to Trident, confirming the statements made
by them in the letter delivered by them pursuant to subsections (j)
through (k) inclusive as of a specified date not more than five (5)
business days prior to the Closing Date.
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(l) All corporate proceedings and action taken by the Company or
Association in connection with the issuance and sale of the Shares and
the Acquisition as herein contemplated and all opinions and
certificates mentioned above or elsewhere in this Agreement shall be
reasonably satisfactory in form and substance to Trident and their
counsel.
All such opinions, certificates, letters and documents prepared
for Trident's reliance shall be in compliance with the provisions
hereof only if they are, in the reasonable opinion of Trident and
their counsel, satisfactory to Trident and their counsel. Any
certificates signed by an officer or director of the Company or the
Association prepared for Trident's reliance and delivered to Trident
or to counsel for Trident shall be deemed a representation and
warranty by the Company and the Association to Trident as to the
statements made therein. If any condition to Trident's obligations
hereunder to be fulfilled prior to or at the Closing Date is not so
fulfilled, Trident may terminate this Agreement or, if Trident so
elects, may waive any such conditions which have not been fulfilled,
or may extend the time of their fulfillment. If Trident terminates
this Agreement in accordance with the foregoing, the Company or the
Association shall reimburse Trident for its accountable expenses as
provided in Section 3(d) of this Agreement.
7. Indemnification. The Company and the Association, jointly and
severally, hereby agree to indemnify and hold harmless Trident, its
officers, directors and employees and each person, if any, who
controls Trident within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act:
(a) Against any and all loss, liability, claim, damage and
expense whatsoever, including, but not limited to, legal fees and
expenses, reasonably incurred by Trident in investigating, preparing to
defend or defending against any action, proceeding or claim (whether
commenced or threatened) (i) arising out of any misrepresentation by
the Company or the Association in this Agreement, including, but not
limited to, the breach of any representation or warranty set forth in
this Agreement, or any breach of warranty by the Company or the
Association with respect to this Agreement or (ii) arising out of or
based upon any untrue or alleged untrue statement of a material fact or
the omission or alleged omission of a material fact required to be
stated or necessary to make not misleading any statements contained in
(I) the Registration Statement or the Prospectus or (II) any
application (including, but not limited to, the Form AC) or other
document or communication (hereinafter collectively referred to in this
Section 7 as the "Applications") prepared or executed by or on behalf
of the Company or the Association or based upon written information
furnished by or on behalf of the Company or the Association with the
consent of the Company or the Association to effect the Conversion, the
Acquisition or qualify the Shares under the securities law of the
United States or any state or filed with the Commission, the OTS or the
FRB, unless such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company or the
Association with respect to Trident by or on behalf of Trident
expressly for use in the Prospectus or any amendment or supplement
thereof or in any Application. This indemnity shall be in addition to
any liability the Company or the Association may have to Trident
otherwise.
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(b) Against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, if such settlement is
effected with the written consent of the Company or the Association.
(c) Against any and all expenses whatsoever (including the fees
and disbursements of counsel chosen by Trident) reasonably incurred in
investigating, preparing or defending against any litigation,
investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under
subsection (a) or (b) of this Section 7.
(d) Trident hereby agrees to indemnify and hold harmless the
Company and the Association, their respective officers, directors and
employees and each person, if any, who controls the Company and the
Association within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing
indemnity from the Company and the Association to Trident, but only
with respect to statements or omissions, if any, made in the
Prospectus or any amendment or supplement thereof or in any
Application in reliance upon, and in conformity with, written
information furnished to the Company or the Association with respect
to Trident by or on behalf of Trident expressly for use in the
Prospectus or in any Application.
(e) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 7, notify the
indemnifying party of the commencement thereof; provided, however,
that the omission to so notify the indemnifying party will not relieve
the indemnifying party from any liability which it may have to any
indemnified party otherwise than under this Section 7. In case any
such action is brought against any indemnified party, and the
indemnified party notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate
therein and, to the extent that the indemnifying party may wish,
jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party to
such indemnified party of the indemnifying party's election so to
assume the defense thereof, the indemnifying party will not be liable
to such indemnified party under this Section 7 for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof, other than the reasonable cost of
investigation, except as otherwise provided herein. In the event the
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indemnifying party elects to assume the defense of any such action and
retain counsel acceptable to the indemnified party, the indemnified
party may retain additional counsel, but shall bear the fees and
expenses of such counsel unless (i) the indemnifying party shall have
specifically authorized the indemnified party to retain such counsel
or (ii) the parties to such suit include such indemnifying party and
the indemnified party, and such indemnified party shall have been
advised by counsel that one or more material legal defenses may be
available to the indemnified party which may not be available to the
indemnifying party, in which case the indemnifying party shall not be
entitled to assume the defense of such suit notwithstanding the
indemnifying party's obligation to bear the fees and expenses of such
counsel. An indemnifying party against whom indemnity may be sought
shall not be liable to indemnify an indemnified party under this
Section 7 if any settlement of any such action is effected without
such indemnifying party's consent.
8. Contribution.
(a) In order to provide for just and equitable contribution in
circumstances in which the indemnity provided for in Section 7 of this
Agreement is for any reason held to be unavailable to Trident other
than in accordance with its terms, the Company and/or the Association
and Trident shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such
indemnity incurred by the Company and/or the Association and Trident
(i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and/or the Association on the one hand
and Trident on the other from the offering of the Shares or, (ii) if
the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the
relative fault of the Company and/or the Association on the one hand
and Trident on the other, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities
or judgments, as well as any other relevant equitable considerations.
The relative benefits received by the Company and/or the Association,
on the one hand, and Trident, on the other, shall be deemed to be in
the same proportions as the total proceeds from the Conversion (before
deducting expenses) received by the Company and/or the Association bear
to the total fees received by Trident under this Agreement. The
relative fault of the Company and/or the Association on the one hand
and Trident on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company and/or the
Association or by Trident, the relative intent of the parties, the
knowledge of the parties, access to information, and opportunity to
correct or prevent such statement or omission.
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(b) The Company and the Association and Trident agree that it
would not be just and equitable if contribution pursuant to this
Section 8 were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as result of the
losses, claims, damages, liabilities or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 8, Trident shall not be required to
contribute any amount in excess of the amount by which fees owed
Trident pursuant to this Agreement exceed the amount of any damages
which Trident has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation.
9. Survival of Agreements, Representations and Indemnities. The respective
indemnities of the Company and the Association and Trident and the
representations and warranties of the Company and the Association set forth in
or made pursuant to this Agreement shall remain in full force and effect
regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of Trident or the Company or the Association
or any controlling person or indemnified party referred to in Section 7 of this
Agreement, and shall survive any termination of this Agreement and/or the
issuance of the Shares. Any successor or assign of Trident, the Company or the
Association, any such controlling person and any legal representative of
Trident, the Company or the Association, and any such controlling person of
Trident, the Company or the Association shall be entitled to the benefit of the
respective agreements, indemnities, warranties and representations contained in
this Agreement.
10. Termination. Trident may terminate this Agreement by giving notice at
any time after this Agreement becomes effective, as follows:
(a) If any domestic or international event or act or occurrence
has materially disrupted the United States securities markets such as
to make impracticable, in Trident's opinion, proceeding with the
offering of the Shares; or if trading on the New York Stock Exchange
shall have been suspended or if limits in prices or volumes or the
manner of trading shall have been imposed by the New York Stock
Exchange; or if the United States shall have become involved in a war
or major hostilities; or if a general banking moratorium has been
declared by a state or federal authority; or if a moratorium in
foreign exchange trading by major international banks or persons has
been declared; or if there shall have been a material adverse change
in the capitalization, condition or business of the Company, the
Association or Citizens; or if the Company, the Association or
Citizens shall have sustained a material or substantial loss by, but
not limited to, fire, flood, accident, hurricane, earthquake, theft,
sabotage or other calamity or malicious act, whether or not said loss
shall have been insured; if there shall have been a material adverse
change in the condition or prospects of the Company, the Association
or Citizens, considered as one enterprise; or if Trident elects to
terminate this Agreement under any other section of this Agreement.
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(b) If Trident elects to terminate this Agreement as provided
in this Section 10, the Company and the Association shall be notified
promptly by Trident by telephone or telegram, confirmed by letter.
(c) If this Agreement is terminated by Trident for any of the
reasons set forth in subsection (a) of this Section 10, the Company or
the Association shall reimburse Trident for any expenses incurred by
them and reimbursable in accordance with Section 3(d)(ii) and (iii) of
this Agreement.
11. Notices. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and:
If sent to Trident, shall be mailed, delivered or telegraphed and confirmed to:
Trident Securities, Inc.
4601 Six Forks Road, Suite 400
Raleigh, North Carolina 27609
Attention: Mr. Timothy Lavelle
with a copy to:
Richard A. Schaberg, Esq.
Thacher Proffitt & Wood
1500 K Street, N.W.
Suite 200
Washington, D.C. 20005
If sent to the Company or the Association, shall be mailed, delivered or
telegraphed and confirmed to:
Madison First Federal Savings and Loan Association
303 Clifty Drive
P.O. Box 626
Madison, Indiana 47250
Attention: James E. Fritz
with a copy to:
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<PAGE>
Claudia V. Swhier, Esq.
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, IN 46204
12. Parties. The Company and the Association shall be entitled to act and
rely on any request, notice, consent, waiver or agreement purportedly given on
behalf of Trident when the same shall have been given by the undersigned.
Trident shall be entitled to act and rely on any request, notice, consent,
waiver or agreement purportedly given on behalf of the Company or the
Association, when the same shall have been given by the undersigned or any other
officer of the Company or the Association. This Agreement shall inure solely to
the benefit of, and shall be binding upon, Trident, the Company, the Association
and the controlling persons and indemnified parties referred to in Section 7 of
this Agreement, and their respective successors, legal representatives and
assigns, and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under, or in respect of, or by virtue of, this
Agreement or any provision herein contained.
13. Closing. At the Closing, Trident shall submit a list of the persons
subscribing for the Shares and the number of Shares so subscribed. The Company
or the Association shall deliver to Trident in immediately available funds the
fees, commissions and remaining expenses due and owing to Trident as set forth
in Section 3(d) of this Agreement and the opinions and certificates required
hereby and other documents deemed reasonably necessary by Trident shall be
executed and delivered to effect the sale of the Shares as contemplated hereby
and pursuant to the terms of the Prospectus.
14. Partial Invalidity. In the event that any term, provision or covenant
of this Agreement or the application thereof to any circumstance or situation
shall be invalid or unenforceable, in whole or in part, the remainder hereof and
the application of such term, provision or covenant to any other circumstance or
situation shall not be affected thereby, and each term, provision or covenant of
this Agreement shall be valid and enforceable to the full extent permitted by
law.
15. Construction. This Agreement shall be construed in accordance with the
substantive laws of the State of Indiana, except to the extent that federal law
applies.
16. Counterparts. This Agreement may be executed in separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which together shall constitute but one and the same instrument.
If the foregoing correctly sets forth the understanding between Trident and
the Company and the Association, please so indicate in the space provided below
for that purpose, whereupon it shall constitute a binding agreement between
Trident and the Company and the Association.
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Very truly yours,
RIVER VALLEY BANCORP
By: /s/ James E. Fritz
-------------------------------------
James E. Fritz
President and Chief Executive Officer
MADISON FIRST FEDERAL SAVINGS AND
LOAN ASSOCIATION
By: /s/ James E. Fritz
-------------------------------------
President and Chief Executive Officer
Accepted as of the date first above written.
TRIDENT SECURITIES, INC.
By: /s/ Timothy E. Lavelle
-----------------------
Timothy E. Lavelle
President
35
MADISON FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
MADISON, INDIANA
PLAN OF CONVERSION
From Mutual to Stock Form of Organization
I. GENERAL
On March 5, 1996, the Board of Directors of Madison First Federal Savings
and Loan Association (the "Association") adopted a Plan of Conversion whereby
the Association will convert from a federal mutual savings and loan association
to a federal stock savings and loan association and, upon conversion, will
become a wholly-owned subsidiary of a Holding Company to be formed by the
Association, all pursuant to the Rules and Regulations of the Office of Thrift
Supervision. The Plan provides that non-transferable subscription rights to
purchase Conversion Stock will be offered first to the Association's Eligible
Account Holders of record as of December 31, 1994, and then, to the extent that
stock is available, to a Tax-Qualified Employee Stock Benefit Plan, and then, to
the extent that stock is available, to Supplemental Eligible Account Holders,
and then, to the extent that stock is available, to Other Members of the
Association. Concurrently with, during or promptly after the Subscription
Offering, any shares of Conversion Stock not sold in the Subscription Offering
may also be offered to the general public in a Direct Community Offering. The
price of the Conversion Stock will be based upon an independent appraisal of the
Association and the Holding Company and will reflect the Association's estimated
pro forma market value, as converted. The Holding Company will use the net
proceeds it derives from the offering of Conversion Stock to purchase shares of
the Capital Stock of the Association authorized upon its conversion; provided,
however, that the Holding Company may retain, for general business purposes,
from the net proceeds of the Conversion up to the maximum amount permitted to be
retained by the Holding Company pursuant to applicable regulations and policy
guidelines. The Holding Company intends to use a portion of such retained
proceeds to purchase 120,429 shares of common stock, $8.00 par value per share
(the "CNB Shares"), of Citizens National Bank of Madison (the "CNB"). It is the
desire of the Board of Directors of the Association to attract new capital to
the Association in order to increase its net worth, repay certain outstanding
indebtedness, support future deposit growth, increase the amount of funds
available for residential mortgage and other lending, and to provide greater
resources for possible branching and acquisitions and for the expansion of
customer services. The Converted Association is also expected to benefit from
its management and other personnel having a stock ownership in its business
since stock ownership is viewed as an effective performance incentive and a
means of attracting, retaining and compensating management and other personnel.
In addition, the stock form of organization will permit Members of the
Association and others the opportunity to become shareholders of the Holding
Company and thereby participate more directly in earnings and growth. The
Holding Company structure has been adopted as a part of the Conversion to
provide the Association with greater organizational flexibility to respond to
the increasingly competitive environment in which it operates. Except as
provided below, no change will be made in the Board of Directors or management
of the Association as a result of the Conversion. Except as provided below, the
Board of Directors and management of the Holding Company will be selected from
members of the Board and management of the Association. As a result of the
acquisition of CNB, one new Board member will be added to the Board of the
Association and of the Holding Company.
II. DEFINITIONS
Affiliate: An "affiliate" of, or a person "affiliated" with, a specified
Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified.
Associate: The term "associate," when used to indicate relationship with
any Person, means (i) any corporation or organization (other than the
Association or a majority-owned subsidiary of the Association or the Holding
Company) of which such Person is a director, officer or partner or is, directly
or indirectly, the beneficial owner of ten percent or more of any class of
equity securities, (ii) any trust or other estate in which such Person has a
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substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity, except that for purposes of Sections VI.B.,
VI.D.1, .4 and .5, and VI.E. 1, it does not include any Tax-Qualified Employee
Stock Benefit Plan or Non-Tax-Qualified Employee Stock Benefit Plan in which a
Person has a substantial beneficial interest or serves as a trustee or in a
similar fiduciary capacity, and that for purposes of Section VI.D.2 it does not
include any Tax-Qualified Employee Stock Benefit Plan, and (iii) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person or who is a director or officer of the Association or any of its
parents or subsidiaries.
Association: Madison First Federal Savings and Loan Association, whose
principal office is located in Madison, Indiana, a federal mutual savings and
loan association and including the Converted Association, as the context
requires.
Capital Stock: Shares of common stock, par value $.01 per share, to be
issued by the Converted Association to the Holding Company in the Conversion.
CNB: Citizens National Bank of Madison, whose principal office is located
in Madison, Indiana, a national banking association.
CNB Shares: 120,429 of the outstanding shares of common stock, $8.00 par
value per share of CNB.
Conversion: Change of the Association's articles and bylaws from a federal
mutual savings and loan association charter and bylaws to a federal savings and
loan association charter and bylaws authorizing issuance of shares of common
stock by the Association pursuant to and otherwise conforming to the
requirements of a federal stock savings and loan association. Such term includes
the issuance of Conversion Stock as provided for in the Plan, and the purchase
by the Holding Company of all of the shares of Capital Stock to be issued by the
Association in connection with its Conversion from mutual to stock form.
Conversion Stock: Shares of common stock, without par value, to be issued
by the Holding Company in the Conversion.
Converted Association: The federally chartered stock savings and loan
association resulting from the Conversion of the Association in accordance with
the Plan.
Dealer: Any Person who engages directly or indirectly as agent, broker or
principal in the business of offering, buying, selling, or otherwise dealing or
trading in securities issued by another Person.
Deposit Account: Any withdrawable or repurchasable shares, investment
certificates or deposits or other savings accounts, including money market
deposit accounts and negotiable order of withdrawal accounts held by Members of
the Association.
Direct Community Offering: The offering for sale to the general public,
with preference given to Jefferson County residents, of any shares of Conversion
Stock not subscribed for in the Subscription Offering.
Eligibility Record Date: The close of business on December 31, 1994.
Eligible Account Holder: Holder of a Qualifying Deposit in the Association
on the Eligibility Record Date for purposes of determining Subscription Rights
and establishing subaccount balances in the liquidation account to be
established pursuant to Section XI hereof.
Estimated Price Range: The range of the estimated aggregate pro forma
market value of the total number of shares of Conversion Stock to be issued in
the Conversion, as determined by the independent appraiser in accordance with
Section VI.A hereof.
FDIC: Federal Deposit Insurance Corporation.
FRB: The Board of Governors of the Federal Reserve System, including the
Federal Reserve Bank of St. Louis, insofar as such Association is impowerd to
administer regulations of the Board of Governors of the Federal Reserve System
in respect of CNB or the Holding Company.
Holding Company: The corporation organized under Indiana law to own and
hold 100% of the outstanding Capital Stock of the Converted Association.
Internal Revenue Code: The Internal Revenue Code of 1986, as amended.
Jefferson County: Jefferson County, Indiana
Local Eligible Account Holders: Eligible Account Holders who reside in
Jefferson County.
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Local Other Members: Other Members who reside in Jefferson County.
Local Supplemental Eligible Account Holders: Supplemental Eligible Account
Holders who reside in Jefferson County.
Market Maker: A Dealer who, with respect to a particular security, (i)
regularly publishes bona fide, competitive bid and offer quotations in a
recognized inter-dealer quotation system; or (ii) furnishes bona fide
competitive bid and offer quotations on request; and (iii) is ready, willing,
and able to effect transactions in reasonable quantities at his quoted prices
with other brokers or dealers.
Members: All Persons or entities who qualify as members of the Association
pursuant to its mutual charter and bylaws.
Non-Local Eligible Account Holders: Eligible Account Holders who reside
outside of Jefferson County.
Non-Local Other Members: Other Members who reside outside of Jefferson
County.
Non-Local Supplemental Account Holders: Supplemental Eligible Account
Holders who reside outside of Jefferson County.
Non-Tax-Qualified Employee Stock Benefit Plan: Any defined benefit plan or
defined contribution plan maintained by the Association which is not a
Tax-Qualified Employee Stock Benefit Plan.
Officer: The Chairman of the Board, Vice-Chairman of the Board, President,
Vice-President, Secretary, Treasurer or principal financial officer, comptroller
or principal accounting officer, and any other person performing similar
functions with respect to any organization, whether incorporated or
unincorporated.
Order Forms: Forms to be used in the Subscription Offering to exercise
Subscription Rights.
Other Members: Members of the Association, other than Eligible Account
Holders or Supplemental Eligible Account Holders, as of the Voting Record Date.
OTS: Office of Thrift Supervision.
Person: An individual, a corporation, a partnership, a bank, a joint-stock
company, a trust, any unincorporated organization, or a government or political
subdivision thereof.
Plan: The Plan of Conversion of the Association, including any amendment
approved as provided in the Plan.
Purchase Price: The price per share, determined as provided in Section VI.A
of the Plan, at which Conversion Stock will be sold by the Holding Company in
the Conversion.
Qualifying Deposit: The aggregate balance as of the Eligibility Record Date
or Supplemental Eligibility Record Date of all Deposit Accounts of an Eligible
Account Holder or Supplemental Eligible Account Holder, as applicable, provided
such aggregate balance is not less than $50.00. Multiple deposit accounts which
are separate accounts for purposes of FDIC insurance shall be deemed to be
separate Qualifying Deposits for purposes of determining whether a holder is an
Eligible Account Holder, Supplemental Eligible Account Holder, or Other Member.
Sales Agents: The Dealer or Dealers or investment banking firm or firms
agreeing to offer and sell Conversion Stock for the Association and the Holding
Company in the Direct Community Offering.
SEC: Securities and Exchange Commission.
Special Meeting: The Special Meeting of Members called for the purpose of
considering and voting upon the Plan.
Subscription Offering: The offering of shares of Conversion Stock for
subscription and purchase pursuant to Section VI.B of the Plan.
Subscription Rights: Non-transferable, non-negotiable personal rights of
Eligible Account Holders, any Tax-Qualified Employee Stock Benefit Plan,
Supplemental Eligible Account Holders, and Other Members to subscribe for shares
of Conversion Stock in the Subscription Offering.
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Supplemental Eligibility Record Date: The last day of the calendar quarter
preceding OTS approval of the Application for Approval of Conversion of the
Association.
Supplemental Eligible Account Holder: Any Person holding a Qualifying
Deposit, except officers, directors, and their Associates, as of the
Supplemental Eligibility Record Date for purposes of determining Subscription
Rights and establishing subaccount balances in the liquidation account to be
established pursuant to Section XI hereof.
Tax-Qualified Employee Stock Benefit Plan: Any defined benefit plan or
defined contribution plan maintained by the Association or the Holding Company
such as an employee stock ownership plan, stock bonus plan, profit-sharing plan
or other plan, which, with its related trust, meets the requirements to be
"qualified" under Section 401 of the Internal Revenue Code.
Voting Record Date: The close of business on the date set by the Board of
Directors in accordance with applicable law for determining Members eligible to
vote at the Special Meeting.
III. PROCEDURE FOR CONVERSION
A. The Board of Directors of the Association shall adopt the Plan by not
less than a two-thirds vote.
B. The Association shall notify its Members of the adoption of the Plan by
publishing a statement in a newspaper having a general circulation in each
community in which the Association maintains an office and/or by mailing a
letter to each of its members.
C. Copies of the Plan adopted by the Board of Directors shall be made
available for inspection at each office of the Association.
D. The Association shall submit an Application for Approval of Conversion
to convert to a stock form of organization to the OTS. Upon filing that
Application in the prescribed form, the Association shall publish a "Notice of
Filing of an Application for Conversion to Convert to a Stock Savings
Association" in a newspaper of general circulation, as referred to in Paragraph
III.B. above. The Association also shall prominently display a copy of such
notice in each of its offices.
E. The Association shall cause the Holding Company to be incorporated under
the laws of Indiana. Upon its organization, the Holding Company shall adopt and
approve the Plan.
F. An Application shall be filed with the OTS on behalf of the Holding
Company for permission to acquire control of the Association and become a duly
registered savings and loan holding company ("Savings and Loan Holding Company
Application").
G. An Application shall be filed with the FRB on behalf of the Holding
Company for permission to acquire control of CNB and become a duly registered
bank holding company and the Holding Company shall comply with regulations of
the FRB in respect of such acquisition ("Bank Holding Company Application").
H. As soon as practicable after the adoption of the Plan by the Board of
Directors of the Association, a registration statement relating to the
Conversion Stock will be filed with the SEC under the Securities Act of 1933, as
amended, and appropriate filings will be made under applicable state securities
laws.
I. The Association and the Holding Company shall obtain an opinion of
counsel or a favorable ruling from the Internal Revenue Service which shall
state that the Conversion of the Association to a stock savings and loan
association and the adoption of the holding company structure will not result in
any gain or loss for federal income tax purposes to the Holding Company or the
Association or to the Association's Eligible Account Holders, Supplemental
Eligible Account Holders, or Other Members. Receipt of a favorable opinion or
ruling is a condition precedent to completion of the Conversion.
J. After approval by the OTS of the Application for Approval of Conversion
and the FRB of the Bank Holding Company Application and registration of the
Conversion Stock with the SEC and applicable blue sky authorities, the Plan will
be submitted to the Members at a Special Meeting for their approval and the
Conversion Stock may be offered as hereinafter provided.
K. Promptly following consummation of the Conversion, the Holding Company
shall acquire the CNB Shares.
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IV. CONVERSION PROCEDURE
Upon registration with the SEC and receipt of other required regulatory
approvals, the Holding Company will offer the Conversion Stock for sale in the
Subscription Offering at the Purchase Price to Eligible Account Holders, any
Tax-Qualified Employee Stock Benefit Plan, Supplemental Eligible Account Holders
and Other Members of the Association prior to or within 45 days after the date
of the Special Meeting. However, the Holding Company may delay commencing the
Subscription Offering beyond such 45 day period in the event that the Board of
Directors of the Association determines that there exist unforeseen material
adverse market or financial conditions. The Association and the Holding Company
may, concurrently with or promptly after the Subscription Offering, also offer
the Conversion Stock to and accept subscriptions from other persons in a Direct
Community Offering; provided that Eligible Account Holders, any Tax-Qualified
Employee Stock Benefit Plan, Supplemental Eligible Account Holders, and Other
Members shall have the priority rights to subscribe for Conversion Stock set
forth in Section VI.B of this Plan. If the Subscription Offering commences prior
to the Special Meeting, subscriptions will be accepted subject to the approval
of the Plan at the Special Meeting.
The period for the Subscription Offering will be not less than 20 days nor
more than 45 days unless extended by the Association. If shares of Conversion
Stock falling within the Estimated Price Range are not sold in the Subscription
Offering, completion of the sale of shares of Conversion Stock at least
sufficient to fall within the Estimated Price Range is required within 45 days
after termination of the Subscription Offering, subject to the extension of such
45 day period by the Association and the Holding Company. The Association and
the Holding Company may seek one or more extensions of such 45 day period if
necessary to complete the sale of shares at least sufficient to fall within the
Estimated Price Range. In connection with such extensions, subscribers and other
purchasers will be permitted to increase, decrease or rescind their
subscriptions or purchase orders. If for any reason the minimum amount of Common
Stock cannot be sold in the Subscription Offering and Direct Community Offering,
the Association and the Holding Company will use their best efforts to obtain
other purchasers. Completion of the sale of the minimum amount of Conversion
Stock is required within 24 months after the date of the Special Meeting. The
Holding Company will purchase all of the Capital Stock of the Association with
the net proceeds received by the Holding Company from the sale of Conversion
Stock, provided that the Holding Company may retain up to the maximum amount
permitted to be retained by the Holding Company pursuant to applicable
regulations and policy guidelines, subject to the approval of the Boards of
Directors of the Holding Company and the Association.
V. SUBMISSION TO MEMBERS FOR APPROVAL
After the approval of the Plan and the Savings and Loan Holding Company
Application by the OTS and of the Bank Holding Company Application by the FRB, a
Special Meeting of Members to vote on the Plan shall be held in accordance with
the Association's mutual bylaws. The Association will distribute proxy
solicitation materials to all Members as of the Voting Record Date, which Voting
Record Date shall be not less than ten (10) nor more than sixty (60) days prior
to the Special Meeting. Notice of the Special Meeting shall be given to each
Member by means of the approved proxy statement not less than twenty (20) nor
more than forty-five (45) days prior to the date of the Special Meeting. The
Association shall use reasonable efforts to see that such notice is sent to each
beneficial holder of an account held in a fiduciary capacity.
The proxy materials will include such documents authorized for use by the
regulatory authorities and may also include a prospectus as provided below. The
Association may also use a summary form of proxy statement, in which case the
Association will provide Members with an attached postage-paid postcard on which
to indicate whether the Member wishes to receive the prospectus and the
Subscription Offering will not be closed prior to the expiration of 30 days
after the mailing of the postage-paid postcard. The Association will also advise
each Eligible Account Holder and Supplemental Eligible Account Holder not
entitled to vote at the Special Meeting of the proposed Conversion and the
scheduled Special Meeting, and provide a postage-paid postcard on which to
indicate whether such Person wishes to receive the prospectus, if the
Subscription Offering is not held concurrently with the proxy solicitation,
provided that the Subscription Offering will not be closed prior to the
expiration of 30 days after the mailing of the postage-paid postcard.
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Pursuant to OTS regulations, the affirmative vote of not less than a
majority of the total outstanding votes of the Association's Members will be
required for approval. Voting may be in person or by proxy. The OTS shall be
notified promptly of the action of the Association's Members.
VI. STOCK OFFERING
A. Number of Shares and Purchase Price of Conversion Stock
The aggregate price for which all shares of Conversion Stock will be sold
will be based on an independent appraisal of the estimated total pro forma
market value of the Converted Association and the Holding Company. The appraisal
shall be stated in terms of an Estimated Price Range, the maximum of which shall
be no more than 15% above the average of the minimum and maximum of such price
range and the minimum of which shall be no more than 15% below such average.
Such appraisal shall be performed in accordance with OTS guidelines and will be
updated as appropriate under or required by applicable law.
The appraisal will be made by an independent investment banking or
financial consulting firm experienced in the area of financial institution
appraisals. The appraisal will include, among other things, an analysis of the
historical and pro forma operating results and net worth of the Converted
Association and the Holding Company and a comparison of the Converted
Association and the Holding Company and the Conversion Stock with comparable
stock financial institutions and holding companies and their respective
outstanding capital stocks.
All shares of Conversion Stock sold in the Conversion will be sold at the
same price per share referred to in the Plan as the Purchase Price. The Purchase
Price will be determined by the Boards of Directors of the Holding Company and
of the Association prior to the filing of the Application for Approval of
Conversion with the OTS.
The number of shares of Conversion Stock to be issued and sold by the
Holding Company in the Conversion will be determined by the Boards of Directors
of the Association and the Holding Company prior to the commencement of the
Subscription Offering and will fall within a range of shares based on the
Estimated Price Range divided by the Purchase Price, subject to adjustment if
necessitated by market or financial conditions prior to consummation of the
Conversion. The total number of shares of Conversion Stock may also be subject
to increase in connection with any right granted to the Association and the
Holding Company to issue additional shares to cover over-allotments or
over-subscriptions in the Subscription Offering and Direct Community Offering;
provided that this option may not cover more than 15% of the maximum number of
shares offered in the Subscription Offering and Direct Community Offering. No
resolicitation of subscribers need be made and subscribers need not be permitted
to modify or cancel their subscriptions unless the changes in the number of
shares to be issued in the Conversion, in combination with the Purchase Price,
result in an offering which is below the low end of the Estimated Price Range or
more than 15% above the maximum of such range.
B. Subscription Rights
Non-transferable Subscription Rights to purchase shares will be issued
without payment therefor to Eligible Account Holders, any Tax-Qualified Employee
Stock Benefit Plan, Supplemental Eligible Account Holders, and Other Members as
set forth below. The Association and the Holding Company may retain and pay for
the services of financial and other advisors and investment bankers to assist in
connection with any or all aspects of the Subscription Offering. All such fees,
expenses, commissions and retainers shall be reasonable.
1. Preference Category No. 1: Eligible Account Holders
Each Eligible Account Holder shall receive non-transferable Subscription
Rights to subscribe for a number of shares of Conversion Stock which shall be
determined by the Boards of Directors of the Holding Company and of the
Association before the Subscription Offering commences and shall be no greater
than 5.0% of the number of shares of the Conversion Stock determined by dividing
the maximum of the Estimated Price Range as of the date the Conversion Stock is
first offered (without giving effect to any subsequent adjustment to the
Estimated Price Range) by the Purchase Price, except that any one or more
Tax-Qualified Employee Stock Benefit Plans may purchase in the aggregate not
more than ten percent (10%) of the shares of Conversion Stock offered in the
Conversion, and that shares held by one or more Tax-Qualified or
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Non-Tax-Qualified Employee Stock Benefit Plans and attributed to a Person shall
not be aggregated with other shares purchased directly by or otherwise
attributable to that Person. If sufficient shares are not available in this
Preference Category No. 1, shares may be allocated first to Local Eligible
Account Holders. If so, and if sufficient shares are not available for Local
Eligible Account Holders, shares shall be allocated first to permit each Local
Eligible Account Holder to purchase the lesser of 100 shares or the number of
shares subscribed for, and thereafter pro rata in the same proportion that the
Qualifying Deposit of the subscribing Local Eligible Account Holder bears to the
total Qualifying Deposits of all subscribing Local Eligible Account Holders. If
shares remain available after subscriptions by all Local Eligible Account
Holders are filled, shares shall next be allocated to Non-Local Eligible Account
Holders. If insufficient shares are available for allocation to Non-Local
Eligible Account Holders, shares shall be allocated first to permit each
Non-Local Eligible Account Holder to purchase the lesser of 100 shares or the
number of shares subscribed for, and thereafter pro rata in the same proportion
that the Qualifying Deposit of the Non-Local Eligible Account Holder bears to
the total Qualifying Deposits of all subscribing Non-Local Eligible Account
Holders. If the Holding Company and the Association decide not to give
preference to Local Eligible Account Holders, if sufficient shares are not
available in this Category No. 1, Conversion Stock shall be allocated first to
permit each subscribing Eligible Account Holder to purchase the lesser of 100
shares or the number of shares subscribed for, and thereafter pro rata in the
same proportion that his Qualifying Deposit bears to the sum of all Qualifying
Deposits of all subscribing Eligible Account Holders. The foregoing subscription
rights are subject to the rights of Tax-Qualified Employee Stock Benefit Plans
in the event that shares of Conversion Stock in excess of the maximum of the
Estimated Price Range are sold, as provided in section VI.B.2.
Subscription Rights to purchase Conversion Stock received by directors and
Officers of the Association and their Associates, based on their increased
deposits in the Association in the one year period preceding the Eligibility
Record Date, shall be subordinated to all other subscriptions involving the
exercise of Subscription Rights of Eligible Account Holders.
2. Preference Category No. 2: Tax-Qualified Employee Stock Benefit Plans
Each Tax-Qualified Employee Stock Benefit Plan shall receive Subscription
Rights to subscribe for the number of shares of Conversion Stock in the
Subscription Offering remaining after satisfying the subscriptions of Eligible
Account Holders provided for under Preference Category No. 1 above, requested by
any such Plan, subject to the purchase limitations set forth in Section VI. D.
of this Plan, provided, however, that if the shares of Conversion Stock sold in
the Conversion exceed the maximum of the Estimated Price Range, up to 10% of the
total offering of Conversion Stock may be sold to Tax-Qualified Employee Stock
Benefit Plans.
3. Preference Category No. 3: Supplemental Eligible Account Holders.
In the event that the Eligibility Record Date is more than 15 months prior
to the date of the latest amendment to the Application for Approval of
Conversion filed prior to OTS approval, and if there are any shares of
Conversion Stock remaining after satisfying the subscriptions of Eligible
Account Holders provided for under Preference Category No. 1 above and the
subscriptions of any Tax-Qualified Employee Stock Benefit Plans provided for
under Preference Category No. 2 above, then and only in that event each
Supplemental Eligible Account Holder of the Association shall receive, without
payment, Subscription Rights to purchase a number of shares of Conversion Stock
which shall be determined by the Boards of Directors of the Holding Company and
of the Association before the Subscription Offering commences and shall be no
greater than 5.0% of the number of shares of the Conversion Stock determined by
dividing the maximum of the Estimated Price Range as of the date the Conversion
Stock is first offered (without giving effect to any subsequent adjustment to
the Estimated Price Range) by the Purchase Price, except that any one or more
Tax-Qualified Employee Stock Benefit Plans may purchase in the aggregate not
more than ten percent (10%) of the shares of Conversion Stock offered in the
Conversion, and that shares held by one or more Tax-Qualified or
Non-Tax-Qualified Employee Stock Benefit Plans and attributed to a person shall
not be aggregated with other shares purchased directly by or otherwise
attributable to that Person. Any Subscription Rights received by Eligible
Account Holders in accordance with Preference Category No. 1 shall reduce to the
extent thereof the Subscription Rights granted pursuant to this Preference
Category No. 3. If sufficient shares are not available in this Preference
Category No. 3, shares may be allocated first to Local Supplemental Eligible
Account Holders. If so, and if sufficient shares are not available for Local
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Supplemental Eligible Account Holders, shares shall be allocated first to permit
each Local Supplemental Eligible Account Holder to purchase the lesser of 100
shares or the number of shares subscribed for, and thereafter pro rata in the
same proportion that the Qualifying Deposit of the subscribing Local
Supplemental Eligible Account Holder bears to the total Qualifying Deposits of
all subscribing Local Supplemental Eligible Account Holders. If shares remain
available after subscriptions of all Local Supplemental Eligible Account Holders
are filled, shares shall next be allocated to Non-Local Supplemental Eligible
Account Holders. If insufficient shares are available for allocation to
Non-Local Supplemental Eligible Account Holders, shares shall be allocated first
to permit each Non-Local Supplemental Eligible Account Holder to purchase the
lesser of 100 shares or the number of shares subscribed for, and thereafter pro
rata in the same proportion that the Qualifying Deposit of the Non-Local
Supplemental Eligible Account Holder bears to the total Qualifying Deposits of
all subscribing Non-Local Supplemental Eligible Account Holders. If the Holding
Company and the Association decide not to give preference to Local Supplemental
Eligible Account Holders, if sufficient shares are not available in this
Category 3, Conversion Stock shall be allocated first to permit each subscribing
Supplemental Eligible Account Holder to purchase the lesser of 100 shares or the
number of shares subscribed for, and thereafter pro rata in the same proportion
that the Qualifying Deposit of the Supplemental Eligible Account Holder bears to
the total Qualifying Deposits of all subscribing Supplemental Eligible Account
Holders.
4. Preference Category No. 4: Other Members
Each Other Member shall receive non-transferable Subscription Rights to
subscribe for shares of Conversion Stock remaining after satisfying the
subscriptions of Eligible Account Holders provided for under Category No. 1
above, the subscriptions of any Tax-Qualified Employee Stock Benefit Plans
provided for under Category No. 2 above, and the subscriptions of Supplemental
Eligible Account Holders provided for under Category No. 3 above, subject to the
following conditions:
a. Each Other Member shall be entitled to subscribe for a number
of shares which shall be determined by the Boards of Directors of the
Holding Company and the Association before the Subscription Offering
commences and shall not exceed 5.0% of the number of shares of
Conversion Stock determined by dividing the maximum of the Estimated
Price Range as of the date the Conversion Stock is first offered
(without giving effect to any subsequent adjustment to the Estimated
Price Range) by the Purchase Price, to the extent that stock is
available, except that any one or more Tax-Qualified Employee Stock
Benefit Plans may purchase in the aggregate not more than ten percent
(10%) of the shares offered in the Conversion, and that shares held by
one or more Tax-Qualified or Non-Tax-Qualified Employee Stock Benefit
Plans and attributed to a Person shall not be aggregated with other
shares purchased directly by or otherwise attributable to that Person.
b. If sufficient shares are not available in this Preference
Category No. 4, shares may be allocated first to Local Other Members.
If so, and if sufficient shares are not available for Local Other
Members, the shares available shall be allocated among Local Other
Members pro rata in the same proportion that the number of shares
subscribed for by each Local Other Member bears to the total number of
shares subscribed for by all Local Other Members. If shares remain
available after subscriptions by all Local Other Members are filled,
shares shall next be allocated to Non-Local Other Members. If
insufficient shares are available for allocation to Non-Local Other
Members, shares shall be allocated among Non-Local Other Members pro
rata in the same proportion that the number of shares subscribed for by
each Non-Local Other Member bears to the total number of shares
subscribed for by all Non-Local Other Members. If the Holding Company
and the Association decide not to give preference to Local Other
Members, if sufficient shares are not available in this Category 4,
Conversion Stock shall be allocated among subscribing Other Members pro
rata in the same proportion that the number of shares subscribed for by
each Other Member bears to the total number of shares subscribed for by
all Other Members.
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If the total number of shares subscribed for in the Subscription Offering
falls within the Estimated Price Range, the Conversion may be consummated.
C. Direct Community Offering
1. If the total number of shares of Conversion Stock subscribed for in
the Subscription Offering does not fall within the Estimated Price Range,
additional shares representing up to the difference between the shares
subscribed for in the Subscription Offering and the number of shares equal
to the maximum of the Estimated Price Range may be offered for sale in a
Direct Community Offering. This will involve an offering of all
unsubscribed shares directly to the general public, giving preference to
residents of Jefferson County. The Direct Community Offering, if any, shall
be for a period of not less than 20 days nor more than 90 days unless
extended by the Association and the Holding Company, and shall commence
concurrently with, during or promptly after the Subscription Offering. The
purchase price per share to the general public in a Direct Community
Offering shall be equal to the Purchase Price. Purchase orders received
during the Direct Community Offering shall be filled up to a maximum of two
percent of the total number of shares of Conversion Stock, with any
remaining unfilled purchase orders to be allocated on an equal number of
shares basis. The Association and the Holding Company may use an investment
banking firm or firms on a best efforts basis to sell the unsubscribed
shares in the Direct Community Offering. The Association and the Holding
Company may pay a commission or other fee to the Sales Agents as to the
unsubscribed shares sold by such firm or firms in the Direct Community
Offering and may also reimburse such firm or firms for expenses incurred in
connection with the sale. Such Sales Agents may also be paid a management
fee based on shares of Conversion Stock sold in the Conversion to
compensate them for any advisory assistance they provide during the
Conversion. The Conversion Stock will be offered and sold in the Direct
Community Offering so as to achieve the widest distribution of the
Conversion Stock. The Association reserves the right to reject any orders
received in the Direct Community Offering in whole or in part.
2. If for any reason any shares remain unsold after the Subscription
Offering and Direct Community Offering, if any, the Board of Directors will
seek to make other arrangements for the sale of the remaining shares,
pursuant to procedures approved by the OTS. If such other arrangements
cannot be made, the Plan will terminate.
D. Additional Limitations Upon Purchases of Shares of Conversion Stock
The following additional limitations shall be imposed on all purchases
of Conversion Stock in the Conversion:
1. No person, by himself or herself, or with an Associate or group of
Persons acting in concert, may subscribe for or purchase more than a number
of shares of the Conversion Stock which shall be determined by the Boards
of Directors of the Holding Company and the Association before the
Subscription Offering commences and shall not exceed 5.0% of the number of
shares determined by dividing the maximum of the Estimated Price Range as
of the date the Conversion Stock is first offered (without giving effect to
any subsequent adjustment to the Estimated Price Range) by the Purchase
Price, except that any one or more Tax-Qualified Employee Stock Benefit
Plans may purchase in the aggregate not more than ten percent (10%) of the
shares offered in the Conversion, and shall be entitled to purchase this
quantity regardless of the number of shares to be purchased by other
parties, and that shares held by one or more Tax-Qualified or
Non-Tax-Qualified Employee Stock Benefit Plans and attributed to a Person
shall not be aggregated with shares purchased directly by or otherwise
attributable to that Person.
2. Directors and Officers and their Associates may not purchase in all
categories in the Conversion an aggregate of more than 34% of the
Conversion Stock offered in the Conversion. In calculating the number of
shares which may be purchased, any shares attributable to the Officers and
directors and their Associates but held by one or more Tax-Qualified
Employee Stock Benefit Plans shall not be included.
3. The minimum number of shares of Conversion Stock that may be
purchased by any Person in the Conversion is 25 shares, provided sufficient
shares are available; provided, however, that if the Purchase Price is
greater than $20.00 per share, such minimum number of shares shall be
adjusted so that the aggregate Purchase Price will not exceed $500.00.
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4. The Boards of Directors of the Association and the Holding Company
may, in their sole discretion, and without further approval of Members,
increase the maximum purchase limitation set forth in subparagraph (1)
above up to 9.99% of the Conversion Stock offered in the Conversion,
provided that orders for shares exceeding 5% of the shares of Conversion
Stock shall not exceed, in the aggregate, 10% of the shares of Conversion
Stock, except that Tax-Qualified Employee Stock Benefit Plans may purchase
in the aggregate up to ten percent (10%) of the Conversion Stock offered in
the Conversion and not be included in the order limit.
5. In determining the maximum percentage limitation under subparagraph
(1) above and in Sections VI.B.1, 3, and 4 the Boards of Directors of the
Association and the Holding Company may set separate limitations for (i)
each account held and/or loan borrowed, (ii) each household of a Person
and/or (iii) each Person together with Associates and Persons acting in
concert. Such separate limitations shall not, however, apply to any
Tax-Qualified Employee Stock Benefit Plan. The Boards of Directors of the
Association and the Holding Company may, in their sole discretion decrease
the maximum purchase limitation set forth in subparagraph (1) above,
without further approval of Members.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, the
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Holding Company and the Association may increase or decrease any of the purchase
limitations set forth herein at any time. In the event that either the
individual purchase limitation or the number of shares of Conversion Stock to be
sold in the Conversion, is increased after commencement of the Subscription
Offering, the Holding Company and the Association shall permit any Person who
subscribed for the maximum number of shares of Conversion Stock to purchase an
additional number of shares such that such Person shall be permitted to
subscribe for the then maximum number of shares permitted to be subscribed for
by such Person, subject to the rights and preferences of any person who has
priority Subscription Rights. In such event the Holding Company or the
Association, in its sole discretion, may resolicit orders only from such persons
who subscribed for the prior maximum purchase amount and may resolicit certain
other large subscribers. In the event that either the individual purchase
limitation or the number of shares of Conversion Stock to be sold in the
Conversion is decreased after commencement of the Subscription Offering, the
orders of any Person who subscribed for the maximum number of shares of
Conversion Stock shall be decreased by the minimum amount necessary so that such
Person shall be in compliance with the then maximum number of shares permitted
to be subscribed for by such Person.
For purposes of this Section VI, the directors of the Association and the
Holding Company shall not be deemed to be Associates or a group acting in
concert solely as a result of their being directors of the Association or of the
Holding Company.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the above purchase
limitations.
E. Restrictions and Other Characteristics of Conversion Stock Being Sold
1. Transferability. Conversion Stock purchased by Persons other than
directors and Officers of the Association or the Holding Company will be
transferable without restriction. Shares purchased by directors or Officers
of the Association or of the Holding Company shall not be sold or otherwise
disposed of for value for a period of one year from the date of Conversion,
except for any disposition of such shares (i) following the death of the
original purchaser or (ii) resulting from an exchange of securities in a
merger or acquisition approved by the applicable regulatory authorities.
Transfers that could result in a change of control of the Association or
the Holding Company or result in the ownership by any person of more than
10% of any class of the Association's or of the Holding Company's equity
securities may be subject to the prior approval of the OTS or the FRB.
Moreover, transfers of Holding Company common stock are also subject to
restrictions in the Holding Company's Articles of Incorporation.
The certificates representing shares of Conversion Stock issued by
Holding Company to directors and Officers shall bear a legend giving
appropriate notice of the one year holding period restriction. The Holding
Company shall give appropriate instructions to the transfer agent for such
stock with respect to the applicable restrictions relating to the transfer
of restricted stock. Any shares subsequently issued as a stock dividend,
stock split, or otherwise with respect to any such restricted stock shall
be subject to the same holding period restrictions for directors and
Officers of the Association and of the Holding Company as may be then
applicable to such restricted stock.
No director or Officer of the Association or the Holding Company, or
Associate of such a director or Officer, shall purchase any outstanding
shares of common stock of the Holding Company for a period of three years
following the Conversion without the prior written approval of the OTS,
except from a broker or dealer registered with the SEC, in a negotiated
transaction involving more than one percent of the then outstanding shares
of common stock, pursuant to any one or more Tax-Qualified or
Non-Tax-Qualified Employee Stock Benefit Plans which may be attributable to
individual Officers or directors, or pursuant to stock option and other
incentive stock plans approved by Holding Company's shareholders. As used
herein, the term negotiated transaction means a transaction in which the
securities are offered and the terms and arrangements relating to any sale
are arrived at through direct communications between the seller or any
Person acting on its behalf and the purchaser or his investment
representative. The term investment representative shall mean a
professional investment advisor acting as agent for the purchaser and
independent of the seller and not acting on behalf of the seller in
connection with the transaction.
2. Repurchase and Dividend Rights. Except as set forth below, for a
period of three years following Conversion, the Holding Company shall not
repurchase any shares of its capital stock, except in the case of an offer
approved by the OTS to repurchase on a pro rata basis made to all holders
of common stock of the Holding Company, the repurchase of qualifying shares
of a director, or a purchase on the open market by a Tax-Qualified or
Non-Tax-Qualified Employee Stock Benefit Plan in an amount reasonable and
appropriate to fund the plan. Notwithstanding anything to the contrary in
the foregoing, the Holding Company may repurchase its common stock to the
extent and subject to the requirements set forth in 12 C.F.R. 563b.3(g)(3),
as it may be amended from time to time.
Present regulations also provide that the Converted Association may not
declare or pay a cash dividend on or repurchase any of its Capital Stock if
the result thereof would be to reduce the net worth of the Converted Bank
below the amount required for the liquidation account to be established
pursuant to Section XI hereof. Any dividend declared or paid on, or
repurchase of, the Converted Association's Capital Stock must also comply
with regulations adopted by the OTS setting standards for payment of
dividends and other "capital distributions" by federal stock savings and
loan associations insured by the FDIC set forth in 12 C.F.R. ss. 563.134,
as it may be amended from time to time.
The above limitations shall not preclude payments of dividends or
repurchases of stock by the Converted Association or by the Holding Company
in the event applicable federal regulatory limitations are liberalized
subsequent to OTS approval of the Plan.
3. Voting Rights. Upon Conversion, holders of deposit accounts and
borrowers will not have voting rights in the Converted Association or the
Holding Company. Exclusive voting rights with respect to the Converted
Association will be held and exercised by the Holding Company as holder of
the Association's Capital Stock. Voting rights with respect to the Holding
Company shall be held and exercised by the holders of the Holding Company's
common stock. Each shareholder of the Holding Company will upon Conversion
be entitled to vote on any matters coming before the shareholders of the
Holding Company for consideration and will be entitled to one vote for each
share of Holding Company common stock owned by said shareholder, except as
otherwise prescribed by law and except insofar as the Holding Company's
Articles of Incorporation may provide with respect to the cumulation of
votes for the election of directors or may limit voting rights as set forth
in Section XII hereof.
F. Exercise of Subscription Rights; Order Forms
1. The Association may commence the Subscription Offering concurrently
with the proxy solicitation for the Special Meeting. If the Subscription
Offering occurs concurrently with the solicitation of proxies for the
Special Meeting, the prospectus and Order Form may be sent to each Eligible
Account Holder, Supplemental Eligible Account Holder and Other Member at
their last known address as shown on the records of the Association.
However, the Association may furnish a prospectus and Order Form only to
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members who have returned to the Association by a specified date a postcard
or other written communication requesting a prospectus and Order Form,
provided that the Subscription Offering shall not be closed prior to the
expiration of 30 days after the mailing of the proxy solicitation material
and/or letter sent in lieu of the proxy statement to those Eligible Account
Holders and Supplemental Eligible Account Holders who are not Members on
the Voting Record Date. In such event, the Association shall provide a
postage-paid postcard for this purpose and make appropriate disclosure in
its proxy statement for the solicitation of proxies to be voted at the
Special Meeting and/or letter sent in lieu of the proxy statement to those
Eligible Account Holders and Supplemental Eligible Account Holders who are
not Members on the Voting Record Date. If the Subscription Offering is not
commenced within 45 days after the Special Meeting, the Association may
transmit, no more than 30 days prior to the commencement of the
Subscription Offering, to each Eligible Account Holder, Supplemental
Eligible Account Holder and Other Member who had been furnished with proxy
solicitation materials a notice which shall state that the Association is
not required to furnish a prospectus or Order Form to them unless they
return by a reasonable date a certain postage-paid postcard or other
written communication requesting a prospectus and Order Form.
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2. Each Order Form will be preceded or accompanied by a prospectus
describing the Association and the shares of Conversion Stock being offered
for subscription and containing all other information required under the
Securities Act of 1933 and by the OTS or necessary to enable Persons to
make informed investment decisions regarding the purchase of Conversion
Stock.
3. The Order Forms (or accompanying instructions) used for the
Subscription Offering will contain, among other things, the following:
(i) A clear and intelligible explanation of the Subscription
Rights granted under the Plan to Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible
Account Holders and Other Members;
(ii) A specified expiration date by which Order Forms must be
returned to and actually received by the Association or the Holding
Company or their representative for purposes of exercising Subscription
Rights, which date will be not less than 20 days after the Order Forms
are mailed;
(iii) The Purchase Price to be paid for each share subscribed for
when the Order Form is returned;
(iv) Except as otherwise provided in Section VI.D.3 hereof, a
statement that 25 shares is the minimum number of shares of Conversion
Stock that may be subscribed for under the Plan;
(v) A specifically designated blank space for indicating the
number of shares being subscribed for;
(vi) A set of detailed instructions as to how to complete the
Order Form;
(vii) Specifically designated blank spaces for dating and signing
the Order Form;
(viii)An acknowledgment that the subscriber has received the
prospectus;
(ix) A statement of the consequences of failure to properly
complete and return the Order Form, including a statement that the
Subscription Rights will expire on the expiration date specified on
the Order Form unless such expiration date is extended by the
Association and the Holding Company, and that the Subscription Rights
may be exercised only by delivering the Order Form, properly completed
and executed, to the Association or the Holding Company or their
representative by the expiration date, together with required payment
of the Purchase Price for all shares of Conversion Stock subscribed
for;
(x) A statement that the Subscription Rights are non-transferable
and that all shares of Conversion Stock subscribed for upon exercise of
Subscription Rights must be purchased on behalf of the Person
exercising the Subscription Rights for his own account; and
(xi) A statement that, after receipt by the Association or the
Holding Company or their representative, a subscription may not be
modified, withdrawn or canceled without the consent of the Association
and the Holding Company.
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G. Method of Payment
Payment for all shares of Conversion Stock subscribed for, computed on the
basis of the Purchase Price, must accompany all completed Order Forms. Payment
may be made in cash (if presented in person), by check, or, if the subscriber
has a deposit in the Association (including a certificate of deposit), the
subscriber may authorize the Association to charge the subscriber's account.
Payment for shares of Conversion Stock subscribed for by Tax-Qualified
Employee Stock Benefit Plans may be made with funds contributed by the
Association or the Holding Company and/or funds obtained pursuant to a loan from
an unrelated financial institution or the Holding Company pursuant to a loan
commitment which is in force from the time that any such plan submits an order
form until the closing of the Conversion.
If a subscriber authorizes the Association to charge his or her account,
the funds will continue to earn interest, but may not be used by the subscriber
until all Conversion Stock has been sold or the Plan of Conversion is
terminated, whichever is earlier. The Association will allow subscribers to
purchase shares by withdrawing funds from certificate accounts, without the
assessment of early withdrawal penalties. In the case of early withdrawal of
only a portion of such account, the certificate evidencing such account shall be
canceled if the remaining balance of the account is less than the applicable
minimum balance requirement, in which event the remaining balance will earn
interest at the then-current passbook rate. This waiver of early withdrawal
penalty is applicable only to withdrawals made in connection with the purchase
of Conversion Stock under the Plan of Conversion. Interest will also be paid, at
not less than the then current passbook rate, on all orders paid in cash or by
check or money order, from the date payment is received until consummation of
the Conversion. Payments made in cash or by check or money order will be placed
by the Association or the Holding Company in an escrow or other account
established specifically for this purpose.
In the event of an unfilled amount of any subscription order, the Converted
Association will make an appropriate refund, or cancel an appropriate portion of
the related withdrawal authorization, after consummation of the Conversion. If
for any reason the Conversion is not consummated, purchasers will have refunded
to them all payments made and all withdrawal authorizations will be canceled in
the case of subscription payments authorized from accounts at the Association.
H. Undelivered, Defective or Late Order Forms; Insufficient Payment
The Boards of Directors of the Association and the Holding Company shall
have the absolute right, in their sole discretion, to reject any Order Form,
including but not limited to, any Order Forms which (i) are not delivered or are
returned by the United States Postal Service (or the addressee cannot be
located); (ii) are not received back by the Association or the Holding Company
or their representative, or are received after termination of the date specified
thereon; (iii) are defectively completed or executed; (iv) are not accompanied
by the total required payment for the shares of Conversion Stock subscribed for
(including cases in which the subscribers' accounts in the Association are
insufficient to cover the authorized withdrawal for the required payment); or
(v) are submitted by or on behalf of a person whose representations the Boards
of Directors believe to be false or who they otherwise believe, either alone or
acting in concert with others, is violating, evading or circumventing, or
intends to violate, evade or circumvent, the terms and conditions of this Plan.
In such event, the Subscription Rights of the person to whom such rights have
been granted will not be honored and will be treated as though such Person
failed to return the completed Order Form within the time period specified
therein. The Association and the Holding Company may, but will not be required
to, waive any irregularity relating to any Order Form or require submission of
corrected Order Forms or the remittance of full payment for subscribed shares by
such date as the Association or the Holding Company may specify. The Association
and the Holding Company's interpretation of the terms and conditions of this
Plan and of the proper completion of the Order Form will be final, subject to
the authority of the OTS.
I. Members in Non-Qualified States or in Foreign Countries
The Association and the Holding Company will make reasonable efforts to
comply with the securities laws of all states in the United States in which
Persons entitled to subscribe for Conversion Stock pursuant to the Plan reside.
However, the Association or the Holding Company will not be required to offer
Subscription Rights to any Person who resides in a foreign country or who
resides in a state of the United States with respect to which all of the
following apply: (i) a small number of Persons otherwise eligible to subscribe
for shares under this Plan reside in such state and (ii) the granting of
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Subscription Rights or offer or sale of shares of Conversion Stock to such
Persons would require the Association or the Holding Company or their respective
Officers or directors to register, under the securities laws of such state, as a
broker, dealer, salesman or agent or to register or otherwise qualify the
Conversion Stock for sale in such state; and (iii) such registration,
qualification or filing in the judgment of the Holding Company and the
Association would be impracticable or unduly burdensome for reasons of cost or
otherwise.
VII. FEDERAL STOCK CHARTER AND BYLAWS
A. As part of the Conversion, the Association take all appropriate steps to
amend its charter to read in the form of a federal stock charter as prescribed
by the OTS for a federal stock savings and loan association. By their approval
of the Plan, the Members of the Association will thereby approve and adopt such
federal stock charter.
B. The Association will also take appropriate steps to amend its bylaws to
read in the form prescribed by the OTS for a federal stock savings and loan
association.
C. The effective date of the adoption of the Converted Association's
federal stock charter and bylaws shall be the date of the issuance and sale of
the Conversion Stock as specified by the OTS.
D. Copies of the amended charter and bylaws will be mailed to all Members
as part of the proxy materials for the Special Meeting.
VIII. STOCK INCENTIVE PLANS AND EMPLOYMENT CONTRACTS
In order to provide an incentive for directors, Officers and employees of
the Holding Company and the Association, the Board of Directors of the Holding
Company or of the Association is authorized to adopt a stock option plan or
plans, a management recognition plan and trust, a restricted stock bonus plan,
an employee stock ownership plan and trust, and similar stock incentive plans.
Such plans (other than an employee stock ownership plan) shall be subject to
approval at an annual or special meeting of shareholders of the Holding Company,
and in the case of any such plans other than an employee stock ownership plan,
will be implemented no earlier than the date of such shareholder meeting to be
held no earlier than six (6) months following completion of the Conversion.
Moreover, the Boards of Directors of the Association and Holding Company are
authorized to enter into employment contracts with key employees.
IX. SECURITIES REGISTRATION AND MARKET MAKING
In connection with the Conversion, the Holding Company will register its
common stock with the SEC, pursuant to the Securities Exchange Act of 1934, as
amended. In connection with the registration, the Holding Company will under
take not to deregister such stock, without the approval of the OTS, for a period
of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist two
or more Market Makers to establish and maintain a market for its common stock
promptly following Conversion. The Holding Company will also use its best
efforts to cause its common stock to be quoted on the National Association of
Securities Dealers Automated Quotations System or to be listed on a national or
regional securities exchange.
X. STATUS OF DEPOSIT ACCOUNTS AND LOANS SUBSEQUENT TO CONVERSION
All Deposit Accounts of the Converted Association will retain the same
status after the Conversion as such Accounts had prior to the Conversion. Each
Deposit Account holder shall retain, without payment, a withdrawable Deposit
Account or Accounts in the Converted Association, equal in amount to the
withdrawable value of such account holder's Deposit Account or Accounts
immediately prior to Conversion. All Deposit Accounts will continue to be
insured by the FDIC up to the applicable limits of insurance coverage, and shall
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be subject to the same terms and conditions (except as to voting and liquidation
rights) to which such Deposit Accounts were subject at the time of the
Conversion. All loans shall retain the same status after Conversion as those
loans had prior to Conversion. Notwithstanding the foregoing, as provided in
Section VI.E.2, voting rights of Deposit Account holders and borrowers will
terminate upon Conversion.
XI. LIQUIDATION ACCOUNT
For purposes of granting to Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain Deposit Accounts at the
Converted Association a priority in the event of a complete liquidation of the
Converted Association, the Converted Association will, at the time of
Conversion, establish a liquidation account in an amount equal to the net worth
of the Association as shown on its latest statement of financial condition
contained in the final prospectus used in connection with the Conversion. The
operation and maintenance of the liquidation account will not operate to
restrict the use or application of any of the net worth accounts of the
Converted Association; provided, however, that such net worth accounts will not
be voluntarily reduced below the required dollar amount of the liquidation
account. Each Eligible Account Holder and Supplemental Eligible Account Holder
shall, with respect to each Deposit Account held, have a related inchoate
interest in a portion of the liquidation account balance ("subaccount balance").
The initial subaccount balance of a Deposit Account held by an Eligible
Account Holder and Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of the Qualifying Deposit in the Deposit
Account on the Eligibility Record Date and/or the Supplemental Eligibility
Record Date of such Eligible Account Holder or Supplemental Eligible Account
Holder and the denominator is the total amount of the Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders on such
date(s). For savings accounts in existence at both dates, separate subaccounts
shall be determined on the basis of the Qualifying Deposits in such savings
accounts on such record dates. Such initial subaccount balance shall not be
increased, and it shall be subject to downward adjustment as provided below.
If the deposit balance in any Deposit Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing date subsequent to the respective record dates is less than the lesser
of (i) the deposit balance in such Deposit Account at the close of business on
any other annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date or (ii) the amount of the Qualifying
Deposit in such Deposit Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, the subaccount balance shall be reduced in
an amount proportionate to the reduction in such deposit balance. In the event
of a downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Deposit Account. If all funds in such Deposit Account are withdrawn, the related
subaccount balance shall be reduced to zero.
In the event of a complete liquidation of Converted Association (and only
in such event), each Eligible Account Holder and/or Supplemental Eligible
Account Holder shall be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then-current adjusted subaccount
balances for Deposit Accounts then held before any liquidation distribution may
be made to shareholders. No merger, consolidation, bulk purchase of assets with
assumptions of Deposit Accounts and other liabilities, or similar transactions
in which the Converted Association is not the surviving institution, shall be
considered to be a complete liquidation if the surviving institution is a
qualifying institution insured by the FDIC. In such transactions, the
liquidation account shall be assumed by the surviving institution.
The Converted Association shall not be required to recompute the
liquidation account and subaccount balances provided the Converted Association
maintains records sufficient to make necessary computations in the event of a
complete liquidation or such other events as may require a computation of the
balance of the liquidation account. The liquidation subaccount of an account
holder shall be maintained for as long as the account holder maintains an
account with the same Social Security number.
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XII. RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
A. Present regulations provide that for a period of three years following
completion of the Conversion, no person (i.e., individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, or any unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution) shall directly or indirectly offer to
purchase or actually acquire the beneficial ownership of more than ten percent
of any class of equity security of the Holding Company without the prior
approval of the OTS. However, approval is not required for purchases directly
from the Holding Company or from underwriters or a selling group acting on its
behalf with a view toward public resale, or for purchases not exceeding one
percent per annum of the shares outstanding. Civil penalties may be imposed by
the OTS for willful violation or assistance of any violation. Where any person
directly or indirectly acquires beneficial ownership of more than ten percent of
Holding Company common stock outstanding within such three year period without
the prior approval of the OTS, the Holding Company stock beneficially owned by
such person in excess of ten percent shall not be counted as shares entitled to
vote and shall not be voted by any person or counted as voting shares in
connection with any matter submitted to the shareholders of the Holding Company
for a vote.
B. The Holding Company may provide in its Articles of Incorporation that,
for a specified period of up to five years or for an unspecified period of time
following the date of the completion of the Conversion, no person shall directly
or indirectly offer to acquire or acquire the beneficial ownership of more than
ten percent of the outstanding Holding Company common stock. Furthermore, the
Articles of Incorporation may provide that, for a specified period of up to five
years or for an unspecified period of time following the date of the completion
of the Conversion, shares of Holding Company common stock beneficially owned in
violation of such percentage limitation shall not be entitled to vote and shall
not be voted by any person or counted as voting shares in connection with any
matter submitted to the shareholders of the Holding Company for a vote. The
Holding Company may provide in its Articles of Incorporation such other
provisions affecting acquisition of Holding Company common stock or possible
changes of control of the Holding Company as shall be determined by the Holding
Company's Board of Directors.
XIII. AQUISITION OF THE CNB SHARES
Immediately following consummation of the Conversion, the Holding Company
shall acquire the CNB Shares, subject to the terms and condition of the Amended
and Restated Stock Purchase Agreement between the Association and Eloise A.
Durocher dated as of March 4, 1996. The Conversion will not become effective
until such time as it becomes clear that the acquisition of the CNB Shares by
the Holding Company will be consummated. If at any time it becomes clear that
the acquisition of the CNB Shares by the Holding Company or the Association will
not occur, the Conversion and the Plan shall terminate, and any payments made by
prospective purchasers will be refunded, with interest, as provided in the Plan,
and all withdrawal authorizations will be canceled in the case of subscription
payments authorized from accounts of the Association.
XIV. AMENDMENT OR TERMINATION OF PLAN
If necessary or desirable, the Plan may be amended at any time prior to
submission of the Plan and proxy materials to the Members by a two-thirds vote
of the Boards of Directors of the Association and the Holding Company. After
submission of the Plan and proxy materials to the Members, the Plan may be
amended by a two-thirds vote of the Boards of Directors of the Association and
the Holding Company only with the concurrence of the OTS or resubmission to the
Members.
The Plan may be terminated by a two-thirds vote of the Boards of Directors
of the Association and the Holding Company at any time prior to the Special
Meeting of Members, and at any time following such Special Meeting with the
concurrence of the OTS. In its discretion, the respective Boards of Directors
may modify or terminate the Plan upon the order or with the approval of the OTS,
and without a resolicitation of proxies or another meeting of Members. The Plan
shall terminate if the sale of shares of Conversion Stock falling within the
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Estimated Price Range is not completed within 24 months of the date of the
Special Meeting. A specific resolution approved by a majority of the Boards of
Directors of the Association and the Holding Company is required in order for
the Association and the Holding Company to terminate the Plan prior to the end
of such 24 month period.
XV. EXPENSES OF THE CONVERSION
The Holding Company and the Association shall use their best efforts to
assure that expenses incurred by the Association and the Holding Company in
connection with the Conversion shall be reasonable.
XVI. EXTENSION OF CREDIT FOR PURCHASE OF STOCK
Neither the Association nor the Holding Company shall knowingly loan funds
or otherwise extend credit to any Person to purchase shares of Conversion Stock,
provided, however that, with the approval of the OTS and/or the FRB, the Holding
Company may be permitted to loan funds to a Tax-Qualified Employee Stock Benefit
Plan for purposes of acquiring shares of Conversion Stock in the Conversion.
XVII. EFFECTIVE DATE
The effective date of the Conversion shall be the date of the closing of
the sale of all shares of Conversion Stock. The closing (which shall be within
45 days after the completion of the Subscription Offering, unless the Holding
Company and the Association extend such period as provided herein) for all
shares of Conversion Stock sold in the Subscription Offering and any Direct
Community Offering shall occur simultaneously, and the closing is conditioned
upon the prior receipt of all requisite regulatory and other approvals and on
the acquisition of the CNB Shares by the Holding Company promptly following the
Closing. If it becomes clear at any time that the CNB Shares will not be
acquired by the Holding Company or the Association, the closing of the
Conversion will not occur, as provided in Section XIII hereof.
17
ARTICLES OF INCORPORATION
OF
RIVER VALLEY BANCORP
ARTICLE 1
Name
The name of the Corporation is River Valley Bancorp.
ARTICLE 2
Purposes and Powers
Section 2.01. Purposes. The purposes for which the Corporation is formed
are the transaction of any or all lawful business for which corporations may be
incorporated under the Indiana Business Corporation Law, as the same may, from
time to time, be amended (the "Act").
Section 2.02. Powers. The Corporation shall have the same powers as an
individual to do all things necessary or convenient to carry out its business
and affairs, including without limitation, all the powers specifically
enumerated in the Act.
ARTICLE 3
Term of Existence
The period during which the Corporation shall continue is perpetual.
ARTICLE 4
Registered Office and Resident Agent
The street address of the registered office of the Corporation is:
303 Clifty Drive
P.O. Box 626
Madison, Indiana 47250
and the name and business office address of its registered agent in charge
of such office are:
James E. Fritz
303 Clifty Drive
P.O. Box 626
Madison, Indiana 47250
ARTICLE 5
Number of Shares
The total number of shares which the Corporation shall have authority to
issue is Seven Million (7,000,000) shares, all of which are without par value.
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ARTICLE 6
Terms of Shares
Section 6.01. Designation of Classes, Number and Par Value of Shares. The
shares of authorized capital shall be divided into Two Million (2,000,000)
shares of Preferred Stock, without par value, as hereinafter provided
("Preferred Stock"), and Five Million (5,000,000) shares of Common Stock,
without par value ("Common Stock"), as hereinafter provided.
Section 6.02. Rights, Privileges, Limitations and Restrictions of Preferred
Stock. The Board of Directors of the Corporation is vested with authority to
determine and state the designations and the relative preferences, limitations,
voting rights, if any, and other rights of the Preferred Stock and of each
series of Preferred Stock by the adoption and filing in accordance with the Act,
before the issuance of any shares of such Preferred Stock or series of Preferred
Stock, of an amendment or amendments to these Articles of Incorporation as the
same may, from time to time, be amended, determining the terms of such Preferred
Stock or series of Preferred Stock ("Preferred Stock Designation"). All shares
of Preferred Stock of the same series shall be identical with each other in all
respects. The number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the voting power of all of the
then outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of Directors, after giving effect to the provisions in
Article 11 hereof ("Voting Stock"), voting as a single class, without a separate
vote of the holders of the Preferred Stock or any series thereof, unless a vote
of any such holders is required pursuant to the Preferred Stock Designation.
Section 6.03. Rights, Privileges, Limitations and Restrictions of Common
Stock.
Clause 6.031. Single Class. The shares of Common Stock shall constitute a
separate and single class and shall not be issued in series. All shares of
Common Stock shall be identical with each other in all respects.
Clause 6.032. Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation, the holders of
the shares of Common Stock shall be entitled, after payment or provision
for payment of the debts and other liabilities of the Corporation and of
all shares of stock having priority over the Common Stock, in the event of
voluntary or involuntary liquidation, dissolution or winding up, to share
ratably in the remaining net assets of the Corporation.
Clause 6.033. Voting Rights. Every holder of shares of Common Stock
shall have the right, at every Shareholders' meeting, to one vote for each
share of Common Stock standing in his name on the books of the Corporation,
except as otherwise provided in the Act.
Section 6.04. Issuance of Shares. The Board of Directors has authority to
authorize and direct the issuance by the Corporation of shares of Preferred
Stock and Common Stock at such times, in such amounts, to such persons, for such
considerations and upon such terms and conditions as it may, from time to time,
determine upon, subject only to the restrictions, limitations, conditions and
requirements imposed by the Act, other applicable laws and these Articles of
Incorporation, as the same may, from time to time, be amended.
Section 6.05. Distributions Upon Shares. The Board of Directors has
authority to authorize and direct the payment of dividends and the making of
other distributions by the Corporation in respect of the issued and outstanding
shares of Preferred Stock and Common Stock (i) at such times, in such amount and
forms, from such sources and upon such terms and conditions as it may, from time
to time, determine upon, subject only to the restrictions, limitations,
conditions and requirements imposed by the Act, other applicable laws and these
Articles of Incorporation, as the same may, from time to time, be amended, and
(ii) in shares of the same class or series or in shares of any other class or
series without obtaining the affirmative vote or the written consent of the
holders of the shares of the class or series in which the payment or
distribution is to be made.
Section 6.06. Acquisition of Shares. The Board of Directors has authority
to authorize and direct the acquisition by the Corporation of the issued and
outstanding shares of Preferred Stock and Common Stock at such times, in such
amounts, from such persons, for such considerations, from such sources and upon
such terms and conditions as it may, from time to time, determine upon, subject
only to the restrictions, limitations, conditions and requirements imposed by
the Act, other applicable laws and these Articles of Incorporation, as the same
may, from time to time, be amended.
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Section 6.07. Recognition Procedure for Beneficial Ownership of Shares or
Rights. The Board of Directors may establish in the Code of By-Laws of the
Corporation a recognition procedure by which the beneficial owner of any share
or right of the Corporation that is registered on the books of the Corporation
in the name of a nominee is recognized by the Corporation, to the extent
provided in any such recognition procedure, as the owner thereof.
Section 6.08. Disclosure Procedure for Beneficial Ownership of Shares or
Rights. The Board of Directors may establish in the Corporation's Code of
By-Laws a disclosure procedure by which the name of the beneficial owner of any
share or right of the Corporation that is registered on the books of the
Corporation in the name of a nominee shall, to the extent not prohibited by the
Act or other applicable laws, be disclosed to the Corporation. Any disclosure
procedure established by the Board of Directors may include reasonable sanctions
to ensure compliance therewith, including without limitation (i) prohibiting the
voting of, (ii) providing for mandatory or optional reacquisition by the
Corporation of, and (iii) the withholding or payment into escrow of any dividend
or other distribution in respect of, any share or right of the Corporation as to
which the name of the beneficial owner is not disclosed to the Corporation as
required by such disclosure procedure.
Section 6.09. No Pre-emptive Rights. The holders of the Common Stock and
the holders of the Preferred Stock or any series of the Preferred Stock shall
have no pre-emptive rights to subscribe to or purchase any shares of Common
Stock, Preferred Stock or other securities of the Corporation.
Section 6.10. Record Ownership of Shares or Rights. The Corporation, to the
extent permitted by law, shall be entitled to treat the person in whose name any
share or right of the Corporation is registered on the books of the Corporation
as the owner thereof for all purposes, and shall not be bound to recognize any
equitable or any other claim to, or interest in, such share or right on the part
of any other person, whether or not the Corporation shall have notice thereof.
ARTICLE 7
Directors
Section 7.01. Number. The number of Directors of the Corporation shall not
be less than five (5) nor more than fifteen (15), as may be specified from time
to time by resolution adopted by a majority of the total number of the
Corporation's Directors. If and whenever the Board of Directors has not
specified the number of Directors, the number shall be six (6). The terms of the
initial directors of the Corporation shall expire at the first Annual Meeting of
Shareholders of the Corporation. At that meeting, the directors elected by the
Shareholders shall be divided into three (3) classes, as nearly equal in number
as possible, with the term of office of the first class to expire at the Annual
Meeting of Shareholders held following the fiscal year ended December 31, 1997,
the term of office of the second class to expire at the Annual Meeting of
Shareholders held following the fiscal year ended December 31, 1998, and the
term of office of the third class to expire at the Annual Meeting of
Shareholders held following the fiscal year ended December 31, 1999. At each
Annual Meeting of Shareholders following such initial classification, Directors
elected by the Shareholders to succeed those Directors whose term expires shall
be elected for a term of office to expire at the third succeeding Annual Meeting
of Shareholders after their election. Each Director shall hold office until his
successor is chosen and qualified. Directors need not be Shareholders of the
Corporation. There shall be no cumulative voting by Shareholders of any class or
series in the election of Directors of the Corporation.
Section 7.02. Vacancies. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, newly-created directorships resulting from
any increase in the authorized number of Directors or any vacancies in the Board
of Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause shall be filled only by a majority vote of
the Continuing Directors, as defined in Section 11.02 of Article 11 hereof,
although less than a quorum of the Board of Directors. Directors so chosen shall
hold office for a term expiring at the Annual Meeting of Shareholders at which
the term of the class to which they have been elected expires. No decrease in
the number of authorized Directors constituting the entire Board of Directors
shall shorten the term of any incumbent Director.
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Section 7.03. Removal. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, any Director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least 80% of the voting power of
all of the shares of the Corporation entitled to vote generally in the election
of Directors, voting together as a single class. For purposes of this section,
removal for cause shall be limited to the grounds then specifically enumerated
in 12 C.F.R. ss. 563.39 (or any successor provision) with respect to termination
for cause.
Section 7.04. Shareholder Nomination of Director Candidates and
Introduction of Business. Advance notice of Shareholder nominations for the
election of Directors and of business to be brought by Shareholders before any
meeting of the Shareholders of the Corporation shall be given in the manner
provided in the Corporation's Code of By-Laws.
Section 7.05. Calling of Special Shareholder Meetings. Special meetings of
the Shareholders of the Corporation may only be called by the Chairman of the
Board of Directors or by the Board of Directors pursuant to a resolution adopted
by a majority of the total number of Directors of the Corporation.
Section 7.06. Code of By-Laws. The Board of Directors of the Corporation
shall have power, without the assent or vote of the Shareholders, to make,
alter, amend or repeal the Code of By-Laws of the Corporation by the affirmative
vote of a number of Directors equal to a majority of the number who constitute a
full Board of Directors at the time of such action. Shareholders shall not have
any power to make, alter, amend or repeal the Corporation's Code of By-Laws.
Section 7.07. Factors to be Considered by Board. In addition to any other
considerations which the Board of Directors may lawfully take into account, in
determining whether to take or to refrain from taking corporate action on any
matter, including making or declining to make any recommendation to the
Shareholders of the Corporation, the Board of Directors may in its discretion
consider the long-term as well as short-term best interests of the Corporation
(including the possibility that these interests may be best served by the
continued independence of the Corporation), taking into account, and weighing as
the Directors deem appropriate, the social and economic effects of such action
on present and future employees, suppliers, customers of the Corporation and its
subsidiaries (including account holders and borrowers of any of the
Corporation's subsidiaries), the effect upon communities in which offices or
other facilities of the Corporation are located, and the effect on the
Corporation's ability to fulfill its corporate obligations as a savings and loan
holding company or a bank holding company and on the ability of any of its
subsidiary financial institutions to fulfill the objectives of a financial
institution under applicable statutes and regulations, and any other factors the
Directors consider pertinent.
Section 7.08. Authorized Board Actions. In furtherance and not in
limitation of the powers conferred by law or in these Articles of Incorporation,
as the same may, from time to time, be amended, the Board of Directors (and any
committee of the Board of Directors) is expressly authorized, to the extent
permitted by law, to take such action or actions as the Board or such committee
may determine to be reasonably necessary or desirable to (A) encourage any
person (as defined in Section 12.03, Clause 12.031 hereof) to enter into
negotiations with the Board of Directors and management of the Corporation with
respect to any transaction which may result in a change in control of the
Corporation which is proposed or initiated by such person or (B) contest or
oppose any such transaction which the Board of Directors or such committee
determines to be unfair, abusive or otherwise undesirable with respect to the
Corporation and its business, assets or properties or the Shareholders of the
Corporation, including, without limitation, the adoption of such plans or the
issuance of such rights, options, capital stock, notes, debentures or other
4
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evidences of indebtedness or other securities of the Corporation (which issuance
may be with or without consideration, and may (but need not) be issued pro
rata), which rights, options, capital stock, notes, evidences of indebtedness
and other securities (i) may be exchangeable for or convertible into cash or
other securities on such terms and conditions as may be determined by the Board
or such committee and (ii) may provide for the treatment of any holder or class
of holders thereof designated by the Board of Directors or any such committee in
respect of the terms, conditions, provisions and rights of such securities which
is different from, and unequal to, the terms, conditions, provisions and rights
applicable to all other holders thereof.
Section 7.09. Amendment, Repeal. Notwithstanding anything contained in the
Articles of Incorporation or the Code of By-Laws of the Corporation to the
contrary and notwithstanding that a lesser percentage or no vote may be
specified by law, but in addition to any affirmative vote of the holders of any
particular class or series of capital stock of the Corporation required by law
or any Preferred Stock Designation, the affirmative vote of the holders of at
least 80% of the voting power of all of the then-outstanding shares of Voting
Stock, voting together as a single class, shall be required to alter, amend,
change or repeal this Article 7.
ARTICLE 8
Initial Directors
The names and post office addresses of the initial Board of Directors of
the Corporation are as follows:
Name Post Office Address
Robert W. Anger 303 Clifty Drive
P.O. Box 626
Madison, Indiana 47250
Cecil L. Dorten 303 Clifty Drive
P.O. Box 626
Madison, Indiana 47250
James E. Fritz 303 Clifty Drive
P.O. Box 626
Madison, Indiana 47250
Michael J. Hensley 303 Clifty Drive
P.O. Box 626
Madison, Indiana 47250
Earl W. Johann 303 Clifty Drive
P.O. Box 626
Madison, Indiana 47250
Fred W. Koehler 303 Clifty Drive
P.O. Box 626
Madison, Indiana 47250
ARTICLE 9
Incorporator
The name and post office address of the Incorporator of the Corporation are
as follows:
Claudia V. Swhier, Esq.
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204
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ARTICLE 10
Provisions for Regulation of Business and Conduct
of Affairs of Corporation
Section 10.01. Amendments of Articles of Incorporation. Except as otherwise
provided in Articles 7, 11, and 12 hereof, the Corporation reserves the right to
increase or decrease the number of its authorized shares, or any class or series
thereof, and to reclassify the same, and to amend, alter, change or repeal any
provision contained in these Articles of Incorporation, or any amendment hereto,
or to add any provision to these Articles of Incorporation or to any amendment
hereto, in any manner now or hereafter prescribed or permitted by the Act or any
other applicable laws, and all rights and powers conferred upon Shareholders,
Directors and/or Officers in these Articles of Incorporation, or any amendment
hereto, are granted subject to this reserve power. No Shareholder has a vested
property right resulting from any provision in these Articles of Incorporation,
or any amendment hereto, or authorized to be in the Code of By-Laws of the
Corporation or these Articles of Incorporation by the Act, including, without
limitation, provisions relating to management, control, capital structure,
dividend entitlement, or purpose or duration of the Corporation.
Section 10.02. Action by Shareholders. Meetings of the Shareholders of the
Corporation shall be held at such place, within or without the State of Indiana,
as may be specified in the Code of By-Laws of the Corporation or in the
respective notices, or waivers of notice, thereof. Any action required or
permitted to be taken at any meeting of the Shareholders may be taken without a
meeting if a consent in writing setting forth the action so taken is signed by
all the Shareholders entitled to vote with respect thereto, and such written
consent is filed with the minutes of the proceedings of the Shareholders.
Section 10.03. Action by Directors. Meetings of the Board of Directors of
the Corporation or any committee thereof shall be held at such place, within or
without the State of Indiana, as may be specified in the Code of By-Laws of the
Corporation or in the respective notices, or waivers of notice, thereof. Any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if a
consent in writing setting forth the action so taken is signed by all members of
the Board of Directors or of such committee, as the case may be, and such
written consent is filed with the minutes of the proceedings of such Board or
committee.
Section 10.04. Places of Keeping of Corporate Records. The Corporation
shall keep at its principal office a copy of (1) its Articles of Incorporation,
and all amendments thereto currently in effect; (2) its Code of By-Laws, and all
amendments thereto currently in effect; (3) minutes of all meetings of the
Shareholders and records of all actions taken by the Shareholders without a
meeting (collectively, "Shareholders Minutes") for the prior three years; (4)
all written communications by the Corporation to the Shareholders including the
financial statements furnished by the Corporation to the Shareholders
("Shareholder Communications") for the prior three years; (5) a list of the
names and business addresses of the current Directors and the current Officers
of the Corporation; and (6) the most recent Annual Report of the Corporation as
filed with the Secretary of State of Indiana. The Corporation shall also keep
and maintain at its principal office, or at such other place or places within or
without the State of Indiana as may be provided, from time to time, in the Code
of By-Laws, (1) minutes of all meetings of the Board of Directors and of each
committee of such Board, and records of all actions taken by the Board of
Directors and by each committee without a meeting; (2) appropriate accounting
records of the Corporation; (3) a record of the Shareholders in a form that
permits preparation of a list of the names and addresses of all the
Shareholders, in alphabetical order, stating the number of shares held by each
Shareholder; and (4) Shareholders Minutes for periods preceding the prior three
years. All of the records of the Corporation described in this Section 10.04
(collectively, the "Corporate Records") shall be maintained in written form or
in another form capable of conversion into written form within a reasonable
time.
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Section 10.05. Limitation of Liability and Reliance on Corporate Records
and Other Information.
Clause 10.051. General Limitation. No Director, member of any committee
of the Board of Directors, or of another committee appointed by the Board,
Officer, employee or agent of the Corporation ("Corporate Person") shall be
liable for any loss or damage if, in taking or omitting to take any action
causing such loss or damage, either (1) such Corporate Person acted (A) in
good faith, (B) with the care an ordinarily prudent person in a like
position would have exercised under similar circumstances, and (C) in a
manner such Corporate Person reasonably believed was in the best interests
of the Corporation, or (2) such Corporate Person's breach of or failure to
act in accordance with the standards of conduct set forth in Clause
10.051(1) above (the "Standards of Conduct") did not constitute willful
misconduct or recklessness.
Clause 10.052. Reliance on Corporate Records and Other Information.
Any "Corporate Person" shall be fully protected, and shall be deemed to
have complied with the Standards of Conduct, in relying in good faith, with
respect to any information contained therein, upon (1) the Corporate
Records, or (2) information, opinions, reports or statements (including
financial statements and other financial data) prepared or presented by (A)
one or more other Corporate Persons whom such Corporate Person reasonably
believes to be competent in the matters presented, (B) legal counsel,
public accountants or other persons as to matters that such Corporate
Person reasonably believes are within such person's professional or expert
competence, (C) a committee of the Board of Directors or other committee
appointed by the Board of Directors, of which such Corporate Person is not
a member, if such Corporate Person reasonably believes such committee of
the Board of Directors or such appointed committee merits confidence, or
(D) the Board of Directors, if such Corporate Person is not a Director and
reasonably believes that the Board merits confidence.
Section 10.06. Interest of Directors in Contracts. Any contract or other
transaction between the Corporation and (i) any Director, or (ii) any
corporation, unincorporated association, business trust, estate, partnership,
trust, joint venture, individual or other legal entity ("Legal Entity") (A) in
which any Director has a material financial interest or is a general partner, or
(B) of which any Director is a director, officer, or trustee (collectively, a
"Conflict Transaction"), shall be valid for all purposes, if the material facts
of the Conflict Transaction and the Director's interest were disclosed or known
to the Board of Directors, a committee of the Board of Directors with authority
to act thereon, or the Shareholders entitled to vote thereon, and the Board of
Directors, such committee or such Shareholders authorized, approved or ratified
the Conflict Transaction. A Conflict Transaction is authorized, approved or
ratified:
(1) By the Board of Directors or such committee, if it receives the
affirmative vote of a majority of the Directors who have no interest in the
Conflict Transaction, notwithstanding the fact that such majority may not
constitute a quorum or a majority of the Board of Directors or such
committee or a majority of the Directors present at the meeting, and
notwithstanding the presence or vote of any Director who does have such an
interest; provided, however, that no Conflict Transaction may be
authorized, approved or ratified by a single Director; and
(2) By such Shareholders, if it receives the vote of a majority of the
shares entitled to be counted, in which vote shares owned or voted under
the control of any Director who, or of any Legal Entity that, has an
interest in the Conflict Transaction may be counted; provided, however,
that a majority of such shares, whether or not present, shall constitute a
quorum for the purpose of authorizing, approving or ratifying a Conflict
Transaction.
This Section 10.06 shall not be construed to require authorization,
ratification or approval by the Shareholders of any Conflict Transaction, or to
invalidate any Conflict Transaction, that would otherwise be valid under the
common and statutory law applicable thereto.
Section 10.07. Compensation of Directors. The Board of Directors is hereby
specifically authorized, in and by the Code of By-Laws of the Corporation, or by
resolution duly adopted by such Board, to make provision for reasonable
compensation to its members for their services as Directors, and to fix the
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basis and conditions upon which such compensation shall be paid. Any Director of
the Corporation may also serve the Corporation in any other capacity and receive
compensation therefor in any form.
Section 10.08. Direction of Purposes and Exercise of Powers by Directors.
The Board of Directors, subject to any specific limitations or restrictions
imposed by the Act or these Articles of Incorporation, as the same may, from
time to time, be amended, shall direct the carrying out of the purposes and
exercise the powers of the Corporation, without previous authorization or
subsequent approval by the Shareholders of the Corporation.
ARTICLE 11
Certain Limitations
Section 11.01. Certain Limitations. Notwithstanding anything contained in
these Articles of Incorporation or the Corporation's Code of By-Laws to the
contrary, the following provisions shall apply:
No person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than ten percent (10%) of any class of equity
security of the Corporation. This limitation shall not apply to the purchase of
shares by underwriters in connection with a public offering or to the purchase
of shares by a defined benefit or defined contribution employee benefit plan
such as an employee stock ownership plan, stock bonus plan, profit-sharing plan
or other plan, which, with its related trust, meets the requirements to be
"qualified" under Section 401 of the Internal Revenue Code of 1986, as amended.
In the event shares are acquired in violation of this Section 11.01, all
shares beneficially owned by any person in excess of 10% shall be considered
"excess shares" and shall not be counted as shares entitled to vote and shall
not be voted by any person or counted as voting shares in connection with any
matters submitted to the Shareholders for a vote.
For purposes of this Section 11.01, the term "person" shall have the
meaning set forth in Section 12.03, Clause 12.031 hereof. The term "offer"
includes every offer to buy or otherwise acquire, solicitation of an offer to
sell, tender offer for, or request or invitation for tenders of, a security or
interest in a security for value. The term "acquire" includes every type of
acquisition, whether effected by purchase, exchange, operation of law or
otherwise. The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise.
For purposes of determining the beneficial ownership limitation imposed by
this Section 11.01, warrants, options, obligations or securities convertible
into such equity securities of the Corporation and other similar interests shall
be treated as having been exercised or converted into such equity securities.
Section 11.02. Amendment of Article 11. Notwithstanding anything elsewhere
in these Articles of Incorporation or in the Corporation's Code of By-Laws to
the contrary and notwithstanding that a lesser percentage or no vote may be
specified by law, but in addition to any affirmative vote of the holders of any
particular class or series of capital stock of the Corporation required by law
or any Preferred Stock Designation, the affirmative vote of the holders of at
least 80% of the total voting power of all of the then-outstanding shares of
Voting Stock, voting as a single class, shall be required to alter, amend or
repeal this Article 11, unless at least two-thirds of the Continuing Directors
(as defined below in this Section 11.02) shall have approved the proposed
changes prior to their submission to Shareholders for their vote (in which case
a favorable vote of the percentage of the total votes eligible to be cast
required by the Act or other applicable law shall be required). For purposes of
this Section 11.02, a "Continuing Director" shall mean any Director then serving
as such who was a member of the Corporation's Board of Directors on May 24,
1996, or was recommended for appointment or election (before such person's
initial assumption of office as a Director) by a majority of the Continuing
Directors then on the Board.
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ARTICLE 12
Provisions for Certain Business Combinations
Section 12.01. Vote Required.
Clause 12.011. Higher Vote for Certain Business Combinations. In
addition to any affirmative vote required by law or these Articles of
Incorporation, and except as otherwise expressly provided in Section 12.02
of this Article 12:
1. any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with (A) any Interested Shareholder (as
hereinafter defined), or (B) any other corporation (whether or
not itself an Interested Shareholder) which is, or after such
merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Shareholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to
or with any Interested Shareholder or any Affiliate of any
Interested Shareholder, of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value equaling or
exceeding 25% or more of the combined assets of the Corporation
and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Shareholder
or any Affiliate of any Interested Shareholder in exchange for
cash, securities or other property (or a combination thereof)
having an aggregate Fair Market Value equaling or exceeding 25%
of the combined assets of the Corporation and its Subsidiaries
except pursuant to an employee benefit plan of the Corporation or
any Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Shareholder or any Affiliate of any Interested
Shareholder; or
5. any reclassification of securities (including any reverse stock
split) or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or
any other transaction (whether or not with or into or otherwise
involving any Interested Shareholder) which has the effect,
directly or indirectly, of increasing the proportionate share of
the outstanding shares of any class or series of equity or
convertible securities of the Corporation or any Subsidiary which
is Beneficially Owned (as hereinafter defined) directly or
indirectly by any Interested Shareholder or any Affiliate of any
Interested Shareholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of all of the then-outstanding shares of Voting Stock, voting
together as a single class. Such affirmative vote shall be required
notwithstanding that any other provisions of these Articles of
Incorporation, or any provision of law, or any Preferred Stock Designation,
or any agreement with any national securities exchange or otherwise might
otherwise permit a lesser vote or no vote.
Clause 12.012. Definition of "Business Combination." The term "Business
Combination" as used in this Article 12 shall mean any transaction which is
referred to in any one or more of paragraphs (1) through (5) of Clause
12.011 of this Section 12.01.
Section 12.02. When Higher Vote is Not Required. The provisions of Section
12.01 of this Article 12 shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote as is required by law, and any other provision of these Articles of
Incorporation, and any Preferred Stock Designation, if, in the case of a
Business Combination that does not involve any cash or other consideration being
received by the Shareholders of the Corporation, solely in their capacity as
Shareholders of the Corporation, the condition specified in the following Clause
12.021 is met or, in the case of any other Business Combination, the conditions
specified in either of the following Clause 12.021 or 12.022 are met:
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Clause 12.021. Approval by Continuing Directors. The Business
Combination shall have been approved by a majority of the Continuing
Directors (as hereinafter defined); provided, however, that this condition
shall not be capable of satisfaction unless there are at least three
Continuing Directors.
Clause 12.022. Price and Procedure Requirements. All of the following
conditions shall have been met:
1. The consideration to be received by holders of shares of a
particular class (or series) of outstanding capital stock
(including Common Stock) shall be in cash or in the same form as
the Interested Shareholder or any of its Affiliates has
previously paid for shares of such class (or series) of capital
stock. If the Interested Shareholder or any of its Affiliates has
paid for shares of any class (or series) of capital stock with
varying forms of consideration, the form of consideration to be
received per share by holders of shares of such class (or series)
of capital stock shall be either cash or the form used to acquire
the largest number of shares of such class (or series) of capital
stock previously acquired by the Interested Shareholder.
2. The aggregate amount of (x) the cash and (y) the Fair Market
Value as of the date (the "Consummation Date") of the
consummation of the Business Combination, of the consideration
other than cash to be received per share by holders of Common
Stock in such Business Combination shall be at least equal to the
higher of the following (in each case appropriately adjusted in
the event of any stock dividend, stock split, combination of
shares or similar event):
A. (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder or any of its
Affiliates for any shares of Common Stock acquired by them
within the two-year period immediately prior to the date of
the first public announcement of the proposal of the Business
Combination (the "Announcement Date") or in any transaction in
which the Interested Shareholder became an Interested
Shareholder, whichever is higher; and
B. The Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Shareholder became an Interested Shareholder (the
"Determination Date"), whichever is higher.
3. The aggregate amount of (x) the cash and (y) the Fair Market
Value, as of the Consummation Date, of the consideration other
than cash to be received per share by holders of shares of any
class (or series), other than Common Stock, of outstanding
capital stock of the Corporation shall be at least equal to the
highest of the following (in each case appropriately adjusted in
the event of any stock dividend, stock split, combination of
shares or similar event), it being intended that the requirements
of this subparagraph (3) shall be required to be met with respect
to every such class (or series) of outstanding capital stock
whether or not the Interested Shareholder or any of its
Affiliates has previously acquired any shares of a particular
class (or series) of capital stock:
A. (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Shareholder or any of
its Affiliates for any shares of such class (or series) of
capital stock acquired by them within the two-year period
immediately prior to the Announcement Date or in any
transaction in which it became an Interested Shareholder,
whichever is higher;
B. the Fair Market Value per share of such class (or series) of
capital stock on the Announcement Date or on the
Determination Date, whichever is higher; and
C. (if applicable) the highest preferential amount per share,
if any, to which the holders of shares of such class (or
series) of capital stock would be entitled in the event of
any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation.
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4. After such Interested Shareholder has become an Interested
Shareholder and prior to the consummation of such Business
Combination: (a) except as approved by a majority of the
Continuing Directors, there shall have been no failure to declare
and pay at the regular date therefor any full quarterly dividends
(whether or not cumulative) on any outstanding Preferred Stock;
(b) there shall have been (I) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to
reflect any subdivision of the Common Stock), except as approved
by a majority of the Continuing Directors, and (II) an increase
in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of
the Common Stock, unless the failure so to increase such annual
rate is approved by a majority of the Continuing Directors; and
(c) neither such Interested Shareholder nor any of its Affiliates
shall have become the beneficial owner of any additional shares
of Voting Stock except as part of the transaction which results
in such Interested Shareholder becoming an Interested
Shareholder; provided, however, that no approval by Continuing
Directors shall satisfy the requirements of this subparagraph (4)
unless at the time of such approval there are at least three
Continuing Directors.
5. After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder and any of its
Affiliates shall not have received the benefit, directly or
indirectly (except proportionately, solely in such Interested
Shareholder's or Affiliate's capacity as a Shareholder of the
Corporation), of any loans, advances, guarantees, pledges or
other financial assistance or any tax credits or other tax
advantages provided by the Corporation, whether in anticipation
of or in connection with such Business Combination or otherwise.
6. A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations
thereunder (or any subsequent provisions replacing such Act,
rules or regulations) shall be mailed to all Shareholders of the
Corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or
subsequent provisions).
7. Such Interested Shareholder shall have provided the Corporation
with such information as shall have been requested pursuant to
Section 12.05 of this Article 12 within the time period set forth
therein.
Section 12.03. Certain Definitions. For the purposes of this Article 12:
Clause 12.031. A "person" shall include an individual, a group acting
in concert, a corporation, a partnership, an association, a joint venture,
a pool, a joint stock company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities.
Clause 12.032. "Interested Shareholder" means any person (other than
the Corporation or any Subsidiary) who or which:
1. is the beneficial owner (as hereinafter defined), directly or
indirectly, of ten percent or more of the voting power of the
outstanding Voting Stock; or
2. is an Affiliate or an Associate of the Corporation and at any
time within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of ten
percent or more of the voting power of the then outstanding
Voting Stock; or
3. is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by
any 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, as amended.
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Clause 12.033. A person shall be a "beneficial owner" of, or shall
"Beneficially Own," any Voting Stock:
1. which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly
within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934, as in effect on May 24, 1996; or
2. which such person or any of its Affiliates or Associates has (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 (but neither such person nor any
such Affiliate or Associate shall be deemed to be the beneficial
owner of any shares of Voting Stock solely by reason of a
revocable proxy granted for a particular meeting of Shareholders,
pursuant to a public solicitation of proxies for such meeting,
and with respect to which shares neither such person nor any such
Affiliate or Associate is otherwise deemed the beneficial owner);
or
3. which are beneficially owned, directly or indirectly, within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934,
as in effect on May 24, 1996, 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 (other than solely by reason of a revocable proxy
as described in subparagraph (2) of this Clause 12.033) or
disposing of any shares of Voting Stock; provided, however, that
in the case of any employee stock ownership or similar plan of
the Corporation or of any Subsidiary in which the beneficiaries
thereof possess the right to vote any shares of Voting Stock held
by such plan, no such plan nor any trustee with respect thereto
(nor any Affiliate of such trustee), solely by reason of such
capacity of such trustee, shall be deemed, for any purpose
hereof, to beneficially own any shares of Voting Stock held under
any such plan.
Clause 12.034. For the purposes of determining whether a person is an
Interested Shareholder pursuant to Clause 12.032 of this Section 12.03, the
number of shares of Voting Stock deemed to be outstanding shall include
shares deemed owned through application of Clause 12.033 of this Section
12.03 but shall not include any other unissued shares of Voting Stock which
may be issuable pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or otherwise.
Clause 12.035. "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on May
24, 1996.
Clause 12.036. "Subsidiary" means any corporation of which a majority
of any class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition of
Interested Shareholder set forth in Clause 12.032 of this Section 12.03,
the term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by the
Corporation.
Clause 12.037. "Continuing Director" for purposes of this Article 12
means any member of the Board of Directors of the Corporation who is
unaffiliated with the Interested Shareholder and was a member of the Board
prior to the time that the Interested Shareholder became an Interested
Shareholder, and any director who is thereafter chosen to fill any vacancy
on the Board of Directors or who is elected and who, in either event, is
unaffiliated with the Interested Shareholder and in connection with his or
her initial assumption of office is recommended for appointment or election
by a majority of Continuing Directors then on the Board.
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Clause 12.038. "Fair Market Value" means: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding
the date in question of a share of such stock on the Composite Tape for New
York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such stock is not
listed on such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934, as amended, on which
such stock is listed, or, if such stock is not listed on any such exchange,
the highest closing bid quotation with respect to a share of such stock
during the 30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations System or any
system then in use, or if no such quotations are available, the fair market
value on the date in question of a share of such stock as determined by the
Board in accordance with Section 12.04 of this Article 12, in each case
with respect to any class of stock, appropriately adjusted for any dividend
or distribution in shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller number
of shares of such stock; and (ii) in the case of property other than cash
or stock, the fair market value of such property on the date in question as
determined by the Board in accordance with Section 12.04 of this Article
12.
Clause 12.039. Reference to "highest per share price" shall in each
case with respect to any class of stock reflect an appropriate adjustment
for any dividend or distribution in shares of such stock or any stock split
or reclassification of outstanding shares of such stock into a greater
number of shares of such stock or any combination or reclassification of
outstanding shares of such stock into a smaller number of shares of such
stock.
Clause 12.310. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in Clauses 12.022(2) and 12.022(3) of Section 12.02 of
this Article 12 shall include the shares of Common Stock and/or the shares
of any other class (or series) of outstanding capital stock retained by the
holders of such shares.
Section 12.04. Powers of the Board of Directors. A majority of the total
number of Directors of the Corporation, but only if a majority of such Directors
shall then consist of Continuing Directors or, if a majority of the total number
of Directors shall not then consist of Continuing Directors, a majority of the
then Continuing Directors, shall have the power and duty to determine, on the
basis of information known to them after reasonable inquiry, all facts necessary
to determine compliance with this Article 12, including, without limitation, (a)
whether a person is an Interested Shareholder, (b) the number of shares of
Voting Stock beneficially owned by any person, (c) whether a person is an
Affiliate or Associate of another, (d) whether the applicable conditions set
forth in Clause 12.022 of Section 12.02 have been met with respect to any
Business Combination, (e) the Fair Market Value of stock or other property in
accordance with Clause 12.038 of Section 12.03 of this Article 12, and (f)
whether the assets which are the subject of any Business Combination referred to
in Clause 12.011(2) of Section 12.01 have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any Subsidiary
in any Business Combination referred to in Clause 12.011(3) of Section 12.01
has, an aggregate Fair Market Value equaling or exceeding 25% of the combined
assets of the Corporation and its Subsidiaries.
Section 12.05. Information to be Supplied to the Corporation. A majority of
the total number of Directors of the Corporation, but only if a majority of such
Directors shall then consist of Continuing Directors or, if a majority of the
total number of Directors shall not then consist of Continuing Directors, a
majority of the then Continuing Directors, shall have the right to demand that
any person who it is reasonably believed is an Interested Shareholder (or holds
of record shares of Voting Stock Beneficially Owned by any Interested
Shareholder) supply the Corporation with complete information as to (i) the
record owner(s) of all shares Beneficially Owned by such person who it is
reasonably believed is an Interested Shareholder, (ii) the number of, and class
or series of, shares Beneficially Owned by such person who it is reasonably
believed is an Interested Shareholder and held of record by each such record
owner and the number(s) of the stock certificate(s) evidencing such shares, and
(iii) any other factual matter relating to the applicability or effect of this
Article 12, as may be reasonably requested of such person, and such person shall
furnish such information within 10 days after receipt of such demand.
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Section 12.06. No Effect on Fiduciary Obligations of Interested
Shareholders. Nothing contained in this Article 12 shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
Section 12.07. Amendment, Repeal, Etc. Notwithstanding any other provisions
of these Articles of Incorporation or the Code of By-Laws of the Corporation to
the contrary and notwithstanding that a lesser vote or no vote may be specified
by law, but in addition to any affirmative vote of the holders of any particular
class or series of the Corporation's capital stock required by law or any
Preferred Stock Designation, the affirmative vote of the holders of at least 80
percent of the voting power of all of the then-outstanding shares of Voting
Stock, voting together as a single class, shall be required to alter, amend or
repeal this Article 12.
ARTICLE 13
Indemnification
Section 13.01. General. The Corporation shall, to the fullest extent to
which it is empowered to do so by the Act, or any other applicable laws, as from
time to time in effect, indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal, by reason of the fact that he is or was a Director,
Officer, employee or agent of the Corporation, or who, while serving as such
Director, Officer, employee or agent of the Corporation, is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, whether for profit or not, against
expenses (including counsel fees), judgments, settlements, penalties and fines
(including excise taxes assessed with respect to employee benefit plans)
actually or reasonably incurred by him in accordance with such action, suit or
proceeding, if he acted in good faith and in a manner he reasonably believed, in
the case of conduct in his official capacity, was in the best interests of the
Corporation, and in all other cases, was not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, he
either had reasonable cause to believe his conduct was lawful or no reasonable
cause to believe his conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not meet the prescribed standard of conduct.
Section 13.02. Authorization of Indemnification. To the extent that a
Director, Officer, employee or agent of the Corporation has been successful, on
the merits or otherwise, in the defense of any action, suit or proceeding
referred to in Section 13.01 of this Article, or in the defense of any claim,
issue or matter therein, the Corporation shall indemnify such person against
expenses (including counsel fees) actually and reasonably incurred by such
person in connection therewith. Any other indemnification under Section 13.01 of
this Article (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case, upon a determination that indemnification of
the Director, Officer, employee or agent is permissible in the circumstances
because he has met the applicable standard of conduct. Such determination shall
be made (1) by the Board of Directors by a majority vote of a quorum consisting
of Directors who were not at the time parties to such action, suit or
proceeding; or (2) if a quorum cannot be obtained under subdivision (1), by a
majority vote of a committee duly designated by the Board of Directors (in which
designation Directors who are parties may participate), consisting solely of two
or more Directors not at the time parties to such action, suit or proceeding; or
(3) by special legal counsel: (A) selected by the Board of Directors or its
committee in the manner prescribed in subdivision (1) or (2), or (B) if a quorum
of the Board of Directors cannot be obtained under subdivision (1) and a
committee cannot be designated under subdivision (2), selected by a majority
vote of the full Board of Directors (in which selection Directors who are
parties may participate); or (4) by the Shareholders, but shares owned by or
voted under the control of Directors who are at the time parties to such action,
suit or proceeding may not be voted on the determination.
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Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection (3)
to select counsel.
Section 13.03. Good Faith Defined. For purposes of any determination under
Section 13.01 of this Article 13, a person shall be deemed to have acted in good
faith and to have otherwise met the applicable standard of conduct set forth in
Section 13.01 if his action is based on information, opinions, reports, or
statements, including financial statements and other financial data, if prepared
or presented by (1) one or more Officers or employees of the Corporation or
another enterprise whom he reasonably believes to be reliable and competent in
the matters presented; (2) legal counsel, public accountants, appraisers or
other persons as to matters he reasonably believes are within the person's
professional or expert competence; or (3) a committee of the Board of Directors
of the Corporation or another enterprise of which the person is not a member if
he reasonably believes the committee merits confidence. The term "another
enterprise" as used in this Section 13.03 shall mean any other corporation or
any partnership, joint venture, trust, employee benefit plan or other enterprise
of which such person is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent. The provisions of this
Section 13.03 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standards of conduct set forth in Section 13.01 of this Article 13.
Section 13.04. Payment of Expenses in Advance. Expenses incurred in
connection with any civil or criminal action, suit or proceeding may be paid for
or reimbursed by the Corporation in advance of the final disposition of such
action, suit or proceeding, as authorized in the specific case in the same
manner described in Section 13.02 of this Article, upon receipt of a written
affirmation of the Director, Officer, employee or agent's good faith belief that
he has met the standard of conduct described in Section 13.01 of this Article
and upon receipt of a written undertaking by or on behalf of the Director,
Officer, employee or agent to repay such amount if it shall ultimately be
determined that he did not meet the standard of conduct set forth in this
Article 13, and a determination is made that the facts then known to those
making the determination would not preclude indemnification under this Article
13.
Section 13.05. Provisions Not Exclusive. The indemnification provided by
this Article shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under these Articles of Incorporation,
the Corporation's Code of By-Laws, any resolution of the Board of Directors or
Shareholders, any other authorization, whenever adopted, after notice, by a
majority vote of all Voting Stock then outstanding, or any contract, both as to
action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
Director, Officer, employee or agent, and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 13.06. Vested Right to Indemnification. The right of any individual
to indemnification under this Article shall vest at the time of occurrence or
performance of any event, act or omission giving rise to any action, suit or
proceeding of the nature referred to in Section 13.01 of this Article 13 and,
once vested, shall not later be impaired as a result of any amendment, repeal,
alteration or other modification of any or all of these provisions.
Notwithstanding the foregoing, the indemnification afforded under this Article
shall be applicable to all alleged prior acts or omissions of any individual
seeking indemnification hereunder, regardless of the fact that such alleged acts
or omissions may have occurred prior to the adoption of this Article. To the
extent such prior acts or omissions cannot be deemed to be covered by this
Article 13, the right of any individual to indemnification shall be governed by
the indemnification provisions in effect at the time of such prior acts or
omissions.
Section 13.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, Officer, employee or
agent of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
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other enterprise, against any liability asserted against or incurred by the
individual in that capacity or arising from the individual's status as a
Director, Officer, employee or agent, whether or not the Corporation would have
power to indemnify the individual against the same liability under this Article.
Section 13.08. Additional Definitions. For purposes of this Article,
references to the "Corporation" shall include any domestic or foreign
predecessor entity of the Corporation in a merger or other transaction in which
the predecessor's existence ceased upon consummation of the transaction.
For purposes of this Article, serving an employee benefit plan at the
request of the Corporation shall include any service as a Director, Officer,
employee or agent of the Corporation which imposes duties on, or involves
services by such Director, Officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries. A person who acted in
good faith and in a manner he reasonably believed to be in the best interests of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the Corporation"
referred to in this Article.
For purposes of this Article, "party" includes any individual who is or was
a plaintiff, defendant or respondent in any action, suit or proceeding, or who
is threatened to be made a named defendant or respondent in any action, suit or
proceeding.
For purposes of this Article, "official capacity," when used with respect
to a Director, shall mean the office of director of the Corporation; and when
used with respect to an individual other than a Director, shall mean the office
in the Corporation held by the Officer or the employment or agency relationship
undertaken by the employee or agent on behalf of the Corporation. "Official
capacity" does not include service for any other foreign or domestic corporation
or any partnership, joint venture, trust, employee benefit plan, or other
enterprise, whether for profit or not.
Section 13.09. Payments a Business Expense. Any payments made to any
indemnified party under this Article under any other right to indemnification
shall be deemed to be an ordinary and necessary business expense of the
Corporation, and payment thereof shall not subject any person responsible for
the payment, or the Board of Directors, to any action for corporate waste or to
any similar action.
16
CODE OF BY-LAWS
OF
RIVER VALLEY BANCORP
ARTICLE I
Offices
Section 1. Principal Office. The principal office (the "Principal Office")
of River Valley Bancorp (the "Corporation") shall be at 303 Clifty Drive, P.O.
Box 626, Madison, Indiana 47250, or such other place as shall be determined by
resolution of the Board of Directors of the Corporation (the "Board").
Section 2. Other Offices. The Corporation may have such other offices at
such other places within or without the State of Indiana as the Board may from
time to time designate, or as the business of the Corporation may require.
ARTICLE II
Seal
Section 1. Corporate Seal. The corporate seal of the Corporation (the
"Seal") shall be circular in form and shall have inscribed thereon the words
"River Valley Bancorp" and "INDIANA." In the center of the seal shall appear the
word "Seal." Use of the Seal or an impression thereof shall not be required, and
shall not affect the validity of any instrument whatsoever.
ARTICLE III
Shareholder Meetings
Section 1. Place of Meeting. Every meeting of the shareholders of the
Corporation (the "Shareholders") shall be held at the Principal Office, unless a
different place is specified in the notice or waiver of notice of such meeting
or by resolution of the Board or the Shareholders, in which event such meeting
may be held at the place so specified, either within or without the State of
Indiana.
Section 2. Annual Meeting. The annual meeting of the Shareholders (the
"Annual Meeting") shall be held each year at 3:00 o'clock P.M. on the third
Wednesday in April (or, if such day is a legal holiday, on the next succeeding
day not a legal holiday), for the purpose of electing directors of the
Corporation ("Directors") and for the transaction of such other business as may
legally come before the Annual Meeting. If for any reason the Annual Meeting
shall not be held at the date and time herein provided, the same may be held at
any time thereafter, or the business to be transacted at such Annual Meeting may
be transacted at any special meeting of the Shareholders (a "Special Meeting")
called for that purpose.
Section 3. Notice of Annual Meeting. Written or printed notice of the
Annual Meeting, stating the date, time and place thereof, shall be delivered or
mailed by the Secretary or an Assistant Secretary to each Shareholder of record
entitled to notice of such Meeting, at such address as appears on the records of
the Corporation, at least ten and not more than sixty days before the date of
such Meeting.
Section 4. Special Meetings. Special Meetings, for any purpose or purposes
(unless otherwise prescribed by law), may be called by only the Chairman of the
Board of Directors (the "Chairman"), if any, or by the Board, pursuant to a
resolution adopted by a majority of the total number of Directors of the
Corporation, to vote on the business proposed to be transacted thereat. All
requests for Special Meetings shall state the purpose or purposes thereof, and
the business transacted at such Meeting shall be confined to the purposes stated
in the call and matters germane thereto.
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Section 5. Notice of Special Meetings. Written or printed notice of all
Special Meetings, stating the date, time, place and purpose or purposes thereof,
shall be delivered or mailed by the Secretary or the President or any Vice
President calling the Meeting to each Shareholder of record entitled to notice
of such Meeting, at such address as appears on the records of the Corporation,
at least ten and not more than sixty days before the date of such Meeting.
Section 6. Waiver of Notice of Meetings. Notice of any Annual or Special
Meeting (a "Meeting") may be waived in writing by any Shareholder, before or
after the date and time of the Meeting specified in the notice thereof, by a
written waiver delivered to the Corporation for inclusion in the minutes or
filing with the corporate records. A Shareholder's attendance at any Meeting in
person or by proxy shall constitute a waiver of (a) notice of such Meeting,
unless the Shareholder at the beginning of the Meeting objects to the holding of
or the transaction of business at the Meeting, and (b) consideration at such
Meeting of any business that is not within the purpose or purposes described in
the Meeting notice, unless the Shareholder objects to considering the matter
when it is presented.
Section 7. Quorum. At any Meeting, the holders of a majority of the voting
power of all shares of the Corporation (the "Shares") issued and outstanding and
entitled to vote at such Meeting (after giving effect to the provisions in
Article 11 of the Articles of Incorporation of the Corporation, as the same may,
from time to time, be amended (the "Articles")), represented in person or by
proxy, shall constitute a quorum for the election of Directors or for the
transaction of other business, unless otherwise provided by law, the Articles or
this Code of By-Laws, as the same may, from time to time, be amended (these
"By-Laws"). If, however, a quorum shall not be present or represented at any
Meeting, the Shareholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the Meeting from time to time,
without notice other than announcement at the Meeting of the date, time and
place of the adjourned Meeting, unless the date of the adjourned Meeting
requires that the Board fix a new record date (the "Record Date") therefor, in
which case notice of the adjourned Meeting shall be given. At such adjourned
Meeting, if a quorum shall be present or represented, any business may be
transacted that might have been transacted at the Meeting as originally
scheduled.
Section 8. Voting. At each Meeting, every Shareholder entitled to vote
shall have one vote for each Share standing in his name on the books of the
Corporation as of the Record Date fixed by the Board for such Meeting, except as
otherwise provided by law or the Articles, and except that no Share shall be
voted at any Meeting upon which any installment is due and unpaid and no share
which is not entitled to vote pursuant to Article 11 of the Articles shall be
voted at any Meeting. Voting for Directors and, upon the demand of any
Shareholder, voting upon any question properly before a Meeting, shall be by
ballot. A plurality vote shall be necessary to elect any Director, and on all
other matters, the action or a question shall be approved if the number of votes
cast thereon in favor of the action or question exceeds the number of votes cast
opposing the action or question, except as otherwise provided by law or the
Articles.
Section 9. Shareholder List. The Secretary shall prepare before each
Meeting a complete list of the Shareholders entitled to notice of such Meeting,
arranged in alphabetical order by class of Shares (and each series within a
class), and showing the address of, and the number of Shares entitled to vote
held by, each Shareholder (the "Shareholder List"). Beginning five business days
before the Meeting and continuing throughout the Meeting, the Shareholder List
shall be on file at the Principal Office or at a place identified in the Meeting
notice in the city where the Meeting will be held, and shall be available for
inspection by any Shareholder entitled to vote at the Meeting. On written
demand, made in good faith and for a proper purpose and describing with
reasonable particularity the Shareholder's purpose, and if the Shareholder List
is directly connected with the Shareholder's purpose, a Shareholder (or such
Shareholder's agent or attorney authorized in writing) shall be entitled to
inspect and to copy the Shareholder List, during regular business hours and at
the Shareholder's expense, during the period the Shareholder List is available
for inspection. The original stock register or transfer book (the "Stock Book"),
or a duplicate thereof kept in the State of Indiana, shall be the only evidence
as to who are the Shareholders entitled to examine the Shareholder List, or to
notice of or to vote at any Meeting.
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Section 10. Proxies. A Shareholder may vote either in person or by proxy
executed in writing by the Shareholder or a duly authorized attorney-in-fact. No
proxy shall be valid after eleven months from the date of its execution, unless
a shorter or longer time is expressly provided therein.
Section 11. Notice of Shareholder Business. At an Annual Meeting of the
Shareholders, only such business shall be conducted as shall have been properly
brought before the Meeting. To be properly brought before an Annual Meeting,
business must be (a) specified in the notice of Meeting (or any supplement
thereto) given by or at the direction of the Board, (b) otherwise properly
brought before the Meeting by or at the direction of the Board, or (c) otherwise
properly brought before the Meeting by a Shareholder. For business to be
properly brought before an Annual Meeting by a Shareholder, the Shareholder must
have the legal right and authority to make the Proposal for consideration at the
Meeting and the Shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a Shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation, not less than 60 days prior to the Meeting; provided, however, that
in the event that less than 70 days' notice or prior public disclosure of the
date of the Meeting is given or made to Shareholders (which notice or public
disclosure shall include the date of the Annual Meeting specified in these
By-Laws, if such By-Laws have been filed with the Securities and Exchange
Commission and if the Annual Meeting is held on such date), notice by the
Shareholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the Annual Meeting was mailed or such public disclosure was made. A
Shareholder's notice to the Secretary shall set forth as to each matter the
Shareholder proposes to bring before the Annual Meeting (a) a brief description
of the business desired to be brought before the Annual Meeting and the reasons
for conducting such business at the Annual Meeting, (b) the name and record
address of the Shareholders proposing such business, (c) the class and number of
shares of the Corporation which are beneficially owned by the Shareholder, and
(d) any material interest of the Shareholder in such business. Notwithstanding
anything in these By-Laws to the contrary, no business shall be conducted at an
Annual Meeting except in accordance with the procedures set forth in this
Section 11. The Chairman of an Annual Meeting shall, if the facts warrant,
determine and declare to the Meeting that business was not properly brought
before the Meeting and in accordance with the provisions of this Section 11, and
if he should so determine, he shall so declare to the Meeting and any such
business not properly brought before the Meeting shall not be transacted. At any
Special Meeting of the Shareholders, only such business shall be conducted as
shall have been brought before the Meeting by or at the direction of the Board
of Directors.
Section 12. Notice of Shareholder Nominees. Only persons who are nominated
in accordance with the procedures set forth in this Section 12 shall be eligible
for election as Directors. Nominations of persons for election to the Board may
be made at a Meeting of Shareholders by or at the direction of the Board of
Directors, by any nominating committee or person appointed by the Board of
Directors or by any Shareholder of the Corporation entitled to vote for the
election of Directors at the Meeting who complies with the notice procedures set
forth in this Section 12. Such nominations, other than those made by or at the
direction of the Board, shall be made pursuant to timely notice in writing to
the Secretary of the Corporation. To be timely, a Shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 60 days prior to the Meeting; provided, however, that
in the event that less than 70 days' notice or prior public disclosure of the
date of the Meeting is given or made to Shareholders (which notice or public
disclosure shall include the date of the Annual Meeting specified in these
By-Laws, if such By-Laws have been filed with the Securities and Exchange
Commission and if the Annual Meeting is held on such date), notice by the
Shareholders to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the Meeting was mailed or such public disclosure was made. Such Shareholder's
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notice shall set forth (a) as to each person whom the Shareholder proposes to
nominate for election or re-election as a Director, (i) the name, age, business
address and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
Corporation which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including without limitation such person's written consent to being
named in the proxy statement as a nominee and to serving as a Director if
elected); and (b) as to the Shareholder giving the notice (i) the name and
record address of such Shareholder and (ii) the class and number of shares of
the Corporation which are beneficially owned by such Shareholder. No person
shall be eligible for election as a Director of the Corporation unless nominated
in accordance with the procedures set forth in this Section 12. The Chairman of
the Meeting shall, if the facts warrant, determine and declare to the Meeting
that a nomination was not made in accordance with the procedures prescribed by
these By-Laws, and if he should so determine, he shall so declare to the Meeting
and the defective nomination shall be disregarded.
ARTICLE IV
Board of Directors
Section 1. Number. The business and affairs of the Corporation shall be
managed by a Board of not less than five (5) nor more than fifteen (15)
Directors, as may be specified from time to time by resolution adopted by a
majority of the total number of the Corporation's Directors, divided into three
classes as provided in the Articles. If and whenever the Board of Directors has
not specified the number of Directors, the number shall be six. The Board may
elect or appoint, from among its members, a Chairman of the Board (the
"Chairman"), who need not be an officer (an "Officer") or employee of the
Corporation. The Chairman, if elected or appointed, shall preside at all
Shareholder Meetings and Board Meetings and shall have such other powers and
perform such other duties as are incident to such position and as may be
assigned by the Board.
Section 2. Vacancies and Removal. Any vacancy occurring in the Board shall
be filled as provided in the Articles. Shareholders shall be notified of any
increase in the number of Directors and the name, principal occupation and other
pertinent information about any Director elected by the Board to fill any
vacancy. Any Director, or the entire Board, may be removed from office only as
provided in the Articles.
Section 3. Powers and Duties. In addition to the powers and duties
expressly conferred upon it by law, the Articles or these By-Laws, the Board may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not inconsistent with the law, the Articles or these By-Laws.
Section 4. Annual Board Meeting. Unless otherwise determined by the Board,
the Board shall meet each year immediately after the Annual Meeting, at the
place where such Meeting has been held, for the purpose of organization,
election of Officers of the Corporation (the "Officers") and consideration of
any other business that may properly be brought before such annual meeting of
the Board (the "Annual Board Meeting"). No notice shall be necessary for the
holding of the Annual Board Meeting. If the Annual Board Meeting is not held as
above provided, the election of Officers may be held at any subsequent duly
constituted meeting of the Board (a "Board Meeting").
Section 5. Regular Board Meetings. Regular meetings of the Board ("Regular
Board Meetings") may be held at stated times or from time to time, and at such
place, either within or without the State of Indiana, as the Board may
determine, without call and without notice.
Section 6. Special Board Meetings. Special meetings of the Board ("Special
Board Meetings") may be called at any time or from time to time, and shall be
called on the written request of at least two Directors, by the Chairman or the
President, by causing the Secretary or any Assistant Secretary to give to each
Director, either personally or by mail, telephone, telegraph, teletype or other
form of wire or wireless communication at least two days' notice of the date,
time and place of such Meeting. Special Board Meetings shall be held at the
Principal Office or at such other place, within or without the State of Indiana,
as shall be specified in the respective notices or waivers of notice thereof.
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Section 7. Waiver of Notice and Assent. A Director may waive notice of any
Board Meeting before or after the date and time of the Board Meeting stated in
the notice by a written waiver signed by the Director and filed with the minutes
or corporate records. A Director's attendance at or participation in a Board
Meeting shall constitute a waiver of notice of such Meeting and assent to any
corporate action taken at such Meeting, unless (a) the Director at the beginning
of such Meeting (or promptly upon his arrival) objects to holding of or
transacting business at the Meeting and does not thereafter vote for or assent
to action taken at the Meeting; (b) the Director's dissent or abstention from
the action taken is entered in the minutes of such Meeting; or (c) the Director
delivers written notice of his dissent or abstention to the presiding Director
at such Meeting before its adjournment, or to the Secretary immediately after
its adjournment. The right of dissent or abstention is not available to a
Director who votes in favor of the action taken.
Section 8. Quorum. At all Board Meetings, a majority of the number of
Directors designated for the full Board (the "Full Board") shall be necessary to
constitute a quorum for the transaction of any business, except (a) that for the
purpose of filling of vacancies a majority of Directors then in office shall
constitute a quorum, and (b) that a lesser number may adjourn the Meeting from
time to time until a quorum is present. The act of a majority of the Board
present at a Meeting at which a quorum is present shall be the act of the Board,
unless the act of a greater number is required by law, the Articles or these
By-Laws.
Section 9. Audit and Other Committees of the Board. The Board shall, by
resolution adopted by a majority of the Full Board, designate an Audit Committee
comprised of two or more Directors, which shall have such authority and exercise
such duties as shall be provided by resolution of the Board. The Board may, by
resolution adopted by such majority, also designate other regular or special
committees of the Board ("Committees"), in each case comprised of two or more
Directors and to have such powers and exercise such duties as shall be provided
by resolution of the Board.
Section 10. Resignations. Any Director may resign at any time by giving
written notice to the Board, The Chairman, the President or the Secretary. Any
such resignation shall take effect when delivered unless the notice specifies a
later effective date. Unless otherwise specified in the notice, the acceptance
of such resignation shall not be necessary to make it effective.
Section 11. Age Limitations. No person seventy (70) years of age or older
shall be eligible for election, reelection, appointment, or reappointment to the
Board. No Director shall serve as such beyond the Annual Meeting of the
Corporation immediately following the Director becoming seventy (70) years of
age.
ARTICLE V
Officers
Section 1. Officers. The Officers shall be the President, one or more Vice
Presidents, the Secretary and the Treasurer, and may include one or more
Assistant Secretaries, one or more Assistant Treasurers, a Comptroller and one
or more Assistant Comptrollers. Any two or more offices may be held by the same
person. The Board may from time to time elect or appoint such other Officers as
it shall deem necessary, who shall exercise such powers and perform such duties
as may be prescribed from time to time by these By-Laws or, in the absence of a
provision in these By-Laws in respect thereto, as may be prescribed from time to
time by the Board.
Section 2. Election of Officers. The Officers shall be elected by the Board
at the Annual Board Meeting and shall hold office for one year or until their
respective successors shall have been duly elected and shall have qualified;
provided, however, that the Board may at any time elect one or more persons to
new or different offices and/or change the title, designation and duties and
responsibilities of any of the Officers consistent with the law, the Articles
and these By-Laws.
Section 3. Vacancies; Removal. Any vacancy among the Officers may be filled
for the unexpired term by the Board. Any Officer may be removed at any time by
the affirmative vote of a majority of the Full Board.
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Section 4. Delegation of Duties. In the case of the absence, disability,
death, resignation or removal from office of any Officer, or for any other
reason that the Board shall deem sufficient, the Board may delegate, for the
time being, any or all of the powers or duties of such Officer to any other
Officer or to any Director.
Section 5. President. The President shall be a Director and, subject to the
control of the Board, shall have general charge of and supervision and authority
over the business and affairs of the Corporation, and shall have such other
powers and perform such other duties as are incident to this office and as may
be assigned to him by the Board. In the case of the absence or disability of the
Chairman or if no Chairman shall be elected or appointed by the Board, the
President shall preside at all Shareholder Meetings and Board Meetings.
Section 6. Vice Presidents. Each of the Vice Presidents shall have such
powers and perform such duties as may be prescribed for him by the Board or
delegated to him by the President. In the case of the absence, disability,
death, resignation or removal from office of the President, the powers and
duties of the President shall, for the time being, devolve upon and be exercised
by the Executive Vice President, if there be one, and if not, then by such one
of the Vice Presidents as the Board or the President may designate, or, if there
be but one Vice President, then upon such Vice President; and he shall
thereupon, during such period, exercise and perform all of the powers and duties
of the President, except as may be otherwise provided by the Board.
Section 7. Secretary. The Secretary shall have the custody and care of the
Seal, records, minutes and the Stock Book of the Corporation; shall attend all
Shareholder Meetings and Board Meetings, and duly record and keep the minutes of
their proceedings in a book or books to be kept for that purpose; shall give or
cause to be given notice of all Shareholder Meetings and Board Meetings when
such notice shall be required; shall file and take charge of all papers and
documents belonging to the Corporation; and shall have such other powers and
perform such other duties as are incident to the office of secretary of a
business corporation, subject at all times to the direction and control of the
Board and the President.
Section 8. Assistant Secretaries. Each of the Assistant Secretaries shall
assist the Secretary in his duties and shall have such other powers and perform
such other duties as may be prescribed for him by the Board or delegated to him
by the President. In case of the absence, disability, death, resignation or
removal from office of the Secretary, his powers and duties shall, for the time
being, devolve upon such one of the Assistant Secretaries as the Board, the
President or the Secretary may designate, or, if there be but one Assistant
Secretary, then upon such Assistant Secretary; and he shall thereupon, during
such period, exercise and perform all of the powers and duties of the Secretary,
except as may be otherwise provided by the Board.
Section 9. Treasurer. The Treasurer shall have control over all records of
the Corporation pertaining to moneys and securities belonging to the
Corporation; shall have charge of, and be responsible for, the collection,
receipt, custody and disbursements of funds of the Corporation; shall have the
custody of all securities belonging to the Corporation; shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation; and shall disburse the funds of the Corporation as may be ordered
by the Board, taking proper receipts or making proper vouchers for such
disbursements and preserving the same at all times during his term of office.
When necessary or proper, he shall endorse on behalf of the Corporation all
checks, notes or other obligations payable to the Corporation or coming into his
possession for or on behalf of the Corporation, and shall deposit the funds
arising therefrom, together with all other funds and valuable effects of the
Corporation coming into his possession, in the name and the credit of the
Corporation in such depositories as the Board from time to time shall direct, or
in the absence of such action by the Board, as may be determined by the
President or any Vice President. If the Board has not elected a Comptroller or
an Assistant Comptroller, or in the absence or disability of the Comptroller and
each Assistant Comptroller or if, for any reason, a vacancy shall occur in such
offices, then during such period the Treasurer shall have, exercise and perform
all of the powers and duties of the Comptroller. The Treasurer shall also have
such other powers and perform such other duties as are incident to the office of
treasurer of a business corporation, subject at all times to the direction and
control of the Board and the President.
6
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If required by the Board, the Treasurer shall give the Corporation a bond,
in such an amount and with such surety or sureties as may be ordered by the
Board, for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
Section 10. Assistant Treasurers. Each of the Assistant Treasurers shall
assist the Treasurer in his duties, and shall have such other powers and perform
such other duties as may be prescribed for him by the Board or delegated to him
by the President. In case of the absence, disability, death, resignation or
removal from office of the Treasurer, his powers and duties shall, for the time
being, devolve upon such one of the Assistant Treasurers as the Board, the
President or the Treasurer may designate, or, if there be but one Assistant
Treasurer, then upon such Assistant Treasurer; and he shall thereupon, during
such period, exercise and perform all the powers and duties of the Treasurer
except as may be otherwise provided by the Board. If required by the Board, each
Assistant Treasurer shall likewise give the Corporation a bond, in such amount
and with such surety or sureties as may be ordered by the Board, for the same
purposes as the bond that may be required to be given by the Treasurer.
Section 11. Comptroller. The Comptroller shall have direct control over all
accounting records of the Corporation pertaining to moneys, properties,
materials and supplies, including the bookkeeping and accounting departments;
shall have direct supervision over the accounting records in all other
departments pertaining to moneys, properties, materials and supplies; shall
render to the President and the Board, at Regular Board Meetings or whenever the
same shall be required, an account of all his transactions as Comptroller and of
the financial condition of the Corporation; and shall have such other powers and
perform such other duties as are incident to the office of comptroller of a
business corporation, subject at all times to the direction and control of the
Board and the President.
Section 12. Assistant Comptrollers. Each of the Assistant Comptrollers
shall assist the Comptroller in his duties, and shall have such other powers and
perform such other duties as may be prescribed for him by the Board or delegated
to him by the President. In case of the absence, disability, death, resignation
or removal from office of the Comptroller, his powers and duties shall, for the
time being, devolve upon such one of the Assistant Comptrollers as the Board,
the President or the Comptroller may designate, or, if there be but one
Assistant Comptroller, then upon such Assistant Comptroller; and he shall
thereupon, during such period, exercise and perform all the powers and duties of
the Comptroller, except as may be otherwise provided by the Board.
Section 13. Age Limitations. No person seventy (70) years of age or older
shall be eligible for election, reelection, appointment, or reappointment as an
Officer of the Corporation. No Officer shall serve beyond the Annual Meeting of
the Corporation immediately following the Officer becoming seventy (70) years of
age.
ARTICLE VI
Certificates for Shares
Section 1. Certificates. Certificates for Shares ("Certificates") shall be
in such form, consistent with law and the Articles, as shall be approved by the
Board. Certificates for each class, or series within a class, of Shares, shall
be numbered consecutively as issued. Each Certificate shall state the name of
the Corporation and that it is organized under the laws of the State of Indiana;
the name of the registered holder; the number and class and the designation of
the series, if any, of the Shares represented thereby; and a summary of the
designations, relative rights, preferences and limitations applicable to such
class and, if applicable, the variations in rights, preferences and limitations
determined for each series and the authority of the Board to determine such
variations for future series; provided, however, that such summary may be
omitted if the Certificate states conspicuously on its front or back that the
7
<PAGE>
Corporation will furnish the Shareholder such information upon written request
and without charge. Each Certificate shall be signed (either manually or in
facsimile) by (i) the President or a Vice President and (ii) the Secretary or an
Assistant Secretary, or by any two or more Officers that may be designated by
the Board, and may have affixed thereto the Seal, which may be a facsimile,
engraved or printed.
Section 2. Record of Certificates. Shares shall be entered in the Stock
Book as they are issued, and shall be transferable on the Stock Book by the
holder thereof in person, or by his attorney duly authorized thereto in writing,
upon the surrender of the outstanding Certificate therefor properly endorsed.
Section 3. Lost or Destroyed Certificates. Any person claiming a
Certificate to be lost or destroyed shall make affidavit or affirmation of that
fact and, if the Board or the President shall so require, shall give the
Corporation and/or the transfer agents and registrars, if they shall so require,
a bond of indemnity, in form and with one or more sureties satisfactory to the
Board or the President and/or the transfer agents and registrars, in such amount
as the Board or the President may direct and/or the transfer agents and
registrars may require, whereupon a new Certificate may be issued of the same
tenor and for the same number of Shares as the one alleged to be lost or
destroyed.
Section 4. Shareholder Addresses. Every Shareholder shall furnish the
Secretary with an address to which notices of Meetings and all other notices may
be served upon him or mailed to him, and in default thereof notices may be
addressed to him at his last known address or at the Principal Office.
ARTICLE VII
Corporate Books and Records
Section 1. Places of Keeping. Except as otherwise provided by law, the
Articles or these By-Laws, the books and records of the Corporation (including
the "Corporate Records," as defined in the Articles) may be kept at such place
or places, within or without the State of Indiana, as the Board may from time to
time by resolution determine or, in the absence of such determination by the
Board, as shall be determined by the President.
Section 2. Stock Book. The Corporation shall keep at the Principal Office
the original Stock Book or a duplicate thereof, or, in case the Corporation
employs a stock registrar or transfer agent within or without the State of
Indiana, another record of the Shareholders in a form that permits preparation
of a list of the names and addresses of all the Shareholders, in alphabetical
order by class of Shares, stating the number and class of Shares held by each
Shareholder (the "Record of Shareholders").
Section 3. Inspection of Corporate Records. Any Shareholder (or the
Shareholder's agent or attorney authorized in writing) shall be entitled to
inspect and copy at his expense, after giving the Corporation at least five
business days' written notice of his demand to do so, the following Corporate
Records: (1) the Articles; (2) these By-Laws; (3) minutes of all Shareholder
Meetings and records of all actions taken by the Shareholders without a meeting
(collectively, "Shareholders Minutes") for the prior three years; (4) all
written communications by the Corporation to the Shareholders including the
financial statements furnished by the Corporation to the Shareholders for the
prior three years; (5) a list of the names and business addresses of the current
Directors and the current Officers; and (6) the most recent Annual Report of the
Corporation as filed with the Secretary of State of Indiana. Any Shareholder (or
the Shareholder's agent or attorney authorized in writing) shall also be
entitled to inspect and copy at his expense, after giving the Corporation at
least five business days' written notice of his demand to do so, the following
Corporate Records, if his demand is made in good faith and for a proper purpose
and describes with reasonable particularity his purpose and the records he
desires to inspect, and the records are directly connected with his purpose: (1)
to the extent not subject to inspection under the previous sentence,
Shareholders Minutes, excerpts from minutes of Board Meetings and of Committee
meetings, and records of any actions taken by the Board or any Committee without
a meeting; (2) appropriate accounting records of the Corporation; and (3) the
Record of Shareholders.
Section 4. Record Date. The Board may, in its discretion, fix in advance a
Record Date not more than seventy days before the date (a) of any Shareholder
Meeting, (b) for the payment of any dividend or the making of any other
distribution, (c) for the allotment of rights, or (d) when any change or
conversion or exchange of Shares shall go into effect. If the Board fixes a
Record Date, then only Shareholders who are Shareholders of record on such
8
<PAGE>
Record Date shall be entitled (a) to notice of and/or to vote at any such
Meeting, (b) to receive any such dividend or other distribution, (c) to receive
any such allotment of rights, or (d) to exercise the rights in respect of any
such change, conversion or exchange of Shares, as the case may be,
notwithstanding any transfer of Shares on the Stock Book after such Record Date.
Section 5. Transfer Agents; Registrars. The Board may appoint one or more
transfer agents and registrars for its Shares and may require all Certificates
to bear the signature either of a transfer agent or of a registrar, or both.
ARTICLE VIII
Checks, Drafts, Deeds and Shares of Stock
Section 1. Checks, Drafts, Notes, Etc. All checks, drafts, notes or orders
for the payment of money of the Corporation shall, unless otherwise directed by
the Board or otherwise required by law, be signed by one or more Officers as
authorized in writing by the President. In addition, the President may authorize
any one or more employees of the Corporation ("Employees") to sign checks,
drafts and orders for the payment of money not to exceed specific maximum
amounts as designated in writing by the President for any one check, draft or
order. When so authorized by the President, the signature of any such Officer or
Employee may be a facsimile signature.
Section 2. Deeds, Notes, Bonds, Mortgages, Contracts, Etc. All deeds,
notes, bonds and mortgages made by the Corporation, and all other written
contracts and agreements, other than those executed in the ordinary course of
corporate business, to which the Corporation shall be a party, shall be executed
in its name by the President, a Vice President or any other Officer so
authorized by the Board and, when necessary or required, the Secretary or an
Assistant Secretary shall attest the execution thereof. All written contracts
and agreements into which the Corporation enters in the ordinary course of
corporate business shall be executed by any Officer or by any other Employee
designated by the President or a Vice President to execute such contracts and
agreements.
Section 3. Sale or Transfer of Stock. Subject always to the further orders
and directions of the Board, any share of stock issued by any corporation and
owned by the Corporation (including reacquired Shares of the Corporation) may,
for sale or transfer, be endorsed in the name of the Corporation by the
President or a Vice President, and said endorsement shall be duly attested by
the Secretary or an Assistant Secretary either with or without affixing thereto
the Seal.
Section 4. Voting of Stock of Other Corporations. Subject always to the
further orders and directions of the Board, any share of stock issued by any
other corporation and owned or controlled by the Corporation (an "Investment
Share") may be voted at any shareholders' meeting of such other corporation by
the President or by a Vice President. Whenever, in the judgment of the
President, it is desirable for the Corporation to execute a proxy or give a
shareholder's consent in respect of any Investment Share, such proxy or consent
shall be executed in the name of the Corporation by the President or a Vice
President, and, when necessary or required, shall be attested by the Secretary
or an Assistant Secretary either with or without affixing thereto the Seal. Any
person or persons designated in the manner above stated as the proxy or proxies
of the Corporation shall have full right, power and authority to vote an
Investment Share the same as such Investment Share might be voted by the
Corporation.
9
<PAGE>
ARTICLE IX
Fiscal Year
Section 1. Fiscal Year. The Corporation's fiscal year shall begin on
January 1 of each year and end on December 31 of the same year.
ARTICLE X Amendments
Section 1. Amendments. These By-Laws may be altered, amended or repealed,
in whole or in part, and new By-Laws may be adopted, at any Board Meeting by the
affirmative vote of a majority of the Full Board.
10
Exhibit 4
STOCK CERTIFICATE
Organized Under Indiana Law
RIVER VALLEY BANCORP
NUMBER SHARES
THIS CERTIFIES that is the owner of See Reverse
Side for Certain
Definitions
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, WITHOUT PAR VALUE, OF
RIVER VALLEY BANCORP
This Certificate is transferable only on the books of the Corporation upon the
surrender of the same properly endorsed.
The interest in said Corporation represented by this Certificate may not be
retired or withdrawn except as provided in the Articles of Incorporation and
Code of By-Laws of the Corporation. This security is not a deposit or account
and is not federally insured or guaranteed. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
The interest in said Corporation represented by this Certificate shall be
subject to all provisions in effect as provided in the Articles of Incorporation
and Code of By-Laws of the Corporation, including any amendments thereto which
may restrict the rights of the holder of this Certificate and may be adopted by
the Corporation at a date later than the date this Certificate is issued. Any
transferee of this Certificate should consult the Corporation's Articles of
Incorporation and Code of By-Laws with respect to any such restrictions.
Witness the facsimile seal of the Corporation and the duly authorized facsimile
signatures of its duly authorized officers.
Dated:
Lonnie D. Collins, Secretary
James E. Fritz, President and Chief Executive Officer
<PAGE>
[STATEMENT FOR BACK OF CERTIFICATE]
RIVER VALLEY BANCORP
THE ARTICLES OF INCORPORATION OF THE CORPORATION PROHIBIT CERTAIN
PERSONS FROM ACQUIRING THE BENEFICIAL OWNERSHIP OF MORE THAN 10% OF ANY
CLASS OF SECURITY OF THE CORPORATION. A COPY OF THESE ARTICLES OF
INCORPORATION WILL BE FURNISHED, WITHOUT CHARGE, TO ANY SHAREHOLDER
UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.
A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES, AND
LIMITATIONS APPLICABLE TO EACH CLASS OF SHARES AND THE VARIATIONS IN
RIGHTS, PREFERENCES, AND LIMITATIONS DETERMINED FOR EACH SERIES (AND
THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS OF
FUTURE SERIES) OF SHARES THAT THE CORPORATION IS AUTHORIZED TO ISSUE
WILL BE FURNISHED, WITHOUT CHARGE, TO ANY SHAREHOLDER UPON WRITTEN
REQUEST TO THE SECRETARY OF THE CORPORATION.
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship
not as tenants in common
UNIF TRAN MIN ACT -- Custodian
(Cust.) (Minor)
under Uniform Transfers to Minors Act
(State)
Additional abbreviations may also be used
although not included in the above
list.
FOR VALUE RECEIVED, HEREBY
SELL, ASSIGN AND TRANSFER UNTO
Please insert Social Security or other
identifying number of Assignee
- ------------------------------------------
- ------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
shares of the capital stock represented by the within
Certificate, and do hereby irrevocably constitute and appoint
Attorney to transfer the said stock on the books of the within
named Corporation with full power of substitution in the premises.
Dated
In Presence of
NOTICE: The signature to this assignment must correspond
with the name as written upon the face of this Certificate
in every particular, without alteration or enlargement or
any change whatever.
EXHIBIT 5
[BARNES & THORNBURG LETTERHEAD]
May 31, 1996
Board of Directors
River Valley Bancorp
303 Clifty Drive
Madison, Indiana 47250
Gentlemen:
You have requested our opinion in connection with the Form S-1
Registration Statement (the "Registration Statement") to be filed by River
Valley Bancorp, an Indiana corporation (the "Corporation"), with respect to the
offer and sale by the Corporation of up to 1,190,250 shares of Common Stock,
without par value, of the Corporation (the "Shares"). We have examined such
records and documents and have made such investigation of law as we have deemed
necessary in the circumstances.
Based on that examination and investigation, it is our opinion that the
Shares are duly authorized and will be, when sold in the manner described in the
Registration Statement (including all Exhibits thereto) and in compliance with
the Securities Act of 1933, as amended, and applicable state blue sky laws,
validly issued, fully paid and non-assessable.
The foregoing opinion is limited to the application of the internal
laws of the State of Indiana and applicable federal law, and no opinion is
expressed herein as to any matter governed by the laws of any other
jurisdiction.
We consent to the use of our name under the caption "The Conversion -
Principal Effects of Conversion - Tax Effects" and "Legal Opinions" in the
Prospectus included in the Registration Statement, to the filing of this opinion
as Exhibit 5 to the Registration Statement, and to the filing of our tax opinion
as Exhibit 8(1) to the Registration Statement.
Very truly yours,
BARNES & THORNBURG
Exhibit 8(1)
[BARNES & THORNBURG LETTER HEAD]
May 31, 1996
Board of Directors
Madison First Federal Savings and Loan Association
303 Clifty Drive
Madison, Indiana 47250
Re: Federal Income Tax Opinion Relating to Conversion of Madison
First Federal Savings and Loan Association ("Madison") from a
Federally-Chartered Mutual to a Federally-Chartered Stock
Organization
Gentlemen:
In accordance with your request, set forth hereinbelow is the opinion
of this firm relating to the Federal income tax consequences of the proposed
conversion (the "Conversion") of Madison from a federally-chartered mutual
savings and loan association to a federally-chartered stock savings and loan
association.
Madison is a federally-chartered mutual savings and loan association.
As a mutual savings and loan association, Madison has no authorized capital
stock. Instead, Madison, in mutual form, has a unique equity structure. A
depositor of Madison is entitled to interest on his account balance as declared
and paid by Madison. A depositor has no right to a distribution of any earnings
of Madison, but rather these amounts become retained earnings of Madison. A
depositor, however, has a right to share pro rata, with respect to the
withdrawal value of his respective account, in any liquidation proceeds
distributed in the event Madison is ever liquidated. Voting rights in Madison
are held by its members, i.e., depositors and borrowers. Each depositor is
entitled to cast one vote for each $100 or a fraction thereof deposited in a
deposit account, and borrower members are entitled to one vote each. No member
may cast more than 1,000 votes. All of the interests held by a depositor in
Madison cease when such depositor closes his accounts with Madison.
The Board of Directors of Madison has decided that in order to
stimulate the growth and expansion of Madison through the raising of additional
capital, it would be advantageous for Madison to convert from a
federally-chartered mutual savings and loan association to a federally-chartered
stock savings and loan association and to form an Indiana corporation ("Holding
Company") to own all of Madison's issued and outstanding capital stock. It is
proposed pursuant to a plan of Conversion (the "Plan") that Madison's charter to
operate as a mutual savings and loan association be amended and a new charter be
acquired to allow it to continue its operations in the form of a
<PAGE>
Board of Directors
Madison First Federal Savings and Loan Association
May 31, 1996
Page 2
stock savings and loan association ("Converted Association"). Under the Plan,
Madison will issue shares of its capital stock to Holding Company in exchange
for all but 60% of the net proceeds derived from the sale of Holding Company's
common stock, without par value ("Common Stock"), to members of Madison and
certain members of the public through a subscription and direct community
offering. The Plan must be approved by the Office of Thrift Supervision ("OTS")
and by an affirmative vote of at least a majority of the total votes eligible to
be cast at a meeting of Madison's members called to vote on the Plan.
Following authorization, the Plan provides for the issuance of shares
of Common Stock. The aggregate purchase price at which all shares of Common
Stock will be offered and sold pursuant to the Plan will be equal to the
estimated pro forma market value of Madison at the time of conversion. The
estimated pro forma market value will be determined by an independent appraiser.
Pursuant to the Plan, all such shares will be issued and sold at a uniform price
per share.
As required by OTS regulations, shares of Common Stock will be offered
pursuant to non-transferable subscription rights on the basis of preference
categories. No subscriber will be allowed to purchase fewer than 25 shares of
Common Stock. Madison has established four preference categories under which
shares of Common Stock may be purchased and a direct community offering category
for the sale of shares not purchased under the preference categories.
The first category of preference is reserved for Madison's eligible
account holders. The Plan defines "eligible account holders" as any person
holding a qualifying deposit. The Plan defines "qualifying deposit" as the
aggregate balance of all savings and deposit accounts of an eligible account
holder in Madison at the close of business on December 31, 1994, provided such
aggregate balance is not less than $50.00. Once a Madison savings account holder
qualifies as an eligible account holder, he will receive, without payment,
non-transferable subscription rights to purchase Common Stock. Subject to
certain limited exceptions, the maximum number of shares that each eligible
account holder may subscribe for is 10,000 per deposit account held as of
December 31, 1994, subject to a 20,000 maximum for each such account holder and
his Associates (as defined in the Plan) or group of persons acting in concert.
If there is an oversubscription, shares will be allocated among subscribing
eligible account holders so as to permit each such account holder, to the extent
possible, to purchase a number of shares sufficient to make his total allocation
equal to 100 shares. Any shares not then allocated shall be allocated among the
subscribing eligible account holders in the proportion that their qualifying
deposits bear to the total qualifying deposits of eligible account holders on
the eligibility record date. Non-transferable subscription rights to purchase
Common Stock received by officers and directors of Madison and their Associates
based on their increased deposits in Madison in the one-year period preceding
the eligibility record date shall be subordinated to all other subscriptions
involving the exercise of nontransferable subscription rights to purchase shares
of Common Stock under the first preference category. Notwithstanding the
foregoing, shares of Common Stock in excess of the maximum of the valuation
range of shares
<PAGE>
Board of Directors
Madison First Federal Savings and Loan Association
May 31, 1996
Page 3
offered in the Conversion may be sold to the second category of preference
before fully satisfying the subscriptions of eligible account holders.
The second category of preference is reserved for the Holding Company's
employee stock ownership plan (the "ESOP") to be established at the time of the
Conversion. This category may subscribe for up to 10% of the shares sold in the
Conversion; provided that shares remain available after satisfying the
subscription rights of eligible account holders up to the maximum of the
valuation range of shares offered in the Conversion. It is anticipated that the
ESOP will subscribe for 8% of the shares sold in the Conversion pursuant to this
category of preference.
The third category of preference is reserved for Madison's supplemental
eligible account holders. These are persons holding savings and deposit accounts
at Madison at the close of business on June 30, 1996, with an aggregate balance
of not less than $50.00. If there is not subscription for all of the Common
Stock in the first and second preference categories, supplemental eligible
account holders will receive, without payment, non-transferable subscription
rights to purchase Common Stock. Subject to certain limited exceptions, the
maximum number of shares that each supplemental eligible account holder may
subscribe for is 10,000 per deposit account held as of June 30, 1996, subject to
a 20,000 maximum for each such accountholder and his Associates or group of
persons acting in concert. Any subscription rights received by eligible account
holders in accordance with the first category of preference will reduce to the
extent thereof the subscription rights granted in this third category of
preference. If there is an oversubscription, shares will be allocated among
subscribing supplemental eligible account holders so as to permit each such
account holder, to the extent possible, to purchase a number of shares
sufficient to make his total allocation equal to 100 shares. Any shares not then
allocated shall be allocated to supplemental eligible account holders in the
proportion that their qualifying deposits bear to the qualifying deposits of all
subscribing supplemental eligible account holders.
If there is not subscription for all of the Common Stock in the first,
second and third preference categories, the fourth preference category,
consisting of members of Madison as of the record date for the special meeting
of members at which the Plan will be submitted for approval who are not eligible
account holders or supplemental eligible account holders ("Other Members"), will
receive, without payment, non-transferable subscription rights entitling them to
purchase Common Stock. Subject to certain limited exceptions, each Other Member
shall receive subscription rights to purchase up to 10,000 shares of Common
Stock per deposit account held or loan owed to Madison as of the record date for
the special meeting of members at which the Plan will be submitted for approval,
subject to a 20,000 maximum for each such member and his Associates or group of
persons acting in concert, to the extent that such stock is available after
satisfaction of the first, second and third preference categories. In the event
of an oversubscription by Other Members, shares will be allocated pro rata in
the same proportion that the number of shares subscribed for by each Other
Member bears to the total number of shares subscribed for by all Other Members.
<PAGE>
Board of Directors
Madison First Federal Savings and Loan Association
May 31, 1996
Page 4
If there are shares of Common Stock available after the first, second,
third and fourth preference categories have been exhausted, it is anticipated
that they will be sold to members of the general public in a best efforts direct
community offering, giving preference to residents of Jefferson County. The
maximum number of shares which may be purchased in this Direct Community
Offering by any person (including his Associates) or persons acting in concert
is 10,000 shares of Common Stock. A person with subscription rights who,
together with his Associates and persons acting in concert, has subscribed for
shares in the Subscription Offering, may subscribe for additional shares in the
Direct Community Offering that do not exceed the lesser of (i) 10,000 shares or
(iii) the number of shares which, when added to the number of shares subscribed
for by such person and his Associates and persons acting in concert would not
exceed 20,000 shares.
Madison's Board of Directors may increase the maximum purchase
limitations in the Plan up to 9.99% of the shares of Common Stock offered in the
Conversion, provided that orders for Common Stock exceeding 5% of the total
offering may not exceed, in the aggregate, 10% of the total offering. Officers
and directors of Madison and their Associates may not purchase in the aggregate
more than 34% of the shares offered pursuant to the Plan. Directors of Madison
will not be deemed Associates or a group acting in concert solely as a result of
their membership on the Board of Directors of Madison. All of the shares of
Common Stock purchased by officers and directors will be subject to certain
restrictions on sale for a period of one year. In order to achieve the widest
distribution of the stock in the Direct Community Offering, orders for stock
shall be filled up to a maximum of 2% of the Common Stock and thereafter
remaining shares shall be allocated on an equal number of shares basis per order
until all orders have been filled. The overall purchase limitation may be
reduced to any number to a minimum of 1% of the shares sold in the Conversion,
in the sole discretion of the Board of Directors of Madison.
The Plan provides that no person will be issued any subscription rights
or be permitted to purchase any Common Stock if such person resides in a foreign
country or in a state of the United States with respect to which all of the
following apply: (a) a small number of persons otherwise eligible to subscribe
for shares under this Plan reside in such state; (b) the issuance of
subscription rights or the offer or sale of the Common Stock to such persons
would require Madison or the Holding Company or their respective officers or
directors under the securities law of such state to register as a broker or
dealer or to register or otherwise qualify its securities for sale in such
state; and (c) such registration or qualification would be impracticable for
reasons of cost or otherwise.
The Plan also provides for the establishment of a liquidation account
by Madison. The liquidation account will be equal in amount to the net worth of
Madison near the time of conversion. The establishment of the liquidation
account will not operate to restrict the use or application of any of the net
worth accounts of Converted Association, except that Converted Association will
not voluntarily reduce the net worth accounts if the result thereof would be to
reduce its net worth below the amount required to maintain the liquidation
account. The liquidation account will be for
<PAGE>
Board of Directors
Madison First Federal Savings and Loan Association
May 31, 1996
Page 5
the benefit of Madison's eligible account holders and supplemental eligible
account holders who maintain accounts in Madison at the time of conversion. All
such account holders, including those account holders not entitled to
subscription rights for reasons of foreign or out-of-state residency (as
described above), will have an interest in the liquidation account. The interest
such account holder will have is a right to receive, in the event of a complete
liquidation of Converted Association, a liquidating distribution from the
liquidation account in the amount of the then current adjusted subaccount
balances for deposit accounts then held, prior to any liquidation distribution
being made with respect to capital stock.
The initial subaccount balance for a deposit account held by an
eligible account holder and supplemental eligible account holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of the qualifying deposit in the
deposit account and the denominator is the total amount of qualifying deposits
of all eligible account holders and supplemental eligible account holders in
Madison. The initial subaccount balance will never be increased, but may be
decreased if the deposit balance in any qualifying savings account of any
eligible account holder or supplemental eligible account holder on any annual
closing date subsequent to the eligibility record date or supplemental
eligibility record date is less than the lesser of (1) the deposit balance in
the savings account at the close of business on any other annual closing date
subsequent to the eligibility record date or supplemental eligibility record
date, or (2) the amount of the qualifying deposit in such deposit account. In
such event, the subaccount balance for the deposit account will be adjusted by
reducing each subaccount balance in an amount proportionate to the reduction in
the deposit balance. Once decreased, the Plan provides that the subaccount
balance may never be subsequently increased, and if the deposit account of an
eligible account holder or supplemental eligible account holder is closed, the
related subaccount balance in the liquidation account will be reduced to zero.
Following the Conversion, voting rights with respect to Converted
Association will rest with Holding Company, and with respect to Holding Company
will rest exclusively with the holders of Common Stock. The Conversion will not
interrupt the business of Madison, and its business will continue as usual by
Converted Association. Each depositor will retain a withdrawable savings or
deposit account or accounts equal in amount to the withdrawable account at the
time of conversion. Mortgage loans of Madison will remain unchanged and retain
their same characteristics in Converted Association after the conversion. The
Converted Association will continue the membership of Madison in the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation (the
"FDIC") and the Federal Home Loan Bank System, and will remain subject to the
regulatory authority of the OTS and the FDIC. The Holding Company will, however,
use approximately $3,000,000 of the net proceeds of the Conversion to acquire
95.6% of the outstanding shares of the Citizens National Bank of Madison, a
national banking association based in Madison, Indiana. This transaction is
expected to close on the same date or as soon as practicable after the
Conversion
<PAGE>
Board of Directors
Madison First Federal Savings and Loan Association
May 31, 1996
Page 6
closes. The Holding Company intends to contribute up to $1.5 million to Citizens
following the Conversion.
Approximately six months following the Conversion, Holding Company will
adopt a stock option plan and a "recognition and retention" plan and trust
("RRP"). A number of shares of Common Stock equal to four percent (4.0%) of the
shares of Common Stock sold in the Conversion will be reserved to fund the RRP
and a number of shares of Common Stock equal to 10% of the shares of Common
Stock sold in the Conversion will be reserved for stock option grants under the
stock option plan. In addition, the Converted Association will establish an
employee stock ownership plan and trust for the benefit of its employees at the
time of the Conversion. The stock option plan, RRP and employee stock ownership
plan are referred to collectively herein as the "Employee Plans." Additionally,
Holding Company will adopt certain "anti-takeover provisions" in its proposed
Articles of Incorporation and Code of By-Laws.
We have received, and are relying upon, certificates of certain
officers of Madison to the effect that:
a. Converted Association has no plan or intention to redeem or
otherwise acquire any of its capital stock issued to Holding
Company in connection with the Conversion.
b. Immediately following consummation of the Conversion, Converted
Association will possess the same assets and liabilities as
Madison held immediately prior to the proposed transaction, plus
all but 60% of the net proceeds from the sale of Common Stock
(after providing for the loan to the ESOP).
c. Converted Association has no plan or intention to sell or
otherwise dispose of any of the assets of Madison acquired in the
Conversion, except for dispositions in the ordinary course of
business.
d. Following the Conversion, Converted Association will continue to
engage in the same business in substantially the same manner as
engaged in by Madison before the Conversion.
e. The aggregate fair market value of the qualifying deposits (as
defined in the Plan) held by eligible account holders as of the
close of business on December 31, 1994, and by supplemental
eligible account holders on June 30, 1996, equaled or exceeded or
will equal or exceed 99% of the aggregate fair market value of
all savings accounts in Madison (including accounts of less than
$50) at the close of business on such respective dates.
<PAGE>
Board of Directors
Madison First Federal Savings and Loan Association
May 31, 1996
Page 7
f. No shares of Common Stock will be issued to or be purchased by
depositor-employees at a discount or as compensation in the
Conversion, although shares may be purchased at fair market value
by the RRP and the ESOP established in connection with the
Conversion.
g. No cash or property will be given to eligible account holders,
supplemental eligible account holders or Other Members in lieu of
(a) non-transferable subscription rights or (b) an interest in
the liquidation account of Converted Association.
h. Madison is not under the jurisdiction of a court in any Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
i. At the time of the Conversion the fair market value of the assets
of Madison on a going concern basis will exceed the amount of its
liabilities plus the amount of liabilities to which the assets
are subject. All such liabilities were incurred in the ordinary
course of business and are associated with the assets
transferred. Immediately before the Conversion, Madison will have
a positive net worth.
j. Madison has received or will receive an opinion from Keller &
Company, Inc. which concludes that the subscription rights to be
received by eligible subscribers have no economic value at the
date of distribution or the time of exercise whether or not a
public offering takes place (the "Keller Financial Opinion"). The
exercise price of the subscription rights will be approximately
equal to the fair market value of the Common Stock at the time of
the Conversion.
k. Holding Company has no plan or intention to sell or otherwise
dispose of the capital stock of Converted Association received by
it in the proposed transaction, and there is no plan or intention
for Converted Association to be liquidated or merged with another
corporation following the transaction.
l. The fair market value of the withdrawable deposit accounts in
Converted Association (plus the related interest in the Converted
Association liquidation account) to be constructively received
under the Plan by the eligible account holders and supplemental
eligible account holders of Madison will, in each instance, be
approximately equal to the fair market value of Madison's deposit
accounts (plus the related interest in the Madison liquidation
account) surrendered in constructive exchange by them. All
proprietary rights in Madison form an integral part of the
withdrawable savings accounts being surrendered in the exchange.
<PAGE>
Board of Directors
Madison First Federal Savings and Loan Association
May 31, 1996
Page 8
m. Madison utilizes a reserve for bad debts in accordance with
Section 593 of the Code, and following the Conversion, Converted
Association shall likewise continue to utilize a reserve for bad
debts in accordance with Section 593 of the Code.
n. Holding Company, Madison and Converted Association are
corporations within the meaning of Section 7701(a)(3) of the
Code. Madison and Converted Association are domestic building and
loan associations within the meaning of Section 7701(a)(19)(C) of
the Code.
o. Madison deposit account holders and Other Members will pay
expenses of the Conversion solely attributable to them, if any.
Madison and Holding Company will each pay its own expenses of the
Conversion and will not pay any expenses solely attributable to
the deposit account holders, Other Members or the holders of
Common Stock.
p. Immediately following the Conversion, the former depositors of
Madison will own all of the outstanding interests in the
Converted Association liquidation account and will own such
interests solely by reason of their ownership of deposits at
Madison (including the attendant rights to liquidation proceeds)
immediately before the Conversion.
q. Assets of Madison used to pay expenses of the Conversion (without
reference to expenses of the offering or sale of the Common
Stock) and to make distributions (other than regular, normal
interest payments) will, in the aggregate, constitute less than
1% of the net assets of Madison. Any such expenses or
distributions will be paid or reimbursed from proceeds of the
sale of the Common Stock.
r. At the time of the Conversion, Madison will not have outstanding
any warrants, options, convertible securities, or any other type
of right pursuant to which any person could acquire stock in
Converted Association.
s. No account holder of Madison who is eligible to receive an
interest in the Converted Association liquidation account will be
excluded from participation in the Converted Association
liquidation account.
t. Holding Company has no plan or intention to redeem or otherwise
reacquire any of the Common Stock issued in the proposed
transaction.
<PAGE>
Board of Directors
Madison First Federal Savings and Loan Association
May 31, 1996
Page 9
u. Neither the Common Stock nor the stock of Converted Association
issued pursuant to the proposed transactions will be callable or
subject to a put option (except as required under any Employee
Plan).
v. None of the compensation received by a Madison employee who is
also an eligible account holder, supplemental eligible account
holder, or Other Member will be separate consideration for, or
allocable to, his or her status as eligible account holder,
supplemental eligible account holder, or Other Member; none of
the Common Stock or interests in the liquidation account of
Converted Association received by any such employee will be
separate consideration for, or allocable to, any employment
agreement or arrangement (other than an Employee Plan); and the
compensation paid to the employee will be for services actually
rendered and will be commensurate with the compensation that
would be paid to third parties bargaining at arm's length for
similar services.
w. There is no intercorporate indebtedness existing between Holding
Company and Madison that was issued or acquired, or will be
settled, at a discount.
x. Holding Company is not an investment company as described in
section 1.351-1(c) of the regulations under the Code.
y. The principal amount, interest rate and maturity date of each
deposit account in Converted Association received by a Madison
eligible account holder or supplemental eligible account holder
are identical to those of the corresponding Madison deposit
account that was held by the account holder immediately prior to
the Conversion.
OPINION OF COUNSEL
Based solely upon the foregoing information, including the Keller
Financial Opinion, the provisions of the Code, the regulations thereunder and
such other authorities as we have deemed appropriate to consider, all as in
effect on the date hereof, our opinion is as follows:
(1) The change in the form of Madison from a federally-chartered
mutual savings and loan association to a federally-chartered
stock savings and loan association, as described above, will
constitute a reorganization within the meaning of Section
368(a)(1)(F) of the Code and no gain or loss will be recognized
to either Madison or to Converted Association as a result of such
Conversion (see Rev. Rul. 80-105, 1980-1 C.B. 78). Madison and
Converted Association will each be a party to a
<PAGE>
Board of Directors
Madison First Federal Savings and Loan Association
May 31, 1996
Page 10
reorganization within the meaning of Section 368(b) of the Code
(Rev. Rul. 72-206, 1972-1 C.B. 105).
(2) No gain or loss will be recognized by Converted Association on
the receipt of money and other property, if any, from Holding
Company in exchange for shares of Converted Association's capital
stock (Section 1032(a) of the Code).
(3) No gain or loss will be recognized by Holding Company upon the
receipt of money for Common Stock (Section 1032(a) of the Code).
(4) The assets of Madison will have the same basis in the hands of
Converted Association as in the hands of Madison immediately
prior to the Conversion (Section 362(b) of the Code).
(5) The holding period of the assets of Madison to be received by
Converted Association will include the period during which the
assets were held by Madison prior to the Conversion (Section
1223(2) of the Code).
(6) Depositors will realize gain, if any, upon the constructive
issuance to them of withdrawable deposit accounts of Converted
Association, non-transferable subscription rights to purchase
Common Stock, and/or interests in the liquidation account of
Converted Association. Any gain resulting therefrom will be
recognized, but only in an amount not in excess of the fair
market value of the subscription rights and interests in the
liquidation accounts received. The liquidation accounts will have
nominal, if any, fair market value. See Paulsen v. Commissioner,
469 U.S. 131, 139 (1985), quoting Society for Savings v. Bowers,
349 U.S. 143 (1955); but see Rev. Rul. 69-3, 1969-1 C.B. 103 and
Rev. Rul. 69-646, 1969-2 C.B. 54 (the interest received rises to
the level of "stock" and thus, in some circumstances, Section 354
of the Code applies). Based solely on the accuracy of the
conclusion reached in the Keller Financial Opinion, and our
reliance on such opinion, that the subscription rights have no
economic value at the time of distribution or exercise, no gain
or loss will be required to be recognized by eligible account
holders or supplemental eligible account holders upon receipt or
distribution of subscription rights. (Section 1001 of the Code.)
Similarly, based solely on the accuracy of the aforesaid
conclusion reached in the Keller Financial Opinion, and our
reliance thereon, we give the following opinions: (a) no taxable
income will be recognized by the Other Members of Madison upon
the distribution to them of subscription rights or upon the
exercise of the subscription rights to acquire Common Stock at
fair market value; (b) no taxable income will be realized by the
depositors of Madison as a result of the exercise of the
non-transferable subscription rights to purchase Common Stock at
fair
<PAGE>
Board of Directors
Madison First Federal Savings and Loan Association
May 31, 1996
Page 11
market value, Rev. Rul. 56-572, 1956-2 C.B. 182; and (c) no
taxable income will be realized by Converted Association, Madison
or Holding Company on the issuance or distribution of
subscription rights to depositors and borrowers of Madison to
purchase shares of Common Stock at fair market value. Section 311
of the Code.
(7) A depositor's basis in the deposits of Converted Association will
be the same as the basis of such depositor's deposits in Madison.
Section 1012 of the Code. The basis of the non-transferable
subscription rights will be zero increased by the amount of gain,
if any, recognized on their receipt. The basis of the interest in
the liquidation account of Converted Association received by
eligible account holders and supplemental eligible account
holders will be equal to the cost of such property, i.e., the
fair market value of the proprietary interest in Converted
Association received in exchange for the proprietary interest in
Madison, which in this transaction we assume to be zero.
(8) The basis of the Holding Company Common Stock to its shareholders
will be the purchase price thereof, plus, in the case of stock
acquired by the exercise of subscription rights, the basis, if
any, in the subscription rights exercised. Section 1012 of the
Code.
(9) A shareholder's holding period for Common Stock acquired through
the exercise of the non-transferable subscription rights shall
begin on the date on which the subscription rights are exercised.
Section 1223(6) of the Code. The holding period of the Common
Stock purchased pursuant to the Direct Community Offering will
commence on the date following the date on which the stock is
purchased. Rev. Rul. 70-598, 1970-2 C.B. 168; Rev. Rul. 66-97,
1966-1 C.B. 190.
(10) The part of the taxable year of Madison before the Conversion and
the part of the taxable year of Converted Association after the
Conversion will constitute a single taxable year of Converted
Association. (See Rev. Rul. 57-276, 1957-1 C.B. 126).
Consequently, Madison will not be required to file a federal
income tax return for any short portion of such taxable year
(Section 1.381(b)-1(a)(2) of the Income Tax Regulations).
(11) Converted Association will succeed to and take into account the
earnings and profits or deficit in earnings and profits of
Madison as of the date or dates of Conversion. (Section 381(c)(2)
of the Code and Section 1.381(c)(2)-1 of the Income Tax
Regulations.)
<PAGE>
Board of Directors
Madison First Federal Savings and Loan Association
May 31, 1996
Page 12
(12) Regardless of book entries made for the creation of the
liquidation account, the Conversion will not diminish the
accumulated earnings and profits of the Converted Association
available for the subsequent distribution of dividends within
the meaning of Section 316 of the Code (Sections 1.312-11(b)
and (c) of the Income Tax Regulations). The creation of the
liquidation account on the records of Converted Association
will have no effect on its taxable income, deductions for
addition to reserve for bad debts under Section 593 of the
Code, or distributions to shareholders under Section 593(e) of
the Code (Rev. Rul. 68-475, 1968-2 C.B. 259).
(13) Converted Association will succeed to and take into account,
immediately after the Conversion, those accounts of Madison
which represent bad debt reserves in respect of which Madison
has taken a bad debt deduction for taxable years ending on or
before the date of the Conversion. The bad debt reserves will
not be required to be restored to the gross income of either
Madison or Converted Association for the taxable year of the
Conversion, and such bad debt reserves will have the same
character in the hands of the Converted Association as they
would have had in the hands of Madison if no distribution or
Conversion had occurred. (Section 381(c)(4) of the Code and
Section 1.381(c)(4)-1(a)(1)(ii) of the Income Tax
Regulations.) No opinion is being expressed as to whether the
bad debt reserves will be required to be restored to the gross
income of either Madison or Converted Association for the
taxable year of the transfer if Converted Association fails to
meet the requirements of Section 593(a)(2) of the Code during
such taxable year.
(14) Inasmuch as the Conversion constitutes a tax-free
reorganization for federal income tax purposes, Madison will
not incur any liability for Indiana adjusted gross income tax,
financial institutions tax, supplemental net income tax,
county adjusted gross income tax or county option income tax
as a result of the Conversion. Madison will not incur any
Indiana gross income tax liability as a result of the
Conversion. Amounts received by Holding Company in exchange
for the issuance of Common Stock and amounts received by
Converted Association in exchange for the issuance of its
capital stock will constitute contributions to capital which
are exempt from the gross income tax.
(15) Assuming that the interests in the liquidation account and the
subscription rights that will be constructively issued to them
as a part of the Plan have nominal, if any, fair market value,
depositors will incur no liability for Indiana gross income
tax, adjusted gross income tax, financial institutions tax,
county adjusted gross income tax or county option income tax
as a result of the Conversion.
<PAGE>
Board of Directors
Madison First Federal Savings and Loan Association
May 31, 1996
Page 13
(16) Following the Conversion, the Converted Association will continue
to be subject to the Indiana financial institutions tax.
Our opinion on the above issues is based on information and
representations provided by officers of Madison on behalf of Madison and its
members. Neither the Internal Revenue Service nor the Indiana Department of
Revenue has ruled on these issues and our opinion is not binding on either
agency. The Internal Revenue Service or the Indiana Department of Revenue could
take a position contrary to that expressed in this opinion on some or all of the
above issues, and such a position if ultimately sustained could result in
adverse tax consequences to Madison or its members.
No opinion is provided as to possible tax consequences of the
Conversion under any federal, state, local or foreign tax laws except as
specifically provided above.
Very truly yours,
BARNES & THORNBURG
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
May 30, 1996
Board of Directors
Madison First Federal Savings and Loan Association
233 E. Main Street
Madison, IN 47250
Re: Subscription Rights -- Conversion of Madison First Federal Savings and Loan
Association
Madison, Indiana
Gentlemen:
The purpose of this letter is to provide an opinion of the value of the
subscription rights of the "to be issued" common stock of River Valley Bancorp
("River Valley" or the "Corporation"), Madison, Indiana, in regard to the
conversion of Madison First Federal Savings and Loan Association ("Madison First
Federal") from a federally-chartered mutual savings and loan association to a
federally-chartered stock savings and loan association.
Because the Subscription Rights to purchase shares of Common Stock in Madison
First Federal, which are to be issued to the depositors of Madison First Federal
and the other members of Madison First Federal and will be acquired by such
recipients without cost, will be nontransferable and of short duration and will
afford the recipients the right only to purchase shares of Common Stock at the
same price as will be paid by members of the general public in a Direct
Community Offering, we are of the opinion that:
(1) The Subscription Rights will have no ascertainable fair market
value, and;
(2) The price at which the Subscription Rights are exercisable
will not be more or less than the fair market value of the
shares on the date of the exercise.
Further, it is our opinion that the Subscription Rights will have no economic
value on the date of distribution or at the time of exercise, whether or not a
community offering takes place.
Sincerely,
KELLER & COMPANY, INC.
By: /s/ Michael R. Keller
------------------------
Michael R. Keller
President
Exhibit 10(1)
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614)766-1426
(614)766-1459 FAX
March 7, 1996
Board of Directors
Madison First Federal Savings & Loan Association
303 Clifty Drive
Madison, Indiana 47250
Re: Business Plan Proposal
Attention: James E. Fritz, President
This letter represents our proposal to prepare a complete Business Plan for
Madison First Federal Savings & Loan Association ("Madison First Federal" or the
"Association") to fulfill the requirements of the Office of Thrift Supervision
relating to the Association's stock conversion. The Plan will focus on Madison
First Federal's new three-year pro formas, the conversion impact on the
Association and the planned use of proceeds.
Keller & Company is experienced in preparing Business Plans for filing with and
approval by all regulatory agencies. We prepared thirty Business Plans in 1994,
thirty-two in 1995, and six to date in 1996, and all have been approved. Your
Plan will be based on the established format and guidelines incorporated in the
attached Exhibit A. We will prepare the three year pro formas and each
discussion section in accordance with those requirements and based on your
input. Our objective is to ensure that your Business Plan is in compliance with
all applicable requirements, and that management and directorate are
knowledgeable of and comfortable with the assumptions, commitments and
projections contained in the Plan making the Plan useful for the future.
Exhibit B provides a sample set of pro formas for another institution. The pro
formas will incorporate the most current interest rate projections available.
Our procedure is to request key financial information, including recent lending
activity, savings activity, costs and yields and other data from Madison First
Federal. Based on a review of this information, I will then meet with management
to discuss your plans and expectations for 1996, 1997, and 1998. The discussion
will focus on such items as use of proceeds, deposit growth expectations, loan
origination projections, new products and services, increases in general
valuation allowance, new branches or capital improvements, increases in fixed
assets, investment strategy, increases in board fees and total compensation,
etc. We will then prepare financial projections tying the beginning figures to
your December 31, 1995, balances and using your current yields on asset items
and your current costs
<PAGE>
of interest-bearing liabilities. Assets and liabilities will be repriced based
on their maturity period, with such items tied to rate indexes and their yields
and costs adjusting based on interest rate trends and their maturity period. The
projections will be based on your actual performance in 1995, in conjunction
with the input from our discussions. We prepare numerous scenarios as part of
the completion of the Business Plan to show the impact of alternative
strategies, the impact of the one-time SAIF assessment and subsequent reduced
insurance premiums, etc., for internal use.
With each set of pro formas, we will send you a discussion summary of the
assumptions for easy review and comments (Exhibit C). After your review of the
pro formas, we will make any adjustments that are required. When the pro formas
are complete, we will provide you with the final pro forma financial statements,
as well as pro formas for the holding company (Exhibit D).
With regard to the Business Plan text, we will complete each section in draft
form for your review, and revise each section based on your comments and
requests. We will also send copies to your accounting firm and counsel for their
input and comments. The Plan will be in full compliance with the regulatory
requirements. We also prepare a quarterly comparison chart for presentation to
the Board showing the quarterly variance in actual performance relative to
projections and provide comments on the variance.
Our fee for the preparation of the Business Plan text and pro formas is $5,000,
including out-of-pocket expense for travel, copying and binding.
I look forward to possibly working with you and would be pleased to discuss our
proposal and provide samples of our work.
Sincerely,
KELLER & COMPANY, INC.
/s/ Michael R. Keller
Michael R. Keller
President
Enclosure
Accepted this 14th day of March, 1996
/s/ James E. Fritz, President
James E. Fritz, President
-2-
<PAGE>
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614)766-1426
(614)766-1459 FAX
March 7, 1996
Board of Directors
Madison First Federal Savings & Loan Association
303 Clifty Drive
Madison, Indiana 47250
Re: Conversion Valuation Agreement
Attention: James E. Fritz, President
Keller & Company, Inc. (hereinafter referred to as KELLER) hereby
proposes to prepare an independent conversion appraisal of Madison First Federal
Savings & Loan Association, Madison, Indiana (hereinafter referred to as MADISON
FIRST FEDERAL), relating to the conversion of MADISON FIRST FEDERAL from a
mutual to a stock institution. KELLER will provide a pro forma valuation of the
market value of the shares to be sold in the proposed conversion of MADISON
FIRST FEDERAL.
KELLER is a financial consulting firm that primarily serves the
financial institution industry. KELLER is experienced in evaluating and
appraising thrift institutions and thrift institution holding companies. KELLER
is an experienced conversion appraiser for filings with the Federal Deposit
Insurance Corporation ("FDIC") and the Office of Thrift Supervision ("OTS"), and
is also approved by the Internal Revenue Service as an expert in thrift stock
valuations.
KELLER agrees to prepare the required conversion appraisal in the
format required by the OTS in a timely manner for prompt filing with the OTS and
the Securities and Exchange Commission. KELLER will provide any additional
information as requested and will complete appraisal updates in accordance with
regulatory requirements.
The appraisal report will provide a detailed description of MADISON
FIRST FEDERAL, including its financial condition, operating performance, asset
quality, rate sensitivity position, liquidity level and management
qualifications. The appraisal will include a description of MADISON FIRST
FEDERAL's market area, including both economic and demographic characteristics
-3-
<PAGE>
and trends. An analysis of other publicly-traded thrift institutions will be
performed to determine a comparable group and adjustments to the appraised value
will be made based on a comparison of MADISON FIRST FEDERAL with the comparable
group.
The appraisal report will also recognize the impact of the planned
acquisition of Citizens National Bank of Madison ("CITIZENS NATIONAL"),
providing the OTS with a valuation of Madison First Federal on a "stand alone
basis" and also based on consolidated financials with Citizens National.
In making its appraisal, KELLER will rely upon the information in the
Subscription and Community Offering Circular (Prospectus), including the
financial statements. Among other factors, KELLER will also consider the
following: the present and projected operating results and financial condition
of MADISON FIRST FEDERAL and CITIZENS NATIONAL; the economic and demographic
conditions in MADISON FIRST FEDERAL's existing marketing area; pertinent
historical financial and other information relating to MADISON FIRST FEDERAL; a
comparative evaluation of the operating and financial statistics of MADISON
FIRST FEDERAL with those of other thrift institutions; the proposed price per
share; the aggregate size of the offering of Common Stock; the impact of the
Conversion on MADISON FIRST FEDERAL's capital position and earnings potential;
MADISON FIRST FEDERAL's proposed dividend policy; and the trading market for
securities of comparable institutions and general conditions in the market for
such securities. In preparing the appraisal, KELLER will rely solely upon, and
assume the accuracy and completeness of, financial and statistical information
provided by MADISON FIRST FEDERAL, and will not independently value the assets
or liabilities of MADISON FIRST FEDERAL in order to prepare the appraisal.
Upon completion of the conversion appraisal, KELLER will make a
presentation to the Board of Directors of MADISON FIRST FEDERAL to review the
content of the appraisal, the format and the assumptions. A written presentation
will be provided to each board member.
For its services in making this appraisal, KELLER's fee will be a flat
fee of $17,000, plus out-of-pocket expenses for travel and copying and binding
not to exceed $500. The appraisal fee will include the preparation of two
valuation updates. All additional valuation updates will be subject to an
additional fee of $1,000 each. Upon the acceptance of this proposal, KELLER
shall be paid a retainer of $3,000 to be applied to the total appraisal fee of
$17,000, the balance of which will be payable at the time of the completion of
the appraisal.
MADISON FIRST FEDERAL agrees, by the acceptance of this proposal, to
indemnify KELLER and its employees and affiliates for certain costs and
expenses, including reasonable legal fees, in connection with claims or
litigation relating to the appraisal and arising out of any misstatement or
untrue statement of a material fact in information supplied to KELLER by MADISON
FIRST FEDERAL or by an intentional omission by MADISON FIRST FEDERAL to state a
material fact in the information so provided, except where KELLER has been
negligent or at fault.
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This proposal will be considered accepted upon the execution of the two
enclosed copies of this agreement and the return of one executed copy to KELLER,
accompanied by the specified retainer.
KELLER & COMPANY, INC.
By:/s/ Michael R. Keller
Michael R. Keller, President
MADISON FIRST FEDERAL SAVINGS &
LOAN ASSOCIATION
By:/s/ James E. Fritz, President
James E. Fritz, President
Date:3/14/96
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Exhibit 10(2)
RIVER VALLEY BANCORP
STOCK OPTION PLAN
1. Purpose. The purpose of the River Valley Bancorp Stock Option Plan
(the "Plan") is to provide to directors, officers and other key employees of
River Valley Bancorp (the "Holding Company") and its majority-owned and
wholly-owned subsidiaries (individually a "Subsidiary" and collectively the
"Subsidiaries"), including, but not limited to, Madison First Federal Savings
and Loan Association ("Madison First Federal") and Citizens National Bank of
Madison ("Citizens"), who are materially responsible for the management or
operation of the business of the Holding Company or a Subsidiary and have
provided valuable services to the Holding Company or a Subsidiary, a favorable
opportunity to acquire Common Stock, without par value ("Common Stock"), of the
Holding Company, thereby providing them with an increased incentive to work for
the success of the Holding Company and its Subsidiaries and better enabling each
such entity to attract and retain capable directors and executive personnel.
2. Administration of the Plan. The Plan shall be administered,
construed and interpreted by a committee (the "Committee") consisting of at
least two members of the Board of Directors of the Holding Company, each of whom
is a "disinterested person" within the meaning of the definition of that term
contained in Reg. ss. 16b-3 promulgated under the Securities Exchange Act of
1934, as amended (the "1934 Act"). The members of the Committee shall be
designated from time to time by the Board of Directors of the Holding Company.
The decision of a majority of the members of the Committee shall constitute the
decision of the Committee, and the Committee may act either at a meeting at
which a majority of the members of the Committee is present or by a written
consent signed by all members of the Committee. The Committee shall have the
sole, final and conclusive authority to determine, consistent with and subject
to the provisions of the Plan:
(a) the individuals (the "Optionees") to whom options or successive
options shall be granted under the Plan;
(b) the time when options shall be granted hereunder;
(c) the number of shares of Common Stock to be covered under each
option;
(d) the option price to be paid upon the exercise of each option;
(e) the period within which each such option may be exercised;
(f) the extent to which an option is an incentive stock option or a
non-qualified stock option; and
(g) the terms and conditions of the respective agreements by which
options granted shall be evidenced.
The Committee shall also have authority to prescribe, amend, waive, and rescind
rules and regulations relating to the Plan, to accelerate the vesting of any
stock options granted hereunder (subject to Office of Thrift Supervision
regulations), to make amendments or modifications in the terms and conditions
(including exercisability) of the options relating to the effect of termination
of employment of the optionee (subject to the last sentence of Section 9
hereof), to waive any restrictions or conditions applicable to any option or the
exercise thereof, and to make all other determinations necessary or advisable in
the administration of the Plan.
3. Eligibility. The Committee may, consistent with the purposes of the
Plan, grant options to officers and other key employees of the Holding Company
or of a Subsidiary and to directors of a Subsidiary (other than non-employee
directors of the Holding Company) who in the opinion of the Committee are from
time to time materially responsible for the management or operation of the
business of the Holding Company or of a Subsidiary and have provided valuable
services to the Holding Company or a Subsidiary; provided, however, that in no
event may any employee who owns (after application of the ownership rules in ss.
425(d) of the Internal Revenue Code of 1986, as amended (the "Code")) shares of
stock possessing more than 10 percent of the total combined voting power of all
classes of stock of the Holding Company or any of its Subsidiaries be granted an
incentive stock option hereunder unless at the time such option is granted the
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option price is at least 110% of the fair market value of the stock subject to
the option and such option by its terms is not exercisable after the expiration
of five (5) years from the date such option is granted. Directors of the Holding
Company who are not employees of the Holding Company ("Outside Directors"), who
are serving as such on the date Madison First Federal converts (the
"Conversion") from mutual to stock form (the "Conversion Date") shall each be
granted on the date of the Holding Company's first Shareholder Meeting following
the Conversion (the "First Shareholder Meeting Date"), assuming he or she is
serving as an Outside Director on such date, a non-qualified option to purchase
the number of whole shares of Common Stock of the Holding Company determined by
multiplying the total number of shares issued by the Holding Company on the
Conversion Date by the following percentages, and rounding down to the next
whole share:
Percentage of Shares
Outside Director Issued In Conversion
Fred W. Koehler .50%
Michael J. Hensley .45%
Cecil L. Dorten .45%
Earl W. Johann .45%
Jonnie L. Davis .30%
Such options shall have an exercise price per share equal to the fair
market value of a share of such Common Stock, as determined by the Committee,
consistent withTreas. Req. ss. 20.2031-2, on the First Shareholder Meeting Date.
Outside Directors are not entitled to receive any other awards under this Plan.
Subject to the foregoing and the provisions of Section 7 hereof, an individual
who has been granted an option under the Plan (an "Optionee"), if he is
otherwise eligible, may be granted an additional option or options if the
Committee shall so determine.
4. Stock Subject to the Plan. There shall be reserved for issuance upon the
exercise of options granted under the Plan, shares of Common Stock of the
Holding Company equal to 10% of the total number of shares of Common Stock
issued by the Holding Company upon the conversion of Madison First Federal from
mutual to stock form, which may be authorized but unissued shares or treasury
shares of the Holding Company. Subject to Section 7 hereof, the shares for which
options may be granted under the Plan shall not exceed that number. If any
option shall expire or terminate or be surrendered for any reason without having
been exercised in full, the unpurchased shares subject thereto shall (unless the
Plan shall have terminated) become available for other options under the Plan.
5. Terms of Options. Each option granted under the Plan shall be subject to
the following terms and conditions and to such other terms and conditions not
inconsistent therewith as the Committee may deem appropriate in each case:
(a) Option Price. The price to be paid for shares of stock upon the
exercise of each option shall be determined by the Committee at the time
such option is granted, but such price in no event shall be less than the
fair market value, as determined by the Committee consistent with Treas.
Reg. ss. 20.2031-2 and any requirements of ss. 422A of the Code, of such
stock on the date on which such option is granted.
(b) Period for Exercise of Option. An option shall not be exercisable
after the expiration of such period as shall be fixed by the Committee at
the time of the grant thereof, but such period in no event shall exceed ten
(10) years and one day from the date on which such option is granted;
provided, that incentive stock options granted hereunder shall have terms
not in excess of ten (10) years and options issued to Outside Directors
shall be for a period of ten (10) years and one day from the date of grant
thereof. Options shall be subject to earlier termination as hereinafter
provided.
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<PAGE>
(c) Exercise of Options. The option price of each share of stock
purchased upon exercise of an option shall be paid in full at the time of
such exercise. Payment may be in (i) cash, (ii) if the Optionee may do so
in conformity with Regulation T (12 C.F.R. ss. 220.3(e)(4)) without
violating ss. 16(b) or ss. 16(c)of the 1934 Act, pursuant to a broker's
cashless exercise procedure, by delivering a properly executed exercise
notice together with irrevocable instructions to a broker to promptly
deliver to the Holding Company the total option price in cash and, if
desired, the amount of any taxes to be withheld from the Optionee's
compensation as a result of any withholding tax obligation of the Holding
Company or any of its Subsidiaries, as specified in such notice, or (iii)
beginning on a date which is three years following Madison First Federal's
conversion from mutual to stock form and with the approval of the
Committee, by tendering whole shares of the Holding Company's Common Stock
owned by the Optionee and cash having a fair market value equal to the cash
exercise price of the shares with respect to which the option is being
exercised. For this purpose, any shares so tendered by an Optionee shall be
deemed to have a fair market value equal to the mean between the highest
and lowest quoted selling prices for the shares on the date of exercise of
the option (or if there were no sales on such date the weighted average of
the means between the highest and lowest quoted selling prices for the
shares on the nearest date before and the nearest date after the date of
exercise of the option as prescribed by Treas. Reg. ss. 20.2031-2), as
reported in The Wall Street Journal or a similar publication selected by
the Committee. The Committee shall have the authority to grant options
exercisable in full at any time during their term, or exercisable in such
installments at such times during their term as the Committee may
determine; provided, however, that options shall not be exercisable during
the first six (6) months of their term, and provided further that, subject
to the foregoing restriction, options shall become exercisable at the rate
of 20% per year beginning on the anniversary of the date of grant of such
options. Installments not purchased in earlier periods shall be cumulated
and be available for purchase in later periods. Subject to the other
provisions of this Plan, an option may be exercised at any time or from
time to time during the term of the option as to any or all whole shares
which have become subject to purchase pursuant to the terms of the option
or the Plan, but not at any time as to fewer than one hundred (100) shares
unless the remaining shares which have become subject to purchase are fewer
than one hundred (100) shares. An option may be exercised only by written
notice to the Holding Company, mailed to the attention of its Secretary,
signed by the Optionee (or such other person or persons as shall
demonstrate to the Holding Company his or their right to exercise the
option), specifying the number of shares in respect of which it is being
exercised, and accompanied by payment in full in either cash or by check in
the amount of the aggregate purchase price therefor, by delivery of the
irrevocable broker instructions referred to above, or, if the Committee has
approved the use of the stock swap feature provided for above, followed as
soon as practicable by the delivery of the option price for such shares.
(d) Certificates. The certificate or certificates for the shares
issuable upon an exercise of an option shall be issued as promptly as
practicable after such exercise. An Optionee shall not have any rights of a
shareholder in respect to the shares of stock subject to an option until
the date of issuance of a stock certificate to him for such shares. In no
case may a fraction of a share be purchased or issued under the Plan, but
if, upon the exercise of an option, a fractional share would otherwise be
issuable, the Holding Company shall pay cash in lieu thereof.
(e) Termination of Option. If an Optionee (other than an Outside
Director or a non-employee director of a Subsidiary ("Subsidiary
Director")) ceases to be an employee of the Holding Company and the
Subsidiaries for any reason other than retirement, permanent and total
disability (within the meaning of ss. 22(e)(3) of the Code), or death, any
option granted to him shall forthwith terminate. Leave of absence approved
by the Committee shall not constitute cessation of employment. If an
Optionee (other than an Outside Director or a Subsidiary Director) ceases
to be an employee of the Holding Company and the Subsidiaries by reason of
retirement, any option granted to him may be exercised by him in whole or
in part within three (3) years after the date of his retirement, to the
extent the option was otherwise exercisable at the date of his retirement.
(The term "retirement" as used herein means such termination of employment
as shall entitle such individual to early or normal retirement benefits
under any then existing pension plan of the Holding Company or a
Subsidiary.) If an Optionee (other than an Outside Director or Subsidiary
Director) ceases to be an employee of the Holding Company and the
Subsidiaries by reason of permanent and total disability (within the
meaning of ss. 22(e)(3) of the Code), any option granted to him may be
exercised by him in whole or in part within one (1) year after the date of
his termination of employment by reason of such disability whether or not
the option was otherwise exercisable at the date of such termination.
Options granted to Outside Directors or to Subsidiary Directors shall cease
to be exercisable six (6) months after the date such Outside Director or
Subsidiary Director is no longer a director of the Holding Company and the
Subsidiaries for any reason other than death or disability. If an Optionee
who is an Outside Director or Subsidiary Director ceases to be a director
of the Holding Company and the Subsidiaries by reason of disability, any
option granted to him may be exercised in whole or in part within one (1)
year after the date the Optionee ceases to be a director by reason of such
disability, whether or not the option was otherwise exercisable at such
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date. In the event of the death of an Optionee while in the employ or
service as a director of the Holding Company or a Subsidiary, or, if the
Optionee is not an Outside Director or Subsidiary Director, within three
(3) years after the date of his retirement or within one (1) year after the
termination of his employment by reason of permanent and total disability
(within the meaning of ss. 22(e)(3) of the Code), or, if the Optionee is an
Outside Director or Subsidiary Director, within six (6) months after he is
no longer a director of the Holding Company or the Subsidiaries for reasons
other than disability or, within one (1) year after the termination of his
service as such a director by reason of disability, any option granted to
him may be exercised in whole or in part at any time within one (1) year
after the date of such death by the executor or administrator of his estate
or by the person or persons entitled to the option by will or by applicable
laws of descent and distribution until the expiration of the option term as
fixed by the Committee, whether or not the option was otherwise exercisable
at the date of his death. Notwithstanding the foregoing provisions of this
subsection (e), no option shall in any event be exercisable after the
expiration of the period fixed by the Committee in accordance with
subsection (b) above.
(f) Nontransferability of Option. No option may be transferred by the
Optionee otherwise than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act, or the rules
thereunder, and during the lifetime of the Optionee options shall be
exercisable only by the Optionee or his guardian or legal representative.
(g) No Right to Continued Service. Nothing in this Plan or in any
agreement entered into pursuant hereto shall confer on any person any right
to continue in the employ or service of the Holding Company or its
Subsidiaries or affect any rights the Holding Company, a Subsidiary, or the
shareholders of the Holding Company may have to terminate his service at
any time.
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(h) Maximum Incentive Stock Options. The aggregate fair market value
of stock with respect to which incentive stock options (within the meaning
of ss. 422A of the Code) are exercisable for the first time by an Optionee
during any calendar year under the Plan or any other plan of the Holding
Company or its Subsidiaries shall not exceed $100,000. For this purpose,
the fair market value of such shares shall be determined as of the date the
option is granted and shall be computed in such manner as shall be
determined by the Committee, consistent with the requirements of ss. 422A
of the Code.
(i) Agreement. Each option shall be evidenced by an agreement between
the Optionee and the Holding Company which shall provide, among other
things, that, with respect to incentive stock options, the Optionee will
advise the Holding Company immediately upon any sale or transfer of the
shares of Common Stock received upon exercise of the option to the extent
such sale or transfer takes place prior to the later of (a) two (2) years
from the date of grant or (b) one (1) year from the date of exercise.
(j) Investment Representations. Unless the shares subject to an option
are registered under applicable federal and state securities laws, each
Optionee by accepting an option shall be deemed to agree for himself and
his legal representatives that any option granted to him and any and all
shares of Common Stock purchased upon the exercise of the option shall be
acquired for investment and not with a view to, or for the sale in
connection with, any distribution thereof, and each notice of the exercise
of any portion of an option shall be accompanied by a representation in
writing, signed by the Optionee or his legal representatives, as the case
may be, that the shares of Common Stock are being acquired in good faith
for investment and not with a view to, or for sale in connection with, any
distribution thereof (except in case of the Optionee's legal
representatives for distribution, but not for sale, to his legal heirs,
legatees and other testamentary beneficiaries). Any shares issued pursuant
to an exercise of an option may bear a legend evidencing such
representations and restrictions.
6. Incentive Stock Options and Non-Qualified Stock Options. Options
granted under the Plan may be incentive stock options under ss. 422A of the Code
or non-qualified stock options, provided, however, that Outside Directors shall
be granted only non-qualified stock options. All options granted hereunder will
be clearly identified as either incentive stock options or non-qualified stock
options. In no event will the exercise of an incentive stock option affect the
right to exercise any non-qualified stock option, nor shall the exercise of any
non-qualified stock option affect the right to exercise any incentive stock
option. Nothing in this Plan shall be construed to prohibit the grant of
incentive stock options and non-qualified stock options to the same person,
provided, further, that incentive stock options and non-qualified stock options
shall not be granted in a manner whereby the exercise of one non-qualified stock
option or incentive stock option affects the exercisability of the other.
7. Adjustment of Shares. In the event of any change after the effective
date of the Plan in the outstanding stock of the Holding Company by reason of
any reorganization, recapitalization, stock split, stock dividend, combination
of shares, exchange of shares, merger or consolidation, liquidation,
extraordinary distribution (consisting of cash, securities, or other assets), or
any other change after the effective date of the Plan in the nature of the
shares of stock of the Holding Company, the Committee shall determine what
changes, if any, are appropriate in the number and kind of shares reserved under
the Plan, and the Committee shall determine what changes, if any, are
appropriate in the option price under and the number and kind of shares covered
by outstanding options granted under the Plan. Any determination of the
Committee hereunder shall be conclusive.
8. Tax Withholding. Whenever the Holding Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the Holding
Company shall have the right to require the Optionee or his or her legal
representative to remit to the Holding Company an amount sufficient to satisfy
any federal, state and/or local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares, and whenever under
the Plan payments are to be made in cash, such payments shall be net of an
amount sufficient to satisfy any federal, state and/or local withholding tax
requirements. If permitted by the Committee and pursuant to procedures
established by the Committee, an Optionee who is not an Outside Director may
make a written election to have shares of Common Stock having an aggregate fair
market value, as determined by the Committee, consistent with the requirements
of Treas. Reg. ss. 20.2031-2, sufficient to satisfy the applicable withholding
taxes, withheld from the shares otherwise to be received upon the exercise of a
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non-qualified option. Elections by Optionees to have shares withheld for this
purpose will be subject to the following restrictions: (1) they must be made
prior to the date as of which the amount of tax withheld is determined (the "Tax
Date"), (2) they will be irrevocable, (3) they will be subject to the
disapproval of the Committee, and (4) if an Optionee is an officer or director
of the Holding Company within the meaning of ss. 16 of the 1934 Act and the
Common Stock is registered under ss. 12 of the 1934 Act, such elections (a) may
not be made within six months of the grant of the option, (b) must be made
either more than six months prior to the Tax Date or in the ten day "window
period" beginning on the third day following the release of the Holding
Company's quarterly or annual financial statements, and (c) may not be made
until the Holding Company shall have been subject to the reporting requirements
of the 1934 Act for at least one year and shall have filed all reports and
statements required to be filed under the 1934 Act during such year.
9. Amendment. The Board of Directors of the Holding Company may amend
the Plan from time to time and, with the consent of the Optionee, the terms and
provisions of his option, except that without the approval of the holders of at
least a majority of the shares of the Holding Company voting in person or by
proxy at a duly constituted meeting or adjournment thereof:
(a) the number of shares of stock which may be reserved for issuance
under the Plan may not be increased except as provided in Section 7 hereof;
(b) the period during which an option may be exercise may not be
extended beyond ten (10) years and one day from the date on which such
option was granted;
(c) the class of persons to whom options may be granted under the Plan
shall not be modified materially;
(d) the benefits accruing to Optionees under the Plan shall not be
increased materially within the meaning of Reg. ss. 16b-3(b)(2)(ii)(A)
promulgated under the 1934 Act, unless the Holding Company at the time has
ceased to have its Common Stock registered under ss. 12 of the 1934 Act;
and
(e) the number of shares subject to options to be granted to Outside
Directors or the date of grant or the exercise price and other terms
thereof shall not be changed except as provided in Section 7 hereof unless
the Holding Company at the time has ceased to have its Common Stock
registered under ss. 12 of the 1934 Act; provided further that in any event
any such provisions in the Plan governing Outside Director options may not
be amended more than once every six (6) months other than to comport with
changes in the Code or the rules thereunder.
No amendment of the Plan, however, may, without the consent of the
Optionees, make any changes in any outstanding options theretofore granted under
the Plan which would adversely affect the rights of such Optionees.
10. Termination. The Board of Directors of the Holding Company may
terminate the Plan at any time and no option shall be granted thereafter. Such
termination, however, shall not affect the validity of any option theretofore
granted under the Plan. In any event, no incentive stock option may be granted
under the Plan after the date which is ten (10) years from the effective date of
the Plan.
11. Successors. This Plan shall be binding upon the successors and
assigns of the Holding Company.
12. Governing Law. The terms of any options granted hereunder and the
rights and obligations hereunder of the Holding Company, the Optionees and
their successors in interest shall, except to the extent governed by
federal law, be governed by Indiana law.
13. Government and Other Regulations. The obligations of the Holding
Company to issue or transfer and deliver shares under options granted under
the Plan shall be subject to compliance with all applicable laws,
governmental rules and regulations, and administrative action.
14. Effective Date. The Plan shall become effective on the date it is
adopted by the Holding Company's Board of Directors; provided, however, that any
grant of options pursuant to the Plan shall be subject to the approval of the
Plan by the holders of at least a majority of the shares of the Holding Company
entitled to vote at a duly constituted meeting or adjournment thereof and the
options granted pursuant to the Plan may not be exercised until the Board of
Directors of the Holding Company has been advised by counsel that such approval
has been obtained and all other applicable legal requirements have been met.
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Exhibit 10(3)
RIVER VALLEY BANCORP
RECOGNITION AND RETENTION PLAN AND TRUST
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 River Valley Bancorp hereby establishes the Recognition and Retention
Plan (the "Plan") and Trust (the "Trust") upon the terms and conditions
hereinafter stated in this Recognition and Retention Plan and Trust Agreement
(the "Agreement").
1.02 The Trustee, which initially shall be ___________________________,
hereby accepts this Trust and agrees to hold the Trust assets existing on the
date of this Agreement and all additions and accretions thereto upon the terms
and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to retain directors and executive officers
in key positions by providing such persons with a proprietary interest in the
Holding Company (as hereinafter defined) as compensation for their contributions
to the Holding Company and to the Affiliates (as hereinafter defined) and as an
incentive to make such contributions and to promote the Holding Company's and
the Affiliates' growth and profitability in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01 "Affiliate" means the Thrift and Bank and such other subsidiaries or
affiliates of the Holding Company which, with the consent of the Board, agree to
participate in this Plan.
3.02 "Bank" shall mean Citizens National Bank of Madison.
3.03 "Beneficiary" means the person or persons designated by a Recipient to
receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or, if none, his estate.
3.04 "Board" means the Board of Directors of the Holding Company or of an
Affiliate.
3.05 "Committee" means the Stock Compensation Committee of the Board of
Directors of the Holding Company. At all times during its administration of this
Plan, the Committee shall consist of two or more directors of the Holding
Company, each of whom shall be a "disinterested person" within the meaning of
the definition of that term contained in Regulation 16b-3 ("Rule 16b-3")
promulgated under the Securities Exchange Act of 1934, as amended (the "1934
Act").
3.06 "Common Stock" means shares of the common stock, without par value, of
the Holding Company.
3.07 "Conversion" shall mean the conversion of the Thrift from the mutual
to stock form of organization and the simultaneous acquisition of the Thrift by
the Holding Company.
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3.08 "Director" means a member of the Board of Directors of an Affiliate
or the Holding Company.
3.09 "Disability" means any physical or mental impairment which qualifies
an Employee for disability benefits under the applicable long-term disability
plan maintained by an Affiliate.
3.10 "Employee" means any person, including officers, who is currently
employed by the the Holding Company or an Affiliate and shall also include the
Secretary of the Thrift.
3.11 "Holding Company" shall mean River Valley Bancorp.
3.12 "Outside Director" means a member of the Board of Directors of the
Holding Company, who is not also an Employee.
3.13 "Plan Shares" means shares of Common Stock held in the Trust and
issued or issuable to a Recipient pursuant to the Plan.
3.14 "Plan Share Award" or "Award" means a right granted under this Plan
to earn Plan Shares.
3.15 "Plan Share Reserve" means the shares of Common Stock held by the
Trustee pursuant to Sections 5.03 and 5.04.
3.16 "Recipient" means an Employee or Director who receives a Plan Share
Award under the Plan.
3.17 "Retirement" as to an Employee, means a termination of employment
which constitutes a "retirement" under any applicable qualified pension benefit
plan maintained by the Affiliate which employs the Recipient, or, if such plan
is not applicable, which would constitute "retirement" under such plan were the
Recipient covered by such plan and, as to a Director, means a retirement from
service on the Board after attaining age 70.
3.18 "Subsidiary Director" shall mean a non-employee director of an
Affiliate who is not an Outside Director.
3.19 "Thrift" shall mean Madison First Federal Savings and Loan
Association.
3.20 "Trustee" means that person(s) or entity nominated by the Committee
and approved by the Board pursuant to Sections 4.01 and 4.02 to hold legal title
to the Plan assets for the purposes set forth herein.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and interpreted
by the Committee, which shall have all of the powers allocated to it in this and
other Sections of the Plan. The interpretation and construction by the Committee
of any provisions of the Plan or of any Plan Share Award granted hereunder shall
be final and binding. The Committee shall act by vote or written consent of a
majority of its members. Subject to the express provisions and limitations of
the Plan, the Committee may adopt such rules, regulations and procedures as it
deems appropriate for the conduct of its affairs. If permitted by applicable
law, the Committee, with the consent of Recipients may change the vesting
schedule for Awards after the date of grant thereof. The Committee shall
recommend to the Board one or more persons or entities to act as Trustee in
accordance with the provisions of this Plan and Trust and the terms of Article
VIII hereof.
4.02 Role of the Board. The members of the Committee and the Trustee shall
be appointed or approved by, and will serve at the pleasure of, the Board of
Directors of the Holding Company. The Board of Directors of the Holding Company
may in its discretion from time to time remove members from, or add members to,
the Committee, and may remove, replace or add Trustees.
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4.03 Limitation on Liability. Neither a Director nor the Committee nor the
Trustee shall be liable for any determination made in good faith with respect to
the Plan or any Plan Shares or Plan Share Awards granted under it. If a Director
or the Committee or any Trustee is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of anything done or
not done by him in such capacity under or with respect to the Plan, the Holding
Company shall indemnify such person against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in the best interests
of the Holding Company and its Affiliates and, with respect to any criminal
action or proceeding, if he had no reasonable cause to believe his conduct was
unlawful.
ARTICLE V
CONTRIBUTION; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Affiliates shall be permitted
to contribute to the Trust an amount sufficient to purchase up to 4% of the
shares of Common Stock issued by the Holding Company in connection with the
Conversion. Such amounts shall be paid to the Trustee no later than the date
required to purchase shares of Common Stock for Awards made under this Plan. No
contributions by Employees or Directors shall be permitted.
5.02 Initial Investment. Any amounts held by the Trust until such amounts
are invested in accordance with Section 5.03, shall be invested by the Trustee
in such interest-bearing account or accounts at the Affiliates as the Trustee
shall determine to be appropriate.
5.03 Investment of Trust Assets; Creation of Plan Share Reserve. As soon as
practicable following the first shareholder meeting of the Holding Company
following the Conversion ("First Shareholder Meeting Date"), the Trustee shall
invest all of the Trust's assets exclusively in the number of shares of Common
Stock designated by the Holding Company and the Affilitates as subject to Awards
made under this Plan, which may be purchased directly from the Holding Company,
on the open market, or from any other source; provided, however, that the Trust
shall not invest in an amount of Common Stock greater than 4.0% of the shares of
the Common Stock sold in the Conversion, which shall constitute the "Plan Share
Reserve" and provided, further that if the Trustee is required to purchase such
shares on the open market or from the Holding Company for an amount per share
greater than the price per share at which shares were trading on the date the
contributions therefor were made to the Trust, the Holding Company shall have
the discretion to reduce the number of shares to be awarded and purchased. The
Trust may hold cash in interest-bearing accounts pending investment in Common
Stock for periods of not more than one year after deposit. The Trustee, in
accordance with applicable rules and regulations and Section 5.01 hereof, shall
purchase shares of Common Stock in the open market and/or shall purchase
authorized but unissued shares of the Common Stock from the Holding Company
sufficient to acquire the requisite percentage of shares. Any earnings received
or distributions paid with respect to Common Stock held in the Plan Share
Reserve shall be held in an interest-bearing account. Any earnings received or
distributions paid with respect to Common Stock subject to a Plan Share Award
shall be held in an interest-bearing account on behalf of the individual
Recipient.
5.04 Effect of Allocations, Returns and Forfeitures Upon Plan Share
Reserves. Upon the allocation of Plan Share Awards under Sections 6.02 and 6.03
after acquisition by the Trustee of such shares, or the decision of the
Committee to return Plan Shares to the Holding Company, the Plan Share Reserve
shall be reduced by the number of Plan Shares so allocated or returned. Any
shares subject to an Award which may not be earned because of a forfeiture by
the Recipient pursuant to Section 7.01 shall be returned (added) to the Plan
Share Reserve.
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ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Employees and Subsidiary Directors are eligible to
receive Plan Share Awards provided in Section 6.02. Outside Directors are
eligible to receive Plan Share Awards provided for in Section 6.03.
6.02 Allocations. The Committee may determine which of the Employees and
Subsidiary Directors referenced in Section 6.01 above will be granted Plan Share
Awards and the number of Plan Shares covered by each Award, including grants
effective upon the First Shareholder Meeting Date, provided, however, that the
number of Plan Shares covered by such Awards may not exceed the number of Plan
Shares in the Plan Share Reserve immediately prior to the grant of such Awards,
and provided further, that in no event shall any Awards be made which will
violate the Articles of Incorporation, Articles of Association, Charter, Bylaws
or Plan of Conversion of the Holding Company or the Affiliates or any applicable
federal or state law or regulation and provided further that Awards may not be
granted at any time in which the Affiliates fail to meet their applicable
minimum capital requirements. In the event Plan Shares are forfeited for any
reason and unless the Committee decides to return the Plan Shares to the Holding
Company, the Committee may, from time to time, determine which of the Employees
or Subsidiary Directors referenced in Section 6.01 above will be granted
additional Plan Share Awards to be awarded from forfeited Plan Shares. In
selecting those Employees or Subsidiary Directors to whom Plan Share Awards will
be granted and the number of Plan Shares covered by such Awards, the Committee
shall consider the position and responsibilities of the eligible Employees and
Subsidiary Directors, the length and value of their services to the Affiliates,
the compensation paid to such Employees and Subsidiary Directors, and any other
factors the Committee may deem relevant.
6.03 Allocations - Outside Directors. The following Outside Directors shall
be awarded a Plan Share Award on the First Shareholder Meeting Date, assuming he
or she is still serving as an Outside Director on such date, equal to the number
of whole shares rounded down to the nearest whole number constituting the
following percentage of the number of shares of Common Stock issued in the
Conversion (the "Fixed Award"); provided, however, that the Affiliates shall
have the discretion to reduce such percentages if the Trustee is required to
purchase shares on the open market or from the Holding Company for an amount per
share greater than the price per share at which shares are sold in the
Conversion:
Percentage of Shares
Outside Director Issued in Conversion
--------------------------------------------------------------
Fred W. Koehler .25%
Michael J. Hensley .22%
Cecil L. Dorten .22%
Earl W. Johann .22%
Jonnie L. Davis .15%
6.04 Form of Allocation. As promptly as practicable after a determination
is made pursuant to Section 6.02 or 6.03 that a Plan Share Award is to be made,
the Committee shall notify the Recipient in writing of the grant of the Award,
the number of Plan Shares covered by the Award, and the terms upon which the
Plan Shares subject to the Award may be earned. The stock certificates for Plan
Share Awards shall be registered in the name of the Recipient until forfeited or
transferred by the Recipient after such Award has been earned. The Committee
shall maintain records as to all grants of Plan Share Awards under the Plan.
6.05 Allocations Not Required. Notwithstanding anything to the contrary in
Sections 6.01 and 6.02, no Employee or Subsidiary Director shall have any right
or entitlement to receive a Plan Share Award hereunder, such Awards being at the
total discretion of the Committee, nor shall the Employees or Subsidiary
Directors as a group have such a right. No Outside Director shall have any right
or entitlement to reserve a Plan Share Award hereunder, except as provided for
in Section 6.03 hereof. The Committee may, with the approval of the Board (or,
if so directed by the Board, shall) return all Common Stock in the Plan Share
Reserve not yet allocated to the Holding Company at any time, and cease issuing
Plan Share Awards.
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6.06. Distribution Election Before Plan Shares Are Earned. Notwithstanding
anything contained in the Plan to the contrary, an Employee or a Director who
has received an allocation of Plan Shares in accordance with Article VI may
request in writing that the Committee authorize the distribution to him or her
of all or a portion of the Plan Shares awarded before the date on which the Plan
Shares become earned in accordance with Article VII. The decision as to whether
to distribute to any Employee or Director who requests distribution shall be
made by the Committee, in its sole discretion. In addition, the distribution
shall be subject to the following parameters:
(a) The Committee shall be required to make a separate
determination for each request received by an Employee or Director for
distribution.
(b) Any Plan Shares awarded shall be required to have a legend
on the Plan Shares confirming that the Plan Shares are subject to
restriction and transfer in accordance with the terms set forth in the
Plan. This legend may not be removed until the date that the Plan
Shares become earned in accordance with Article VII.
(c) The Plan Shares distributed shall be voted by the Trustee
in accordance with Section 7.04 until the date that the Plan Shares are
earned.
(d) Any cash dividends or other cash distributions paid with
respect to the Plan Shares before the date that the Plan Shares are
earned shall be paid to the Trustee to be held for the Employee or
Director, whichever is applicable, until the date that the Plan Shares
are earned.
(e) At the date on which the Plan Shares are earned, the
Trustee may withhold from any cash dividends or other cash
distributions held on behalf of such Employee or Director the amount
needed to cover any applicable withholding and employment taxes arising
at the time that the Plan Shares are earned. If the amount of such cash
dividends or distributions is insufficient, the Trustee may require the
Employee or Director to pay to the Trustee the amount required to be
withheld as a condition of removing the legend on the Plan Shares.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earning Plan Shares; Forfeitures.
(a) General Rules. Plan Shares subject to an Award shall be earned by
a Recipient at the rate of twenty percent (20%) of the aggregate
number of Shares covered by the Award at the end of each full
twelve months of consecutive service with the Holding Company or
the Affiliate after the date of grant of the Award. If the term
of service of a Recipient terminates as an Employee and as a
Director prior to the fifth anniversary (or such later date as
the Committee shall determine) of the date of grant of an Award
for any reason (except as specifically provided in Subsection (b)
below or in Section 4.01 hereof), the Recipient shall forfeit the
right to earn any Shares subject to the Award which have not
theretofore been earned. In determining the number of Plan Shares
which are earned, fractional shares shall be rounded down to the
nearest whole number, provided that such fractional shares shall
be aggregated and earned, on the fifth anniversary of the date of
grant.
(b) Exception for Terminations due to Death and Disability.
Notwithstanding the general rule contained in Section 7.01(a)
above, all Plan Shares subject to a Plan Share Award held by a
Recipient whose term of service as an Employee and as a Director
with the Holding Company and the Affiliates terminates due to
death or Disability shall be deemed earned as of the Recipient's
last day of service with the Holding Company and the Affiliates as
a result of such death or Disability.
(c) Revocation for Misconduct. Notwithstanding anything hereinafter
to the contrary, the Board may by resolution immediately revoke,
rescind and terminate any Plan Share Award, or portion thereof,
previously awarded under this Plan, to the extent Plan Shares
have not been delivered thereunder to the Recipient, whether or
not yet earned, in the case of an Employee who is discharged from
the employ of the Holding Company or an Affiliate for cause (as
hereinafter defined), or who is discovered after termination of
employment to have engaged in conduct that would have justified
termination for cause or, in the case of an Outside Director or
Subsidiary Director, who is removed from the Board of Directors
of the Holding Company or an Affiliate for cause (as hereinafter
defined), or who is discovered after termination of service as an
Outside Director or Subsidiary Director to have engaged in
conduct which would have justified removal for cause. "Cause" is
defined as personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to
perform stated duties, or the willful violation of any law, rule,
regulation (other than traffic violations or similar offenses) or
order which results in a loss to the Holding Company or any
Affiliate or in a final cease and desist order.
7.02 Accrual of Dividends. Whenever Plan Shares are paid to a Recipient or
Beneficiary under Section 7.03, such Recipient or Beneficiary shall also be
entitled to receive, with respect to each Plan Share paid, an amount equal to
any cash dividends or cash distributions and a number of shares of Common Stock
equal to any stock dividends, and any other asset distributions declared and
paid with respect to a share of Common Stock between the date the Plan Shares
are being distributed and the date the Plan Shares were granted. There shall
also be distributed an appropriate amount of net earnings, if any, of the Trust
with respect to any cash dividends or cash distributions so paid out. Until the
Plan Shares are vested and distributed to any such Recipient or Beneficiary,
such dividends, distributions and net earnings thereon, if any, shall be
retained by the Trust.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions: General Rule. Except as provided in
Subsection (b) below, Plan Shares shall be distributed to the
Recipient or his Beneficiary, as the case may be, as soon as
practicable after they have been earned.
(b) Timing: Exception for 10% Stockholders. Notwithstanding Subsection
(a) above, no Plan Shares may be distributed prior to the date
which is five (5) years from the effective date of the Conversion
to the extent the Recipient or Beneficiary, as the case may be,
would after receipt of such shares own in excess of ten (10)
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percent of the issued and outstanding shares of Common Stock. Any
Plan Shares remaining unpaid solely by reason of the operation of
this Subsection (b) shall be paid to the Recipient or his
Beneficiary on the date which is five (5) years from the effective
date of the Conversion.
(c) Form of Distribution. All Plan Shares, together with any shares
representing stock dividends, shall be distributed in the form of
Common Stock. One share of Common Stock shall be given for each
Plan Share earned and payable. Payments representing accumulated
cash dividends and cash or other distributions (and earnings
thereon) shall be made in cash or in the form of such non-cash
distributions.
(d) Withholding. The Trustee may withhold from any payment or
distribution made under this Plan sufficient amounts of cash or
shares of Common Stock to cover any applicable withholding and
employment taxes, and if the amount of such payment is
insufficient, the Trustee may require the Recipient or
Beneficiary to pay to the Trustee the amount required to be
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withheld as a condition of delivering the Plan Shares.
Alternatively, a Recipient may pay to the Trustee that amount of
cash necessary to be withheld in taxes in lieu of any withholding
of payments or destribution under the Plan. The Trustee shall pay
over to the Holding Company, or the Affiliate which employs or
employed such Recipient any such amount withheld from or paid by
the Recipient or Beneficiary. If a Recipient elects to have such
taxes withheld, the election must be made in compliance with Rule
16b-3, to the extent applicable.
7.04 Voting of Plan Shares. All shares of Common Stock held by the Trust
shall be voted by the Trustee, taking into account the best interests of the
Plan Share Award recipients.
ARTICLE VIII
TRUST
8.01 Trust. The Trustee shall receive, hold, administer, invest and make
distributions and disbursements from the Trust in accordance with the provisions
of the Plan and Trust and the applicable directions, rules, regulations,
procedures and policies established by the Committee pursuant to the Plan.
8.02 Management of Trust. It is the intent of this Plan and Trust that,
subject to the provisions of this Plan, the Trustee shall have complete
authority and discretion with respect to the management, control and investment
of the Trust, and that the Trustee shall invest all assets of the Trust, except
those attributable to cash dividends paid with respect to Plan Shares, in Common
Stock to the fullest extent practicable, and except to the extent that the
Trustee determines that the holding of monies in cash or cash equivalents is
necessary to meet the obligation of the Trust. Neither the Holding Company nor
any Affiliate shall exercise any direct or indirect control or influence over
the time when, or the prices at which, the Trustee may purchase such shares, the
number of shares to be purchased, the manner in which the shares are to be
purchased, or the broker (if any) through whom the purchases may be executed. In
performing its duties, the Trustee shall have the power to do all things and
execute such instruments as may be deemed necessary or proper, including the
following powers:
(a) To invest up to one hundred percent (100%) of all Trust assets in
Common Stock without regard to any law now or hereafter in force
limiting investments for Trustees or other fiduciaries. The
investment authorized herein and in paragraph (b) constitutes the
only investment of the Trust, and in making such investment, the
Trustee is authorized to purchase Common Stock from the Holding
Company or an Affiliate or from any other source, and such Common
Stock so purchased may be outstanding, newly issued, or treasury
shares.
(b) To invest any Trust assets not otherwise invested in accordance
with (a) above in such deposit accounts, and certificates of
deposit (including those issued by an Affiliate), securities of
any open-end or closed-end management investment company or
investment trust registered under the Investment Company Act of
1940, whether or not the Trustee or any affiliate of the Trustee
is being compensated for providing services to the investment
company or trust as investment advisor or otherwise, obligations
of the United States government or its agencies or such other
investments as shall be considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at any
time held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that
such security is an asset of the Trust (but accurate records shall
be maintained showing that such security is an asset of the
Trust).
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<PAGE>
(e) To hold cash without interest in such amounts as may be in the
opinion of the Trustee reasonable for the proper operation of the
Plan and Trust and to hold cash pending investment.
(f) To employ brokers, agents, custodians, consultants and accountants.
(g) To hire counsel to render advice with respect to their rights, duties
and obligations hereunder, and such other legal services or representation as
they may deem desirable.
(h) To hold funds and securities representing the amounts to be distributed
to a Recipient or his or her Beneficiary as a consequence of a dispute as to the
disposition thereof, whether in a segregated account or held in common with
other assets of the Trust.
Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.
8.03 Records and Accounts. The Trustee shall maintain accurate and detailed
records and accounts of all transactions of the Trust, which shall be available
at all reasonable times for inspection by any legally entitled person or entity
to the extent required by applicable law, or any other person determined by the
Committee.
8.04 Earnings. All earnings, gains and losses with respect to Trust assets
shall be allocated, in accordance with a reasonable procedure adopted by the
Committee, to bookkeeping accounts for Recipients or to the general account of
the Trust, depending on the nature and allocation of the assets generating such
earnings, gains and losses. In particular, any earnings on cash dividends or
distributions received with respect to shares of Common Stock shall be allocated
to accounts for Recipients, if such shares are the subject of outstanding Plan
Share Awards, or otherwise to the Plan Share Reserve. Recipients (or their
Beneficiaries) shall not be entitled to any such allocations until the Plan
Share Awards to which they relate are vested and distributed to those Recipients
(or their Beneficiaries).
8.05 Expenses. All costs and expenses incurred in the operation and
administration of this Plan, including those incurred by the Trustee, shall be
borne by the Affiliates or the Holding Company.
8.06 Indemnification. The Bank shall indemnify, defend and hold the Trustee
harmless against all claims, expenses and liabilities arising out of or related
to the exercise of the Trustee's powers and the discharge of its duties
hereunder, unless the same shall be due to its negligence or willful misconduct.
ARTICLE IX
MISCELLANEOUS
9.01 Adjustments for Capital Changes. The aggregate number of Plan Shares
available for issuance pursuant to the Plan Share Awards (which, as of the
effective date of this Plan, shall not exceed, 4% of the shares of the Holding
Company's Common Stock issued in the Conversion), and the number of shares to
which any Plan Share Award relates shall be proportionately adjusted for any
increase or decrease in the total number of outstanding shares of Common Stock
issued subsequent to the effective date of the Plan resulting from any stock
dividend or split, recapitalization, merger, consolidation, spin-off,
reorganization, combination or exchange of shares, extraordinary cash or
non-cash distribution, or other similar capital adjustment, or other increase or
decrease in such shares effected without receipt or payment of consideration, by
the Committee.
9.02 Amendment and Termination of Plan. The Board may, by resolution, at
any time amend or terminate the Plan provided that amendments required to be
submitted for approval of the Holding Company's shareholders under Rule 16b-3 in
order for Awards to Recipients subject to Section 16 to continue to qualify for
exemption, shall be so submitted. The power to amend or terminate shall include
the power to direct the Trustee to return to the Holding Company all or any part
of the assets of the Trust, including shares of Common Stock held in the Plan
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<PAGE>
Share Reserve, as well as shares of Common Stock and other assets subject to
Plan Share Awards but not yet earned by the Employees or Outside Directors or
Subsidiary Directors to whom they are allocated. However, the termination of the
Trust shall not affect a Recipient's right to the distribution of Common Stock
relating to Plan Share Awards already earned, including earnings thereon, in
accordance with the terms of this Plan and the grant by the Committee.
9.03 Nontransferable. Plan Share Awards and rights to Plan Shares shall not
be transferable by a Recipient other than by will or the laws of descent and
destribution, and during the lifetime of the Recipient, Plan Shares may only be
earned by and paid to the Recipient who was notified in writing of the Award by
the Committee pursuant to Section 6.03. No Recipient or Beneficiary shall have
any right in or claim to any assets of the Plan or Trust, nor shall any
Affiliate be subject to any claim for benefits hereunder.
9.04 Employment Rights. Neither the Plan nor any grant of a Plan Share
Award or Plan Shares hereunder nor any action taken by the Trustee, the
Committee or the Board in connection with the Plan shall create any right on the
part of any Employee to continue in the employ of, or of any Director to
continue in the service of, the Holding Company or any Affiliate thereof.
9.05 Voting and Dividend Rights. No Recipient shall have any voting or
dividend rights or other rights of a stockholder in respect of any Plan Shares
covered by a Plan Share Award, except as expressly provided in Sections 7.02 and
7.04 above, prior to the time said Plan Shares are actually distributed to him.
9.06 Governing Laws. The Plan and Trust shall be governed by the laws of
the State of Indiana, except to the extent governed by federal law, including
regulations of the Office of Thrift Supervision.
9.07 Effective Date. This Plan shall be effective as of the date of its
adoption by the Board of Directors, subject to approval by the shareholders of
the Holding Company.
9.08 Term of Plan. This Plan shall remain in effect until the earlier of
(1) 21 years from its effective date, (2) termination by the Board, or (3) the
distribution of all assets of the Trust. Termination of the Plan shall not
affect any Plan Share Awards previously granted, and such Awards shall remain
valid and in effect until they have been earned and paid, or by their terms
expire or are forfeited.
9.09 Tax Status of Trust. It is intended that the trust established hereby
be treated as a grantor trust of the Holding Company and the Affiliates under
the provisions of Section 671, et seq., of the Internal Revenue Code of 1986, as
amended.
9.10. Compensation. The Trustee shall be entitled to receive fair and
reasonable compensation for its services hereunder, as agreed to by the Trustee
and the Holding Company, and shall also be entitled to be reimbursed for all
reasonable out-of-pocket expenses, including, but not by way of limitation,
legal, actuarial and accounting expenses and all costs and expenses incurred in
prosecuting or defending any action concerning the Plan or the Trust or the
rights or responsibilities of any person hereunder, brought by or against the
Trustee. Such reasonable compensation and expenses shall be paid by the Holding
Company or the Affiliates.
9.11. Resignation of Trustee. The Trustee may resign at any time by giving
sixty (60) calendar days' prior written notice to the Holding Company, and the
Trustee may be removed, with or without cause, by the Holding Company on sixty
(60) calendar days' prior written notice to the Trustee. Such prior written
notice may be waived by the party entitled to receive it. Upon any such
resignation or removal becoming effective, the Trustee shall render to the
Holding Company a written account of its administration of the Plan and the
Trust for the period since the last written accounting and shall do all
necessary acts to transfer the assets of the Trust to the successor Trustee or
Trustees.
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IN WITNESS WHEREOF, the Holding Company and the Bank and the Thrift have
caused this Plan and Trust Agreement to be executed by their duly authorized
officers as of the ___ day of ____________, 1996.
River Valley Bancorp
By
James E. Fritz, President
and Chief Executive Officer
Madison First Federal Savings and Loan Association
By
James E. Fritz, President
and Chief Executive Officer
Citizens National Bank of Madison
By
Robert D. Hoban, President
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<PAGE>
IN WITNESS WHEREOF, I, ______________________, execute this agreement for
and on behalf of the Trustee, accepting and binding the Trustee to undertake and
perform the obligations and duties of the Trustee hereunder and consenting to
the foregoing Plan and Trust Agreement.
----------------------------------------
By
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Exhibit 10(4)
RIVER VALLEY BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN AND
TRUST AGREEMENT
(EFFECTIVE JANUARY 1, 1996)
<PAGE>
RIVER VALLEY BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN AND
TRUST AGREEMENT
(EFFECTIVE JANUARY 1, 1996)
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.....................................1
Section 1.1. Accrued Company Contributions
Benefit...........................................1
Section 1.2. Act......................................1
Section 1.3. Anniversary Date.........................1
Section 1.4. Annual Addition..........................1
Section 1.5. Beneficiary..............................1
Section 1.6. Code.....................................2
Section 1.7. Committee................................2
Section 1.8. Company..................................2
Section 1.9. Company Contributions Account............2
Section 1.10. Compensation........................................2
Section 1.11. Date of Employment..................................3
Section 1.12. Date of Separation..................................3
Section 1.13. Deferred Retirement.................................3
Section 1.14. Deferred Retirement Date............................3
Section 1.15. Defined Benefit Fraction............................3
Section 1.16. Defined Contribution Fraction.......................4
Section 1.17. Effective Date......................................4
Section 1.18. Employee............................................4
Section 1.19. Exempt Loan.........................................5
Section 1.20. Fund................................................5
Section 1.21. Highly Compensated Employee.........................5
Section 1.22. Holding Company.....................................6
Section 1.23. Hour of Service.....................................6
Section 1.24. Leave of Absence....................................7
Section 1.25. Normal Retirement...................................7
Section 1.26. Normal Retirement Date..............................7
Section 1.27. One Year Service Break..............................8
Section 1.28. Participant.........................................8
Section 1.29. Period of Separation................................8
Section 1.30. Period of Service...................................8
Section 1.31. Period of Severance.................................8
Section 1.32. Plan................................................9
Section 1.33. Plan Year...........................................9
Section 1.34. Reemployed Individual...............................9
Section 1.35. Section 415 Compensation...........................10
Section 1.36. Stock..............................................11
Section 1.37. Top Paid Group.....................................11
Section 1.38. Total Disability...................................11
Section 1.39. Trust..............................................12
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Section 1.40. Trustee................................................12
Section 1.41. Valuation Date.........................................12
ARTICLE II ELIGIBILITY AND PARTICIPATION................................12
Section 2.1. Eligibility.................................12
Section 2.2. Entry Dates.................................12
Section 2.3. Certification by Company....................12
Section 2.4. Deferred Retirement.........................12
ARTICLE III COMPANY CONTRIBUTIONS........................................13
Section 3.1. Company Contributions.......................13
Section 3.2. Form of Contributions.......................13
Section 3.3. Holding by Trustee..........................13
Section 3.4. Expenses....................................13
Section 3.5. No Company Liability for Benefits...........13
Section 3.6. No Rollover Contributions...................14
ARTICLE IV ALLOCATION TO PARTICIPANTS' ACCOUNTS.........................14
Section 4.1. Company Contributions Accounts..............14
Section 4.2. Allocation of Company Contributions.........14
Section 4.3. Limitations on Annual Additions.............15
Clause (a). Basic Limitations...............................15
Clause (b). Participation in Other Plans....................15
Section 4.4. Effective Date of Allocations...............16
Section 4.5. Cash Dividends..............................16
Section 4.6. Allocation of Forfeitures...................16
Section 4.7. Special Allocation Rules....................16
ARTICLE V VALUATIONS AND ADJUSTMENTS...................................18
Section 5.1. Valuation of Fund...........................18
Clause (a). Valuations......................................18
Clause (b). Frequency.......................................18
Clause (c). Records.........................................18
Section 5.2. Adjustments.................................19
Section 5.3. Amount of Adjustments.......................19
Section 5.4. Effective Date of Adjustments...............20
Section 5.5. Notice to Participants......................20
ARTICLE VI BENEFITS.....................................................20
Part A. Retirement Benefits...................................................20
Section 6.1. Retirement..................................20
Part B. Termination Benefits..................................................20
Section 6.2. Effect of Termination.......................20
Section 6.3. Vesting.....................................20
Section 6.4. Payment.....................................22
Part C. Death Benefits........................................................22
Section 6.5. Benefits upon Death.........................22
Section 6.6. Beneficiaries...............................22
Section 6.7. Lack of Beneficiaries.......................22
Section 6.8. Termination or Retirement prior to Death....22
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Part D. General...............................................................23
Section 6.9. Date of Distribution...................................23
Section 6.10. Form of Distribution...................................23
Section 6.11. Liability..............................................24
Section 6.12. Put Options............................................24
Section 6.13. Eligible Rollover Distributions........................25
ARTICLE VII ADMINISTRATIVE COMMITTEE.....................................26
Section 7.1. Establishment..........................................26
Section 7.2. Duties.................................................26
Section 7.3. Actions................................................27
Section 7.4. Disqualification.......................................27
Section 7.5. Powers.................................................27
Section 7.6. Discrimination Prohibited..............................27
Section 7.7. Statements and Forms...................................27
Section 7.8. Liability..............................................28
Section 7.9. Determination of Right to Benefits.....................28
Section 7.10. Investment Directions..................................28
Section 7.11. Voting Power...........................................28
ARTICLE VIII THE TRUSTEE..................................................29
Section 8.1. Assets Held in Trust...................................29
Section 8.2. Investments............................................29
Section 8.3. Directions of Committee................................29
Section 8.4. Receipt of Additional Shares...........................30
Section 8.5. Delivery of Materials to Committee.....................30
Section 8.6. Powers.................................................30
Section 8.7. Loans to the Trust.....................................31
Clause (a). Interest........................................31
Clause (b). Use of Proceeds.................................31
Clause (c). Terms of Exempt Loan............................32
Clause (d). Collateral......................................32
Clause (e). Limited Recourse................................32
Clause (f). Repayment.......................................32
Clause (g). Agreement by Companies..........................33
Clause (h). Release of Collateral...........................33
Clause (i). Default.........................................33
Clause (j). Termination of Plan.............................33
Section 8.8. Annual Accounting......................................34
Section 8.9. Audit..................................................34
Section 8.10. Uncertainty Concerning Payment of
Benefits.............................................34
Section 8.11. Compensation...........................................34
Section 8.12. Standard of Care.......................................34
Section 8.13. Request for Instructions...............................35
Section 8.14. Resignation of Trustee.................................35
Section 8.15. Vacancies in Trusteeship...............................35
Section 8.16. Information to Be Furnished............................35
Section 8.17. Voting Rights of Participants..........................36
Section 8.18. Delegation of Authority................................37
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<PAGE>
Section 8.19. Diversification of Company
Contributions Account................................37
Section 8.20. Tender Offer...........................................37
ARTICLE IX AMENDMENT, TERMINATION AND MERGER............................38
Section 9.1. Amendment...................................38
Section 9.2. Termination or Complete
Discontinuance of Contributions......................39
Section 9.3. Determination by Internal Revenue
Service..............................................39
Section 9.4. Nonreversion................................40
Section 9.5. Merger......................................40
ARTICLE X MISCELLANEOUS................................................40
Section 10.1. Creation of Plan Voluntary.............................40
Section 10.2. No Employment Contract.................................41
Section 10.3. Limitation on Rights Created...........................41
Section 10.4. Waiver of Claims.......................................41
Section 10.5. Spendthrift Provision..................................41
Section 10.6. Payment of Benefits to Others..........................42
Section 10.7. Payments to Missing Persons............................42
Section 10.8. Severability...........................................42
Section 10.9. Captions...............................................42
Section 10.10. Construction...........................................42
Section 10.11. Counterparts...........................................42
Section 10.12. Indemnification........................................43
Section 10.13. Standards of Interpretation and
Administration.......................................43
Section 10.14. Governing Law..........................................43
Section 10.15. Successors and Assigns.................................43
Section 10.16. Adoption of Plan.......................................43
Section 10.17. Withdrawal from Plan...................................43
ARTICLE XI TEFRA TOP-HEAVY RULES........................................44
Section 11.1. Application............................................44
Section 11.2. Determination..........................................44
Section 11.3. Accrued Benefits.......................................46
Section 11.4. Vesting Provisions.....................................46
Section 11.5. Minimum Contribution...................................47
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<PAGE>
RIVER VALLEY BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN AND
TRUST AGREEMENT
(EFFECTIVE JANUARY 1, 1996)
ARTICLE I
DEFINITIONS
Section 1.1. "Accrued Company Contributions Benefit" shall mean the balance
of a Participant's Company Contributions Account as of the last preceding
Valuation Date.
Section 1.2. "Act" shall mean the Employee Retirement Income Security Act
of 1974, as now in effect or hereafter amended, and shall also include all
regulations promulgated thereunder.
Section 1.3. "Anniversary Date" shall mean the last calendar day of any
Plan Year.
Section 1.4. "Annual Addition" shall mean, with respect to any Participant
for any Plan Year and with respect to this Plan and to all other qualified
defined contribution plans maintained by a Company, the sum of:
(a) Company contributions credited to his Company Contributions
Account for that Plan Year under this Plan;
(b) that Participant's non-deductible contributions;
(c) forfeitures; and
(d) amounts allocated to an individual medical account as defined in
Section 415(1)(2) of the Code which is part of a pension or
annuity plan maintained by a Company shall be treated as Annual
Additions to a qualified defined contribution plan, and amounts
derived from Company contributions paid or accrued in taxable
years ending after such date which are attributable to
post-retirement medical benefits allocated to the separate
account of a key employee as defined in Section 416 of the Code
under a welfare benefit fund as defined in Section 419(e) of the
Code maintained by a Company shall also be treated as Annual
Additions to a qualified defined contribution plan.
Annual Additions shall not include any amounts allocated as income to a
Participant's Company Contributions Account in accordance with Section 8.7(j).
Section 1.5. "Beneficiary" shall mean the person(s) entitled under the
provisions of Section 6.5 to receive benefits after the death of a Participant.
<PAGE>
Section 1.6. "Code" shall mean the Internal Revenue Code of 1986, as
now in effect or hereafter amended, and shall also include all regulations
promulgated thereunder.
Section 1.7. "Committee" shall mean the administrative committee
appointed and acting in accordance with the provisions of Article VII. The
Committee shall be deemed to be the Plan Administrator for purposes of the Act.
Section 1.8. "Company" shall mean the Holding Company, Madison First
Federal Savings and Loan Association, any Company which becomes a participating
employer pursuant to Section 10.16, and any successors thereto. The term
"Company" shall also include the Citizens National Bank of Madison if it becomes
a subsidiary of the Holding Company before January 1, 1997. Solely for the
purpose of:
(a) computing an Employee's Hours of Service and Period of Service to
determine his eligibility to participate in and the vesting of
his benefits under this Plan;
(b) applying the limitations contained in Section 4.3;
(c) determining whether this Plan is a Top Heavy Plan under Section
11.2 and, thus, subject to the provisions of Article XI; and
(d) determining whether an Employee terminated his employment with
the Companies,
"Company" shall also include any entity which, together with a participating
Company, constitutes a member of a controlled group of corporations, a member of
a commonly controlled group of trades or businesses or a member of an affiliated
service group within the meaning of Section 414(b), Section 414(c) or Section
414(m) of the Code or any entity which is required to be aggregated with a
participating Company under Section 414(o) of the Code.
Section 1.9. "Company Contributions Account" shall mean the account
maintained for each Participant to which contributions made by the Companies
shall be allocated.
Section 1.10. "Compensation" shall mean the total of all amounts paid
or payable in cash by the Companies by reason of services performed by an
Employee during any period, including bonuses, overtime, any other cash payments
included on an Employee's W-2, amounts deferred by the Employee under any cash
or deferred arrangement maintained by a Company under Section 401(k) of the Code
and any salary reductions elected by the Employee pursuant to a salary reduction
plan maintained by a Company under Section 125 of the Code but excluding, with
respect to any Employee, any other amounts contributed by a Company for or on
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account of that Employee under this Plan or under any other employee benefit
plan; provided, however, that Compensation in a Plan Year in excess of one
hundred and fifty thousand ($150,000), as adjusted pursuant to Section
401(a)(17) of the Code, shall be disregarded; provided, further, that to the
extent provided by Section 1.22(g) the Compensation limit shall be allocated
among family members.
Section 1.11. "Date of Employment" means any date on which an Employee
first completes an Hour of Service.
Section 1.12. "Date of Separation" means the earlier of:
(a) the date an Employee's employment with the Companies terminates
by reason of a quit, discharge, retirement (including disability
retirement) or death; or
(b) the first anniversary of the first date of a period in which the
Employee remains absent from active employment with the Companies
for some reason other than a quit, discharge, retirement, death,
approved leave of absence or military service.
Section 1.13. "Deferred Retirement" shall mean retirement after a
Participant's Normal Retirement Date in accordance with Section 2.4.
Section 1.14. "Deferred Retirement Date" shall mean the first (1st)
calendar day of the month after a Participant's Normal Retirement Date as of
which he retires or his employment with the Companies is terminated for any
reason other than his death.
Section 1.15. "Defined Benefit Fraction" shall mean for a
given Plan Year a fraction:
(a) the numerator of which is the projected annual benefit of a
Participant under all qualified defined benefit plans
maintained by a Company (determined as of the Anniversary Date
of that Plan Year), and
(b) the denominator of which is the lesser of:
(i) the product of one and twenty-five one hundredths (1.25)
multiplied by ninety thousand dollars ($90,000), as adjusted
pursuant to Section 415(b)(1)(A) and (d)(1) of the Code, or
(ii) the product of one and four tenths (1.4) multiplied by one
hundred percent (100%) of that Participant's average Section
415 Compensation for his three (3) consecutive highest paid
Period of Service with the Companies.
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Section 1.16. "Defined Contribution Fraction" shall mean for a given Plan
Year a fraction:
(a) the numerator of which is the sum of the Annual Additions to a
Participant's accounts under all qualified defined
contribution plans maintained by a Company as of the
Anniversary Date of that Plan Year, and
(b) the denominator of which is the sum of the lesser of the
following amounts determined for that Plan Year and for each
prior year of service with the Companies:
(i) the product of one and twenty-five one hundredths (1.25)
multiplied by the dollar limit in effect for that Plan Year
pursuant to Section 415(c)(1)(A) of the Code, or
(ii) the product of one and four tenths (1.4) multiplied by
twenty-five percent (25%) of that Participant's Section 415
Compensation for that Plan Year.
Section 1.17. "Effective Date" shall mean January 1, 1996; provided,
however, that if prior to December 31, 1996, Madison First Federal Savings and
Loan Association shall not have completed its conversion from mutual to stock
form, this Plan shall be null and void and any shares of Stock and other assets
held hereunder shall be returned to the Companies.
Section 1.18. "Employee" shall mean any person employed by a Company,
and shall also include any individual deemed to be a leased employee (as defined
below) of the Companies but only to the extent required by the Code. For
purposes of this Plan, the term "leased employee" means any person (other than
an employee of the recipient) who pursuant to an agreement between the recipient
and any other person ("leasing organization") has performed services for the
recipient (or for the recipient and related persons determined in accordance
with Section 414(n)(6) of the Code) on a substantially full-time basis for a
period of at least one (1) year, and such services are of a type historically
performed by employees in the business field of the recipient employer;
provided, however, that a leased employee shall not be considered an employee of
the recipient if (a) such employee is covered by a money purchase pension plan
providing a nonintegrated employer contribution rate of at least ten percent
(10%) of Compensation, immediate participation and full and immediate vesting
and (b) leased employees do not constitute more than twenty percent (20%) of the
recipient's non-highly compensated workforce. A leased employee within the
meaning of Section 414(n)(2) of the Code shall become a Participant in the Plan
based on service as a leased employee only as provided in provisions of the Plan
other than this Section. Contributions or benefits provided a leased employee by
the leasing organization which are attributable to services
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<PAGE>
performed for the recipient employer shall be treated as provided by the
recipient employer.
Section 1.19. "Exempt Loan" shall mean a loan made to this Plan by a
party in interest or disqualified person or a loan to this Plan which is
guaranteed by a party in interest or disqualified person, including a direct
loan of cash, a purchase-money transaction and an assumption of any obligation
of this Plan. For purposes of this definition, a guarantee shall include an
unsecured guarantee and the use of assets of a party in interest or disqualified
person as collateral for a loan even though the use of assets may not constitute
a guarantee under any applicable State laws.
Section 1.20. "Fund" shall mean all cash, investments and other properties
held by the Trustee hereunder.
Section 1.21. "Highly Compensated Employee" shall include for a Plan
Year any Employee who during such Plan Year or in the immediately preceding Plan
Year:
(a) is at any time a five percent (5%) or more owner (as defined in
Section 416(i)(1) of the Code) of a Company;
(b) receives more than seventy-five thousand dollars ($75,000), as
adjusted pursuant to Section 415(b)(1)(A) and (d)(1) of the Code,
of Section 415 Compensation from the Companies;
(c) receives more than fifty thousand dollars ($50,000), as adjusted
pursuant to Section 415(b)(1)(A) and (d)(1) of the Code, of
Section 415 Compensation from the Companies and is in the Top
Paid Group in the same Plan Year; or
(d) is at any time in either Plan Year an officer of a Company and
whose Section 415 Compensation in the same Plan Year during which
he is an officer is greater than fifty percent (50%) of the
maximum dollar limitation under Section 415(b)(1)(A) of the Code
currently in effect; provided, however, that no more than fifty
(50) Employees or, if lesser, the greater of three (3) or ten
percent (10%) of a Company's Employees are to be treated as
officers; provided, further, that if no officer has Section 415
Compensation greater than fifty percent (50%) of the maximum
dollar limitation under Section 415(b)(1)(A) of the Code
currently in effect, only the highest paid officer of that
Company shall be deemed highly compensated pursuant to this
Subsection (d).
For purposes of determining whether an Employee is a Highly Compensated Employee
and notwithstanding anything else contained in this Section 1.21, the following
rules shall apply:
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(e) An Employee who has met the requirements contained in Subsections
(b), (c) or (d) above for the Plan Year for which the
determination of Highly Compensated Employees is being made but
has not met such requirements for the immediately preceding Plan
Year shall not be deemed to be a Highly Compensated Employee
unless such Employee is among the one hundred (100) Employees who
have received the greatest Section 415 Compensation from the
Companies in such Plan Year.
(f) A former Employee shall be treated as a Highly Compensated
Employee if he was a Highly Compensated Employee in the Plan Year
during which his employment with the Companies terminated or in
any Plan Year during which occurs or commencing after his
fifty-fifth (55th) birthday.
(g) Any Employee who is one (1) of the ten (10) Employees receiving
the greatest Section 415 Compensation from the Companies or who
is a five percent (5%) owner of a Company as described in
Subsection (a) above shall be deemed to have been paid the
Section 415 Compensation which is paid to his spouse or to his
lineal descendants who have yet attained age nineteen (19);
provided, -------- however, that any individual whose Section 415
------- Compensation is deemed to be paid to a family member of
such individual shall not be considered a separate Employee for
purposes of this Section 1.21.
(h) For purposes of this Section, Section 415 Compensation shall
include amounts deferred or redirected by an Employee pursuant to
Sections 401(k) and 125 of the Code.
(i) An Employee shall only be deemed to be a Highly Compensated
Employee to the extent required by the Code.
Section 1.22. "Holding Company" shall mean River Valley Bancorp.
Section 1.23. "Hour of Service" shall mean:
(a) each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for a Company; these hours shall be
credited to the Employee for the computation period or periods in
which the duties are performed; and
(b) each hour for which an Employee is paid, or entitled to payment,
by a Company on account of a period of time during which no
duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness,
incapacity (including
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<PAGE>
disability but excluding payments made because of Total
Disability under Section 6.3), layoff, jury duty, military duty
or leave of absence; no more than five hundred and one (501)
Hours of Service shall be credited under this Subsection (b) for
any single continuous period (whether or not such period occurs
in a single computation period); hours under this Subsection (b)
shall be calculated and credited pursuant to Section 2530.200b-2
of the Department of Labor Regulations which are incorporated
herein by this reference; and
(c) each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by a Company; the same
Hours of Service shall not be credited both under Subsection
1.23(a) or Subsection 1.23(b), as the case may be, and under this
Subsection 1.23(c); these hours shall be credited to the Employee
for the computation period or periods to which the award or
agreement pertains, rather than to the computation period in
which the award, agreement or payment is made.
To the extent required under the Family and Medical Leave Act of 1993
("FMLA") and solely for purposes of determining whether a One Year Service Break
for participation and vesting purposes has occurred in any computation period,
an individual who is absent from work on unpaid leave under the FMLA on or after
August 5, 1993 shall receive credit for the Hours of Service which would
otherwise have been credited to such individual but for such absence or, in any
case in which such Hours of Service cannot be determined, eight (8) Hours of
Service per each regularly scheduled work day of such absence.
Hours of Service shall be determined in accordance with any method or
methods permitted by the Act; provided, however, that such method or methods
shall be used consistently, uniformly and in a non-discriminatory manner.
Any ambiguity arising in the interpretation of the above provisions
shall be resolved in favor of crediting an Employee with Hours of Service.
Section 1.24. "Leave of Absence" shall mean a leave granted by a Company,
in accordance with rules uniformly applied to all Employees in a
non-discriminatory manner, for reasons of health, public service or other
satisfactory reasons.
Section 1.25. "Normal Retirement" shall mean retirement on a Participant's
Normal Retirement Date.
Section 1.26. "Normal Retirement Date" shall mean the first (1st) calendar
day of the month immediately following a Participant's sixty-fifth (65th)
birthday. A Participant's
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<PAGE>
benefits under this Plan shall be fully vested and non-forfeitable on and after
the date he attains age sixty-five (65), which is deemed to be the normal
retirement age under this Plan, regardless of his Period of Service and
regardless of the vesting schedules in Section 6.3 and in Section 11.4.
Section 1.27. "One Year Service Break" shall mean a consecutive twelve
(12) month Period of Severance.
Section 1.28. "Participant" shall mean any Employee who has commenced
participation in this Plan pursuant to Section 2.2. Participation in this Plan
shall continue until such time as the Participant has received all of the
benefits to which he is entitled under the terms of this Plan.
Section 1.29. "Period of Separation" means, for an Employee, the period
of time commencing with the date such Employee separates from service with the
Companies and ending with the date such Employee resumes his employment with the
Companies.
Section 1.30. "Period of Service" means, for an Employee, the period
commencing on the later of the following dates:
(a) such Employee's Date of Employment; or
(b) the date on which such Employee's Employer is required to be
aggregated with the Company under Code Section 414(b), (c),
(m) or (o), whichever is applicable,
and ending on the date a Period of Severance begins, including any Period of
Separation of less than twelve (12) consecutive months; provided, however, that
in the case of any person who terminates his employment with the Employers but
later resumes his employment with the Companies, the Period of Service before
such resumption of employment shall be aggregated only if that person is a
Re-employed Individual.
Section 1.31. "Period of Severance" means, for an Employee,
the period of time commencing with the earlier of:
(a) the date on which such Employee terminates his employment
with the Companies by reason of quitting, retirement,
death or discharge, or
(b) the date twelve (12) consecutive months after the date a
person remains absent from service with the Companies (with or
without pay) for any reason other than quitting, retirement,
death or discharge,
and ending, in the case of an Employee who terminates his employment with the
Companies by reason other than death, with the date such Employee resumes his
employment with the Companies.
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<PAGE>
Solely for purposes of determining whether a One Year Service Break has occurred
for participation and vesting purposes has occurred, an Employee who is absent
from work for maternity or paternity reasons shall receive credit at least one
(1) year. For purposes of this Section 1.31, an absence from work for maternity
and paternity reasons means an absence:
(d) by reason of the pregnancy of the Employee,
(e) by reason of the birth of a child of the Employee,
(f) by reason of the placement of a child with the Employee
in connection with the adoption of that child by the
Employee, or
(g) for purposes of caring for such a child for the period
beginning immediately following such birth or placement.
Section 1.32. "Plan" shall mean the employee stock ownership plan and
trust established pursuant to the provisions of this Agreement, as amended from
time to time, which shall be known as the "River Valley Bancorp Employee Stock
Ownership Plan." This Plan is intended to be an employee stock ownership plan
under Section 4975(e)(7) of the Code and under Section 407(d)(6) of the Act.
Section 1.33. "Plan Year" shall mean the calendar year. The Plan Year
shall also be the limitation year for purposes of Section 415 of the Code for
this Plan and for all other qualified retirement plans maintained by a Company.
Section 1.34. "Re-employed Individual" shall mean a person who, after
having terminated his employment with the Companies, resumes his employment with
the Companies:
(a) with any vested interest in his Company Contributions
Account as provided in Section 6.3 or 11.4, or
(b) with no such vested interest but who resumes his
employment with the Companies either:
(i) before a One Year Service Break,
(ii) after a One Year Service Break but before his latest
Period of Severance equals or exceeds his Period of
Service, or
(iii) after a One Year Service Break but before the number of
his consecutive One Year Service Breaks equals or
exceeds the greater of five (5) or his Period of
Service.
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<PAGE>
Section 1.35. "Section 415 Compensation" shall mean with respect to any
Plan Year and shall:
(a) include amounts accrued to a Participant (regardless of
whether he was a Participant during the entire Plan Year and
regardless of whether in cash):
(i) as wages, salaries, fees for professional services
and other amounts received for personal services
actually rendered in the course of his employment
with the Companies including but not limited to
commissions, compensation for services on the basis
of a percentage of profits and bonuses;
(ii) for purposes of Subsection (a)(i) above, earned
income from sources outside the United States (as
defined in Section 911(b) of the Code), whether or
not excludible from gross income under Section 911 of
the Code or deductible under Section 913 of the Code;
(iii) amounts described in Sections 104(a)(3), 105(a) and
115(h) of the Code but only to the extent that these
amounts are includible in the gross income of that
Participant; and
(iv) amounts paid or reimbursed by the Companies for
moving expenses incurred by that Participant, but
only to the extent that these amounts are not
deductible by that Participant under Section 217 of
the Code;
(b) not include:
(i) notwithstanding Subsection (a)(i) above, there shall
be excluded from Section 415 Compensation amounts
contributed to a plan as contributions to a qualified
cash or deferred plan under Section 401(k) of the
Code;
(ii) other contributions made by a Company to any plan
of deferred compensation to the extent that, before
the application of the Section 415 of the Code
limitations to that plan, the contributions are not
includible in the gross income of that Participant
for the taxable year in which contributed; in
addition, Company contributions made on behalf of
that Participant to a simplified employee pension
plan described in Section 408(k) of the Code shall
not be considered as Section 415 Compensation for
the Plan Year in which contributed; additionally,
any distributions from a plan of deferred
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<PAGE>
compensation shall not be considered as Section 415
Compensation, regardless of whether such amounts are
includible in the gross income of that Participant
when distributed; however, any amounts received by
that Participant pursuant to an unfunded nonqualified
plan shall be considered as Section 415 Compensation
in the Plan Year in which such amounts are includible
in the gross income of that Participant; and
(iii) other amounts which receive special federal income
tax benefits, such as premiums for group term life
insurance (but only to the extent that the premiums
are not includible in the gross income of that
Participant).
Section 1.36. "Stock" shall mean any duly-issued shares of common stock
of the Holding Company which shares constitute employer securities under Section
409(1) and Section 4975(e)(8) of the Code.
Section 1.37. "Top Paid Group" shall mean in a Plan Year and include
the Employees who are in the top twenty percent (20%) of a Company's Employees
in terms of Section 415 Compensation for such Plan Year; provided, however, that
for purposes of determining the number of Employees to be included in the Top
Paid Group, the following Employees shall be excluded:
(a) Employees who have not completed six (6) months of
service with the Companies;
(b) Employees who normally work less than seventeen and one-half
(17 1/2) hours per week or less than six (6) months during a
Plan Year;
(c) Employees who have not attained age twenty-one (21);
(d) except as provided by regulations promulgated under the
Code, Employees who are covered by a collectively
bargained agreement; and
(e) Employees who are non-resident aliens and who receive no
earned income (within the meaning of Section 911(d)(2) of the
Code) from the Companies which constitutes income from sources
in the United States (within the meaning of Section 861(a)(3)
of the Code).
Section 1.38. "Total Disability" shall mean a mental or physical
condition which, in the judgment of the Committee based upon medical reports and
other evidence satisfactory to the Committee, presumably permanently prevents a
Participant from satisfactorily performing his usual duties for his employing
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Company or the duties of such other position or job which his employing Company
makes available to that Participant and for which that Participant is qualified
by reason of training, education or experience.
Section 1.39. "Trust" shall mean the employee stock ownership trust
established pursuant to the provisions of this Agreement, as amended from time
to time, which shall be known as the "River Valley Bancorp Employee Stock
Ownership Trust."
Section 1.40. "Trustee" shall mean ____________________, and
any successors thereto.
Section 1.41. "Valuation Date" shall mean each December 31 and each
other date as of which the Committee shall cause the Trustee to determine the
value of the Trust assets as prescribed in Section 5.1.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
Section 2.1. Eligibility. Each Employee in the employ of a Company shall
become eligible to participate in this Plan on the date on which his Period of
Service is at least six (6) months.
Section 2.2. Entry Dates. Each Employee who was eligible to participate
under Section 2.1 on the Effective Date automatically became a Participant in
this Plan as of the Effective Date. Each other Employee shall become a
Participant in this Plan on the first day of January or July coincident with or
next following the first (1st) date on which he meets the eligibility
requirements of Section 2.1. A re-employed Employee whose Period of Service is
at least six (6) months shall become (or, if formerly a Participant, be
reinstated as) a Participant in this Plan on his re-employment date.
Section 2.3. Certification by Company. Not later than thirty (30) calendar
days after an Employee shall become a Participant in this Plan, his employing
Company shall certify such fact in writing to the Committee, together with such
additional facts regarding such Participant as the Committee may request. Except
as otherwise provided by the Act, each such certification shall be final and
conclusive and the Committee shall be entitled to rely thereon without any
investigation, but it may correct any errors discovered in any such certificate.
Section 2.4. Deferred Retirement. A Participant who continues in the
employment of a Company after his Normal Retirement Date shall continue to
participate in this Plan, and contributions shall be allocated to his Company
Contributions Account as otherwise provided in this Plan. Any such Participant
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who elects Deferred Retirement shall be entitled to benefits under this Plan
payable at his Deferred Retirement Date in the same manner as if he had retired
on his Normal Retirement Date; provided, however, that the deferral of benefit
payments after a Participant's Normal Retirement Date shall be permitted only to
the extent authorized by and in compliance with all requirements imposed under
Section 2530.203-3 of the Department of Labor Regulations which are incorporated
herein by reference.
ARTICLE III
COMPANY CONTRIBUTIONS
Section 3.1. Company Contributions. For the initial Plan Year and for
each Plan Year thereafter, the Companies shall make contributions to the Trust
in one (1) or more installments in such amounts as the Board of Directors of the
Holding Company may determine.
If Company contributions are paid to the Trust by reason of a mistake
in fact made in good faith or a mistake made in good faith in determining the
deductibility of such Company contributions for federal income tax purposes
under Section 404 of the Code, such Company contributions may, except as
otherwise provided in Section 8.7, be returned to the Companies by the Trustee
(upon the written direction of the Committee) within one (1) year after the
payment to the Trust or after the date the federal income tax deduction is
denied, whichever is applicable.
Section 3.2. Form of Contributions. The Companies' contributions, if
any, for each Plan Year shall be paid to the Trustee either in cash or in Stock
valued at the fair market value thereof as of the date of the contribution (as
determined consistent with Section 5.1(a)) and within such period as is provided
for in Section 404 of the Code or any other statute of similar import or any
rule or regulations thereunder.
Section 3.3. Holding by Trustee. All contributions made by the
Companies under Section 3.1 shall be a part of the Fund and shall be held in
trust by the Trustee until distributed as provided in this Plan.
Section 3.4. Expenses. In addition to the contributions to be made
under Section 3.1, the Companies shall pay all reasonable expenses incident to
the operation of this Plan; in the event of any failure by the Companies to make
such payment, the same shall be a charge against and paid from the Fund but only
to the extent permitted under the Code and under the Act.
Section 3.5. No Company Liability for Benefits. The benefits under this
Plan shall be only such as can be provided by the Fund, and there shall be no
liability or obligation on the part of the
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Company to make any further contributions or payments. Except as otherwise
provided by the Act, no liability for the payment of benefits under this Plan
shall be imposed upon the Companies or upon the officers, directors or
shareholders of the Companies.
Section 3.6. No Rollover Contributions. Rollover contributions (within the
meaning of Section 402(a)(5) of the Code) shall not be permitted nor accepted.
ARTICLE IV
ALLOCATION TO PARTICIPANTS' ACCOUNTS
Section 4.1. Company Contributions Accounts. For purposes of allocating the
Company contributions, the Committee shall establish and maintain a separate
Company Contributions Account in the name of each Participant.
Section 4.2. Allocation of Company Contributions. Except as provided in
Section 4.7, the Company contributions for each Plan Year shall be allocated
among the Company Contributions Accounts of all Employees who are still employed
by a Company on the Anniversary Date of that Plan Year or whose employment with
the Companies terminated during that Plan Year because of death, Total
Disability, Deferred or Normal Retirement or after reaching age forty-five (45)
with a Period of Service of at least five (5) years proportionately in the ratio
that the Compensation (disregarding Compensation in excess of fifty thousand
dollars ($50,000), as adjusted in the manner described below) paid to such
Participant, if any, for that Plan Year or since becoming a Participant in this
Plan if he became a Participant within that Plan Year bears to the aggregate
Compensation (disregarding Compensation paid to any Participant in excess of
fifty thousand dollars ($50,000), as adjusted in the manner described below)
paid to all Participants for that Plan Year or since becoming Participants in
this Plan if they became Participants within that Plan Year. The fifty thousand
dollar ($50,000) limit described above shall be adjusted as of the first (1st)
day of each Plan Year beginning on January 1, 1997. The adjusted limit shall be
determined by multiplying fifty thousand dollars ($50,000) by a fraction the
numerator of which shall be the Bureau of Labor Statistics Wage Earners Index
for the month of December preceding such January 1 adjustment date and the
denominator of which shall be the Bureau of Labor Statistics Wage Earners Index
for December, 1995, and rounding up or down to the nearest thousand dollar
increment. To the extent cash dividends on allocated shares of Stock are applied
to pay of an Exempt Loan under Section 4.5 and notwithstanding anything
contained herein to the contrary, Company contributions shall first be applied
towards crediting the Participant's Company Contributions Account to which the
cash dividends would have been allocated before they are allocated under the
preceding provisions of this Section.
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Section 4.3. Limitations on Annual Additions.
Clause (a). Basic Limitations. Notwithstanding any other provision of
this Plan, the maximum Annual Addition during any Plan Year for any
Participant under this Plan and under any other qualified defined
contribution plans maintained by the Companies shall in no event exceed the
lesser of:
(i) twenty-five percent (25%) of that Participant's Section
415 Compensation for that Plan Year, or
(ii) thirty thousand dollars ($30,000), as adjusted from the total
in accordance with Section 415 of the Code; provided, however,
that such adjustments shall only apply to the Plan Years
ending on or after the date in which the adjustment was made.
Any Company contributions which are applied by the Trustee (not later
than the due date, including extensions, for filing a Company's federal income
tax return for that Plan Year) to pay interest on an Exempt Loan shall not be
included as Annual Additions under this Section 4.3; provided, however, that the
provisions of this Section shall be applicable only in Plan Years for which not
more than one-third (1/3) of the Company contributions applied to pay principal
and interest on an Exempt Loan are allocated among Highly Compensated Employees.
The Committee may reallocate Company contributions in order to satisfy this
special limitation.
If due to a reasonable error in estimation of a Participant's
Compensation or due to the allocation of forfeitures these maximum Annual
Additions would be exceeded as to any Participant, any excess amount shall be
used to reduce Company Contributions for that Participant in the next, and
succeeding, Plan Years. If that Participant was not covered by this Plan at the
Anniversary Date of that Plan Year, such excess shall be reallocated among the
Company Contributions Accounts of the other Participants under Section 4.2 to
the fullest extent possible without exceeding the limitations with respect to
any other Participant for that Plan Year. Any excess amount which cannot be so
allocated to any Participant's Company Contributions Account by reason of these
limitations shall be allocated under this Section 4.3(a) for the next succeeding
Plan Years (prior to the allocation of Company Contributions for such succeeding
Plan Years). Notwithstanding anything contained herein to the contrary,
contributions made to the other defined contribution plans shall be reduced
before contributions to this Plan are reduced, unless such other plan or plans
provide otherwise.
Clause (b). Participation in Other Plans. In any case in which an
Employee is a participant in one (1) or more qualified defined contribution
plans and in one (1) or more qualified defined
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benefit plans (as these terms are defined in Section 415(k) of the Code)
maintained by a Company, the sum of the Defined Benefit Fraction and of the
Defined Contribution Fraction, computed as of the Anniversary Date of that Plan
Year, shall not exceed one (1.0). To the extent the fraction would exceed one
(1.0), the benefit accrual under the defined benefit plan shall be reduced
first.
Section 4.4. Effective Date of Allocations. For all purposes of this
Plan, allocations to the Participants' Company Contributions Accounts under this
Article shall be deemed to have been made on the Anniversary Date to which they
relate although they may actually be determined at some later date. The fact
that such allocations are made, however, shall not vest in any Participant or in
his spouse or other Beneficiary any right, title or interest in or to any part
of the Fund except at the times, to the extent and on the terms and conditions
specified in this Plan.
Section 4.5. Cash Dividends. Any cash dividends or other cash
distributions received by the Trustee on Stock allocated to the Company
Contributions Accounts of Participants shall be credited to the applicable
Participants' Company Contributions Accounts unless the Holding Company, in its
sole discretion, elects to pay the cash dividends directly to the applicable
Participants or directs the Trustee to pay the cash dividends to the
Participants (or, if applicable, their Beneficiaries) within ninety (90)
calendar days of the close of the Plan Year in which the cash dividends were
paid by the Holding Company to the Fund. Notwithstanding anything contained in
this Section to the contrary, the Holding Company may direct cash dividends,
including dividends on non-allocated shares, be applied to repay an Exempt Loan,
but only to the extent shares of Stock with an aggregate fair market value equal
to the amount of dividends so applied are allocated to the Company Contributions
Accounts of the applicable Participants and to the extent the cash dividends are
deductible under Section 404(k) of the Code.
Section 4.6. Allocation of Forfeitures. The Trustee, shall, as soon as
practicable following the Anniversary Date marking the close of each Plan Year,
allocate the forfeitures which have occurred in that Plan Year first to
reinstate any forfeitures of any reemployed Participant under Section 6.2 and
second, if any forfeitures are remaining after the reinstatements described
above are completed, among the Company Contributions Accounts of all Employees
who were or became Participants on the Anniversary Date of that Plan Year or
whose Period of Service terminated during that Plan Year because of death, Total
Disability or Deferred or Normal Retirement. The forfeitures shall be allocated
among such Accounts in the same manner provided for under Section 4.2.
Section 4.7. Special Allocation Rules. Notwithstanding any other provision
in this Plan to the contrary, no Stock acquired by
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this Plan in a sale to which Section 1042 of the Code applies may be allocated
directly or indirectly under this Plan:
(a) during the non-allocation period (as such term is defined
below), for the benefit of:
(i) any Participant who makes an election under Section
1042(a) of the Code with respect to Stock sold to
this Plan, or
(ii) any Participant who is related to the Participant
making the election under Section 1042(a) of the
Code or to the deceased Participant (within the
meaning of Section 267(b) of the Code); provided,
--------
however, that this Subsection (a)(ii) shall not
-------
apply to any Participant who is a lineal descendent
of a Participant as long as the aggregate amount
allocated to the benefit of all such lineal
descendants during the non-allocation period (as
such term is defined below) does not exceed more
than five percent (5%) of the Stock (or amounts
allocated in lieu thereof) held by this Plan which
are attributable to the sale to this Plan by any
person related to such descendants (within the
meaning of Section 267(c)(4)) in a transaction to
which Section 1042 of the Code applies,
or
(b) for the benefit of any Participant who owns (after the
application of the attribution rules contained in Section
318(a) of the Code, but disregarding Section 318(a)(2)(B)(i)
of the Code) more than twenty-five
percent (25%) of:
(i) any class of the outstanding stock of the Holding
Company or of any other corporation which is a member
of a controlled group of corporations (within the
meaning of Section 409(1)(4) of the Code) which
includes the Holding Company, or
(ii) the total value of any class of outstanding stock of
the Holding Company or of any other corporation which
is a member of the controlled group of corporations
(within the meaning of Section 409(1)(4) of the Code)
which includes the Holding Company.
For purposes of this Section 4.7, the "non-allocation period" shall mean a
period beginning on the date of the sale of the stock to the Plan and ending on
the later of:
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(c) the date which is ten (10) years after the sale of the
Stock to this Plan to which Section 1042 of the Code
applies, or
(d) the date of the Plan allocation of Stock attributable to the
final payment of any acquisition indebtedness incurred in
connection with a sale of such Stock to this Plan to which
Section 1042 of the Code applies.
For purposes of this Section 4.7 a Participant shall be deemed to be a
twenty-five percent (25%) or greater shareholder if such Participant owns more
than twenty-five percent (25%) of the shares at any time during a one (1) year
period ending:
(e) on the date of a sale of the Stock to this Plan to which
Section 1042 of the Code applies, or
(f) on the date as of which the Stock sold to this Plan through a
sale to which Section 1042 of the Code applies is allocated to
Participants.
The provisions contained in this Section 4.7 shall be interpreted consistent
with and in accordance with Section 409(n) of the Code.
ARTICLE V
VALUATIONS AND ADJUSTMENTS
Section 5.1. Valuation of Fund.
Clause (a). Valuations. The Committee shall provide the
Trustee with a written valuation showing the fair market value of the Stock,
upon which valuation the Trustee may fully rely. For all purposes of this Plan,
fair market value shall be determined by an independent appraiser (as such term
is defined in Treasury Regulations promulgated under Section 170(a)(1) of the
Code) unless the Stock is readily tradeable on an established securities market
at the date of valuation. The Committee shall also direct the Trustee to
determine the fair market value of all other assets of the Fund on each
Valuation Date.
Clause (b). Frequency. The Fund shall be valued as soon as
practical after the Anniversary Date of each Plan Year and as soon as practical
after the removal or resignation of the Trustee on the basis of fair market
values determined as of the Anniversary Date of the Plan Year or as of the
effective date of the resignation or removal of the Trustee, respectively. The
Committee may require valuation of the Fund on such other dates as it may
prescribe.
Clause (c). Records. Records of valuation of the Fund shall
be prepared by the Trustee in such manner and within such
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time after each Valuation Date as may be prescribed in this Section 5.1, and
such records shall be filed with the Committee, including a written statement
reflecting the value of the assets and liabilities of the Fund and the receipts
and disbursements of the Fund since the last previous statement filed with the
Committee. As to the fair market value of Stock, the Trustee shall rely solely
upon the most recent valuation furnished by the Committee as provided in Section
5.1(a). If information necessary to ascertain the fair market value of the Fund
assets other than Stock is not readily available to the Trustee or if the
Trustee is unable in its sole discretion fairly to determine the fair market
value of the other Fund assets, the Trustee may request the Committee in writing
to instruct the Trustee as to such values to be used for all purposes under this
Plan; in such event, the values as determined by the Committee shall be binding
and conclusive, except as otherwise provided by the Act. If the Committee shall
fail or refuse to instruct the Trustee as to such values within a reasonable
time after receipt of the Trustee's written request therefor, the Trustee may
take such action as it deems necessary or advisable to ascertain such values.
Except for the Trustee's negligence, willful misconduct or lack of good faith,
upon the expiration of ninety (90) calendar days from the filing of such records
and except as otherwise provided by the Act, the Trustee shall be forever
released and discharged from all liability and accountability to anyone with
respect to the propriety of its acts or transactions as set forth in such
records unless written objection is filed with the Trustee within the said
ninety (90) calendar day period by the Committee or by the Holding Company.
Section 5.2. Adjustments. As of each Valuation Date the Committee shall
cause the Trustee to allocate to each Participant's Company Contributions
Account, by credit thereto or deduction therefrom as the case may be, a
proportion of the increase or decrease in the fair market value of the Fund
since the last preceding Effective Date or Valuation Date. Such allocation shall
be made in the proportion that each Participant's Company Contributions Account
on such date bears to the total of all such Company Contributions Accounts on
such date.
Section 5.3. Amount of Adjustments. The increase or decrease in the Fund to
be allocated shall be the difference between:
(a) the fair market value of the Fund on the last preceding
Effective Date or Valuation Date (excluding any amounts
withdrawn from the Fund as of such Date for the payment of
benefits hereunder), and
(b) the fair market value of the Fund on the current Valuation
Date (including any amounts to be withdrawn from the Fund as
of such Date for the payment of benefits hereunder).
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Section 5.4. Effective Date of Adjustments. For all purposes of this
Plan, allocations to the Participants' Company Contributions Accounts under this
Article shall be deemed to have been made on the Effective Date or Valuation
Date to which they relate although they may actually be determined at some later
date. The fact that such allocations are made, however, shall not vest in any
Participant or in his spouse or other Beneficiary any right, title or interest
in or to any part of the Fund except at the times, to the extent and on the
terms and conditions specified in this Plan.
Section 5.5. Notice to Participants. Promptly after the allocations
herein described shall be completed, the Committee shall advise each Participant
in writing of the fair market value of the Stock and other Fund assets then
credited to his Company Contributions Account.
ARTICLE VI
BENEFITS
Part A. Retirement Benefits.
Section 6.1. Retirement. Each Participant who retires on his Normal
Retirement Date or Deferred Retirement Date shall be entitled to receive the
entire balance credited to his Company Contributions Account as of the Valuation
Date coincidental with or immediately following such Retirement Date plus any
Company contributions to which he is entitled pursuant to Section 4.2 for the
Plan Year in which his Normal Retirement or Deferred Retirement occurs. Payment
of such benefits shall be made in accordance with the provisions of Section
6.10.
Part B. Termination Benefits.
Section 6.2. Effect of Termination. If a Participant's employment with
the Companies is terminated before his Normal Retirement Date for any reason
other than his death, that Participant shall cease to be a Participant in this
Plan and shall not be entitled to any benefits under this Plan except as
expressly provided in this Part B.
Section 6.3. Vesting. Any Participant whose employment with the
Companies is terminated as set forth in Section 6.2 shall be entitled to a
percentage (as determined below) of the entire balance credited to his Company
Contributions Account as of the Valuation Date coincidental with or immediately
following the date of termination of his employment. The percentage of his
Company Contributions Account to which a terminated Participant is entitled
shall be determined on the basis of his Period of Service on such date of
termination of employment, as follows:
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Period of Service Vested Percentage
Less than three (3) years 0
Three (3) years or more 100%
Any portion of the terminated Participant's Company Contributions Account which
is not vested shall be treated as a forfeiture; provided, however, that such
forfeiture shall not be allocated to the other Plan Participants until the first
(1st) to occur of the following:
(a) that Participant's consecutive One Year Service Breaks
are at least five (5);
(b) that Participant's death; or
(c) the date on which the Participant receives or is deemed
to receive his Company Contribution Account;
provided, further, that if that Participant is reemployed prior to his
completion of five (5) consecutive One Year Service Breaks, the forfeited amount
shall be reinstated as the beginning balance of that Participant's Company
Contribution Account. A Participant whose vested percentage of his Company
Contributions Account is zero (0) at the date of his termination of employment
shall be deemed to have received a distribution upon his termination of
employment.
In the case of any Participant whose consecutive One Year Service
Breaks is at least five (5) years, that Participant's pre-break service shall
count in vesting of his post-break Company Contributions Account balance only if
either:
(a) that Participant has any nonforfeitable interest in his
Company Contributions Account balance at the time of his
separation from service with the Companies; or
(b) upon returning to service with a Company his consecutive One
Year Service Breaks are less than five (5) or, if greater,
less than his Period of Service completed prior to his first
One Year Service Break.
In the case of any Participant whose consecutive One Year Service
Breaks are at least five (5) years, all service after such One Year Service
Breaks shall be disregarded for the purpose of vesting the Company Contributions
Account balance that accrued before such One Year Service Breaks.
Separate sub-accounts shall be maintained for that Participant's pre-break
and post-break Company Contributions
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Account. Both sub-accounts shall share in the earnings and losses of the Fund.
Any Participant whose employment with the Companies is terminated
because of his Total Disability shall be entitled to his entire Company
Contributions Account balance and shall also be entitled to receive any Company
contributions to which he is entitled pursuant to Section 4.2 for the Plan Year
in which his employment is so terminated.
Section 6.4. Payment. All benefits payable under Part B shall be paid in
accordance with the provisions of Section 6.10.
Part C. Death Benefits.
Section 6.5. Benefits upon Death. If the death of any Employee occurs while
he is still a Participant in this Plan and prior to his actual retirement or
other termination of employment with the Companies, the entire balance credited
to his Company Contributions Account as of the Valuation Date coincidental with
or immediately preceding the date of his death plus any Company contributions to
which he is entitled pursuant to Section 4.2 for the Plan Year in which his
death occurs shall be paid to the Beneficiary of that deceased Participant in
accordance with the provisions of Section 6.10.
Section 6.6. Beneficiaries. Each Participant shall notify the Committee in
writing of one (1) or more primary and contingent Beneficiaries to receive on
his death any benefits payable under this Part C. Each such Beneficiary
designation may be revoked, amended or changed by a Participant by like notice
in writing delivered to the Committee prior to his death. The Beneficiary
designation of any Participant who is married at the date such a designation is
made or changed shall be signed by that Participant's spouse and witnessed by
the Committee or by a Notary Public if it results in a designation of a
Beneficiary other than that Participant's spouse. Notwithstanding anything
contained in this Section to the contrary, the Beneficiary of a married
Participant shall be his spouse unless his spouse consents to the designation of
a non-spouse Beneficiary in a writing witnessed by the Committee or by a Notary
Public.
Section 6.7. Lack of Beneficiaries. Any portion of the amounts payable
under Section 6.5 which is undisposed of because all or some of the designated
Beneficiaries have predeceased a Participant or because of a Participant's
failure to designate a Beneficiary in writing prior to his death shall be paid
to the deceased Participant's surviving spouse, if any, and, if none, to the
deceased Participant's estate.
Section 6.8. Termination or Retirement prior to Death. On and after the
actual retirement of a Participant from the employ of
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the Companies or other termination of his employment, the rights of such
Participant and his spouse or other Beneficiary to any benefits under this Part
C shall cease and the benefits payable to such Participant or to any person
claiming through or under him shall be limited to the benefits provided in Parts
A or B of this Article.
Part D. General.
Section 6.9. Date of Distribution. Unless the Participant or, if
deceased, his Beneficiary, surviving spouse or estate, as the case may be,
otherwise elects, the payment of benefits to which any such person is entitled
shall begin not later than sixty (60) calendar days after the latest of the
Anniversary Date of the Plan Year in which:
(a) the Participant attains age sixty-five (65),
(b) occurs the tenth (10th) anniversary of the date on which
the Participant initially became eligible to participate
in this Plan, or
(c) the Participant terminates his employment with the
Companies;
provided, however, that the distribution of benefits to a Participant shall
commence not later than April 1 of the calendar year following that
Participant's taxable year in which that Participant attains age seventy and
one-half (70 1/2).
Section 6.10. Form of Distribution. The distributions provided under
this Article VI shall be made by the Trustee, as directed by the Participant or,
if deceased, his Beneficiary, in a single lump sum distribution of the amount to
be paid to the Participant or, if deceased, to his Beneficiary; provided,
however, that except as otherwise provided in Section 6.9, payment shall be made
as soon as practicable after the Plan Year during which the employment of the
Participant from the Companies terminated; provided, further, that in no event
shall payments to a deceased Participant's estate or to any Beneficiary other
than the surviving spouse of a deceased Participant extend more than five (5)
years after the date of the Participant's death. Notwithstanding the above, a
Participant whose Company Contributions Account at the initial distribution date
or at any subsequent distribution date (when aggregated with other
distributions) is greater than three thousand and five hundred dollars ($3,500),
may elect to defer the commencement of the distribution of his Company
Contributions Account to the date on which he attains age sixty-five (65).
Distributions under this Section 6.10 shall be distributed in Stock with
fractional share interests distributed in cash. If shares of Stock are
distributed and the shares of Stock available for distribution consist of more
than one (1) class of security, a
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distributee shall receive substantially the same proportion of each such class.
If the Trust purchases shares of Stock from a Company shareholder who
is eligible to elect and so elects nonrecognition of gain under Section 1042 of
the Code in connection with such purchase and notwithstanding anything contained
herein to the contrary, no distribution that would be made within three (3)
years after the date of such purchase shall be made to a Participant before he
incurs a One Year Service Break, unless his employment with the Companies
terminates as a result of his Normal Retirement, Total Disability or death or
unless the distribution is made pursuant to Section 8.19.
Section 6.11. Liability. Any payment to a Participant or to that
Participant's legal representative, Beneficiary, surviving spouse or estate, in
accordance with the provisions of this Plan, shall to the extent thereof be in
full satisfaction of all claims hereunder against the Trustee, the Committee and
the Companies, any of whom may require such Participant, legal representative,
Beneficiary, surviving spouse or estate, as a condition precedent to such
payment, to execute a receipt and release therefor in such form as shall be
determined by the Trustee, the Committee or the Companies. The Companies do not
guarantee the Trust, the Participants or, if deceased, their Beneficiaries,
surviving spouses or estates, as the case may be, against the loss of or
depreciation in value of any right or benefit that any of them may acquire under
the terms of this Plan.
Section 6.12. Put Options. The Holding Company shall issue a put option
to any Participant, Beneficiary, surviving spouse or estate of a deceased
Participant, or any other person (including distributees of an estate) to whom
shares of Stock distributed under this Plan may pass by reason of a
Participant's death (herein collectively referred to as the "Recipient"). This
put option shall permit the Recipient to sell such Stock to the Holding Company,
at any time during two (2) option periods, at the then fair market value. The
first put option period shall be a period of at least sixty (60) calendar days
beginning on the actual date of distribution of such Stock to the Recipient. The
second put option period shall be a period of at least sixty (60) calendar days
beginning after the determination of the fair market value of such Stock is made
by the Committee (and notice of same is given in writing to the Recipient) for
the next succeeding Plan Year. Such Recipient shall be deemed to have a put
option as herein provided with respect to the shares of Stock and may exercise
this put option by delivering to the Holding Company a written notice of his
election to sell such shares of Stock, or any portion thereof, together with the
certificates representing the shares of Stock to be sold duly endorsed for
transfer. The Holding Company shall be obligated to purchase the shares of
Stock, or the designated portion thereof, at their fair market value at the date
the put
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option is exercised; provided, however, that the Holding Company may grant the
Trustee an option to assume on behalf of this Plan and Trust the Holding
Company's rights and obligations with respect to the put option at the date the
put option is actually exercised by the Recipient. Except as hereinafter
provided, the Holding Company (or the Trustee, if it assumes the Holding
Company's obligation) shall pay for the shares of Stock so sold to it by check
within thirty (30) calendar days following the date of sale. Notwithstanding
anything contained herein to the contrary, the Holding Company (or, if
applicable, the Trustee) may pay the purchase price in substantially equal
periodic payments (not less frequently than annually) over a period beginning
not later than thirty (30) calendar days after the exercise of the put option
and not exceeding five (5) years as long as reasonable interest is paid on the
unpaid amounts and adequate security is provided to the Recipient. If the Stock
is readily tradeable on an established market on the date of distribution, the
put option granted by this Section 6.13 shall not exist; provided, however, that
if the Stock ceases to be publicly traded within either of the sixty (60) day
calendar periods as provided herein, the Holding Company shall notify the
Recipient in writing within a reasonable time after the Stock ceases to be so
publicly traded that the Stock shall be subject to the put option for the
remainder of the applicable sixty (60) day calendar period. If the date of
actual written notice to the Recipient by the Holding Company is later than ten
(10) calendar days after the Stock ceases to be so publicly traded, the put
option shall automatically be extended to the extent that the date on which
written notice is actually given to the Recipient is more than ten (10) calendar
days later.
Section 6.13. Eligible Rollover Distributions. Notwithstanding any
provision of the Plan to the contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect, at the time and in the
manner prescribed by the Committee, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover. For purposes of this Section, the following
terms shall have the meanings set forth below:
(a) Eligible rollover distribution: An eligible rollover distribution
is any distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include: (1)
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten (10) years or more; (2) any distribution to the extent
such distribution is required under Section 401(a)(9) of the Code; and (3) the
portion of any distribution that is not includible in gross income.
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(b) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an eligible rollover distribution
to the surviving spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity.
(c) Distributee: A distributee includes an Employee or former Employee.
In addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is an alternate
payee under a qualified domestic relations order, as defined in Section 414(p)
of the Code, are distributees with regard to the interest of the spouse or
former spouse.
ARTICLE VII
ADMINISTRATIVE COMMITTEE
Section 7.1. Establishment. The Committee shall consist of at least
three (3) members to be appointed by the Board of Directors of the Holding
Company, and the members shall hold office at the pleasure of such Board of
Directors. The members of the Committee shall be individuals and may, but need
not, be officers, shareholders or Directors of the Holding Company, Participants
or Beneficiaries. The Holding Company may, at its sole discretion, designate to
serve as the Committee its Board of Directors as duly-constituted from time to
time.
Section 7.2. Duties. The Committee shall discharge its duties and
powers in conformance with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims. It shall have complete control of the
administration of this Plan and shall have all powers necessary or convenient to
enable it to exercise such control. In connection therewith, it may provide
rules and regulations, not inconsistent with the provisions hereof or with
requirements imposed under the Code or under the Act, for the administration of
this Plan and may from time to time amend or rescind such rules and regulations.
In addition, it may employ or appoint a secretary and such advisors, agents or
representatives as it may deem desirable and may consult with and employ counsel
(who may, but need not, be counsel to a Company or to the Trustee) or actuaries
with regard to any questions arising in connection with this Plan. All
reasonable expenses incurred by the Committee in connection with this Plan shall
be paid as provided in Section 3.4.
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Section 7.3. Actions. The Committee may decide any questions hereunder
and may take or authorize or direct the taking of any action hereunder with the
approval of a majority of the members of the Committee. The approval of such
members, expressed from time to time by a vote at a meeting or in writing
without a meeting, shall constitute the action of the Committee and shall be
valid and effective for all purposes of this Plan. The fact that any member of
the Committee shall be a Participant, former Participant or Beneficiary shall
not disqualify or debar him from participating in any action or decision
affecting any class of Participants, former Participants or Beneficiaries, but
he shall not participate in any action or decision affecting his own separate
interest as a Participant, former Participant or Beneficiary.
Section 7.4. Disqualification. The fact that any member of the Committee is
a Director, shareholder or officer of a Company or a Participant or Beneficiary
shall not disqualify him from doing any act or thing which this Plan authorizes
or requires him to do as a member of the Committee (except as otherwise provided
in Section 7.3) or render him accountable for any allowance or distribution or
other pecuniary or material profit or advantage received by him.
Section 7.5. Powers. The Committee shall have the power to construe
this Plan and to determine all questions of fact or law arising under it. It may
correct any defect, supply any omission or reconcile any inconsistency in this
Plan in such manner and to such extent as it may deem expedient and, except as
otherwise provided by the Act, it shall be the sole and final judge of such
expediency. Except as otherwise provided in Section 7.9, all acts and
determinations of the Committee made in good faith within the scope of its
authority shall be final and conclusive on all the parties hereto and on all
Employees, Participants and their Beneficiaries, surviving spouses or estates
hereunder and shall not be subject to appeal or review.
Section 7.6. Discrimination Prohibited. The Committee shall not take any
action or direct the Trustee to take any action with respect to any of the
benefits provided hereunder or otherwise in pursuance of the powers conferred
herein upon the Committee which would be discriminatory in favor of Employees
who are officers, Directors, shareholders, persons whose principal duties
consist of supervising the work of other Employees or Highly Compensated
Employees or which would result in benefiting one (1) Participant or group of
Participants at the expense of another or in discrimination as between
Participants similarly situated or in the application of different rules to
substantially-similar sets of facts.
Section 7.7. Statements and Forms. The Committee shall be authorized to
require of a Company and of any person claiming any rights hereunder a written
statement of any information or the
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execution of any forms or instruments it may deem necessary or desirable for the
administration of this Plan.
Section 7.8. Liability. Except as otherwise provided by the Act, no
member of the Committee shall be directly or indirectly responsible or under any
liability by reason of any action or default by him as a member of the Committee
or the exercise of or failure to exercise any power or discretion as such member
except for his own fraud or bad faith shown in the exercise of or failure to
exercise such power or discretion, and no member of the Committee shall be
liable in any way for the acts or defaults of any other member. The Committee
may consult with counsel (who may, but need not, be counsel to a Company or to
the Trustee) or accountants selected by it and, except as otherwise provided by
the Act, the opinion of such counsel or the recommendations of such accountants
shall be full and complete authority and protection for any action or conduct
pursued by the Committee in good faith and in accordance with such opinion or
recommendations.
Section 7.9. Determination of Right to Benefits. The Committee shall
make all determinations as to the right of any person to a benefit under the
provisions of this Plan. Any denial by the Committee of a claim for benefits
under this Plan by an Employee or, if deceased, by such Employee's spouse or
other Beneficiary, shall be stated in writing by the Committee and delivered or
mailed to the Employee, spouse or other Beneficiary, as the case may be, within
ninety (90) calendar days after receipt of such benefit claim by the Committee.
Such notice shall set forth the specific reasons for the denial and such
additional information as is required under Section 503 of the Act, written to
the best of the Committee's ability in a manner that may be understood without
legal or actuarial counsel. In addition, the Committee shall afford a reasonable
opportunity to any Employee, spouse or other Beneficiary, as the case may be,
whose claim for benefits has been denied, for a review of the decision denying
the claim in accordance with Section 503 of the Act.
Section 7.10. Investment Directions. The Committee may direct the
investment of the Fund, by written directions to the Trustee, but such direction
shall not be inconsistent with the provisions of this Plan, of the Act or of the
Code.
Section 7.11. Voting Power. Except as otherwise provided in Section
8.17, the Committee shall be authorized to vote, either in person or by proxy,
the Stock or other securities which are held by the Trustee as part of the Fund.
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ARTICLE VIII
THE TRUSTEE
Section 8.1. Assets Held in Trust. The Trustee shall hold the Fund and
shall accept and hold all contributions thereto and all investments and
reinvestments thereof in trust for the persons ultimately entitled thereto under
the terms of this Plan.
Section 8.2. Investments. This Plan is designed to invest primarily in
shares of Stock. Except as otherwise provided in this Plan, the Trustee shall
invest the cash contributed or accruing to the Fund in Stock and shall not make
any other investment for the Fund. There shall be no limit on the permissible
investment in shares of Stock. The Trustee may purchase such shares of Stock
from the Holding Company or from any other source, and such shares of Stock may
be outstanding, newly-issued or treasury shares. All such purchases shall be
made at fair market value (as determined consistent with Section 5.1(a)). If no
shares of Stock are available for purchase, the Trustee may retain cash
uninvested or may invest all or any part thereof in any other investment if such
retention or investment is prudent under all the facts and circumstances then
prevailing. The Trustee shall have the power at any time to enter into
legally-binding agreements to purchase shares of Stock from any person or
entity, whether or not such person or entity shall own such shares of Stock at
the date such purchase agreement is entered into, including but not limited to
Participants in and Beneficiaries of this Plan, except as otherwise provided in
the Act and in Treasury Regulations ss. 54.4975-11(a)(7). Except as otherwise
required by Section 6.12, the purchase price set forth in any such purchase
agreement shall be determined by the fair market value of such shares of Stock
at the date of purchase (as determined consistent with Section 5.1(a)).
Section 8.3. Directions of Committee. The powers granted to the Trustee
under this Plan shall be exercised by the Trustee in its sole discretion. Except
as provided in Section 8.20, the Committee may at any time and from time to time
by written direction to the Trustee require the Trustee to invest in, to retain
or to dispose of any security or other form of investment as may be specified in
such direction, limited, however, to investments permitted under this Plan,
under the Act and under the Code. Neither the Trustee nor any other person shall
be under any duty to question any such written direction of the Committee, and
the Trustee shall as promptly as possible comply with any such written
direction. Any such direction may be of a continuing nature or otherwise and may
be revoked in writing by the Committee at any time. The Trustee shall not be
liable in any manner or for any reason for the making, retention or disposition
of any investment pursuant to the lawful written direction of the Committee.
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Section 8.4. Receipt of Additional Shares. Any securities received by the
Trustee as a stock split or a stock dividend or as a result of a reorganization
or other recapitalization shall be allocated as of each Valuation Date in the
same manner as the Stock to which it is attributable is then allocated. If any
rights, warrants or options are issued on common shares or other securities held
in the Fund, the Trustee shall exercise them for the acquisition of additional
common shares or other securities to the extent that cash is then available. Any
common shares or other securities acquired in this fashion shall be treated as
common shares or other securities bought by the Trustee for the net price paid.
Any rights, warrants or options on common shares or other securities which
cannot be exercised for lack of cash may be sold by the Trustee with the
proceeds thereof treated as a current cash dividend received on such common
shares or other securities.
Section 8.5. Delivery of Materials to Committee. Except as otherwise
provided in Section 8.17 and Section 8.20, the Trustee shall deliver or cause to
be delivered to the Committee copies of all notices, prospectuses and financial
statements relating to investments held in the Fund.
Section 8.6. Powers. The Trustee shall have power with regard to all
property in the Fund at any time and from time to time:
(a) to sell, convey, transfer, mortgage, pledge, lease, exchange or
otherwise dispose of the same, without the necessity of approval
of any court therefor or notice to any person, natural or legal,
thereof and without obligation on the part of any person dealing
with the Trustee to see to the application of any money or
property delivered to it;
(b) except as otherwise provided in Section 7.11, Section 8.17 and
Section 8.20, to exercise any and all rights or options
pertaining to any share of Stock held as part of the assets of
the Fund and to enter into agreements and consent to or oppose
the reorganization, consolidation, merger, readjustment of
financial structure or sale of assets of any corporation or
organization, the securities of which are held in the Fund;
(c) except as otherwise provided in Section 4.5, to collect the
principal and income of such property as the same shall become
due and payable and to give binding receipt therefor;
(d) to take such action, whether by legal proceedings, compromise,
abandonment or otherwise, as the Trustee, in its sole discretion,
shall deem to be in the best interest of the Fund, but the
Trustee shall be under no
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obligation to take any legal action unless it shall have been
first indemnified by the Companies with respect to any expenses
or losses to which it may be subjected through taking such
action;
(e) to register any securities and to hold any other property in the
Fund in its own name or in the name of a nominee with or without
the addition of words indicating that such securities or other
property are held in a fiduciary capacity;
(f) pending the selection or the purchase of suitable investments or
the payment of expenses or the making of any other payment
required or permitted under this Plan, to retain in or to convert
to cash, without liability for interest or any other return
thereon, such portion of the Fund as it shall deem reasonable
under the circumstances, including, but not by way of limitation,
the power to retain sufficient cash to permit the acquisition of
large blocks of shares of Stock as the same may from time to time
become available for purchase;
(g) to borrow from banks or similar lending institutions reasonable
sums of money for the purchase of shares of Stock for the Company
Contributions Accounts of Participants in accordance with the
provisions of Section 8.7; provided, however, that the Trustee
may not borrow from itself or from an affiliated institution even
if the Trustee is a bank or similar lending institution except to
the extent specifically permitted by the Act and by the Code; and
(h) to do all other acts in its judgment necessary or desirable for
the proper administration of the Trust and permissible under the
Act and under the Code although the power to do such acts is not
specifically set forth herein.
Section 8.7. Loans to the Trust. The following conditions shall be met with
respect to any Exempt Loan to the Trust:
Clause (a). Interest. The rate of interest on any Exempt Loan
shall not be in excess of a reasonable rate of interest. At the date an Exempt
Loan is made, the interest rate for the Exempt Loan and the price of any shares
of Stock to be purchased with the Exempt Loan proceeds shall not be such that
the Plan assets might be drained off.
Clause (b). Use of Proceeds. The proceeds of an Exempt Loan
shall be used within a reasonable time after receipt by the Trustee for any or
all of the following purposes:
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(i) to acquire Stock;
(ii) to repay that Exempt Loan; or
(iii) to repay a prior Exempt Loan.
Except as otherwise provided in Section 6.12 and Section 6.13, no Stock acquired
with Exempt Loan proceeds shall be subject to a put, call or other option or a
buy-sell or similar arrangement while held by the Trustee and when distributed
from this Plan.
Clause (c). Terms of Exempt Loan. The terms of each Exempt
Loan shall be, at the time that Exempt Loan is made, as favorable to this Plan
as the terms of a comparable loan resulting from arm's-length negotiations
between independent parties. Each Exempt Loan shall be for a specific term and
shall not be payable at the demand of any person, except in the case of default.
Clause (d). Collateral. Any collateral pledged to the lender
by the Trustee shall consist only of Stock purchased with the borrowed funds or
Stock that was used as collateral for a prior Exempt Loan repaid with the
proceeds of the current Exempt Loan; provided, however, that in addition to such
collateral, the Companies may guarantee the repayment of an Exempt Loan.
Clause (e). Limited Recourse. Under the terms of each Exempt
Loan, the lender shall not have any recourse against the Fund or the Trust
except with respect to the collateral.
Clause (f). Repayment. No person entitled to payment under
any Exempt Loan shall have any right to assets of the Fund or the Trust other
than:
(i) collateral given for that Exempt Loan;
(ii) contributions (other than contributions of Stock)
that are made by the Companies under this Plan to
meet this Plan's obligations under that Exempt Loan;
(iii) earnings attributable to such collateral and the
investment of such contributions; and
(iv) to the extent directed by the Holding Company under
Section 4.5, cash dividends on allocated shares of
Stock.
Payments made with respect to an Exempt Loan by the Trustee during any Plan Year
shall not exceed an amount equal to the sum of such contributions and earnings
received during or prior to that Plan Year less such payments in prior Plan
Years. Such contributions
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and earnings shall be accounted for separately in the books of account of this
Plan and Trust until that Exempt Loan is repaid.
Clause (g). Agreement by Companies. The Companies shall agree
in writing with the Trustee to contribute to the Fund amounts sufficient to
enable the Trustee to pay each installment of principal and interest on each
Exempt Loan on or before the date such installment is due, even if no tax
benefit to the Companies results from such contribution.
Clause (h). Release of Collateral. All assets of the Fund
acquired by this Plan and Trust with Exempt Loan proceeds and all collateral
pledged to secure an Exempt Loan shall be held in a suspense account and
considered encumbered by the Exempt Loan. For each Plan Year during the duration
of an Exempt Loan, the number of assets to be released from encumbrance and
withdrawn from the suspense account shall be based upon the ratio that the
payment of principal and interest on that Exempt Loan for that Plan Year bears
to the total projected payments of principal and interest over the duration of
the Exempt Loan period. Assets released from encumbrance and withdrawn from the
suspense account shall be allocated to the various Company Contributions
Accounts in the Plan Year during which such portion is paid off and in the same
manner as if the assets had been obtained by the Trustee when no Exempt Loan was
involved. Income with respect to shares of Stock acquired with Exempt Loan
proceeds and held in the suspense account shall be allocated to Company
Contributions Accounts along with other income earned by the Fund, except to the
extent that such income is to be used to repay an Exempt Loan.
Clause (i). Default. In the event of any default upon an
Exempt Loan, the value of Trust assets transferred in satisfaction of that
Exempt Loan shall not exceed the amount of the default. If the lender is a
disqualified person within the meaning of Section 4975(e)(2) of the Code, the
Exempt Loan shall provide for a transfer of Trust assets upon default only upon
and to the extent of the failure of the Trustee to meet the payment schedule of
that Exempt Loan; provided, however, that the making of a guarantee shall not
make a person a lender within the meaning of this Clause (i).
Clause (j). Termination of Plan. Upon a complete termination
of the Plan but only to the extent permitted by the Code and the Act, any
unallocated Stock shall be sold to the Corporation at a price no less than fair
market value or on the open market. To the extent permitted by Code and the Act,
the proceeds of such sale shall be used to satisfy any outstanding Exempt Loan
and the balance of any funds remaining shall be allocated as income to each
Participant's Company Contributions Account based on the proportion that the
Participant's Company Contributions Account balance as of the immediately
preceding Valuation Date bears to the aggregate Company Contributions Account
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balances of all Participants as of the immediately preceding Valuation Date.
Section 8.8. Annual Accounting. At least annually the Trustee shall
render to the Committee a written account of its administration of the Fund
during the period since the establishment of this Plan or the last accounting
thereafter. Pursuant to this requirement, Stock acquired by the Trustee shall be
accounted for as provided in Treasury Regulations ss. 1.402(a)-1(b)(2)(ii).
Unless written notice of disapproval is furnished to the Trustee by the
Committee within ninety (90) calendar days after receipt of such account, such
account shall be deemed to have been approved.
Section 8.9. Audit. In the case of any disapproval as provided in Section
8.8 and unless a satisfactory corrected written account is furnished to the
Committee, an audit of the Trustee's account shall be made by a certified public
accountant selected jointly by the Holding Company and the Trustee, but at the
expense of the Companies. Upon completion of any such audit, the inaccuracies in
the Trustee's account, if any, shall be corrected to conform to such audit and a
corrected written account shall be delivered to the Committee by the Trustee.
Except as otherwise provided by the Act, an approved account or an account
corrected pursuant to such an audit shall be final and binding upon the
Companies and upon all other persons who shall then or thereafter have any
interest under this Plan.
Section 8.10. Uncertainty Concerning Payment of Benefits. In the event of
any dispute or uncertainty as to the person to whom payment of any funds or
other property shall be made under this Plan, the Trustee may, in its sole
discretion, withhold such payment or delivery until such dispute or uncertainty
shall have been determined or resolved by a court of competent jurisdiction or
otherwise settled by the parties concerned.
Section 8.11. Compensation. The Trustee shall be entitled to receive fair
and reasonable compensation for its services hereunder, taking into account the
amount and nature of its services and the responsibilities involved, and shall
also be entitled to be reimbursed for all reasonable out-of-pocket expenses,
including, but not by way of limitation, legal, actuarial and accounting
expenses and all costs and expenses incurred in prosecuting or defending any
action concerning this Plan or the Trust or the rights or responsibilities of
any person hereunder, brought by or against the Trustee. Such reasonable
compensation and expenses shall be paid by the Companies as provided in Section
3.4.
Section 8.12. Standard of Care. The Trustee shall use its best judgment in
exercising any duties or powers or in taking any action hereunder and shall be
bound at all times to act in good
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faith and in accordance with all requirements imposed under the Act and under
the Code. Except as otherwise provided by the Act, the Trustee shall not incur
any liability by reason of any error of judgment, mistake of law or fact or any
act or omission hereunder of itself or of any agent, proxy or attorney so long
as it has acted in good faith. The Trustee may act on any paper or document
believed by it to be genuine and to have been signed and presented by the proper
person. The Trustee may consult with counsel (who may, but need not, be counsel
to a Company), accountants or actuaries selected by it and, except as otherwise
provided by the Act, the written opinion of such counsel or the written
recommendations of such accountants or actuaries shall be full and complete
authority and protection for any action or conduct pursued by the Trustee in
good faith and in accordance with such written opinion or recommendations.
Except as otherwise provided by the Act, the Trustee shall not be liable for any
action taken by it pursuant to the written direction of the Committee.
Section 8.13. Request for Instructions. In addition to written
instructions relating to valuation and except as otherwise provided in Section
8.20, at any time the Trustee may, by written request, seek written instructions
from the Committee on any matter and may await such written instructions from
the Committee without incurring any liability whatsoever. If at any time the
Committee should fail to give written directions to the Trustee, the Trustee may
act, and shall be protected in acting, without such written directions, in such
manner as in its sole discretion seems appropriate and advisable under the
circumstances for carrying out the purposes of the Trust.
Section 8.14. Resignation of Trustee. The Trustee may resign at any
time by giving sixty (60) calendar days' prior written notice to the Holding
Company, and the Trustee may be removed, with or without cause, by the Holding
Company on sixty (60) calendar days' prior written notice to the Trustee. Such
prior written notice may be waived by the party entitled to receive it. Upon any
such resignation or removal becoming effective, the Trustee shall render to the
Committee a written account of its administration of the Fund for the period
since the last written accounting and shall do all necessary acts to transfer
the assets of the Fund to the successor Trustee or Trustees.
Section 8.15. Vacancies in Trusteeship. In the event of any vacancy in
the trusteeship of the Trust hereby created, the Holding Company may designate
and appoint a qualified successor Trustee or Trustees. Any such successor
Trustee or Trustees shall have all the powers herein conferred upon the original
Trustee.
Section 8.16. Information to Be Furnished. The Companies shall furnish to
the Trustee, and the Trustee shall furnish to the Companies, such information
relevant to this Plan and Trust as may be required under the Code and under the
Act. The Trustee shall
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keep such records, make such identification and file with the Internal Revenue
Service and with the U.S. Department of Labor such returns and other information
concerning this Plan and Trust as may be required of it under the Code and under
the Act. The Companies shall fulfill any reporting and disclosure obligations
imposed on it by the Act, and each Participant shall be given any reports
required by the Act. To the extent that the Trustee assumes any such Company
obligations, it may charge a reasonable fee for its services apart from its
normal fee and its expenses as provided in Section 8.11.
Section 8.17. Voting Rights of Participants. Each Participant (or, if
applicable, his Beneficiary) shall have the right to direct the Trustee as to
the manner in which voting rights of shares of Stock which are allocated to his
Company Contributions Account are to be exercised with respect to any corporate
matter which involves the voting of such shares with respect to the approval or
disapproval of any corporate merger or consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of substantially all assets of
a trade or business, or such similar transactions which may be prescribed by the
Secretary of Treasury in regulations. Each Participant (or, if applicable, his
Beneficiary) shall also have the right to direct the Trustee as to the manner in
which voting rights of shares of Stock which are allocated to his Company
Contributions Account are to be exercised at any time the Holding Company has a
class of securities that are required to be registered under Section 12 of the
Securities Exchange Act of 1934 or that would be required to be so registered
except for the exemption from registration provided by Section 12(g)(2)(H) of
the Securities Exchange Act of 1934. In all other cases, the Committee shall be
authorized to vote the Stock held by the Trustee as part of the Fund as provided
in Section 7.11. Not less than thirty (30) calendar days prior to each annual or
special meeting of shareholders of the Holding Company at which one (1) or more
Participants are entitled to vote shares of Stock allocated to their Company
Contributions Accounts under this Section 8.17, the Trustee shall cause to be
prepared and delivered to each such Participant who has a Company Contributions
Account as of the record date established by the Holding Company a copy of the
notice of the meeting and form of proxy directing the Trustee as to how it shall
vote at such meeting or at any adjournment thereof with respect to each issue.
Upon receipt of such proxies, the Trustee shall vote or may grant the Committee
a proxy to vote the shares of Stock in accordance with the proxies received by
the Participants. The shares of Stock for which no direction is received by the
Participant (or, if applicable, his Beneficiary) or held by the Trustee in any
unallocated account shall be voted in proportion to the voting directions
received by the Trustee with respect to the allocated shares of Stock. The
Trustee shall take steps to keep a Participant's voting directions confidential
and shall not provide them to the Companies.
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Section 8.18. Delegation of Authority. The Trustee may delegate any of
its ministerial powers or duties under this Plan, including the signing of any
checks drawn on the Fund, to any of its agents or employees.
Section 8.19. Diversification of Company Contributions Account.
Notwithstanding anything contained in Article VI to the contrary, a Participant
who has attained age fifty-five (55) and who has completed at least ten (10)
years of participation in this Plan shall be permitted to elect that during a
six (6) year period beginning with the Plan Year during which he had obtained
age fifty-five (55) or, if later, during which he completed his tenth (10th)
year of participation in this Plan a portion of his vested Company Contribution
Account be distributed. In the first (1st) Plan Year for which the Participant
has an election under this Section 8.19, the Participant may elect a
distribution of up to twenty-five percent (25%) of his vested Company
Contribution Account as of the end of such Plan Year. In the second (2nd), third
(3rd), fourth (4th) and fifth (5th) Plan Year for which the Participant has an
election under this Section 8.19, the Participant may elect a distribution
which, when aggregated to any earlier distributions made by reason of this
Section 8.19, does not exceed twenty-five percent (25%) of the vested balance
held in his Company Contribution Account as of the end of the Plan Year for
which the election is made. In the final Plan Year for which a Participant has
an election under this Section 8.19, the Participant may elect a distribution of
an amount which, when aggregated with any other distribution made by reason of
this Section 8.19, does not exceed fifty percent (50%) of his vested Company
Contribution Account balance as of the end of such Plan Year. The Trustee shall
provide Participants eligible for an election under this Section 8.19 with
information relating to the election before the end of the first (1st) Plan Year
for which the election relates. A Participant electing a distribution under this
Section 8.19 shall have until the ninetieth (90th) calendar day immediately
following the end of the Plan Year for which the election is made to make his
election. Any distribution made by reason of this Section 8.19 shall be in cash
and shall be made within one hundred and eighty (180) calendar days after the
end of the Plan Year for which the election is made. In lieu of the cash
distributions provided for in this Section, the Company may instead offer to
eligible Participants three (3) investment options under this Plan that meet the
requirements set forth in Code Section 401(a)(28) and regulations promulgated
thereunder to which the amounts subject to the diversification election could be
transferred.
Section 8.20. Tender Offer. Each Participant (or, if applicable, his
Beneficiary) shall have the right to direct the Trustee as to whether the shares
of Stock which are allocated to his Company Contributions Account are to be
tendered pursuant to any tender offer made for the Stock of the Holding Company.
The
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Trustee shall as soon as practical (and in no event later than five (5) calendar
days) after its receipt of the tender offer documents shall cause to be prepared
and delivered to each Participant (and, if applicable, his Beneficiary) who has
a Company Contributions Account as of the date of the tender offer a copy of all
relevant information as to the tender offer and a written election form which
will direct the Trustee as to whether it should tender the shares of Stock held
in such Participant's Company Contributions Account. The shares of Stock for
which no direction is received by the Participant (or, if applicable, his
Beneficiary) or held by the Trustee in any unallocated account shall be tendered
in proportion to the tendering directions received by the Trustee with respect
to the allocated shares of Stock. The Trustee shall take steps to keep a
Participant's decision whether or not to tender shares of Stock confidential and
shall not provide the information to the Companies.
ARTICLE IX
AMENDMENT, TERMINATION AND MERGER
Section 9.1. Amendment. Except for such amendments as are permitted
under this Section 9.1 and as otherwise provided in Section 1.17 and Section
9.3, the Trust is irrevocable. The Holding Company reserves the right to amend
this Plan, at any time and from time to time, in whole or in part, including
without limitation, retroactive amendments necessary or advisable to qualify
this Plan and the Trust under the provisions of Sections 401(a) and 501(a) of
the Code or the corresponding provisions of any similar statute hereafter
enacted. However, the Holding Company's right to amend this Plan shall remain at
all times subject to the provisions of Section 9.4. Further, no amendment of
this Plan shall:
(a) alter, change or modify the duties, powers, or
liabilities of the Trustee hereunder without their
written consent;
(b) permit any part of the Fund to be used to pay premiums or
contributions of the Companies under any other employee
benefit plan maintained by the Companies for the benefit
of its Employees;
(c) effect any discrimination among the Participants;
(d) change the vesting schedule in Section 6.3 or, if applicable,
in Section 11.4 unless each Participant whose Period of
Service is three (3) or more years as of the effective date of
the amendment is permitted to elect, within sixty (60)
calendar days after he is notified by the Committee of his
rights under this Subsection (d), to
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have his vested interest determined without regard to
such amendment;
(e) decrease the accrued benefit of any Participant unless
the amendment is approved by the Department of Labor
because of substantial business hardship; or
(f) decrease a Participant's Company Contributions Account balance
or eliminate an optional form of distribution for the accrued
benefits of a Participant determined as of the date of the
amendment.
Section 9.2. Termination or Complete Discontinuance of Contributions.
The Companies are not and shall not be under any obligation or liability
whatsoever to continue their contributions pursuant to this Plan or to maintain
this Plan for any given length of time, except as otherwise provided in Section
8.7. A Company may, in its sole discretion, discontinue Company contributions to
this Plan completely, except as otherwise provided in Section 8.7, with or
without notice, or partially or totally terminate this Plan in accordance with
its provisions at any time without any liability whatsoever for such
discontinuance or termination. If this Plan shall be partially or totally
terminated or if contributions of a Company shall be completely discontinued,
the rights of all Participants directly affected by the partial or total
termination or the complete discontinuance of contributions in their Company
Contributions Accounts shall thereupon become fully vested and non-forfeitable
notwithstanding any other provisions of this Plan. However, the Trust shall
continue until all Participants' Company Contributions Accounts have been
completely distributed to, or for the benefit of, the Participants in accordance
with this Plan.
Section 9.3. Determination by Internal Revenue Service. Notwithstanding
any other provisions of this Plan, if the Internal Revenue Service shall fail or
refuse to issue a favorable written determination or ruling with respect to the
initial qualification of this Plan and the initial exemption of the Trust from
tax under Sections 401(a) and 501(a) of the Code, the Trustee shall, within a
reasonable time after receiving a written direction from the Committee to do so,
return to the Companies the current value of all Company contributions
theretofore made. As a condition to such repayment, the Companies shall execute,
acknowledge and deliver to the Trustee its written undertaking, in form
satisfactory to the Trustee, to indemnify, defend and hold the Trustee harmless
from all claims, actions, demands, or liabilities arising in connection with
such repayment. If for any reason the Key District Director of the Internal
Revenue Service should at any time after initial qualification fail to approve
any of the terms, conditions or amendments contained in or implied from this
Plan and Trust for continuing qualification and tax exemption under Sections
401(a) and 501(a) of the Code, then the Holding Company shall make such
modifications, alterations and amendments of this Plan as are
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necessary to retain such approval and such modifications, alterations and
amendments shall be effective retroactively to the Effective Date or to such
later date as is required to retain such approval.
Section 9.4. Nonreversion. Except as otherwise provided in Section 3.1 and
Section 9.3:
(a) The Holding Company shall have no power to amend or to terminate
this Plan in such a manner which would cause or permit any part
of the Fund to be diverted to purposes other than for the
exclusive benefit of Participants or, if deceased, of their
spouse or other Beneficiaries or as would cause or permit any
portion of the Fund to revert to or to become the property of the
Companies, and
(b) The Holding Company shall have no right to modify or to amend
this Plan retroactively in such a manner as to deprive any
Participants, or if deceased, their spouses or other
Beneficiaries of any benefits to which they are entitled under
this Plan by reason of contributions made by the Companies prior
to the modification or amendment, unless such modification or
amendment is necessary to meet the qualification requirements of
Sections 401(a) and 501(a) of the Code.
Section 9.5. Merger. The Holding Company shall have the right, by
action of its Board of Directors, to merge or to consolidate this Plan with, or
to transfer the assets or liabilities of the Fund to, any other qualified
retirement plan and trust at any time, except that no such merger, consolidation
or transfer shall be authorized unless each Participant in this Plan would
receive a benefit immediately after the merger, consolidation or transfer (if
the merged, consolidated or transferred plan and trust then terminated) equal to
or greater than the benefit to which he would have been entitled immediately
before the merger, consolidation or transfer (if this Plan then terminated).
ARTICLE X
MISCELLANEOUS
Section 10.1. Creation of Plan Voluntary. The Plan hereby created is
purely voluntary on the part of the Companies and, except as otherwise provided
in Section 8.7, any Company may suspend or discontinue payments hereunder at any
time or from time to time as it may decide in accordance with Section 10.17, but
no suspension or discontinuance shall operate retroactively with respect to the
rights of any Participant hereunder or his spouse or other Beneficiary.
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Section 10.2. No Employment Contract. Except as may be required by the
Act, no contributions or other payments under this Plan shall constitute any
contract on the part of the Company to continue such contributions or other
payments hereunder. Participation hereunder shall not give any Participant the
right to be retained in the service of the Companies or any right or claim to
any benefits hereunder unless the right to such benefits has accrued under this
Plan. All Participants shall remain subject to assignment, reassignment,
promotion, transfer, layoff, reduction, suspension and discharge by the
Companies to the same extent as if this Plan had never been established.
Section 10.3. Limitation on Rights Created. Nothing contained in this
Plan or any modification of the same or act done in pursuance hereof shall be
construed as giving any person whomsoever any legal or equitable right against
the Companies, the Committee, the Trustee or the Fund, unless specifically
provided herein or granted by the Act.
Section 10.4. Waiver of Claims. Except as otherwise provided by the
Act, no liability whatsoever shall attach to or be incurred by any shareholder,
officer or Director, as such, of the Companies under or by reason of any
provision of this Plan or any act with reference to this Plan, and any and all
rights and claims thereof, as such, whether arising at common law or in equity
or created by statute, constitution or otherwise, are hereby expressly waived
and released to the fullest extent permitted by law by every Participant and by
his spouse or other Beneficiary as a condition of and as part of the
consideration for the payments by the Companies under this Plan and for the
receipt of benefits hereunder.
Section 10.5. Spendthrift Provision. To the fullest extent permitted by
law, none of the benefits, payments, accounts, funds or proceeds of any contract
held hereunder shall be subject, voluntarily or involuntarily, to any claim of
any creditor of any Participant or of his spouse or other Beneficiary, nor shall
the same be subject to attachment, garnishment or other legal or equitable
process by any creditor of a Participant or of his spouse or other Beneficiary,
nor shall any Participant or his spouse or other Beneficiary have any right to
alienate, anticipate, commute, pledge, encumber or assign any such benefits,
payments, accounts, funds or proceeds of any such contract. The preceding
sentence shall also apply to the creation, assignment or recognition of a right
to any benefit payable with respect to a Participant pursuant to a domestic
relations order, unless such order is determined to be a qualified domestic
relations order as defined in Section 414(p) of the Code. It is the intention of
the Companies that benefit payments hereunder shall be made only at the times,
in the amounts and to the distributees as specified in this Plan regardless of
any marital dissolution, bankruptcy or other legal
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proceedings to which such distributees may be a party to the fullest extent
permitted by law.
Section 10.6. Payment of Benefits to Others. If any person to whom
benefit payments are due or payable under this Plan shall be unable to care for
his affairs because of illness or accident, any such payment may be made (unless
prior claim thereto shall have been made by a duly-qualified guardian or other
legal representative) to the spouse, parent, brother, sister or other person
deemed by the Committee, in its sole discretion, to have incurred expense for
such person and on such terms as the Committee, in its sole discretion, may
impose. Any such payment and any payment to a Participant or to his legal
representative or, if deceased, to his spouse or other Beneficiary made pursuant
to the provisions of this Plan shall to the extent thereof be in full
satisfaction of all claims arising hereunder against this Plan, the Fund, the
Committee, the Trustee and the Companies.
Section 10.7. Payments to Missing Persons. If the Trustee is unable to
effect delivery of any amounts payable under this Plan to the person entitled
thereto or, upon such person's death, to such person's personal representative,
they shall so advise the Committee in writing, and the Committee shall give
written notice by certified mail to said person at the last known address of
such person as shown in the Companies' records. If such person or the personal
representative thereof shall not have responded to the Committee within three
(3) years from the date of mailing such certified notice, the Committee shall
direct the Trustee to distribute such amount, including any amount thereafter
becoming due to such person or the personal representative thereof, in the
manner provided in Section 6.7 with respect to the death of a Participant when
there is no valid designation of Beneficiary on file.
Section 10.8. Severability. If any provisions of this Plan shall be held
illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining part of this Plan and it shall be construed and enforced as
if such illegal or invalid provisions had never been inserted herein.
Section 10.9. Captions. Titles of Articles, Sections and Clauses herein are
for general information only and shall be ignored in any construction of the
provisions hereof.
Section 10.10. Construction. Words in the masculine gender shall be
construed to include the feminine gender in all cases where appropriate, and
words in the singular or plural shall be construed as being in the plural or
singular where appropriate.
Section 10.11. Counterparts. This Plan may be executed in any number of
counterparts, each of which shall be deemed to be an original. All the
counterparts shall constitute but one (1) and
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the same instrument and may be sufficiently evidenced by any one (1)
counterpart.
Section 10.12. Indemnification. The Companies shall indemnify and hold
harmless each member of the Committee and any individual Trustee who is also an
Employee of the Company from any and all claims, loss, damage, expense and
liability arising from any act or omission of such member or Trustee, as the
case may be, except when the same is judicially determined to be due to the
fraud or bad faith of such member or Trustee, as the case may be, if possible.
Section 10.13. Standards of Interpretation and Administration. This Plan
and the Fund held hereunder shall be for the exclusive benefit of Employees of
the Companies and their spouses or other Beneficiaries and defraying reasonable
costs of administration. This Plan shall be interpreted and administered in a
manner consistent with the requirements of the Code relating to qualified stock
bonus plans and trusts and the requirements imposed by the Act. Wherever in this
Plan discretionary powers are given to any party or wherever any interpretation
may be necessary, such powers shall be exercised and such interpretation shall
be made in a non-discriminatory manner and in conformity with the fiduciary
duties imposed under Section 404 of the Act.
Section 10.14. Governing Law. Except as otherwise provided by the Act, this
Plan shall be administered and construed and its validity determined under the
laws of the State of Indiana.
Section 10.15. Successors and Assigns. This Plan shall be binding upon the
successors and assigns of the Companies and of the Trustee.
Section 10.16. Adoption of Plan. Any corporation, who together with the
Holding Company, constitutes a member of a controlled group of corporations
under Section 414(b) of the Code, with the approval of the Board of Directors of
the Holding Company may adopt this Plan and participate as a Company in this
Plan by the execution of an instrument of adoption of this Plan which shall
specify the Effective Date as to such party. A listing of the subsidiaries and
affiliates who have adopted this Plan is shown as Appendix A.
Section 10.17. Withdrawal from Plan. Any Company in this Plan may, by
resolution of its Board of Directors or other governing body, withdraw from
participation as a Company in this Plan.
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ARTICLE XI
TEFRA TOP-HEAVY RULES
Section 11.1. Application. The rules set forth in this Article XI shall be
applicable with respect to any Plan Year beginning on or after the Effective
Date in which this Plan is determined to be a Top-Heavy Plan. The provisions of
this Article XI shall be applied only to the extent necessary to comply with
Section 416 of the Code and in a manner consistent with all requirements imposed
under Section 416 of the Code.
Section 11.2. Determination. This Plan shall be considered a Top-Heavy Plan
with respect to any Plan Year if as of the Anniversary Date of the immediately
preceding Plan Year or, if the determination is to be made for this Plan's first
(1st) Plan Year, the last calendar day of the first (1st) Plan Year (the
"determination date"):
(a) the present value of the Accrued Benefits (as such term
is defined in Section 11.3) of Key Employees (as such
term is defined below) exceeds sixty percent (60%) of the
present value of the Accrued Benefits of all Employees
and former Employees (other than former Key Employees (as
such term is defined below)); provided, however, that the
Accrued Benefits of any Participant who has not completed
an Hour of Service for the Company during a five (5) year
period ending on the determination date (as such term is
defined above) shall be disregarded, or
(b) this Plan is part of a required aggregation group (as
such term is defined below) and the required aggregation
group is top-heavy;
provided, however, that this Plan shall not be considered a Top-Heavy Plan with
respect to any Plan Year in which this Plan is part of a required or permissive
aggregation group (as such terms are defined below) which is not top-heavy. For
purposes of this Article XI, the term "Key Employee" shall include for any Plan
Year any Employee or former Employee who at any time during that Plan Year or
any of the four (4) preceding Plan Years is:
(c) an officer of a Company whose Section 415 Compensation from
the Companies is greater than fifty percent (50%) of the
maximum dollar limitation under Section 415(b)(1)(A) of the
Code in effect for the calendar year in which the
determination date (as such term is defined above) falls,
(d) one (1) of the ten (10) Employees owning (or considered as
owning within the meaning of Section 318 of the Code) the
largest interest in a Company whose ownership interest in that
Company is at least one-half of one percent (0.5%) and whose
Section 415 Compensation from
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the Companies is equal to or greater than the maximum dollar
limitation under Section 415(c)(1)(A) of the Code in effect
for the calendar year in which the determination date (as such
term is defined above) falls; provided, however, that if two
(2) Employees have the same interest in a Company, the
Employee whose annual Section 415 Compensation from the
Companies is greater shall be treated as having a larger
interest in the Company,
(e) a five percent (5%) owner (determined without regard to
Sections 414(b),(c) and (n) of the Code) of a Company,
(f) a one percent (1%) owner (determined without regard to
Sections 414(b),(c) and (n) of the Code) of a Company whose
Section 415 Compensation from the Companies is in excess of
one hundred and fifty thousand dollars ($150,000);
provided, however, that the Beneficiary of any deceased Employee or of any
deceased former Employee who was included as a Key Employee by reason of this
Section 11.2 shall also be included as a Key Employee; provided, further, that
an individual shall only be included as a Key Employee to the extent required by
Section 416(i) of the Code. For purposes of this Article XI, "Non-Key Employee"
is any Employee or former Employee who is not a Key Employee. For purposes of
determining who is a key employee, Section 415 Compensation shall include
amounts deferred or redirected by an Employee pursuant to Sections 401(k) and
125 of the Code. For purposes of this Section 11.2, the term "required
aggregation group" shall include:
(g) all qualified retirement plans maintained by a Company in
which a Key Employee (as such term is defined above) is
a participant; provided, however, that the term "required
aggregation group" shall also include all qualified
retirement plans previously maintained by a Company but
terminated within the five (5) year period ending on the
determination date (as such term is defined above) in
which a key employee (as such term is defined above) was
a participant; and
(h) any other qualified retirement plans maintained by a Company
which enable any qualified retirement plan described in
Subsection (g) above to meet the requirements of Section
401(a)(4) or of Section 410 of the Code.
For purposes of this Section 11.2, the term "permissive aggregation group" shall
include all qualified retirement plans that are part of a required aggregation
group (as such term is defined above) and any other qualified retirement plans
maintained by a Company if
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such group will continue to meet the requirements of Section 401(a)(4) and of
Section 410 of the Code.
Section 11.3. Accrued Benefits. For purposes of this Article XI,
Accrued Benefits with respect to any Plan Year shall be determined as of the
determination date (as such term is defined in Section 11.2) for that Plan Year
based on the Company Contributions Account balances as of the most recent
Valuation Date within a consecutive twelve (12) month period ending on such
determination date; provided, however, that such Company Contributions Account
balances shall be adjusted to the extent required by Section 416 of the Code to
increase the Company Contributions Accounts balances by the amount of any
Company Contributions made and allocated after the Valuation Date but on or
before such determination date and by any distributions made to Participants
prior to the Valuation Date during any of the five (5) consecutive Plan Years
immediately preceding the Plan Year for which the determination as to whether
this Plan is a Top-Heavy Plan is being made (including distributions from a
terminated plan which if not terminated would have been part of a required
aggregation group (as such term is defined in Section 11.7)) and to reduce the
Company Contributions Account balances by any rollovers or plan to plan
transfers made to this Plan before the Valuation Date which are initiated by a
Participant from any qualified retirement plan maintained by an unrelated
employer and by any deductible employee contributions.
Section 11.4. Vesting Provisions. Notwithstanding the provisions of
Section 6.3, with respect to any Plan Year in which this Plan is determined to
be a Top-Heavy Plan, a Participant's Accrued Benefit which is derived from
Company Contributions shall vest in accordance with the following vesting
schedule if it would result in a larger vested percentage than the percentage
determined under Section 6.3:
Period of Service Vested Percentage
----------------- -----------------
Less than three (3) years 0
Three (3) years or more 100%
provided, however, that if this Plan becomes a Top-Heavy Plan and subsequently
ceases to be such:
(a) the vesting schedule shown above shall continue to apply but
only with respect to Participants whose Period of Service is
as least three (3) years as of the Anniversary Date of the
final Top-Heavy Plan Year,
(b) the vesting schedule shown above shall continue to apply but
only with respect to the Accrued Benefits of all other
Participants as of the Anniversary Date of the final Top-Heavy
Plan Year, and
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(c) the vesting schedule in Section 6.3 shall apply to any
additional Accrued Benefits of the Participants described in
Subsection (b) above which accrue after the Anniversary Date
of the final Top-Heavy Plan Year.
Section 11.5. Minimum Contribution. Notwithstanding the provisions of
Section 4.2, with respect to any Plan Year in which this Plan is a Top-Heavy
Plan, the Company contributions for such Plan Year shall be allocated in the
following order of priority:
(a) first, among the Company Contributions Accounts of all
eligible Participants who had not separated from service
with the Companies as of the Anniversary Date of that
Plan Year regardless of the number of Hours of Service
completed by each such Participant during that Plan Year
according to the ratio that each Participant's
Compensation for that Plan Year bears to the total
Compensation of all eligible Participants; provided,
however, that the portion of the Company contributions to
be allocated pursuant to this Subsection (a) shall not
exceed three percent (3%) of the total Compensation of
all eligible Participants for that Plan Year;
(b) next, the remaining portion, if any, of the Company
contributions for such Plan Year shall be allocated in
accordance with Section 4.2;
provided, however, that if a Participant also participates in a top-heavy
defined benefit plan, he shall receive the minimum benefit for such Plan Year
under the defined benefit plan.
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This Plan has been adopted by the Holding Company, Madison First Federal
Savings and Loan Association and the Trustee on this day of ,
1996, but is to be effective as of January 1, 1996.
RIVER VALLEY BANCORP
By:
Its:
Attest:
By:
Its:
MADISON FIRST FEDERAL SAVINGS
AND LOAN ASSOCIATION
By:
Its:
Attest:
By:
Its:
[INSERT NAME OF TRUSTEE]
By:
Its:
Attest:
By:
Its:
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Exhibit 10(5)
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into and effective this 23rd day of April, 1996, by
and between Madison First Federal Savings and Loan Association (the "Bank") and
James E. Fritz (the "Employee"). The parties agree, however, that the "Effective
Date" of this Agreement shall be January 1, 1996.
WHEREAS, the Employee has heretofore been employed by the Bank as its
President and has performed valuable services for the Bank; and
WHEREAS, the Board of Directors of the Bank believes it is in the best
interests of the Bank to enter into this Agreement with the Employee in order to
assure continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to his assigned duties; and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment: The Employee is employed as the President of the Bank. The
Employee shall render such administrative and management services for the Bank
as are currently rendered and as are customarily performed by persons situated
in a similar executive capacity. The Employee shall also promote, by
entertainment or otherwise, as and to the extent permitted by law, the business
of the Bank. The Employee's other duties shall be such as the Board of Directors
(the "Board") of the Bank may from time to time reasonably direct, including
normal duties as an officer of the Bank.
2. Base Compensation: The Bank agrees to pay the Employee during the term
of this Agreement a salary at the rate of $65,000.00 per annum, payable in cash
not less frequently than monthly, and shall be effective and calculated
commencing January 1, 1996. The salary shall be reviewed annually by the Board
of Directors of Madison First Federal Savings and Loan Association in February
of each year commencing February of 1997 and any adjustment in the future on
salary shall be effective on February 1st of each year.
3. Bonuses: The Employee shall participate in any year end bonus granted to
other employees by the Board. The Employee shall further participate in an
equitable manner with all other senior management employees of the Bank in
discretionary bonuses that the Board may award from time to time to the Bank's
senior management employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employee's right to participate
in such discretionary bonuses.
<PAGE>
4.(a) Participation in Retirement, Medical and Other Plans: During the
term of this Agreement, the Employee shall be eligible to participate in the
following benefit plans: group hospitalization, disability, health, dental, sick
leave, retirement, pension, and/or other present or future qualified plans
provided by the Bank, generally, which benefits, taken as a whole, must be at
least as favorable as those in effect on the Effective Date, unless the
continued operation of such plans would adversely affect the Bank's operating
results or financial condition in a material way, the Bank's Board of Directors
concludes that modifications to such plans are necessary to avoid such adverse
effects and such modifications apply consistently to all employees of the Bank.
(b) Employee Benefits: Expenses: The Employee shall be eligible to
participate in any fringe benefits which are or may become available to the
Bank's senior management employees, including, for example, any stock option or
incentive compensation plans, and any other benefits which are commensurate with
the responsibilities and functions to be performed by the Employee under this
Agreement. The Employee shall be reimbursed for all reasonable out-of-pocket
business expenses which he shall incur in connection with his services under
this Agreement, upon substantiation of such expenses in accordance with the
policies of the Bank.
5. Term: The Bank hereby employs the Employee, and the Employee hereby
accepts such employment under this Agreement, for the period commencing on
January 1, 1996 and ending thirty six months thereafter (or such earlier date as
is determined in accordance with Section 9). Additionally, on each annual
anniversary date from the Effective Date, the Employee's term of employment
shall be extended for an additional one-year period beyond the then effective
expiration date, provided the Board determines in a duly adopted resolution that
the performance of the Employee has met the Board's requirements and standards,
and that this Agreement shall be extended. Only those members of the Board of
Directors who have no personal interest in this Employment Agreement shall
discuss and vote on the approval and subsequent review of this Agreement.
6. Loyalty; Noncompetition:
(a) During the period of his employment hereunder and except for
illnesses, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided, however, from
time to time, the Employee may serve on the Boards of Directors of, and hold any
other offices or positions in, companies or organizations, which will not
present any conflict of interest with the Bank or any of its subsidiaries or
affiliates, or
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<PAGE>
unfavorably affect the performance of Employee's duties pursuant to this
Agreement, or will not violate any applicable statute or regulation. "Full
business time" is hereby defined as that amount of time usually devoted to like
companies by similarly situated executive officers. During the term of his
employment under this Agreement, the Employee shall not engage in any business
or activity contrary to the business affairs or interests of the Bank, or be
gainfully employed in any other position or job other than as provided above.
(b) Nothing contained in this Paragraph 6 shall be deemed to prevent or
limit the Employee's right to invest in the capital stock or other securities of
any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
(c) While Employee is employed by the Bank and for a period of three
years after termination of Employee's employment by the Bank or by the Employee
for reasons other than those set forth in Section 9 (d) hereof, the Employee
shall not directly or indirectly, engage in any bank or bank-related business
which competes with the business of the Bank as conducted during Employee's
employment by the Bank for any financial institution, including but not limited
to banks, savings and loan associations, and credit unions within a forty mile
radius of Madison, Indiana.
7. Standards: The Employee shall perform his duties under this
Agreement in accordance with such reasonable standards as the Board may
establish from time to time. The Bank will provide Employee with the working
facilities and staff customary for similar executives and necessary for him to
perform his duties.
8. Vacation, Sick Leave and Disability:
The Employee shall be entitled to twenty days vacation annually and
shall be entitled to the same sick leave and disability leave as other employees
of the Bank.
The Employee shall not receive any additional compensation from the
Bank on account of his failure to take a vacation or sick leave, and the
Employee shall not accumulate unused vacation or sick leave from one fiscal year
to the next, except in either case to the extent authorized by the Board.
In addition to the aforesaid paid vacations, the Employee shall be
entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment with the Bank for such additional periods of time
and for such valid and legitimate reasons as the Board may in its discretion
determine. Further, the Board may grant to the Employee a leave or leaves of
absence, with or without pay, at such time or times and upon such
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<PAGE>
terms and conditions as such Board in its discretion may determine.
9. Termination and Termination Pay: Subject to Section 11 hereof, the
Employee's employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensation due the Employee
through the last day of the calendar month in which his death occurred.
(b) Disability.
(1) The Bank may terminate the Employee's employment,
should the Employee become disabled, in a manner consistent with the Bank's and
the Employee's rights and obligations under the Americans With Disabilities Act
or other applicable state and federal laws concerning disability. For the
purpose of this Agreement, "Disability" means a physical or mental condition
which substantially limits the employee's ability to perform the essential
functions of his position, as established by this Agreement, and which results
in the Employee becoming eligible for long-term disability benefits under the
Bank's long-term disability plan.
(2) During any period that the Employee shall
receive disability benefits and to the extent that the Employee shall be
physically and mentally able to do so, he shall furnish such information,
assistance and documents so as to assist in the continued ongoing business of
the Bank and, if able, shall make himself available to the Bank to undertake
reasonable assignments consistent with his prior position and his physical and
mental health. The Bank shall pay all reasonable expenses incident to the
performance of any assignment given to the Employee during the disability
period.
(c) Just Cause: The Board may, by written notice to the Employee,
immediately terminate his employment at any time, for Just Cause. The Employee
shall have no right to receive compensation or other benefits for any period
after termination for Just Cause. Termination for "Just Cause" shall mean
termination because of, in the good faith determination of the Board, the
Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. Notwithstanding the foregoing, in the
event of termination for Just Cause there shall be delivered to the Employee a
copy of a resolution duly adopted
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by the affirmative vote of not less than a majority of the entire membership of
the Board at a meeting of the Board called and held for that purpose (after
reasonable notice to the Employee and an opportunity for the Employee, together
with the Employee's counsel, to be heard before the Board), such meeting and the
opportunity to be heard to be held prior to, or as soon as reasonably
practicable following, termination, but in no event later than 60 days following
such termination, finding that in the good faith opinion of the Board the
Employee was guilty of conduct set forth above in the second sentence of this
Subsection (c) and specifying the particulars thereof in detail. If, following
such meeting, the Employee is reinstated, he shall be entitled to receive back
pay for the period following termination and continuing through reinstatement.
(d) Without Just Cause; Constructive Discharge:
(1) The Board may, by written notice to the Employee,
immediately terminate his employment at any time for a reason other than Just
Cause, in which event the Employee shall be entitled to receive the following
compensation and benefits (unless such termination occurs within the time period
set forth in Section 11(b) hereof, in which event the benefits and compensation
provided for in Section 11 shall apply): (i) the salary provided pursuant to
Section 2 hereof, up to the date of termination of the term as provided in
Section 5 hereof (including any renewal term) of this Agreement (the "Expiration
Date"), plus said salary for an additional 12-month period, and (ii) at the
Employee's election, either (A) cash in an amount equal to the cost to the
Employee of obtaining all health, life, disability and other benefits which the
Employee would have been eligible to participate in through the Expiration Date,
based upon the benefit levels substantially equal to those that the Bank
provided for the Employee at the date of termination of employment, or (B)
continued participation under such Bank benefit plans through the Expiration
Date, but only to the extent the Employee continues to qualify for participation
therein. All amounts payable to the Employee shall be paid, at the option of the
Employee, either (I) in periodic payments through the Expiration Date, or (II)
in one lump sum within ten (10) days of such termination.
(2) The Employee may voluntarily terminate his
employment under this Agreement, and the Employee shall thereupon be entitled to
receive the compensation and benefits payable under Section 9(d)(1) hereof,
within ninety (90) days following the occurrence of any of the following events,
which has not been consented to in advance by the Employee in writing (unless
such voluntary termination occurs within the time period set forth in Section
11(b) hereof, in which event the benefits and compensation provided for in
Section 11 shall apply): (i) the requirement that the Employee move his personal
residence, or
5
<PAGE>
perform his principal executive functions, more than thirty (30) miles from his
primary office; (ii) a material reduction in the Employee's base compensation;
(iii) the failure by the Bank to continue to provide the Employee with
compensation and benefits provided for under this Agreement, as the same may be
increased from time to time, or with benefits substantially similar to those
provided to him under any of the employee benefit plans in which the Employee
now or hereafter becomes a participant, or the taking of any action by the Bank
which would directly or indirectly reduce any of such benefits or deprive the
Employee of any material fringe benefit enjoyed by him; (iv) the elimination of
the Employee's title as President or the assignment to the Employee of duties
and responsibilities materially different from those normally associated with
his position as referenced in Section 1; (v) a failure to elect or re-elect the
Employee to the Board of Directors of the Bank; (vi) a material diminution or
reduction in the Employee's responsibilities or authority (including reporting
responsibilities) in connection with his employment with the Bank; or (vii) a
material reduction in the secretarial or other administrative support of the
Employee.
(3) Notwithstanding the foregoing, but only to the
extent required under federal banking law, the amount payable under clause
(d)(1)(i) hereof shall be reduced to the extent that on the date of the
Employee's termination of employment, the present value of the benefits payable
under clauses (d)(1)(i) and (ii) hereof exceeds the limitation on severance
benefits that is set forth in Regulatory Bulletin 27a of the Office of Thrift
Supervision, as in effect on the Effective Date. In the event that Section 280G
of the Internal Revenue Code of 1986, as amended (the "Code"), becomes
applicable to payments made under this Section 9(d), and the payments exceed the
"Maximum Amount" as defined in Section 11(a)(1) hereof, the payments shall be
reduced as provided by Section 11(a)(2) of this Agreement.
(e) Termination or Suspension Under Federal Law.
(1) If the Employee is removed and/or permanently
prohibited from participating in the conduct of the Bank's affairs by an order
issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act
("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under
this Agreement shall terminate, as of the effective date of the order, but
vested rights of the parties shall not be affected.
(2) If the Bank is in default (as defined in Section
3(x)(1) of FDIA), all obligations under this Agreement shall terminate as of the
date of default; however, this Paragraph shall not affect the vested rights of
the parties.
(3) All obligations under this Agreement shall
6
<PAGE>
terminate, except to the extent that continuation of this Agreement is necessary
for the continued operation of the Bank; (i) by the Director of the Office of
Thrift Supervision ("Director of OTS"), or his or her designee, at the time that
the Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his or her
designee, at the time that the Director of the OTS, or his or her designee
approves a supervisory merger to resolve problems related to operation of the
Bank or when the Bank is determined by the Director of the OTS to be in an
unsafe or unsound condition. Such action shall not affect any vested rights of
the parties.
(4) If a notice served under Section 8(e)(3) or (g)
(1) of the FDIA (12 U.S.C. 1818(e)(3) or (g)(1) suspends and/or temporarily
prohibits the Employee from participating in the conduct of the Bank's affairs,
the Bank's obligations under this Agreement shall be suspended as of the date of
such service, unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, the Bank may in its discretion (i) pay the Employee all or
part of the compensation withheld while its contract obligations were suspended,
and (ii) reinstate (in whole or in part) any of its obligations which were
suspended.
(f) Voluntary Termination by Employee: Subject to Section 11 hereof,
the Employee may voluntarily terminate employment with the Bank during the term
of this Agreement, upon at least ninety (90) days' prior written notice to the
Board of Directors, in which case the Employee shall receive only his
compensation, vested rights and employee benefits up to the date of his
termination (unless such termination occurs pursuant to Section 9(d)(2) hereof,
in which event the benefits and compensation provided for in section 9(d) shall
apply).
10. No Mitigation: The Employee shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.
11. Change in Control:
(a) Change in Control; Involuntary Termination:
(1) Notwithstanding any provision herein to the
contrary, if the Employee's employment under this Agreement is terminated by the
Bank, without the Employee's prior written consent and for a reason other than
Just Cause, in connection with or within twelve (12) months after any Change in
Control of the Bank, the Employee shall, subject to paragraph (2) of this
Section 11(a), be paid an amount equal to the difference between
7
<PAGE>
(i) the product of 2.99 times his "base amount" as defined in Section 280G(b)(3)
of the Code and regulations promulgated thereunder (the "Maximum Amount"), and
(ii) the sum of any other parachute payments (as defined under Section
280G(b)(2) of the Code) that the Employee receives on account of the Change in
Control. Said sum shall be paid in one lump sum within ten (10) days of such
termination. This paragraph would not apply to a termination of employment due
to death, disability or voluntary termination by the Employee.
(2) In the event that the Employee and the Bank
jointly determine and agree that the total parachute payments receivable under
clauses (i) and (ii) of Section 11(a)(1) hereof exceed the Maximum Amount,
notwithstanding the payment procedure set forth in Section 11(a)(1) hereof, the
Employee shall determine which and how much, if any, of the parachute payments
to which he is entitled shall be eliminated or reduced so that the total
parachute payments to be received by the Employee do not exceed the Maximum
Amount. If the Employee does not make his determination within ten business days
after receiving a written request from the Bank, the Bank may make such
determination, and shall notify the Employee promptly thereof. Within five
business days of the earlier of the Bank's receipt of the Employee's
determination pursuant to this paragraph or the Bank's determination in lieu of
a determination by the Employee, the Bank shall pay to or distribute to or for
the benefit of the Employee such amounts as are then due the Employee under this
Agreement.
(3) As a result of uncertainty in application of
Section 280G of the Code at the time of payment hereunder, it is possible that
such payments will have been made by the Bank which should not have been made
("Overpayment") or that additional payments will not have been made by the Bank
which should have been made ("Underpayment"), in each case, consistent with the
calculations required to be made under Section 11(a)(1) hereof. In the event
that the Employee, based upon the assertion by the Internal Revenue Service
against the Employee of a deficiency which the Employee believes has a high
probability of success, determines that an Overpayment has been made, any such
Overpayment paid or distributed by the Bank to or for the benefit of Employee
shall be treated for all purposes as a loan ab initio which the Employee shall
repay to the Bank together with interest at the applicable federal rate provided
for in Section 7872(f)(2)(B) of the Code; provided, however, that no such loan
shall be deemed to have been made and no amount shall be payable by the Employee
to the Bank if and to the extent such deemed loan and payment would not either
reduce the amount on which the Employee is subject to tax under Section 1 and
Section 4999 of the Code or generate a refund of such taxes. In the event that
the Employee and the Bank determine, based upon controlling precedent or other
substantial authority, that an Underpayment
8
<PAGE>
has occurred, any such Underpayment shall be promptly paid by the Bank to or for
the benefit of the Employee together with interest at the applicable federal
rate provided for in Section 7872(f)(2)(B) of the Code.
(4) The term "Change in Control" shall mean any one
of the following events:
If the Bank is in the "mutual" form of organization, a "Change of
Control" shall be deemed to have occurred if:
(i) as a result of, or in connection with, any
exchange offer, merger or other business combination, sale of assets or
contested election, any combination of the foregoing transactions, or
any similar transaction, the persons who were non-employee directors of
the Bank before such transaction cease to constitute a majority of the
Board of Directors of the Bank or any successor to the Bank;
(ii) the Bank transfers substantially all of its
assets to another corporation which is not a wholly owned subsidiary of
the Bank;
(iii) The Bank sells substantially all of the assets
of a subsidiary or affiliate which, at the time of such sale, is the
principal employer of the Executive; or
(iv) the Bank is merged or consolidated with another
corporation and, as a result of the merger or consolidation, less than
fifty one percent (51%) of the outstanding proxies relating to the
surviving or resulting corporation are given, in the aggregate, by the
former members of the Bank.
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to occur solely by reason of a transaction in which the Bank
converts to the stock form of organization
If the Bank is in the "stock" form of organization, a "Change or
Control" shall be deemed to have occurred if:
(i) as a result of, or in connection with, any
initial public offering, tender offer or exchange offer, merger or
other business combination, sale of assets or contested election, any
combination of the foregoing transactions, or any similar transaction,
the persons who were non-employee directors of the Bank or a holding
company controlling the Bank before such transaction cease to
constitute a majority of the Board of Directors of the Bank
9
<PAGE>
or such holding company or any successor thereof;
(ii) the Bank or a holding company controlling the
Bank transfers substantially all of its assets to another corporation
which is not a wholly owned subsidiary of the Bank or such holding
company;
(iii) the Bank or a holding company controlling the
Bank sells substantially all of the assets of a subsidiary or affiliate
which, at the time of such sale, is the principal employer of the
Executive; or
(iv) the Bank or a holding company controlling the
Bank is merged or consolidated with another corporation and, as a
result of the merger or consolidation, less than fifty one percent
(51%) of the outstanding voting securities of the surviving or
resulting corporation is owned in the aggregate by the former
stockholders of the Bank or of such holding company controlling the
Bank.
Notwithstanding the foregoing, but only to the extent required under
federal banking law, the amount payable under Subsection(a) of this Section 11
shall be reduced to the extent that on the date of the Employee's termination of
employment, the amount payable under Subsection(a) of this Section 11 exceeds
the limitation on severance benefits that is set forth in Regulatory Bulletin
27a of the Office of Thrift Supervision, as in effect on the Effective Date.
(b) Change in Control; Voluntary Termination: Notwithstanding any other
provision of this Agreement to the contrary, but subject to Section 11(a)(2)
hereof, the Employee may voluntarily terminate his employment under this
Agreement within twelve (12) months following a Change in Control of the Bank,
as defined in paragraph (a)(4) of this Section 11, and the Employee shall
thereupon be entitled to receive the payment described in Section 11(a)(1) of
this Agreement, within ninety (90) days following the occurrence of any of the
following events, which has not been consented to in advance by the Employee in
writing; (i) the requirement that the Employee perform his principal executive
functions more than thirty (30) miles from his primary office as of the date of
the Change in Control; (ii) a material reduction in the Employee's base
compensation as in effect on the date of the Change in Control or as the same
may be changed by mutual agreement from time to time; (iii) the failure by the
Bank to continue to provide the Employee with compensation and benefits provided
for under this Agreement, as the same may be increased from time to time, or
with benefits substantially similar to those provided to him under any employee
benefit in which the Employee is a participant at the time of the
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<PAGE>
Change in Control, or the taking of any action which would materially reduce any
of such benefits or deprive the Employee of any material fringe benefit enjoyed
by him at the time of the Change in Control; (iv) the elimination of the
Employee's title as President or the assignment to the Employee of duties and
responsibilities materially different from those normally associated with his
position as referenced at Section 1; (v) a failure to elect or re-elect the
Employee to the Board of Directors of the Bank, if the Employee is serving on
the Board on the date of the Change in Control; or (vi) a material diminution or
reduction in the Employee's responsibilities or authority (including reporting
responsibilities) in connection with his employment with the Bank; or (vii) a
material reduction in the secretarial or other administrative support of the
Employee.
(c) Compliance with 12 U.S.C. Section 1828(k): Any payments made to the
Employee pursuant to this Agreement, or otherwise, are subject to and
conditioned upon their compliance with 12 U.S.C. Section 1828(k) and any
regulations promulgated thereunder.
(d) Trust: (1) Within five business days before or after a Change in
Control as defined in Section 11(a) of this Agreement which was not approved in
advance by a resolution of a majority of the Continuing Directors of the Bank,
the Bank shall (i) deposit, or cause to be deposited, in a grantor trust (the
"Trust"), designed to conform with Revenue Procedure 93-64 (or any successor)
and having a trustee independent of the Bank, an amount equal to 2.99 times the
Employee's "base amount" as defined in Section 280G(b)(3) of the Code, and (ii)
provide the trustee of the Trust with a written direction to hold said amount
and any investment return thereon in a segregated account for the benefit of the
Employee, and to follow the procedures set forth in the next paragraph as to the
payment of such amounts from the Trust.
(2) During the twelve (12) consecutive month period
following the date on which the Bank makes the deposit referred to in the
preceding paragraph, the Employee may provide the trustee of the Trust with a
written notice requesting that the trustee pay to the Employee an amount
designated in the notice as being payable pursuant to Section 11(a) or (b).
Within three business days after receiving said notice, the trustee of the Trust
shall send a copy of the notice to the Bank via overnight and registered mail,
return receipt requested. On the tenth (10th) business day after mailing said
notice to the association, the trustee of the Trust shall pay the Employee the
amount designated therein in immediately available funds, unless prior thereto
the Bank provides the trustee with a written notice directing the trustee to
withhold such payment. In the latter event, the trustee shall submit the dispute
to non-appealable binding arbitration for a determination of the amount payable
to
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<PAGE>
the Employee pursuant to Section 11(a) or (b) hereof, and the party responsible
for the payment of the costs of such arbitration (which may include any
reasonable legal fees and expenses incurred by the Employee) shall be determined
by the arbitrator. The trustee shall choose the arbitrator to settle the
dispute, and such arbitrator shall be bound by the rules of the American
Arbitration Bank in making his or her determination. The parties and the trustee
shall be bound by the results of the arbitration and, within 3 days of the
determination by the arbitrator, the trustee shall pay from the Trust the
amounts required to be paid to the Employee and/or the Bank, and in no event
shall the trustee be liable to either party for making the payments as
determined by the arbitrator.
(3) Upon the earlier of (i) any payment from the
Trust to the Employee, or (ii) the date twelve (12) months after the date on
which the Bank makes the deposit referred to in the first paragraph of this
subsection (d)(1), the trustee of the Trust shall pay to the Bank the entire
balance remaining in the segregated account maintained for the benefit of the
Employee. The Employee shall thereafter have no further interest in the Trust
pursuant to this Agreement.
(e) In the event that any dispute arises between the Employee and the
Bank as to the terms or interpretation of this Agreement, including this Section
11, whether instituted by formal legal proceedings or otherwise, including any
action that the Employee takes to enforce the terms of this Section 11 or to
defend against any action taken by the Bank, the Employee shall be reimbursed
for all costs and expenses, including reasonable attorneys' fees, arising from
such dispute, proceedings or actions, provided that the Employee shall obtain a
final judgment by a court of competent jurisdiction in favor of the Employee.
Such reimbursement shall be paid within ten (10) days of Employee's furnishing
to the Bank written evidence, which may be in the form, among other things, of a
canceled check or receipt, of any costs or expenses incurred by the Employee.
Should the Employee fail to obtain a final judgment in favor of the
Employee and a final judgment is entered in favor of the Bank, then the Bank
shall be reimbursed for all costs and expenses, including reasonable Attorneys'
fees arising from such dispute, proceedings or actions. Such reimbursement shall
be paid within ten (10) days of the Bank furnishing to the Employee written
evidence, which may be in the form, among other things, of a canceled check or
receipt, of any costs or expenses incurred by the Bank.
12. Employer will permit Employee or his personal representative(s) or heirs,
during a period of three months following Employee's termination of employment
by Employer for the reasons set forth in Subsections 9(d) or 11(a), if such
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<PAGE>
termination follows a Change of Control, to require Employer, upon written
request, to purchase all outstanding stock options previously granted to
Employee under any Holding Company stock option plan then in effect whether or
not such options are then exercisable or have terminated at a cash purchase
price equal to the amount by which the aggregate "fair market value" of the
shares subject to such options exceeds the aggregate option price for such
shares. For purposes of this Agreement, the term "fair market value" shall mean
the higher of (1) the average of the highest asked prices for Holding Company
shares in the over-the-counter market as reported on the NASDAQ system if the
shares are traded on such system for the 30 business days preceding such
termination, or (2) the average per share price actually paid for the most
highly priced 1% of the Holding Company shares acquired in connection with the
Change of Control of the Holding Company by any person or group acquiring such
control.
13. Federal Income Tax Withholding: The Bank may withhold all federal and
state income or other taxes from any benefit payable under this Agreement as
shall be required pursuant to any law or government regulation or ruling.
14. Successors and Assigns:
(a) Bank. This Agreement shall not be assignable by the Bank, provided
that this Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Bank which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank.
(b) Employee. Since the Bank is contracting for the unique and personal
skills of the Employee, the Employee shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Bank; provided, however, that nothing in this paragraph shall
preclude (i) the Employee from designating a beneficiary to receive any benefit
payable hereunder upon his death, or (ii) the executors, administrators, or
other legal representatives of the Employee or his estate from assigning any
rights hereunder to the person or persons entitled thereunto.
(c) Attachment. Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion,
attachment, levy or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect.
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<PAGE>
15. Amendments. No amendments or additions to this Agreement shall be
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
16. Applicable Law. Except to the extent preempted by federal law, the laws
of the State of Indiana shall govern this Agreement in all respects, whether as
to its validity, construction, capacity, performance or otherwise.
17. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
18. Entire Agreement. This Agreement, together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first hereinabove written.
ATTEST: MADISON FIRST FEDERAL SAVINGS
AND LOAN ASSOCIATION
/s/ Lonnie D. Collins By:/s/ Fred W. Koehler
Secretary Chairman of the Board
WITNESS:
/s/ Michael J. Hensley /s/ James E. Fritz
James E. Fritz
14
Exhibit 10(6)
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into and effective this _____ day of
________________, 1996, by and between Citizens National Bank (the "Bank") and
Robert Hoban (the "Employee"). The parties agree, however, that the "Effective
Date" of this Agreement shall be January 1, 1996.
WHEREAS, the Employee has heretofore been employed by the Bank as its
President and has performed valuable services for the Bank; and
WHEREAS, the Board of Directors of the Bank believes it is in the best
interests of the Bank to enter into this Agreement with the Employee in order to
assure continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to his assigned duties; and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed as the President of the Bank.
The Employee shall render such administrative and management services for the
Bank as are currently rendered and as are customarily performed by persons
situated in a similar executive capacity. The Employee shall also promote, by
entertainment or otherwise, as and to the extent permitted by law, the business
of the Bank. The Employee's other duties shall be such as the Board of Directors
(the "Board") of the Bank may from time to time reasonably direct, including
normal duties as an officer of the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the term
of this Agreement a salary at the rate of $65,000.00 per annum, payable in cash
not less frequently than monthly, and shall be effective and calculated
commencing January 1, 1996. The salary shall be reviewed annually by the Board
of Directors of the Bank in February of each year commencing February of 1997
and any adjustment in the future on salary shall be effective on February 1st of
each year.
3. Bonuses. The Employee shall participate in any year end bonus granted to
other employees by the Board. The Employee shall further participate in an
equitable manner with all other senior management employees of the Bank in
discretionary bonuses that the Board may award from time to time to the Bank's
senior management employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employee's right to participate
in such discretionary bonuses.
4. (a) Participation in Retirement, Medical and Other Plans. During the
term of this Agreement, the Employee shall be eligible to participate in the
following benefit plans: group hospitalization, disability, health, dental, sick
leave, retirement, pension, and/or other present or future qualified plans
<PAGE>
provided by the Bank, generally, which benefits, taken as a whole, must be at
least as favorable as those in effect on the Effective Date, unless the
continued operation of such plans would adversely affect the Bank's operating
results or financial condition in a material way, the Bank's Board of Directors
concludes that modifications to such plans are necessary to avoid such adverse
effects and such modifications apply consistently to all employees of the Bank.
(b) Employee Benefits; Expenses. The Employee shall be eligible to
participate in any fringe benefits which are or may become available to the
Bank's senior management employees, including, for example, any stock option or
incentive compensation plans, and any other benefits which are commensurate with
the responsibilities and functions to be performed by the Employee under this
Agreement. The Employee shall be reimbursed for all reasonable out-of-pocket
business expenses which he shall incur in connection with his services under
this Agreement, upon substantiation of such expenses in accordance with the
policies of the Bank.
(c) The Bank shall provide and maintain an appropriate automobile at its
expense for Employee's use.
5. Term. The Bank hereby employs the Employee, and the Employee hereby
accepts such employment under this Agreement, for the period commencing on
January 1, 1996 and ending thirty six months thereafter (or such earlier date as
is determined in accordance with Section 9). Additionally, on each annual
anniversary date from the Effective Date, the Employee's term of employment
shall be extended for an additional one-year period beyond the then effective
expiration date, provided the Board determines in a duly adopted resolution that
the performance of the Employee has met the Board's requirements and standards,
and that this Agreement shall be extended. Only those members of the Board of
Directors who have no personal interest in this Employment Agreement shall
discuss and vote on the approval and subsequent review of this Agreement.
6. Loyalty; Noncompetition.
(a) During the period of his employment hereunder and except for
illnesses, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided, however, from
time to time, the Employee may serve on the Boards of Directors of, and hold any
other offices or positions in, companies or organizations, which will not
present any conflict of interest with the Bank or any of its subsidiaries or
affiliates, or unfavorably affect the performance of Employee's duties pursuant
to this Agreement, or will not violate any applicable statute or regulation.
"Full business time" is hereby defined as that amount of time usually devoted to
like companies by similarly situated executive officers. During the term of his
employment under this Agreement, the Employee shall not engage in any business
or activity contrary to the business affairs or interests of the Bank, or be
gainfully employed in any other position or job other than as provided above.
(b) Nothing contained in this Paragraph 6 shall be deemed to prevent or
limit the Employee's right to invest in the capital stock or other securities of
any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
2
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(c) While Employee is employed by the Bank and for a period of three
years after termination of Employee's employment by the Bank or by the Employee
for reasons other than those set forth in Section 9 (d) hereof, the Employee
shall not directly or indirectly, engage in any bank or bank-related business
which competes with the business of the Bank as conducted during Employee's
employment by the Bank for any financial institution, including but not limited
to banks, savings and loan associations, and credit unions within a thirty-five
mile radius of Madison, Indiana.
7. Standards. The Employee shall perform his duties under this
Agreement in accordance with such reasonable standards as the Board may
establish from time to time. The Bank will provide Employee with the working
facilities and staff customary for similar executives and necessary for him to
perform his duties.
8. Vacation, Sick Leave and Disability. The Employee shall be entitled to
___________ days vacation annually and shall be entitled to the same sick leave
and disability leave as other employees of the Bank.
The Employee shall not receive any additional compensation from the
Bank on account of his failure to take a vacation or sick leave, and the
Employee shall not accumulate unused vacation or sick leave from one fiscal year
to the next, except in either case to the extent authorized by the Board;
provided, however, that unused sick leave may be accumulated from one fiscal
year to the next and awarded to the Employee until such time as the Employee
begins receiving payments under the Bank's disability plan.
In addition to the aforesaid paid vacations, the Employee shall be
entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment with the Bank for such additional periods of time
and for such valid and legitimate reasons as the Board may in its discretion
determine. Further, the Board may grant to the Employee a leave or leaves of
absence, with or without pay, at such time or times and upon such terms and
conditions as such Board in its discretion may determine.
9. Termination and Termination Pay. Subject to Section 11 hereof, the
Employee's employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensation due the Employee
through the last day of the calendar month in which his death occurred.
(b) Disability.
(1) The Bank may terminate the Employee's employment, should
the Employee become disabled, in a manner consistent with the Bank's
and the Employee's rights and obligations under the Americans With
Disabilities Act or other applicable state and federal laws concerning
disability. For the purpose of this Agreement, "Disability" means a
physical or mental condition which substantially limits the employee's
ability to
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perform the essential functions of his position, as established by this
Agreement, and which results in the Employee becoming eligible for
long-term disability benefits under the Bank's long-term disability
plan.
(2) During any period that the Employee shall receive
disability benefits and to the extent that the Employee shall be
physically and mentally able to do so, he shall furnish such
information, assistance and documents so as to assist in the continued
ongoing business of the Bank and, if able, shall make himself available
to the Bank to undertake reasonable assignments consistent with his
prior position and his physical and mental health. The Bank shall pay
all reasonable expenses incident to the performance of any assignment
given to the Employee during the disability period.
(c) Just Cause. The Board may, by written notice to the Employee,
immediately terminate his employment at any time, for Just Cause. The Employee
shall have no right to receive compensation or other benefits for any period
after termination for Just Cause. Termination for "Just Cause" shall mean
termination because of, in the good faith determination of the Board, the
Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. Notwithstanding the foregoing, in the
event of termination for Just Cause there shall be delivered to the Employee a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the entire membership of the Board at a meeting of the Board called
and held for that purpose (after reasonable notice to the Employee and an
opportunity for the Employee, together with the Employee's counsel, to be heard
before the Board), such meeting and the opportunity to be heard to be held prior
to, or as soon as reasonably practicable following, termination, but in no event
later than 60 days following such termination, finding that in the good faith
opinion of the Board the Employee was guilty of conduct set forth above in the
second sentence of this Subsection (c) and specifying the particulars thereof in
detail. If, following such meeting, the Employee is reinstated, he shall be
entitled to receive back pay for the period following termination and continuing
through reinstatement.
(d) Without Just Cause; Constructive Discharge.
(1) The Board may, by written notice to the Employee,
immediately terminate his employment at any time for a reason other
than Just Cause, in which event the Employee shall be entitled to
receive the following compensation and benefits (unless such
termination occurs within the time period set forth in Section 11(b)
hereof, in which event the benefits and compensation provided for in
Section 11 shall apply): (i) the salary provided pursuant to Section 2
hereof, up to the date of termination of the term as provided in
Section 5 hereof (including any renewal term) of this Agreement (the
"Expiration Date"), plus said salary for an additional 12-month period,
and (ii) at the Employee's election, either (A) cash in an amount equal
to the cost to the Employee of obtaining all health, life, disability
and other benefits which the Employee would have been eligible to
participate in through the Expiration Date, based upon the benefit
levels substantially equal to those that the Bank provided for the
Employee at the date of
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termination of employment, or (B) continued participation under such
Bank benefit plans through the Expiration Date, but only to the extent
the Employee continues to qualify for participation therein. All
amounts payable to the Employee shall be paid, at the option of the
Employee, either (I) in periodic payments through the Expiration Date,
or (II) in one lump sum within ten (10) days of such termination.
(2) The Employee may voluntarily terminate his employment
under this Agreement, and the Employee shall thereupon be entitled to
receive the compensation and benefits payable under Section 9(d)(1)
hereof, within ninety (90) days following the occurrence of any of the
following events, which has not been consented to in advance by the
Employee in writing (unless such voluntary termination occurs within
the time period set forth in Section 11(b) hereof, in which event the
benefits and compensation provided for in Section 11 shall apply): (i)
the requirement that the Employee move his personal residence, or
perform his principal executive functions, more than thirty (30) miles
from his primary office; (ii) a material reduction in the Employee's
base compensation; (iii) the failure by the Bank to continue to provide
the Employee with compensation and benefits provided for under this
Agreement, as the same may be increased from time to time, or with
benefits substantially similar to those provided to him under any of
the employee benefit plans in which the Employee now or hereafter
becomes a participant, or the taking of any action by the Bank which
would directly or indirectly reduce any of such benefits or deprive the
Employee of any material fringe benefit enjoyed by him; (iv) the
elimination of the Employee's title as President or the assignment to
the Employee of duties and responsibilities materially different from
those normally associated with his position as referenced in Section 1;
(v) a failure to elect or re-elect the Employee to the Board of
Directors of the Bank; (vi) a material diminution or reduction in the
Employee's responsibilities or authority (including reporting
responsibilities) in connection with his employment with the Bank; or
(vii) a material reduction in the secretarial or other administrative
support of the Employee.
(3) Notwithstanding the foregoing, but only to the extent
required under federal banking law, the amount payable under clause
(d)(1)(i) hereof shall be reduced to the extent that on the date of the
Employee's termination of employment, the present value of the benefits
payable under clauses (d)(1)(i) and (ii) hereof exceeds any limitation
on severance benefits that is imposed by the Office of the Comptroller
of the Currency (the "OCC") on such benefits. In the event that Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"),
becomes applicable to payments made under this Section 9(d), and the
payments exceed the "Maximum Amount" as defined in Section 11(a)(1)
hereof, the payments shall be reduced as provided by Section 11(a)(2)
of this Agreement.
(e) Termination or Suspension Under Federal Law.
(1) If the Employee is removed and/or permanently prohibited
from participating in the conduct of the Bank's affairs by an order
issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit
Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)), all
obligations of the Bank under this Agreement shall terminate, as of the
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<PAGE>
effective date of the order, but vested rights of the parties shall
not be affected.
(2) If the Bank is in default (as defined in Section 3(x)(1)
of FDIA), all obligations under this Agreement shall terminate as of
the date of default; however, this Paragraph shall not affect the
vested rights of the parties.
(3) All obligations under this Agreement shall terminate,
except to the extent that continuation of this Agreement is necessary
for the continued operation of the Bank; (i) by the OCC or its
designee, at the time that the Federal Deposit Insurance Corporation
("FDIC") enters into an agreement to provide assistance to or on behalf
of the Bank under the authority contained in Section 13(c) of FDIA; or
(ii) by the OCC, or its designee, at the time that the OCC or its
designee approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the OCC to be
in an unsafe or unsound condition. Such action shall not affect any
vested rights of the parties.
(4) If a notice served under Section 8(e)(3) or (g)(1) of the
FDIA (12 U.S.C. 1818(e)(3) or (g)(1) suspends and/or temporarily
prohibits the Employee from participating in the conduct of the Bank's
affairs, the Bank's obligations under this Agreement shall be suspended
as of the date of such service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may
in its discretion (i) pay the Employee all or part of the compensation
withheld while its contract obligations were suspended, and (ii)
reinstate (in whole or in part) any of its obligations which were
suspended.
(f) Voluntary Termination by Employee. Subject to Section 11 hereof,
the Employee may voluntarily terminate employment with the Bank during the term
of this Agreement, upon at least ninety (90) days' prior written notice to the
Board of Directors, in which case the Employee shall receive only his
compensation, vested rights and employee benefits up to the date of his
termination (unless such termination occurs pursuant to Section 9(d)(2) hereof,
in which event the benefits and compensation provided for in section 9(d) shall
apply).
10. No Mitigation. The Employee shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.
11. Change in Control.
(a) Change in Control; Involuntary Termination.
(1) Notwithstanding any provision herein to the contrary, if
the Employee's employment under this Agreement is terminated by the
Bank, without the Employee's prior written consent and for a reason
other than Just Cause, in connection with or within twelve (12) months
after any Change in Control of the Bank, the Employee shall, subject to
paragraph (2) of this Section 11(a), be paid an amount equal to the
difference between (i) the product of 2.99 times his "base amount" as
defined in Section 280G(b)(3) of the
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Code and regulations promulgated thereunder (the "Maximum Amount"), and
(ii) the sum of any other parachute payments (as defined under Section
280G(b)(2) of the Code) that the Employee receives on account of the
Change in Control. Said sum shall be paid in one lump sum within ten
(10) days of such termination. This paragraph would not apply to a
termination of employment due to death, disability or voluntary
termination by the Employee.
(2) In the event that the Employee and the Bank jointly
determine and agree that the total parachute payments receivable under
clauses (i) and (ii) of Section 11(a)(1) hereof exceed the Maximum
Amount, notwithstanding the payment procedure set forth in Section
11(a)(1) hereof, the Employee shall determine which and how much, if
any, of the parachute payments to which he is entitled shall be
eliminated or reduced so that the total parachute payments to be
received by the Employee do not exceed the Maximum Amount. If the
Employee does not make his determination within ten business days after
receiving a written request from the Bank, the Bank may make such
determination, and shall notify the Employee promptly thereof. Within
five business days of the earlier of the Bank's receipt of the
Employee's determination pursuant to this paragraph or the Bank's
determination in lieu of a determination by the Employee, the Bank
shall pay to or distribute to or for the benefit of the Employee such
amounts as are then due the Employee under this Agreement.
(3) As a result of uncertainty in application of Section 280G
of the Code at the time of payment hereunder, it is possible that such
payments will have been made by the Bank which should not have been
made ("Overpayment") or that additional payments will not have been
made by the Bank which should have been made ("Underpayment"), in each
case, consistent with the calculations required to be made under
Section 11(a)(1) hereof. In the event that the Employee, based upon the
assertion by the Internal Revenue Service against the Employee of a
deficiency which the Employee believes has a high probability of
success, determines that an Overpayment has been made, any such
Overpayment paid or distributed by the Bank to or for the benefit of
Employee shall be treated for all purposes as a loan ab initio which
the Employee shall repay to the Bank together with interest at the
applicable federal rate provided for in Section 7872(f)(2)(B) of the
Code; provided, however, that no such loan shall be deemed to have been
made and no amount shall be payable by the Employee to the Bank if and
to the extent such deemed loan and payment would not either reduce the
amount on which the Employee is subject to tax under Section 1 and
Section 4999 of the Code or generate a refund of such taxes. In the
event that the Employee and the Bank determine, based upon controlling
precedent or other substantial authority, that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the Bank to
or for the benefit of the Employee together with interest at the
applicable federal rate provided for in Section 7872(f)(2)(B) of the
Code.
(4) "Change in Control" shall be deemed to have occurred if:
(i) as a result of, or in connection with, any
initial public offering, tender offer or exchange offer,
merger or other business combination, sale of assets or
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contested election, any combination of the foregoing
transactions, or any similar transaction, the persons who were
non-employee directors of the Bank or a holding company
controlling the Bank before such transaction cease to
constitute a majority of the Board of Directors of the Bank or
such holding company or any successor thereto;
(ii) the Bank or a holding company controlling the
Bank transfers substantially all of its assets to another
corporation which is not a wholly owned subsidiary of the Bank
or such holding company;
(iii) the Bank or a holding company controlling the
Bank sells substantially all of the assets of a subsidiary or
affiliate which, at the time of such sale, is the principal
employer of the Employee; or
(iv) the Bank or a holding company controlling the
Bank is merged or consolidated with another corporation and,
as a result of the merger or consolidation, less than fifty
one percent (51%) of the outstanding voting securities of the
surviving or resulting corporation is owned in the aggregate
by the former stockholders of the Bank or of such holding
company controlling the Bank.
Notwithstanding the foregoing, but only to the extent required under
federal banking law, the amount payable under Subsection(a) of this Section 11
shall be reduced to the extent that on the date of the Employee's termination of
employment, the amount payable under Subsection(a) of this Section 11 exceeds
any limitation on severance benefits that is imposed by the OCC.
(b) Change in Control; Voluntary Termination. Notwithstanding any other
provision of this Agreement to the contrary, but subject to Section 11(a)(2)
hereof, the Employee may voluntarily terminate his employment under this
Agreement within twelve (12) months following a Change in Control of the Bank,
as defined in paragraph (a)(4) of this Section 11, and the Employee shall
thereupon be entitled to receive the payment described in Section 11(a)(1) of
this Agreement, within ninety (90) days following the occurrence of any of the
following events, which has not been consented to in advance by the Employee in
writing; (i) the requirement that the Employee perform his principal executive
functions more than thirty (30) miles from his primary office as of the date of
the Change in Control; (ii) a material reduction in the Employee's base
compensation as in effect on the date of the Change in Control or as the same
may be changed by mutual agreement from time to time; (iii) the failure by the
Bank to continue to provide the Employee with compensation and benefits provided
for under this Agreement, as the same may be increased from time to time, or
with benefits substantially similar to those provided to him under any employee
benefit in which the Employee is a participant at the time of the Change in
Control, or the taking of any action which would materially reduce any of such
benefits or deprive the Employee of any material fringe benefit enjoyed by him
at the time of the Change in Control; (iv) the elimination of the Employee's
title as President or the assignment to the Employee of duties and
responsibilities materially different from those normally associated with his
position as referenced at Section 1; (v) a failure to elect or re-elect the
Employee to the Board of Directors of the Bank, if the Employee is serving on
the Board on the date of the
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Change in Control; or (vi) a material diminution or reduction in the Employee's
responsibilities or authority (including reporting responsibilities) in
connection with his employment with the Bank; or (vii) a material reduction in
the secretarial or other administrative support of the Employee.
(c) Compliance with 12 U.S.C. Section 1828(k). Any payments made to the
Employee pursuant to this Agreement, or otherwise, are subject to and
conditioned upon their compliance with 12 U.S.C. Section 1828(k) and any
regulations promulgated thereunder.
(d) Trust. (1) Within five business days before or after a Change in
Control as defined in Section 11(a) of this Agreement which was not approved in
advance by a resolution of a majority of the Continuing Directors of the Bank,
the Bank shall (i) deposit, or cause to be deposited, in a grantor trust (the
"Trust"), designed to conform with Revenue Procedure 93-64 (or any successor)
and having a trustee independent of the Bank, an amount equal to 2.99 times the
Employee's "base amount" as defined in Section 280G(b)(3) of the Code, and (ii)
provide the trustee of the Trust with a written direction to hold said amount
and any investment return thereon in a segregated account for the benefit of the
Employee, and to follow the procedures set forth in the next paragraph as to the
payment of such amounts from the Trust.
(2) During the twelve (12) consecutive month period following the date
on which the Bank makes the deposit referred to in the preceding paragraph, the
Employee may provide the trustee of the Trust with a written notice requesting
that the trustee pay to the Employee an amount designated in the notice as being
payable pursuant to Section 11(a) or (b). Within three business days after
receiving said notice, the trustee of the Trust shall send a copy of the notice
to the Bank via overnight and registered mail, return receipt requested. On the
tenth (10th) business day after mailing said notice to the association, the
trustee of the Trust shall pay the Employee the amount designated therein in
immediately available funds, unless prior thereto the Bank provides the trustee
with a written notice directing the trustee to withhold such payment. In the
latter event, the trustee shall submit the dispute to non-appealable binding
arbitration for a determination of the amount payable to the Employee pursuant
to Section 11(a) or (b) hereof, and the party responsible for the payment of the
costs of such arbitration (which may include any reasonable legal fees and
expenses incurred by the Employee) shall be determined by the arbitrator. The
trustee shall choose the arbitrator to settle the dispute, and such arbitrator
shall be bound by the rules of the American Arbitration Bank in making his or
her determination. The parties and the trustee shall be bound by the results of
the arbitration and, within 3 days of the determination by the arbitrator, the
trustee shall pay from the Trust the amounts required to be paid to the Employee
and/or the Bank, and in no event shall the trustee be liable to either party for
making the payments as determined by the arbitrator.
(3) Upon the earlier of (i) any payment from the Trust to the Employee,
or (ii) the date twelve (12) months after the date on which the Bank makes the
deposit referred to in the first paragraph of this subsection (d)(1), the
trustee of the Trust shall pay to the Bank the entire balance remaining in the
segregated account maintained for the benefit of the Employee. The Employee
shall thereafter have no further interest in the Trust pursuant to this
Agreement.
(e) In the event that any dispute arises between the Employee and
the Bank as
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to the terms or interpretation of this Agreement, including this
Section 11, whether instituted by formal legal proceedings or
otherwise, including any action that the Employee takes to enforce the
terms of this Section 11 or to defend against any action taken by the
Bank, the Employee shall be reimbursed for all costs and expenses,
including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, provided that the Employee shall obtain a final
judgment by a court of competent jurisdiction in favor of the Employee.
Such reimbursement shall be paid within ten (10) days of Employee's
furnishing to the Bank written evidence, which may be in the form,
among other things, of a canceled check or receipt, of any costs or
expenses incurred by the Employee.
Should the Employee fail to obtain a final judgment in favor of the
Employee and a final judgment is entered in favor of the Bank, then the Bank
shall be reimbursed for all costs and expenses, including reasonable Attorneys'
fees arising from such dispute, proceedings or actions. Such reimbursement shall
be paid within ten (10) days of the Bank furnishing to the Employee written
evidence, which may be in the form, among other things, of a canceled check or
receipt, of any costs or expenses incurred by the Bank.
12. Employer will permit Employee or his personal representative(s) or
heirs, during a period of three months following Employee's termination of
employment by Employer for the reasons set forth in Subsections 9(d) or 11(a),
if such termination follows a Change of Control, to require Employer, upon
written request, to purchase all outstanding stock options previously granted to
Employee under any Holding Company stock option plan then in effect whether or
not such options are then exercisable or have terminated at a cash purchase
price equal to the amount by which the aggregate "fair market value" of the
shares subject to such options exceeds the aggregate option price for such
shares. For purposes of this Agreement, the term "fair market value" shall mean
the higher of (1) the average of the highest asked prices for Holding Company
shares in the over-the-counter market as reported on the NASDAQ system if the
shares are traded on such system for the 30 business days preceding such
termination, or (2) the average per share price actually paid for the most
highly priced 1% of the Holding Company shares acquired in connection with the
Change of Control of the Holding Company by any person or group acquiring such
control.
13. Federal Income Tax Withholding. The Bank may withhold all federal and
state income or other taxes from any benefit payable under this Agreement as
shall be required pursuant to any law or government regulation or ruling.
14. Successors and Assigns.
(a) Bank. This Agreement shall not be assignable by the Bank, provided
that this Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Bank which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank.
(b) Employee. Since the Bank is contracting for the unique and
personal skills
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of the Employee, the Employee shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the
written consent of the Bank; provided, however, that nothing in this
paragraph shall preclude (i) the Employee from designating a
beneficiary to receive any benefit payable hereunder upon his death, or
(ii) the executors, administrators, or other legal representatives of
the Employee or his estate from assigning any rights hereunder to the
person or persons entitled thereunto.
(c) Attachment. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge,
or hypothecation or to exclusion, attachment, levy or similar process
or assignment by operation of law, and any attempt, voluntary or
involuntary, to effect any such action shall be null, void and of no
effect.
15. Amendments. No amendments or additions to this Agreement shall be
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
16. Applicable Law. Except to the extent preempted by federal law, the laws
of the State of Indiana shall govern this Agreement in all respects, whether as
to its validity, construction, capacity, performance or otherwise.
17. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
18. Entire Agreement. This Agreement, together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto and supersedes any other
agreement between the parties hereto relating to the employment of the Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
ATTEST:
Secretary Chairman of the Board
WITNESS:
Robert Hoban
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The undersigned, River Valley Bancorp, sole shareholder of Bank, agrees
that if it shall be determined for any reason that any obligation on the part of
Bank to continue to make any payments due under this Agreement to Employee is
unenforceable for any reason, River Valley Bancorp agrees to honor the terms of
this Agreement and continue to make any such payments due hereunder to Employee
or to satisfy any such obligation pursuant to the terms of this Agreement, as
though it were the Bank hereunder.
RIVER VALLEY BANCORP
By:
James E. Fritz, President and
Chief Executive Officer
12
Exhibit 10(7)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and
entered into as of the 13th day of October, 1994, by and between the CITIZENS
NATIONAL BANK OF MADISON, a national banking association ("Bank"), and ROBERT
HOBAN ("Hoban").
WHEREAS, Hoban presently is employed as the President and
Chief Executive Officer of Bank pursuant to the terms of an Employment Agreement
dated as of the 27th day of September, 1989 (the "1989 Employment Agreement");
and
WHEREAS, Hoban and Bank desire to enter into this Agreement to
set out the terms of Hoban's continued employment by Bank and to supersede and
replace the 1989 Employment Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and conditions contained herein, and intending to be legally
bound, the parties hereby agree as follows:
1. Employment. Bank hereby employs Hoban to serve as President and
Chief Executive Officer of Bank, and Hoban accepts such employment and agrees to
devote his full time, attention and best efforts to the business and affairs of
Bank and to perform his duties faithfully and in a manner consistent with and in
furtherance of the best interests of Bank. Hoban's duties shall include the
management and supervision of Bank's operations and such other duties as may be
described in the Bylaws of Bank or reasonably determined and assigned to Hoban
by the Board of Directors of Bank from time to time.
2. Term of Employment. This Agreement shall be effective for a period
commencing as of January 1, 1995, through and including December 31, 1995,
subject to renewal and to termination as hereinafter provided. On January 1 of
each year (the "Anniversary Date"), commencing January 1, 1996, this Agreement
will automatically be renewed for a new one (1) year term, subject to renewal
and termination in accordance with the terms of this Agreement, unless Bank, by
action of its Board of Directors, or Hoban gives written notice to the other
party at least 90 days prior to the Anniversary Date that it does not intend to
renew this Agreement. (The initial term of employment and any subsequent renewal
thereof are referred to as the "Period").
3. Compensation. During the Period, Bank shall pay Hoban as
compensation for his services hereunder a per annum salary at the rate of
$100,000 or at such higher rate as may be established annually by the Board of
Directors of Bank at the commencement of such year during the Period (provided
the rate fixed by the Board of Directors shall not be less than the rate paid
for the immediately preceeding year) (the "Salary"). The Salary shall be payable
in equal weekly installments. In addition, during the Period, Bank shall:
<PAGE>
A. cause Hoban to participate or to be furnished the opportunity to
participate in employee benefit plans, executive incentive plans, stock option
plans and other fringe benefits in the same manner and on the same basis as may
be furnished to other executive management personnel of Bank generally; and
B. provide and maintain an appropriate automobile, at Bank's expense for
Hoban's use in performing services for Bank pursuant to this Agreement; and
C. maintain a bonus policy or program pursuant to which Hoban will be
entitled to receive an annual cash bonus ("Cash Bonus") to be determined by the
Board of Directors of Bank based on his and Bank's performance and such other
factors as the Board of Directors of Bank may in good faith determine to be
appropriate. To fulfill its obligations hereunder, the Board of Directors of
Bank may, before the beginning of any calendar year, establish performance goals
for Bank for such year, and measure the amount of the Cash Bonus for such year
based on the extent to which Bank attains the established goals, with no Cash
Bonus being payable if such performance goals are not met. In any case, the
factors chosen to measure performance from time to time and the amount of Cash
Bonus payable based on such factors shall be determined by the Board of
Directors in its sole discretion. The Cash Bonus shall be due and payable within
30 days following the end of each calendar year occurring during the Period. If
the Period is terminated, or ends, other than at the end of a calendar year,
Bank shall pay Hoban the amount of the Cash Bonus, if any, accrued through the
termination date, which Cash Bonus shall be due and payable within 30 days of
the termination date.
The compensation payable to Hoban hereunder shall be in addition to any
compensation he might receive as a director of Bank or any of its affiliates.
4. Termination By Bank.
A. Material Breaches of Agreement. Bank, by action of its Board of
Directors, may terminate this Agreement, the Period and Hoban's employment
hereunder upon 30 days prior written notice if Hoban materially breaches his
obligations under this Agreement and fails to cure such breach within 30 days
after receiving written notice from the Board of Directors which describes, in
reasonable detail, the misconduct constituting grounds for termination.
B. De Facto Termination. If a Change in Control, as defined below, occurs
during the Period and, following such Change in Control, Bank, directly or
indirectly, without Hoban's consent, (i) changes Hoban's duties and
responsibilities from the duties and responsibilities he held prior to such
Change in Control, or (ii) changes Hoban's authority or the manner in which Bank
carries on its business so that Hoban in effect no longer functions as President
and Chief Executive Officer of Bank or is required to relocate to offices
outside of Madison, Indiana, then, at Hoban's election, such change (or changes)
shall constitute a termination of employment by Bank. To exercise his election
hereunder,
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<PAGE>
Hoban must promptly deliver written notice to Bank, identifying the changes
triggering his rights under this subsection, at which time this Agreement, the
Period and Hoban's employment hereunder shall terminate, entitling Hoban to the
severance compensation and health care benefits payable pursuant to Section 7
and Section 8 below.
C. Change of Control Defined. For purposes of this Agreement, the term
"Change of Control" shall mean the acquisition, after the date of this
Agreement, by any person or group of persons acting in concert, of the power,
directly or indirectly, to direct the management or policies of Bank or to vote
25% or more of any class of voting stock of Bank. As used herein, "person" means
any individual, corporation, partnership, trust or other entity. For purposes of
this Agreement, a Change in Control shall be deemed to occur upon the completion
of such acquisition, whether in one or a series of transactions, and whether
accomplished by purchase, transfer, gift, inheritance or otherwise; or, if
sooner, when a binding agreement or binding offer is made pursuant to which such
acquisition is thereafter accomplished.
5. Termination by Hoban. At any time during the Period, Hoban may terminate
this Agreement, the Period and his employment with Bank upon 30 days prior
written notice.
6. Hoban's Death or Disability.
A. Death. If Hoban dies during the Period, Hoban's legal representative
shall be entitled to the Salary provided for in Section 3 above through the end
of the month in which his death occurred at the rate being paid at the time of
his death. The Period shall be deemed to have ended as of the close of the
business on the last day of the month of his death but without prejudice to any
payments due in respect of Hoban's death.
B. Disability. If Hoban becomes disabled during the Period, payment of his
Salary and all benefits provided for in Section 3 above shall continue during
the Period at the rate being paid at the time of the commencement of the
disability for the duration of such disability or for a maximum of twelve (12)
months. If such disability continues for a period of twelve (12) consecutive
months, Bank, at its option, may thereafter, effective upon written notice to
Hoban or his personal representative, terminate this Agreement, the Period and
Bank's obligations hereunder. Notwithstanding anything in this Agreement to the
contrary, if Hoban is disabled, Bank may, if its Board of Directors, in its
discretion, deems it prudent to do so, suspend Hoban's authority, duties and
responsibilities as an officer of Bank employment so long as such disability
continues. In the event Bank terminates this Agreement because of Hoban's
disability, Bank shall provide to Hoban and his eligible family members, at
Bank's expense, the continuation of health care plan coverage provided for by
Section 8 below. "Disabled," as used herein, shall mean that Hoban shall fail or
be unable to perform his duties hereunder on account of illness or other
physical or mental incapacity as determined by a physician mutually acceptable
to both parties. Bank's right of termination under this Section 6 is in addition
to, and supplements,
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Bank's right not to renew this Agreement, as provided in Section 2 above. Bank
shall have the right not to renew this Agreement, and thereby terminate the
Period, by delivery of notice in accordance with Section 2 above, even though
Hoban may be disabled at the time.
7. Severance Pay.
A. If, prior to a Change of Control, Bank gives notices in accordance with
the provisions of Section 2 above that it does not intend to renew this
Agreement, Bank shall pay to Hoban, on the last day of the Period, a lump sum
amount equal to one (1) year's Salary, at the rate then in effect.
B. If, concurrently with or after a Change of Control, this Agreement is
terminated pursuant to Section 4.B. above, or Bank gives notice in accordance
with the provisions of Section 2 above that it does not intend to renew this
Agreement, Bank shall pay to Hoban, on the last day of the Period, a lump sum
amount equal to three (3) year's Salary, at the rate then in effect; provided
such payment shall be reduced to the extent necessary to prevent it from
constituting a "parachute payment" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended.
8. Continuation of Health Care Coverage.
A. If, prior to a Change of Control, this Agreement is terminated pursuant
to Section 6.B. above, or Bank gives notice in accordance with the provisions of
Section 2 that it does not intend to renew this Agreement, Bank shall continue,
at Bank's expense, the full amount of any Bank-sponsored health care plan
coverage of Hoban and his eligible family members in effect at the time this
Agreement is terminated, for a period of one (1) year from the date this
Agreement is terminated.
B. If, concurrently with or after a Change of Control, this Agreement is
terminated pursuant to Section 4.B or Section 6.B. above, or Bank gives notice
in accordance with the provisions of Section 2 that it does not intend to renew
this Agreement, Bank shall continue, at Bank's expense, the full amount of any
Bank-sponsored health care plan coverage of Hoban and his eligible family
members in effect at the time this Agreement is terminated, as follows for a
period of three (3) years from the date this Agreement is terminated, if such
termination occurs or notice is given after a Change of Control.
C. Notwithstanding the foregoing, [i] Bank's obligation to provide the
continuation of health care coverage provided by this Section shall terminate at
such sooner time as Hoban or his eligible family members become entitled to
comparable third-party paid health care plan coverage; and [ii] Bank shall not
be obligated to provide Hoban and his eligible family members with the health
care plan coverage described in this Section 8 unless such coverage can be
obtained by Bank through reasonable efforts. Said coverage
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shall count toward any COBRA continuation coverage period to which Hoban and his
eligible family members may be entitled.
9. Non-Compete. Hoban covenants and agrees that, for a period of one
year following the termination of this Agreement, he shall not, as a proprietor,
shareholder, officer, director, partner, employee, principal, agent, consultant,
advisor, or in any other capacity, for his own benefit or for or with any other
person, firm or corporation whatsoever (other than Bank or an affiliate of
Bank), directly or indirectly, work for, make a substantial investment in, or in
any manner assist any financial institution located in any city in which Bank
has an office. Hoban acknowledges that there is no adequate remedy at law in
favor of Bank for breach of this Agreement by Hoban and that Bank, in addition
to all other rights which may be available, shall have the right of specific
performance in the event of breach, or of injunction in the event of any
threatened breach.
10. Notices. Any notice to be given hereunder by either party shall be in
writing and delivered personally or sent by certified mail, postage prepaid,
return receipt requested, addressed as follows:
If to Bank: Citizens National Bank
430 Clifty Drive, P.O. Box 129
Madison, Indiana 47250
Attention: Chairman of the Board
If to Hoban: Robert D. Hoban
Citizens National Bank
430 Clifty Drive, P.O. Box 129
Madison, Indiana 47250
11. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of Bank and the successors and assigns of Bank (whether by
merger, acquisition, or consolidation). This Agreement may not be assigned by
Hoban.
12. Entire Agreement; Termination of 1989 Employment Agreement. This
Agreement contains the entire agreement of the parties hereto with respect to
the subject matter hereof and may not be amended, modified or supplemented
except in a writing signed by the parties hereto. This Agreement supersedes the
1989 Employment Agreement, effective January 1, 1995. Hoban and Bank agree that
the 1989 Employment Agreement is not being renewed, and that the 1989 Employment
Agreement will terminate by mutual agreement effective as of January 1, 1995,
subject only to Hoban's right to receive Salary and Bonus accrued thereunder
through December 31, 1994.
13. Waiver; Subsequent Breach. The failure of either Bank or Hoban to
enforce any provision of this Agreement shall not be construed as a waiver of
such provision or the
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right thereafter to enforce the same, and no waiver of any breach shall be
construed as an agreement to waive any subsequent breach of the same or any
other provision.
14. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Indiana.
15. Section Headings. The section headings contained herein are inserted
for convenience of reference only and shall not control or affect the meaning or
construction of any of the provisions hereof.
16. Survival. The obligations of the parties contained in Section 7,
Section 8 and Section 9 above shall survive the termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
CITIZENS NATIONAL BANK OF
MADISON
WITNESS: By: Burton P. Chambers Sr. Oct. 13, 1994
---------------------------------------
/s/ Jonnie L. Davis Title: Chairman of the Board
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Robert D. Hoban Oct. 13, 1994
ROBERT HOBAN
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Exhibit 10(8)
DIRECTOR DEFERRED COMPENSATION MASTER AGREEMENT
This Director Deferred Compensation Master Agreement (the "Agreement"),
effective as of the 1st day of November, 1993, formalizes the understanding by
and between MADISON FIRST FEDERAL SAVINGS & LOAN ASSOCIATION (the
"Association"), a federally chartered savings and loan, and certain eligible
Directors, hereinafter referred to as "Director", who shall be approved by the
Association to participate and who shall elect to become a party to this
Director Deferred Compensation Master Agreement by execution of a Director
Deferred Compensation Joinder Agreement ("Joinder Agreement") in a form provided
by the Association.
WITNESSETH:
WHEREAS, the Directors serve the Association as members of the Board; and
WHEREAS, the Association recognizes the valuable services heretofore performed
for it by such Directors and wishes to encourage continued service of each; and
WHEREAS, the Association values the efforts, abilities and accomplishments
of such Directors and recognizes that the Directors' services will substantially
contribute to its continued growth and profits in the future; and
WHEREAS, these Directors wish to defer a certain portion of their fees to
be earned in the future; and
WHEREAS, the Directors and the Association desire to formalize the terms
and conditions upon which the Association shall pay such deferred compensation
to the Directors or their designated beneficiaries; and
WHEREAS, the Association has adopted this Director Deferred Compensation
Master Agreement which controls all issues relating to the Deferred Compensation
Benefit as described herein;
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree to the following terms and conditions:
SECTION I
DEFINITIONS
When used herein, the following words and phrases shall have the meanings
below unless the context clearly indicates otherwise:
1.1 "Association" means MADISON FIRST FEDERAL SAVINGS & LOAN ASSOCIATION and
any successor thereto.
1.2 "Beneficiary" means the person or persons (and their heirs) designated as
Beneficiary in the Director's Joinder Agreement to whom the deceased
Director's benefits are payable. If no Beneficiary is so designated, then
the Director's Spouse, if living, will be deemed the Beneficiary. If the
Director's Spouse is not living, then the Children of the Director will be
deemed the Beneficiaries and will take on a per stirpes basis. If there are
no living Children, then the Estate of the Director will be deemed the
Beneficiary.
1.3 "Benefit Age" shall be the birthday on which the Director becomes eligible
to receive benefits under the Plan. Such birthday shall be designated in
the Director's Joinder Agreement.
1.4 "Benefit Eligibility Date" shall be the date on which a Director is
entitled to receive his Deferred Compensation Benefit. It shall be the 1st
day of the month coincident with or next following the month in which the
Director attains the Benefit Age designated in his Joinder Agreement.
1.5 "Cause" means personal dishonesty, willful misconduct, willful malfeasance,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful
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violation of any law, rule, regulation (other than traffic violations
or similar offenses), or final cease-and-desist order, material breach
of any provision of this Agreement, or gross negligence in matters of
material importance to the Association.
1.6 "Children" means the Director's children, both natural and adopted,
then living at the time payments are due the Children under this
Agreement.
1.7 "Deferral Period" means the period of months designated in the
Director's Joinder Agreement during which the Director shall defer
current Board fees. The Deferral Period shall commence on the date
designated in the Director's Joinder Agreement.
1.8 "Deferred Compensation Benefit" means the annuitized value of the
Director's Elective Contribution Account, measured as of the Director's
Benefit Age, payable in monthly installments throughout the Payout
Period and commencing on the Director's Benefit Eligibility Date.
1.9 "Disability Benefit" means the benefit annuity payable to the Director
following a determination, in accordance with Subsection 4.2, that he
is no longer able, properly and satisfactorily, to perform his duties
as Director.
1.10 "Effective Date" of this Agreement shall be November 1, 1993.
1.11 "Elective Contribution" shall refer to any bookkeeping entry required
to record a Director's voluntary monthly pre-tax deferral which shall
be made in accordance with the Director's Joinder Agreement.
1.12 "Elective Contribution Account" shall be represented by the bookkeeping
entries required to record a Director's Elective Contributions plus
accrued interest, equal to the Interest Factor, earned to date on such
amounts. However, neither the existence of such bookkeeping entries
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nor the Elective Contribution Account itself shall be deemed to create
either a trust of any kind, or a fiduciary relationship between the
Association and the Director or any Beneficiary.
1.13 "Estate" means the estate of the Director.
1.14 "Financial Hardship" means an unforeseeable emergency resulting from a
sudden and unexpected illness or accident of the Director or of a dependent
of the Director, loss of the Director's property due to casualty, or other
similar extraordinary and unforeseeable circumstances which arise as a
result of events not within the control of the Director. The circumstances
that shall constitute an unforeseeable emergency will depend upon the facts
of each case, but, in any instance, payment may not be made to the extent
that such hardship is or may be relieved (i) through reimbursement or
compensation by insurance or otherwise, (ii) by liquidation of the
Director's assets to the extent such liquidation would not itself cause
severe financial hardship, or (iii) by cessation of deferral under the
plan. Examples of what are not considered to be unforeseeable emergencies
include the need to send the Director's child to college or the decision to
purchase a home.
1.15 "Financial Hardship Benefit" means a withdrawal or withdrawals of an amount
or amounts attributable to a Financial Hardship and limited to the extent
reasonably needed to satisfy the emergency need.
1.16 "Interest Factor" means monthly compounding at Ten (10%) Percent per annum.
1.17 "Payout Period" means the time frame during which certain benefits payable
hereunder shall be distributed. Payments shall be made in equal monthly
installments commencing on the first day of the month coincident with or
next following the occurrence of the event which triggers distribution and
continuing for a period of months, as designated in the Director's Joinder
Agreement.
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1.18 "Projected Deferral" is an estimate, determined upon execution of a Joinder
Agreement, of the total amount to be deferred by the Director during his
Deferral Period, and so designated in the Director's Joinder Agreement.
1.19 "Spouse" means the individual to whom the Director is legally married at
the time of the Director's death.
1.20 "Survivor's Benefit" means an annuity stream payable to the Beneficiary in
monthly installments throughout the Payout Period, equal to the amount
designated in the Joinder Agreement, and subject to Subsections 4.3 and 5.1
(or 5.2).
SECTION II DEFERRED COMPENSATION
Commencing on the Effective Date, and continuing through the end of the
Deferral Period, the Director and the Association agree that the Director shall
defer into his Elective Contribution Account up to one hundred (100%) percent of
the monthly fees that the Director would otherwise be entitled to receive from
the Association for each month of the Deferral Period, with the total deferral
during the term of the Deferral Period not to exceed the Director's Projected
Deferral. The specific amount of the Director's monthly Deferred Compensation
shall be designated in the Director's Joinder Agreement and shall apply only to
compensation attributable to services not yet performed.
SECTION III
ADJUSTMENT OF DEFERRAL AMOUNT
Deferral of the specific amount of fees designated in the Director's
Joinder Agreement shall continue in effect pursuant to the terms of this
Agreement unless and until the Director amends his Joinder Agreement by filing
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with the Association and the Administrator a Notice of Adjustment of Deferral
Amount (Exhibit B of the Joinder Agreement). If the Association increases the
amount of fees earned by the Director, the Director can include such additional
amounts in his monthly deferral, provided approval from the Board of Directors
is obtained, by filing a Notice of Adjustment of Deferral Amount. A Notice of
Adjustment of Deferral Amount shall be effective if filed with the Association
and the Administrator, at least thirty (30) days prior to any January 1st during
the Director's Deferral Period. Such Notice of Adjustment of Deferral Amount
shall be effective commencing with the January 1st following its filing and
shall be applicable only to compensation attributable to services not yet
performed by the Director.
SECTION IV
RETIREMENT BENEFIT
4.1 Retirement Benefit. Subject to Subsections 4.3 and 5.1 (or 5.2) of this
Agreement, the Association agrees to pay the Director the Deferred
Compensation Benefit commencing on the Director's Benefit Eligibility
Date. Such payments will be made over the term of the Payout Period. In
the event of the Director's death after commencement of the Deferred
Compensation Benefit, but prior to completion of all such payments due
and owing hereunder, the Association shall pay to the Director's
Beneficiary a continuation of the annuity for the remainder of the
Payout Period.
4.2 Disability Benefit. Notwithstanding any other provision hereof, if
requested by the Director and approved by the Board, the Director shall
be entitled to receive the Disability Benefit hereunder, in any case in
which it is determined by a duly licensed physician selected by the
Association, that the Director is no longer able, properly and
satisfactorily, to perform his regular duties as a Director, because of
ill health, accident, disability or general inability due to age. If
the Director's service is terminated pursuant to this paragraph and
Board approval
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is obtained, the Director may elect to begin receiving the Disability
Benefit annuity in lieu of any Deferred Compensation Benefit which is
not available prior to the Director's Benefit Eligibility Date. The
annuity shall begin not more than thirty (30) days following the
above-mentioned disability determination. The amount of the monthly
benefit shall be the annuitized value of the Director's Elective
Contribution Account, measured upon such determination and payable over
the Payout Period. The Interest Factor shall be used to annuitize the
Elective Contribution Account. In the event the Director dies while
receiving payments pursuant to this Subsection, or after becoming
eligible for such payments but before the actual commencement of such
payments, his Beneficiary shall be entitled to receive those benefits
provided for in Subsection 5.l(a) [or 5.2(a)] and the Disability
Benefits provided for in this Subsection shall terminate upon the
Director's death.
4.3 Financial Hardship Benefit. In the event the Director incurs a
Financial Hardship, the Director may request a Financial Hardship
Benefit. Such request shall be either approved or rejected by the
Association in the exercise of its sole discretion. The Director will
be required to demonstrate to the satisfaction of the Association that
a Financial Hardship has occurred and that the Director is otherwise
entitled to a Financial Hardship Benefit in accordance with Subsections
1.14 and 1.15. If a Financial Hardship Benefit is approved, it shall be
paid in a lump sum within thirty (30) days of the event which triggers
payment. The balance of the Director's Elective Contribution Account
shall be reduced for any Financial Hardship Benefit distribution. Also,
any subsequent Deferred Compensation Benefit annuity, Survivor's
Benefit annuity or Disability Benefit annuity shall be actuarially
adjusted to reflect such distribution.
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4.4 Removal For Cause. In the event the Director is removed for Cause at
any time prior to reaching his Benefit Age, he shall be entitled to
receive the balance of his Elective Contribution Account, measured as
of the date of removal. Such amount shall be paid in a lump sum within
thirty (30) days of the Director's date of removal. All other benefits
provided for the Director or his Beneficiary under this agreement shall
be forfeited and the Agreement shall become null and void.
SECTION V
DEATH BENEFITS
(Note that Subsection 5.1 and 5.2 are alternative Subsections. Only one
(1) of these Subsections shall be applicable to the Director. The
Director's Joinder Agreement shall identify which of the two (2)
Subsections is applicable to the Director.)
5.1 Death Benefit Prior to Commencement of Deferred Compensation Benefit.
In the event of the Director's death prior to commencement of the
Deferred Compensation Benefit, the Association shall pay the Director's
Beneficiary a monthly amount for the Payout Period, commencing within
thirty (30) days of the Director's death. The amount of such benefit
payments shall be determined as follows:
(a) In the event death occurs (i) while the Director is receiving the
Disability Benefit provided for in Subsection 4.2, or (ii) after
the Director has become eligible for such Disability Benefit
payments but before such payments have commenced, the Director's
Beneficiary shall be entitled to receive the Survivor's Benefit
for the Payout Period, reduced by the number of months Disability
Benefit payments were made to the Director. In the event death
occurs after the Director has received the Disability Benefit,
provided for in Subsection 4.2, for the entire Payout Period, the
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Director's Beneficiary shall not be entitled to the Survivor's
Benefit for any length of time. However, the lump sum payment
described in the second paragraph of this Subsection (a) shall
still be applicable to such Beneficiary. If the total dollar
amount of Disability Benefit payments received by the Director
under Subsection 4.2 is less than the total dollar amount of
payments that would have been received had the Survivor's
Benefit been paid in lieu of the Disability Benefit during the
Director's life, the Association shall pay the Director's
Beneficiary a lump sum payment for the difference. This lump
sum payment shall be made within thirty (30) days of the
Director's death.
(b) In the event death occurs while the Director is (i) in the
service of the Association, (ii) deferring fees pursuant to
Section II and (iii) prior to any reduction or discontinuance,
via an effective filing of a Notice of Adjustment of Deferral
Amount, in the level of deferrals reflected in the Director's
initial Joinder Agreement, for any period during the Deferral
Period, the Director's Beneficiary shall be paid the
Survivor's Benefit.
(c) In the event death occurs while the Director is (i) in the
service of the Association, (ii) deferring fees pursuant to
Section II and (iii) after any reduction or discontinuance, via
an effective filing of a Notice of Adjustment of Deferral Amount,
in the level of deferrals reflected in the Director's initial
Joinder Agreement, for any period during the Deferral Period, the
Director's Beneficiary shall be paid a reduced Survivor's
Benefit, such amount being determined by multiplying the monthly
payment available as a Survivor's Benefit by a fraction, the
numerator of which is equal to the total Board fees actually
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deferred by the Director as of his death and the denominator of
which is equal to the amount of Board fees that would have been
deferred as of his death, if no reduction or discontinuance in
the level of deferrals had occurred at any time following
execution of the Joinder Agreement and during the Deferral
Period.
(d) In the event the Director completes less than one hundred
(100%) percent of his Projected Deferrals due to any voluntary
or involuntary termination other than removal for Cause, the
Director's Beneficiary shall be paid a reduced Survivor's
Benefit, such amount being determined by multiplying the
monthly payment available as a Survivor's Benefit by a
fraction, the numerator of which is equal to the total Board
fees actually deferred by the Director and the denominator of
which is equal to the Director's Projected Deferral.
(e) In the event the Director completes one hundred (100%) percent
of his Projected Deferrals prior to any voluntary or
involuntary termination other than removal for Cause and
provided no payments have been made pursuant to Subsection
4.2, the Director's Beneficiary shall be paid the full
Survivor's Benefit.
5.2 Death Benefit Prior to Commencement of Deferred Compensation Benefit. In
the event of the Director's death prior to commencement of the Deferred
Compensation Benefit, the Association shall pay the Director's Beneficiary
a monthly amount determined as follows:
(a) In the event death occurs (i) while the Director is receiving the
Disability Benefit provided for in Subsection 4.2, or (ii) after the
Director has become eligible for such Disability Benefit payments but
before such payments have commenced, the Director's Beneficiary shall
be entitled to receive a continuation of the Disability Benefit
payments for the Payout Period, reduced by the number of months
Disability
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Benefit payments were made to the Director. In the event death occurs
after the Director has received the Disability Benefit, provided for
in Subsection 4.2, for the entire Payout Period, the Director's
Beneficiary shall not be entitled to the Survivor's Benefit for any
length of time. However, the lump sum payment described in the second
paragraph of this Subsection (a) shall still be applicable to such
Beneficiary. If the total dollar amount of Disability Benefit payments
received, collectively, by the Director under Subsection 4.2 and by
the Director's Beneficiary under this Subsection is less than the
total dollar amount of payments that would have been received had the
Survivor's Benefit been paid in lieu of the Disability Benefit to such
Director and to such Beneficiary, collectively, the Association shall
pay the Director's Beneficiary a lump sum payment for the difference.
This lump sum payment shall be made within thirty (30) days of the
subsequent death of any other Director electing to participate in this
agreement.
(b) In the event death occurs while the Director is (i) in the service of
the Association, (ii) deferring fees pursuant to Section II and (iii)
prior to any reduction or discontinuance, via an effective filing of a
Notice of Adjustment of Deferral Amount, in the level of deferrals
reflected in the Director's initial Joinder Agreement, for any period
during the Deferral Period, the Director's Beneficiary shall be paid
the Survivor's Benefit. Such Survivor's Benefit shall be paid for the
Payout Period and shall commence within thirty (30) days of the
subsequent death of any other Director electing to participate in this
Agreement.
(c) In the event death occurs while the Director is (i) in the service of
the Association, (ii) deferring fees pursuant to Section II and (iii)
after any reduction or
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discontinuance, via an effective filing of a Notice of Adjustment of
Deferral Amount, in the level of deferrals reflected in the Director's
initial Joinder Agreement, for any period during the Deferral Period,
the Director's Beneficiary shall be paid a reduced Survivor's Benefit,
such amount being determined by multiplying the monthly payment
available as a Survivor's Benefit by a fraction, the numerator of
which is equal to the total Board fees actually deferred by the
Director as of his death and the denominator of which is equal to the
amount of Board fees that would have been deferred as of his death, if
no reduction or discontinuance in the level of deferrals had occurred
at any time following execution of the Joinder Agreement and during
the Deferral Period. Such reduced Survivor's Benefit shall be paid for
the Payout Period and shall commence within thirty (30) days of the
subsequent death of any other Director electing to participate in this
Agreement.
(d) In the event the Director completes less than one hundred (100%)
percent of his Projected Deferrals due to any voluntary or involuntary
termination other than removal for Cause, the Director's Beneficiary
shall be paid a reduced Survivor's Benefit, such amount being
determined by multiplying the monthly payment available as a
Survivor's Benefit by a fraction, the numerator of which is equal to
the total Board fees actually deferred by the Director and the
denominator of which is equal to the Director's Projected Deferral.
Such reduced Survivor's Benefit shall be paid for the Payout Period
and shall commence within thirty (30) days of the subsequent death of
any other Director electing to participate in this Agreement.
(e) In the event the Director completes one hundred (100%) percent of his
Projected Deferrals prior to any voluntary or involuntary termination
other than removal for
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Cause and provided no payments have been made pursuant to Subsection
4.2, the Director's Beneficiary shall be paid the full Survivor's
Benefit. Such Survivor's Benefit shall be paid for the Payout Period
and shall commence within thirty (30) days of the subsequent death of
any other Director electing to participate in this Agreement.
5.3 Additional Death Benefit - Burial Expense. In addition to the
above-described death benefits, within thirty (30) days of the
Director's death, the Director's Beneficiary shall be entitled to
receive a one-time lump sum death benefit in the amount of Ten Thousand
($10,000.00) Dollars.
SECTION VI
BENEFICIARY DESIGNATION
The Director shall make an initial designation of primary and secondary
Beneficiaries upon execution of his Joinder Agreement and shall have the right
to change such designation, at any subsequent time, by submitting to the
Administrator in substantially the form attached as Exhibit A to the Joinder
Agreement, a written designation of primary and secondary Beneficiaries. Any
Beneficiary designation made subsequent to execution of the Joinder Agreement
shall become effective only when receipt thereof is acknowledged in writing by
the Administrator.
SECTION VII
DIRECTOR'S RIGHT TO ASSETS
The rights of the Director, any Beneficiary, or any other person
claiming through the Director under this Agreement, shall be solely those of an
unsecured general creditor of the Association. The Director, the Beneficiary, or
any other person claiming through the Director, shall only have the right to
receive from the Association those payments so specified under this
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Agreement. The Director agrees that he, his Beneficiary, or any other person
claiming through him shall have no rights or interests whatsoever in any asset
of the Association, including any insurance policies or contracts which the
Association may possess or obtain to informally fund this Agreement. Any asset
used or acquired by the Association in connection with the liabilities it has
assumed under this Agreement, unless expressly provided herein, shall not be
deemed to be held under any trust for the benefit of the Director or his
Beneficiaries, nor shall any asset be considered security for the performance of
the obligations of the Association. Any such asset shall be and remain, a
general, unpledged, and unrestricted asset of the Association.
SECTION VIII
RESTRICTIONS UPON FUNDING
The Association shall have no obligation to set aside, earmark or
entrust any fund or money with which to pay its obligations under this
Agreement. The Director, his Beneficiaries or any successor in interest to him
shall be and remain simply a general unsecured creditor of the Association in
the same manner as any other creditor having a general claim for matured and
unpaid compensation. The Association reserves the absolute right in its sole
discretion to either purchase assets to meet its obligations undertaken by this
Agreement or to refrain from the same and to determine the extent, nature, and
method of such asset purchases. Should the Association decide to purchase assets
such as life insurance, mutual funds, disability policies or annuities, the
Association reserves the absolute right, in its sole discretion, to terminate
such assets at any time, in whole or in part. At no time shall the Director be
deemed to have any lien, right, title or interest in or to any specific
investment or to any assets of the Association. If the Association elects to
invest in a life insurance, disability or annuity policy upon the life of the
Director, then the Director shall assist the
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Association by freely submitting to a physical examination and by supplying such
additional information necessary to obtain such insurance or annuities.
SECTION IX
ALIENABILITY AND ASSIGNMENT PROHIBITION
Neither the Director nor any Beneficiary under this Agreement shall
have any power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the benefits payable
hereunder, nor shall any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance owed by the Director or
his Beneficiary, nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event the Director or any
Beneficiary attempts assignment, communication, hypothecation, transfer or
disposal of the benefits hereunder, the Association's liabilities shall
forthwith cease and terminate.
SECTION X
ACT PROVISIONS
10.1 Named Fiduciary and Administrator. Financial Institution Consulting
Corporation, a Tennessee Corporation ("FICC") shall be the Named Fiduciary
and Administrator (the "Administrator") of this Agreement. As
Administrator, FICC shall be responsible for the management, control and
administration of the Agreement as established herein. The Administrator
may delegate to others certain aspects of the management and operational
responsibilities of the Agreement, including the employment of advisors and
the delegation of ministerial duties to qualified individuals.
10.2 Claims Procedure and Arbitration. In the event that benefits under this
Agreement are not paid to the Director (or to his Beneficiary in the case
of the Director's death) and such
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claimants feel they are entitled to receive such benefits, then a
written claim must be made to the Administrator within sixty (60) days
from the date payments are refused. The Association and its Board
shall review the written claim and, if the claim is denied, in whole
or in part, they shall provide in writing, within ninety (90) days of
receipt of such claim, their specific reasons for such denial,
reference to the provisions of this Agreement or the Joinder Agreement
upon which the denial is based, and any additional material or
information necessary to perfect the claim. Such writing by the
Association and its Board shall further indicate the additional steps
which must be undertaken by claimants if an additional review of the
claim denial is desired.
If claimants desire a second review, they shall notify the
Administrator in writing within sixty (60) days of the first claim
denial. Claimants may review this Agreement, the Joinder Agreement or
any documents relating thereto and submit any issues and comments, in
writing, they may feel appropriate. In its sole discretion, the
Administrator shall then review the second claim and provide a written
decision within sixty (60) days of receipt of such claim. This
decision shall state the specific reasons for the decision and shall
include reference to specific provisions of this Agreement or the
Joinder Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Agreement and the Joinder Agreement or
the meaning and effect of the terms and conditions thereof, then
claimants may submit the dispute to a Board of Arbitration for final
arbitration. Said Board shall consist of one member selected by the
claimant, one member selected by the Association, and the third member
selected by the first two members. The Board shall operate under any
generally recognized set of arbitration rules. The parties hereto
agree that
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they, their heirs, personal representatives, successors and assigns
shall be bound by the decision of such Board with respect to any
controversy properly submitted to it for determination.
SECTION XI
MISCELLANEOUS
11.1 No Effect on Directorship Rights. Nothing contained herein will confer upon
the Director the right to be retained in the service of the Association nor
limit the right of the Association to discharge or otherwise deal with the
Director without regard to the existence of the Agreement. Pursuant to 12
C.F.R. ss. 563.39(b), the following conditions shall apply to this
Agreement:
(1) The Association's Board of Directors may remove the Director at any
time, but any removal by the Association's Board of Directors other
than removal for Cause shall not prejudice the Director's vested right
to compensation or other benefits under the contract. As provided in
Section 4.4, the Director shall be paid the balance of his Elective
Contribution Account in a lump sum within thirty (30) days of his
removal in the event he is removed for Cause. He shall have no right
to receive additional compensation or other benefits for any period
after removal for Cause.
(2) If the Director is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice
served under Section 8(e)(3) or (g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. 1818(e)(3) and (g)(1)) the Association's
obligations under the contract shall be suspended (except vested
rights) as of the date of termination of service unless stayed by
appropriate proceedings. If the charges in the notice are dismissed,
the Association may in its discretion (i) pay
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the Director all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in
whole or in part) any of its obligations which were suspended.
(3) If the Director is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an
order issued under Section 8(e)(4) or (g)(1) of the Federal
Deposit Insurance Act (12 U.S.C. 1818(e)(4) or (g)(1)), all
non-vested obligations of the Association under the contract
shall terminate as of the effective date of the order, but vested
rights of the Director shall not be affected.
(4) If the Association is in default (as defined in Section 3(x)(1)
of the Federal Deposit Insurance Act), all non-vested obligations
under the contract shall terminate as of the date of default.
(5) All non-vested obligations under the contract shall be
terminated, except to the extent determined that continuation of
the contract is necessary for the continued operation of the
Association:
(i) by the Director or his designee at the time the Federal
Deposit insurance Corporation or the Resolution Trust
Corporation enters into an agreement to provide assistance
to or on behalf of the Association under the authority
contained in ss. 13(c) of the Federal Deposit Insurance Act;
or
(ii) by the Director or his designee, at the time the Director or
his designee approves a supervisory merger to resolve
problems related to operation of the Association or when the
Association is determined by the Director to be in an unsafe
or unsound condition.
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<PAGE>
Any rights of the parties that have already vested, (i.e., the
balance of his Elective Contribution Account), however, shall
not be affected by such action.
11.2 State Law. The Agreement is established under, and will be construed
according to, the laws of the State of Indiana.
11.3 Severability. In the event that any of the provisions of this Agreement or
portion thereof, are held to be inoperative or invalid by any court of
competent jurisdiction, then:
(1) insofar as is reasonable, effect will be given to the intent
manifested in the provisions held invalid or inoperative, and (2) the
validity and enforceability of the remaining provisions will not be
affected thereby.
11.4 Incapacity of Recipient. In the event the Director is declared
incompetent and a conservator or other person legally charged with the
care of his person or Estate is appointed, any benefits under the
Agreement to which such Director is entitled shall be paid to such
conservator or other person legally charged with the care of his person
or Estate. Except as provided above in this paragraph, when the
Association's Board of Directors, in its sole discretion, determines
that the Director is unable to manage his financial affairs, the Board
may direct the Association to make distributions to any person for the
benefit of the Director.
11.5 Recovery of Estate Taxes. If the Director's gross estate for federal
estate tax purposes includes any amount determined by reference to and
on account of this Agreement, and if the Beneficiary is other than the
Director's estate, then the Director's estate shall be entitled to
recover from the Beneficiary receiving such benefit under the terms of
the Agreement, an amount by which the total estate tax due by
Director's estate, exceeds the total estate tax which would have been
payable if the value of such benefit had not been included in the
Director's gross estate. If there is more than one person receiving
such benefit, the right of
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<PAGE>
recovery shall be against each such person. In the event the
Beneficiary has a liability hereunder, the Beneficiary may petition the
Association for a lump sum payment in an amount not to exceed the
Beneficiary's liability hereunder.
11.6 Unclaimed Benefit. The Director shall keep the Association informed of
his current address and the current address of his Beneficiaries. If
the location of the Director is not made known to the Association
within three (3) years after the date on which any payment of the
Deferred Compensation Benefit may be made, payment may be made as
though the Director had died at the end of the three (3) year period.
If, within one (1) additional year after such three (3) year period has
elapsed, or, within three (3) years after the actual death of the
Director, whichever occurs first, the Association is unable to locate
any Beneficiary of the Director, the Association may fully discharge
its obligation by payment to the Estate.
11.7 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Agreement, neither the Association, nor any
individual acting as an employee or agent of the Association, or as a
member of the Board of Directors shall be liable to the Director or any
other person for any claim, loss, liability or expense incurred in
connection with the Agreement.
11.8 Gender. Whenever in this Agreement words are used in the masculine or
neuter gender, they shall be read and construed as in the, masculine,
feminine or neuter gender, whenever they should so apply.
11.9 Affect on Other Corporate Benefit Agreements. Nothing contained in this
Agreement shall affect the right of the Director to participate in or
be covered by any qualified or non-qualified pension, profit sharing,
group, bonus or other supplemental compensation or fringe benefit
agreement constituting a part of the Association's existing or future
compensation structure.
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<PAGE>
11.10 Suicide. Notwithstanding anything to the contrary in this Agreement,
the benefits otherwise provided herein shall not be payable if the
Director's death results from suicide, whether sane or insane, within
twenty-six (26) months after the execution of this Agreement. If the
Director dies during this twenty-six (26) month period due to suicide,
the balance of his Elective Contribution Account will be paid to the
Director's Beneficiary in a single payment. Payment is to be made
within thirty (30) days after the Director's death is declared a
suicide by competent legal authority. Credit shall be given to the
Association for payments made prior to determination of suicide.
11.11 Headings. Headings and sub-headings in this Agreement are inserted for
reference and convenience only and shall not be deemed a part of this
Agreement.
SECTION XII
AMENDMENT/REVOCATION
This Agreement shall not be amended, modified or revoked at any time,
in whole or part, without the mutual written consent of the Director and the
Association, and such mutual consent shall be required even if the Director is
no longer serving the Association as a member of the Board.
SECTION XIII
EXECUTION
13.1 This Agreement sets forth the entire understanding of the parties
hereto with respect to the transactions contemplated hereby, and any
previous agreements or understandings between the parties hereto
regarding the subject matter hereof are merged into and superseded by
this Agreement.
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<PAGE>
13.2 This Agreement shall be executed in triplicate, each copy of which,
when so executed and delivered, shall be an original, but all three
copies shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the Association has caused this Agreement to be
executed on this ______ day of _________________, 19____.
MADISON FIRST FEDERAL SAVINGS & LOAN ASSOCIATION
By:
(Title)
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Exhibit 10(9)
DIRECTOR DEFERRED COMPENSATION JOINDER AGREEMENT
I, Jerry D. Allen, hereby apply for approval by Madison First Federal
Savings & Loan Association to participate in the Director Deferred Compensation
Master Agreement ("Master Agreement") established on November 1, 1993, by
Madison First Federal Savings & Loan Association, as such Master Agreement may
now exist or hereafter be modified; and do further agree to the terms and
conditions thereof.
I understand that I must execute this Director Deferred Compensation
Joinder Agreement ("Joinder Agreement") as well as notify the Administrator of
such execution, on or before November 1, 1993, in order to participate in the
Plan from its Effective Date. Otherwise, I may execute this Joinder Agreement
and give notice of such execution to the Administrator at least thirty (30) days
prior to any January 1.
I hereby elect to irrevocably defer my board fees, monthly, by $600.00.
Such deferrals shall commence on November 1, 1993, and shall continue for a
period of 60 months known as the "Deferral Period", and will result in a
"Projected Deferral" in the amount of $36,000.00.
I understand that my election to defer shall continue in accordance with
this Joinder Agreement until such time as I submit a "Notice of Adjustment of
Deferral Amount" (Exhibit B, hereto) to the Association and Administrator, at
least thirty (30) days prior to any January 1st of my Deferral Period. A Notice
of Adjustment of Deferral Amount can be used to adjust the amount or percentage
of Board fees to be deferred or to discontinue deferrals altogether.
I hereby elect a "Benefit Age" of 67 years, 0 months and a "Payout Period"
of 180 months.
In general, I understand that my designated Beneficiary shall be entitled
to a "Survivor's Benefit" monthly annuity in the amount of $849.00 pursuant to
Subsection 5.1(b) and subject to all relevant Subsections of the Master
Agreement. I also understand that Subsection 5.1 is the Death Benefit Subsection
applicable to me (and my Beneficiary) and that Subsection 5.2 shall be
inapplicable with respect to me (and my Beneficiary).
I hereby designate the following individuals as my "Beneficiary" and I am
aware that I can subsequently change such designation by submitting to the
Administrator, at any subsequent time, and in substantially the form attached
hereto as Exhibit A, a written designation of the primary and secondary
Beneficiaries to whom payment under the Master Agreement shall be made in the
event of my death prior to complete distribution of the benefits due and payable
under the Master Agreement. I understand that any Beneficiary designation made
subsequent to execution of the Joinder Agreement shall become effective only
when receipt thereof is acknowledged in writing by the Administrator.
<PAGE>
PRIMARY BENEFICIARY Susan K. Allen
SECONDARY BENEFICIARY Donald L. Allen, Stephen P. Allen; in equal shares
I understand that my deferral of Board fees is intended to satisfy the
elective deferral requirements existing under federal income tax laws. A private
letter ruling has not been obtained from the Internal Revenue Service. In the
event that any portion of my deferral is subject to an adverse determination
regarding the deferral of such Board fees as well as the deferral of the
corresponding tax liability by the Internal Revenue Service, such portion of my
Board fees shall be excepted from the Plan and returned to me at my request.
I further understand that I am entitled to review or obtain a copy of the
Master Agreement, at any time, and may do so by contacting either the
Association or the Administrator.
This Joinder Agreement shall become effective upon execution (below) by
both the Director and a duly authorized officer of the Association.
Dated this 1st day of November, 1993.
/s/ Jerry D. Allen
(Director)
/s/ Robert W. Anger
(Association's duly authorized Officer)
-2-
Exhibit 10(10)
DIRECTOR DEFERRED COMPENSATION JOINDER AGREEMENT
I, Robert W. Anger, hereby apply for approval by Madison First Federal
Savings & Loan Association to participate in the Director Deferred
Compensation
Master Agreement ("Master Agreement") established on November 1, 1993, by
Madison First Federal Savings & Loan Association, as such Master Agreement may
now exist or hereafter be modified; and do further agree to the terms and
conditions thereof.
I understand that I must execute this Director Deferred Compensation
Joinder Agreement ("Joinder Agreement") as well as notify the Administrator of
such execution, on or before November 1, 1993, in order to participate in the
Plan from its Effective Date. Otherwise, I may execute this Joinder Agreement
and give notice of such execution to the Administrator at least thirty (30) days
prior to any January 1.
I hereby elect to irrevocably defer my board fees, monthly, by $600.00.
Such deferrals shall commence on November 1, 1993, and shall continue for a
period of 120 months known as the "Deferral Period", and will result in a
"Projected Deferral" in the amount of $72,000.00.
I understand that my election to defer shall continue in accordance with
this Joinder Agreement until such time as I submit a "Notice of Adjustment of
Deferral Amount" (Exhibit B, hereto) to the Association and Administrator, at
least thirty (30) days prior to any January 1st of my Deferral Period. A Notice
of Adjustment of Deferral Amount can be used to adjust the amount or percentage
of Board fees to be deferred or to discontinue deferrals altogether.
I hereby elect a "Benefit Age" of 65 years, 8 months and a "Payout Period"
of 120 months.
In general, I understand that my designated Beneficiary shall be entitled
to a "Survivor's Benefit" monthly annuity in the amount of $1,638.00 pursuant to
Subsection 5.1(b) and subject to all relevant Subsections of the Master
Agreement. I also understand that Subsection 5.1 is the Death Benefit Subsection
applicable to me (and my Beneficiary) and that Subsection 5.2 shall be
inapplicable with respect to me (and my Beneficiary).
I hereby designate the following individuals as my "Beneficiary" and I am
aware that I can subsequently change such designation by submitting to the
Administrator, at any subsequent time, and in substantially the form attached
hereto as Exhibit A, a written designation of the primary and secondary
beneficiaries to whom payment under the Master Agreement shall be made in the
event of my death prior to complete distribution of the benefits due and payable
under the Master Agreement. I understand that any Beneficiary designation made
subsequent to execution of the Joinder Agreement shall become effective only
when receipt thereof is acknowledged in writing by the Administrator.
<PAGE>
PRIMARY BENEFICIARY Bertha Ilene Anger
SECONDARY BENEFICIARY Linda Jean Allanson, Sharon Sue Atkinson,
Deborah Lynn Snodgrass; in equal shares
I understand that my deferral of Board fees is intended to satisfy the
elective deferral requirements existing under federal income tax laws. A private
letter ruling has not been obtained from the Internal Revenue Service. In the
event that any portion of my deferral is subject to an adverse determination
regarding the deferral of such Board fees as well as the deferral of the
corresponding tax liability by the Internal Revenue Service, such portion of my
Board fees shall be excepted from the Plan and returned to me at my request.
I further understand that I am entitled to review or obtain a copy of
the Master Agreement, at any time, and may do so by contacting either the
Association or the Administrator.
This Joinder Agreement shall become effective upon execution (below) by
both the Director and a duly authorized officer of the Association.
Dated this 1st day of November, 1993.
/s/ Robert W. Anger
(Director)
/s/ Fred W. Koehler
(Association's duly authorized Officer)
-2-
Exhibit 10(11)
DIRECTOR DEFERRED COMPENSATION JOINDER AGREEMENT
I, Cecil L. Dorten, hereby apply for approval by Madison First Federal
Savings & Loan Association to participate in the Director Deferred Compensation
Master Agreement ("Master Agreement") established on November 1, 1993, by
Madison First Federal Savings & Loan Association, as such Master Agreement may
now exist or hereafter be modified; and do further agree to the terms and
conditions thereof.
I understand that I must execute this Director Deferred Compensation
Joinder Agreement ("Joinder Agreement") as well as notify the Administrator of
such execution, on or before November 1, 1993, in order to participate in the
Plan from its Effective Date. Otherwise, I may execute this Joinder Agreement
and give notice of such execution to the Administrator at least thirty (30) days
prior to any January 1.
I hereby elect to irrevocably defer my board fees, monthly, by $600.00.
Such deferrals shall commence on November 1, 1993, and shall continue for a
period of 120 months known as the "Deferral Period", and will result in a
"Projected Deferral" in the amount of $72,000.00.
I understand that my election to defer shall continue in accordance
with this Joinder Agreement until such time as I submit a "Notice of Adjustment
of Deferral Amount" (Exhibit B, hereto) to the Association and Administrator, at
least thirty (30) days prior to any January 1st of my Deferral Period. A Notice
of Adjustment of Deferral Amount can be used to adjust the amount or percentage
of Board fees to be deferred or to discontinue deferrals altogether.
I hereby elect a "Benefit Age" of 70 years, 0 months and a "Payout Period"
of 120 months.
In general, I understand that my designated Beneficiary shall be
entitled to a "Survivor's Benefit" monthly annuity in the amount of $4,777.00
pursuant to Subsection 5.2(b) and subject to all relevant Subsections of the
Master Agreement. I also understand that Subsection 5.2 is the Death Benefit
Subsection applicable to me (and my beneficiary) and that Subsection 5.1 shall
be inapplicable with respect to me (and my beneficiary).
I hereby designate the following individuals as my "Beneficiary" and I
am aware that I can subsequently change such designation by submitting to the
Administrator, at any subsequent time, and in substantially the form attached
hereto as Exhibit A, a written designation of the primary and secondary
beneficiaries to whom payment under the Master Agreement shall be made in the
event of my death prior to complete distribution of the benefits due and payable
under the Master Agreement. I understand that any Beneficiary designation made
subsequent to execution of the Joinder Agreement shall become effective only
when receipt thereof is acknowledged in writing by the Administrator.
<PAGE>
PRIMARY BENEFICIARY Deborah J. Dorten
SECONDARY BENEFICIARY --None--
I understand that my deferral of Board fees is intended to satisfy the
elective deferral requirements existing under federal income tax laws. A private
letter ruling has not been obtained from the Internal Revenue Service. In the
event that any portion of my deferral is subject to an adverse determination
regarding the deferral of such Board fees as well as the deferral of the
corresponding tax liability by the Internal Revenue Service, such portion of my
Board fees shall be excepted from the Plan and returned to me at my request.
I further understand that I am entitled to review or obtain a copy of
the Master Agreement, at any time, and may do so by contacting either the
Association or the Administrator.
This Joinder Agreement shall become effective upon execution (below) by
both the Director and a duly authorized officer of the Association.
Dated this 1st day of November, 1993.
/s/ Cecil L. Dorten
(Director)
/s/ Robert W. Anger
(Association's duly authorized Officer)
-2-
Exhibit 10(12)
DIRECTOR DEFERRED COMPENSATION JOINDER AGREEMENT
I, Earl W. Johann, hereby apply for approval by Madison First Federal
Savings & Loan Association to participate in the Director Deferred Compensation
Master Agreement ("Master Agreement") established on November 1, 1993, by
Madison First Federal Savings & Loan Association, as such Master Agreement may
now exist or hereafter be modified; and do further agree to the terms and
conditions thereof.
I understand that I must execute this Director Deferred Compensation
Joinder Agreement ("Joinder Agreement") as well as notify the Administrator of
such execution, on or before November 1, 1993, in order to participate in the
Plan from its Effective Date. Otherwise, I may execute this Joinder Agreement
and give notice of such execution to the Administrator at least thirty (30) days
prior to any January 1.
I hereby elect to irrevocably reduce my Board fees, monthly, by
$600.00. Such deferrals shall commence on November 1, 1993 and shall continue
for a period of 60 months known as the "Deferral Period", and will result in a
"Projected Deferral" in the amount of $36,000.00.
I understand that my election to defer shall continue in accordance
with this Joinder Agreement until such time as I submit a "Notice of Adjustment
of Deferral Amount" (Exhibit B, hereto) to the Association and Administrator, at
least thirty (30) days prior to any January 1st of my Deferral Period. A Notice
of Adjustment of Deferral Amount can be used to adjust the amount or percentage
of Board fees to be deferred or to discontinue deferrals altogether.
I hereby elect a "Benefit Age" of 67 years, 0 months and a "Payout Period"
of 120 months.
In general, I understand that my designated Beneficiary shall be
entitled to a "Survivor's Benefit" monthly annuity in the amount of $624.00
pursuant to Subsection 5.1(b) and subject to all relevant Subsections of the
Master Agreement. I also understand that Subsection 5.1 is the Death Benefit
Subsection applicable to me (and my Beneficiary) and that Subsection 5.2 shall
be inapplicable with respect to me (and my Beneficiary).
I hereby designate the following individuals as my "Beneficiary" and I
am aware that I can subsequently change such designation by submitting to the
Administrator, at any subsequent time, and in substantially the form attached
hereto as Exhibit A, a written designation of the primary and secondary
beneficiaries to whom payment under the Master Agreement shall be made in the
event of my death prior to complete distribution of the benefits due and payable
under the Master Agreement. I understand that any Beneficiary designation made
subsequent to execution of the Joinder Agreement shall become effective only
when receipt thereof is acknowledged in writing by the Administrator.
<PAGE>
PRIMARY BENEFICIARY Jean C. Johann
SECONDARY BENEFICIARY Charles W. Johann, Michael A. Johann,
Randall W. Johann; in equal shares
I understand that my deferral of Board fees is intended to satisfy the
elective deferral requirements existing under federal income tax laws. A private
letter ruling has not been obtained from the Internal Revenue Service. In the
event that any portion of my deferral is subject to an adverse determination
regarding the deferral of such Board fees as well as the deferral of the
corresponding tax liability by the Internal Revenue Service, such portion of my
Board fees shall be excepted from the Plan and returned to me at my request.
I further understand that I am entitled to review or obtain a copy of
the Master Agreement, at any time, and may do so by contacting either the
Association or the Administrator.
This Joinder Agreement shall become effective upon execution (below) by
both the Director and a duly authorized officer of the Association.
Dated this 1st day of November, 1993.
/s/ Earl W. Johann
(Director)
/s/ Robert W. Anger
(Association's duly authorized Officer)
-2-
Exhibit 10(13)
DIRECTOR DEFERRED COMPENSATION JOINDER AGREEMENT
I, Frederick W. Koehler, hereby apply for approval by Madison First
Federal Savings & Loan Association to participate in the Director Deferred
Compensation Master Agreement ("Master Agreement") established on November 1,
1993, by Madison First Federal Savings & Loan Association, as such Master
Agreement may now exist or hereafter be modified; and do further agree to the
terms and conditions thereof.
I understand that I must execute this Director Deferred Compensation
Joinder Agreement ("Joinder Agreement") as well as notify the Administrator of
such execution, on or before November 1, 1993, in order to participate in the
plan from its Effective Date. Otherwise, I may execute this Joinder Agreement
and give notice of such execution to the Administrator at least thirty (30) days
prior to any January 1.
I hereby elect to irrevocably reduce my board fees, monthly, by
$600.00. Such deferrals shall commence on November 1, 1993 and shall continue
for a period of 60 months known as the "Deferral Period", and will result in a
"Projected Deferral" in the amount of $36,000.00.
I understand that my election to defer shall continue in accordance
with this Joinder Agreement until such time as I submit a "Notice of Adjustment
of Deferral Amount" (Exhibit B, hereto) to the Association and Administrator, at
least thirty (30) days prior to any January 1st of my Deferral Period. A Notice
of Adjustment of Deferral Amount can be used to adjust the amount or percentage
of Board fees to be deferred or to discontinue deferrals altogether.
I hereby elect a "Benefit Age" of 65 years, 0 months and a "Payout Period"
of 120 months.
In general, I understand that my designated Beneficiary shall be
entitled to a "Survivor's Benefit" monthly annuity in the amount of $1,233.00
pursuant to Subsection 5.1(b) and subject to all relevant Subsections of the
Master Agreement. I also understand that Subsection 5.1 is the Death Benefit
Subsection applicable to me (and my Beneficiary) and that Subsection 5.2 shall
be inapplicable with respect to me (and my Beneficiary).
I hereby designate the following individuals as my "Beneficiary" and I
am aware that I can subsequently change such designation by submitting to the
Administrator, at any subsequent time, and in substantially the form attached
hereto as Exhibit A, a written designation of the primary and secondary
beneficiaries to whom payment under the Master Agreement shall be made in the
event of my death prior to complete distribution of the benefits due and payable
under the Master Agreement. I understand that any Beneficiary designation made
subsequent to execution of the Joinder Agreement shall become effective only
when receipt thereof is acknowledged in writing by the Administrator.
<PAGE>
PRIMARY BENEFICIARY Judith A. Koehler
SECONDARY BENEFICIARY Jay F. Koehler, Gregory W. Koehler,
Leigh K. Koehler, Ann Marie Koehler; in equal shares
I understand that my deferral of Board fees is intended to satisfy the
elective deferral requirements existing under federal income tax laws. A private
letter ruling has not been obtained from the Internal Revenue Service. In the
event that any portion of my deferral is subject to an adverse determination
regarding the deferral of such Board fees as well as the deferral of the
corresponding tax liability by the Internal Revenue Service, such portion of my
Board fees shall be excepted from the Plan and returned to me at my request.
I further understand that I am entitled to review or obtain a copy of
the Master Agreement, at any time, and may do so by contacting either the
Association or the Administrator.
This Joinder Agreement shall become effective upon execution (below) by
both the Director and a duly authorized officer of the Association.
Dated this 1st day of November, 1993.
/s/ Fred W. Koehler
(Director)
/s/ Robert W. Anger
(Association's duly authorized Officer)
-2-
Exhibit 10(14)
DIRECTOR DEFERRED COMPENSATION JOINDER AGREEMENT
I, James E. Fritz, hereby apply for approval by Madison First Federal
Savings & Loan Association to participate in the Director Deferred Compensation
Master Agreement ("Master Agreement") established on November 1, 1993, by
Madison First Federal Savings & Loan Association, as such Master Agreement may
now exist or hereafter be modified; and do further agree to the terms and
conditions thereof.
I understand that I must execute this Director Deferred Compensation
Joinder Agreement ("Joinder Agreement") as well as notify the Administrator of
such execution, on or before November 1, 1993, in order to participate in the
plan from its Effective Date. Otherwise, I may execute this Joinder Agreement
and give notice of such execution to the Administrator at least thirty (30) days
prior to any January 1.
I hereby elect to irrevocably defer my Board fees, monthly, by $600.00
for the first 6 months. Thereafter, I hereby elect to irrevocably defer my
salary, monthly, by $600.00 for the next 54 months. Such deferrals shall
commence on August 1, 1995, and shall continue for a period of 60 months (in
total) known as the "Deferral Period", and will result in a "Projected Deferral"
in the amount of $36,000.00.
I understand that my election to defer shall continue in accordance
with this Joinder Agreement until such time as I submit a "Notice of Adjustment
of Deferral Amount" (Exhibit B, hereto) to the Association and Administrator, at
least thirty (30) days prior to any January 1st of my Deferral Period. A Notice
of Adjustment of Deferral Amount can be used to adjust the amount of
compensation to be deferred or to discontinue deferrals altogether.
I hereby elect a "Benefit Age" of 45 years, 0 months and a "Payout Period"
of 120 months.
In general, I understand that my designated Beneficiary shall be
entitled to a "Survivor's Benefit" monthly annuity in the amount of $1,254.00
pursuant to Subsection 5.1(b) and subject to all relevant Subsections of the
Master Agreement. I also understand that Subsection 5.1 is the Death Benefit
Subsection is applicable to me (and my Beneficiary) and that Subsection 5.2
shall be inapplicable with respect to me (and my Beneficiary).
I hereby designate the following individuals as my "Beneficiary" and I
am aware that I can subsequently change such designation by submitting to the
Administrator, at any subsequent time, and in substantially the form attached
hereto as Exhibit A, a written designation of the primary and secondary
Beneficiaries to whom payment under the Master Agreement shall be made in the
event of my death prior to complete distribution of the benefits due and payable
under the Master Agreement. I understand that any Beneficiary designation made
subsequent to execution of the Joinder Agreement shall become effective only
when receipt thereof is acknowledged in writing by the Administrator.
<PAGE>
PRIMARY BENEFICIARY Kimberly D. Fritz
SECONDARY BENEFICIARY Michelle A. Fritz
I understand that my deferral of Board fees and/or salary is intended
to satisfy the elective deferral requirements existing under federal income tax
laws. A private letter ruling has not been obtained from the Internal Revenue
Service. In the event that any portion of my deferral is subject to an adverse
determination regarding the deferral of such Board fees and/or salary as well as
the deferral of the corresponding tax liability by the Internal Revenue Service,
such portion of my Board fees and/or salary shall be excepted from the plan and
returned to me at my request.
I further understand that I am entitled to review or obtain a copy of
the Master Agreement, at any time, and may do so by contacting either the
Association or the Administrator.
This Joinder Agreement shall become effective upon execution (below) by
both the Director and a duly authorized officer of the Association.
Dated this 1st day of August, 1995.
/s/ James E. Fritz
(Director)
/s/ Fred W. Koehler
(Association's duly authorized Officer)
-2-
Exhibit 10(15)
DIRECTOR DEFERRED COMPENSATION JOINDER AGREEMENT
I, Michael Hensley, hereby apply for approval by Madison First Federal
Savings & Loan Association to participate in the Director Deferred Compensation
Master Agreement ("Master Agreement") established on November 1, 1993, by
Madison First Federal Savings & Loan Association, as such Master Agreement may
now exist or hereafter be modified; and do further agree to the terms and
conditions thereof.
I understand that I must execute this Director Deferred Compensation
Joinder Agreement ("Joinder Agreement") as well as notify the Administrator of
such execution, on or before November 1, 1993, in order to participate in the
plan from its Effective Date. Otherwise, I may execute this Joinder Agreement
and give notice of such execution to the Administrator at least thirty (30) days
prior to any January 1.
I hereby elect to irrevocably defer my board fees, monthly, by $600.00
for the first 3 months. I also elect to irrevocably defer my board fees,
monthly, by $150.00 for the next 12 months. I further elect to irrevocably defer
my board fees, monthly, by $600.00 for the next 45 months. Such deferrals shall
commence on October 1, 1995, and shall continue for a period of 60 months (in
total) known as the "Deferral Period", and will result in a "Projected Deferral"
in the amount of $30,600.00.
I understand that my election to defer shall continue in accordance
with this Joinder Agreement until such time as I submit a "Notice of Adjustment
of Deferral Amount" (Exhibit B, hereto) to the Association and Administrator, at
least thirty (30) days prior to any January 1st of my Deferral Period. A Notice
of Adjustment of Deferral Amount can be used to adjust the amount of Board fees
to be deferred or to discontinue deferrals altogether.
I hereby elect a "Benefit Age" of 63 years, 0 months and a "Payout Period"
of 60 months.
In general, I understand that my designated Beneficiary shall be
entitled to a "Survivor's Benefit" monthly annuity in the amount of $4,961.00
pursuant to Subsection 5.1(b) and subject to all relevant Subsections of the
Master Agreement. I also understand that Subsection 5.1 is the Death Benefit
Subsection applicable to me (and my Beneficiary) and that Subsection 5.2 shall
be inapplicable with respect to me (and my Beneficiary).
I hereby designate the following individuals as my "Beneficiary" and I
am aware that I can subsequently change such designation by submitting to the
Administrator, at any subsequent time, and in substantially the form attached
hereto as Exhibit A, a written designation of the primary and secondary
Beneficiaries to whom payment under the Master Agreement shall be made in the
event of my death prior to complete distribution of the benefits due and payable
under the Master Agreement. I understand that any Beneficiary designation made
subsequent to execution of the Joinder Agreement shall become effective only
when receipt thereof is acknowledged in writing by the Administrator.
<PAGE>
PRIMARY BENEFICIARY Kathy Hensley
SECONDARY BENEFICIARY Evan Hensley
I understand that my deferral of Board fees is intended to satisfy the
elective deferral requirements existing under federal income tax laws. A private
letter ruling has not been obtained from the Internal Revenue Service. In the
event that any portion of my deferral is subject to an adverse determination
regarding the deferral of such Board fees as well as the deferral of the
corresponding tax liability by the Internal Revenue Service, such portion of
Board fees shall be excepted from the plan and returned to me at my request.
I further understand that I am entitled to review or obtain a copy of
the Master Agreement, at any time, and may do so by contacting either the
Association or the Administrator.
This Joinder Agreement shall become effective upon execution (below) by
both the Director and a duly authorized officer of the Association.
Dated this 1st day of October, 1995.
/s/ Michael J. Hensley
(Director)
/s/ James E. Fritz
(Association's duly authorized Officer)
-2-
Exhibit 10(16)
SPECIAL TERMINATION AGREEMENT
THIS SPECIAL TERMINATION AGREEMENT ("Agreement") is made and entered into
as of this day of , 1996, by and between Madison First Federal Savings and Loan
Association, a federally chartered savings and loan association (which, together
with any successor thereto which executes and delivers the assumption agreement
provided for in Section 11(a) hereof or which otherwise becomes bound by the
terms and provisions of this Agreement by operation of law, is hereinafter
referred to as the "Bank"), and Traci A. Bridgford, whose residence address is
_______________________________________ (the "Employee").
WHEREAS, the Employee is currently serving as a Vice President-
Compliance/Operations of the Bank; and
WHEREAS, the Bank has adopted a plan of conversion whereby the Bank will
convert to capital stock form as the subsidiary of River Valley Bancorp, an
Indiana corporation (the "Holding Company") (the "Conversion"); and
WHEREAS, the Board of Directors of the Bank recognizes that, as is the case
with publicly held corporations generally, the possibility of a change in
control of the Holding Company may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of key management personnel to the detriment of the
Bank, the Holding Company and its shareholders; and
WHEREAS, the Board of Directors of the Bank believes it is in the best
interests of the Bank to enter into this Agreement with the Employee in order to
assure continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to her assigned duties
without distraction in the face of potentially disruptive circumstances arising
from the possibility of a change in control of the Holding Company, although no
such change is now contemplated; and
WHEREAS, the Board of Directors of the Bank has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 1 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, it is agreed as
follows:
1. TERM OF AGREEMENT. The term of this Agreement shall be deemed to have
commenced as of the date the Bank converts from mutual to stock form (the
"Effective Date") and shall continue until February 1, 1998. Commencing on
February 1, 1998, and continuing at each anniversary date thereafter, the Board
of Directors shall review this Agreement and, in its discretion, may authorize
extension thereof for an additional one-year period.
<PAGE>
2. PAYMENTS TO THE EMPLOYEE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a change in control of the Bank or the
Holding Company (as herein defined) during the term of the Employee's
employment, followed at any time during the term of this Agreement by the
involuntary termination of the Employee's employment, other than for cause, as
defined in Section 2(d) hereof, the provisions of Section 3 shall apply.
(b) A "change in control" of the Bank or the Holding Company shall be
deemed to have occurred if:
(i) as a result of, or in connection with, any initial public
offering, tender offer or exchange offer, merger or other business
combination, sale of assets or contested election, any combination of the
foregoing transactions, or any similar transaction, the persons who were
non-employee directors of the Bank or the Holding Company before such
transaction cease to constitute a majority of the Board of Directors of the
Bank or the Holding Company or any successor thereof;
(ii) the Bank or the Holding Company transfers substantially all of
its assets to another corporation which is not a wholly-owned subsidiary of
the Bank or the Holding Company;
(iii) the Bank or the Holding Company sells substantially all of the
assets of a subsidiary or affiliate which, at the time of such sale, is the
principal employer of the Employee; or
(iv) the Bank or the Holding Company is merged or consolidated with
another corporation and, as a result of the merger or consolidation, less
than fifty-one percent (51%) of the outstanding voting securities of the
surviving or resulting corporation is owned in the aggregate by the former
shareholders of the Bank or of the Holding Company.
(c) The Employee's employment under this Agreement may be terminated at
any time by the Board of Directors of the Bank. The terms "involuntary
termination" or "involuntarily terminated" in this Agreement shall refer to the
termination of the employment of Employee without her express written consent.
In addition, a material diminution of or interference with the Employee's
duties, responsibilities and benefits shall be deemed and shall constitute an
involuntary termination of employment to the same extent as express notice of
such involuntary termination. By way of example and not by way of limitation,
any of the following actions, if unreasonable or materially adverse to the
Employee, shall constitute such diminution or interference unless consented to
in writing by the Employee: (1) the requirement that the Employee perform her
principal executive functions more than thirty-five (35) miles from her primary
office as of the date of the change in control; (2) a material reduction in the
Employee's salary, perquisites, contingent
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<PAGE>
benefits or vacation time as in effect on the date of the change in control as
the same may be changed by mutual agreement from time to time other than as part
of an overall program applied uniformly and with equitable effect to all members
of the senior management of the Bank; (3) the assignment to the Employee of
duties and responsibilities materially different from those normally associated
with her position as referenced in this Agreement; (4) a material diminution or
reduction in the Employee's responsibilities or authority (including reporting
responsibilities) in connection with her employment with the Bank; or (5) a
material reduction in the secretarial or other administrative support of the
Employee.
(d) The Employee shall not have the right to receive termination
benefits pursuant to Section 3 hereof upon termination for cause. For purposes
of this Agreement, termination for "cause" shall include termination because of,
in the good faith determination of the Board of Directors of the Bank, the
Employee's personal dishonesty, incompetence, willful misconduct, breach of a
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than a law,
rule or regulation relating to traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors of the
Bank at a meeting of the Board called and held for such purpose (after
reasonable notice to the Employee and an opportunity for the Employee, together
with the Employee's counsel, to be heard before the Board), such meeting and the
opportunity to be heard to be held prior to, or as soon as reasonably
practicable following, termination, but in no event later than 60 days following
such termination, finding that in the good faith opinion of the Board the
Employee was guilty of conduct constituting "cause" as set forth above and
specifying the particulars thereof in detail. If, following such meeting, the
Employee is reinstated, he shall be entitled to receive back pay for the period
following termination and continuing through reinstatement.
(e) If the Employee's employment is involuntarily terminated by the
Bank, with or without cause, at any time after a date which is 18 months
following the Conversion, and upon 90 days written notice to the Employee prior
to the public announcement of a change in control of the Bank or the Holding
Company, whether consummated or merely proposed at the time of such public
announcement, the Employee shall not have any right, by virtue of such
involuntary termination, to receive termination benefits under this Agreement.
3. TERMINATION BENEFITS.
(a) If (i) at any time during a period which begins on the Effective
Date and ends 18 months thereafter, there is an involuntary termination of the
Employee's employment, other than for cause, whether or not such termination
occurs during the term of the Agreement or (ii) during the term of this
Agreement there is a change in control, and within 12 months following such
change in control there is an involuntary termination of the
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<PAGE>
Employee's employment, other than for cause, whether or not such termination
occurs during the term of this Agreement, the Bank, in either case, shall pay to
the Employee in a lump sum in cash within 25 business days after the date of
severance of employment an amount equal to 100 percent of the Employee's "base
amount" of compensation, as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended ("Code"). At the discretion of the Employee,
upon an election pursuant to Section 3(c) hereof, such payment may be made, on a
pro rata basis, semi-monthly during the twelve (12) months following the
Employee's termination.
(b) If (i) at any time during a period which begins on the Effective
Date and ends 18 months thereafter, there is an involuntary termination of the
Employee's employment, other than for cause, whether or not such termination
occurs during the term of the Agreement or (ii) during the term of this
Agreement there is a change in control, and within 12 months following such
change in control there is an involuntary termination of the Employee's
employment, other than for cause, whether or not such termination occurs during
the term of this Agreement the Bank shall, in either case, cause to be continued
life, health and disability coverage substantially identical to the coverage
maintained by the Bank for the Employee prior to her severance. Subject to
applicable federal and state laws, such coverage shall cease upon the earlier of
the Employee's obtaining similar coverage by another employer or twelve (12)
months from the date of the Employee's termination. In the event the Employee
obtains new employment and receives less coverage for life, health or
disability, the Bank shall provide coverage substantially identical to the
coverage maintained by the Bank for the Employee prior to termination for a
period of twelve (12) months.
(c) On an annual basis the Employee shall elect whether, in the event
amounts are payable under Sections 3(a) hereof, such amounts shall be paid in a
lump sum or on a pro rata basis. Such election shall be irrevocable for the year
for which such election is made.
4. CERTAIN REDUCTION OF PAYMENTS BY THE BANK.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Bank to or
for the benefit of the Employee (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would be nondeductible (in whole or part) by the Bank for Federal
income tax purposes because of Section 28OG of the Code, then the aggregate
present value of amounts payable or distributable to or for the benefit of the
Employee pursuant to this Agreement (such amounts payable or distributable
pursuant to this Agreement are hereinafter referred to as "Agreement Payments")
shall be reduced to the Reduced Amount. The "Reduced Amount" shall be an amount,
not less than zero, expressed in present value which maximizes the aggregate
present value of Agreement Payments without causing any Payment to be
nondeductible by the Bank because of Section
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<PAGE>
28OG of the Code. For purposes of this Section 4, present value shall be
determined in accordance with Section 28OG(d)(4) of the Code.
(b) All determinations required to be made under this Section 4 shall
be made by the Bank's independent auditors, or at the election of such auditors
by such other firm or individuals of recognized expertise as such auditors may
select (such auditors or, if applicable, such other firm or individual, are
hereinafter referred to as the "Advisory Firm"). The Advisory Firm shall within
ten business days of the date of termination of the Employee's employment by the
Bank or the Holding Company resulting in benefit payments hereunder (the "Date
of Termination"), or at such earlier time as is requested by the Bank, provide
to both the Bank and the Employee an opinion (and detailed supporting
calculations) that the Bank has substantial authority to deduct for federal
income tax purposes the full amount of the Agreement Payments and that the
Employee has substantial authority not to report on her federal income tax
return any excise tax imposed by Section 4999 of the Code with respect to the
Agreement Payments. Any such determination and opinion by the Advisory Firm
shall be binding upon the Bank and the Employee. The Employee shall determine
which and how much, if any, of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 4, provided that, if
the Employee does not make such determination within ten business days of the
receipt of the calculations made by the Advisory Firm, the Bank shall elect
which and how much, if any, of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 4 and shall notify the
Employee promptly of such election. Within five business days of the earlier of
(i) the Bank's receipt of the Employee's determination pursuant to the
immediately preceding sentence of this Agreement or (ii) the Bank's election in
lieu of such determination, the Bank shall pay to or distribute to or for the
benefit of the Employee such amounts as are then due the Employee under this
Agreement. The Bank and the Employee shall cooperate fully with the Advisory
Firm, including without limitation providing to the Advisory Firm all
information and materials reasonably requested by it, in connection with the
making of the determinations required under this Section 4.
(c) As a result of uncertainty in application of Section 280G of the
Code at the time of the initial determination by the Advisory Firm hereunder, it
is possible that Agreement Payments will have been made by the Bank which should
not have been made ("Overpayment") or that additional Agreement Payments will
not have been made by the Bank which should have been made ("Underpayment"), in
each case, consistent with the calculations required to be made hereunder. In
the event that the Advisory Firm, based upon the assertion by the Internal
Revenue Service against the Employee of a deficiency which the Advisory Firm
believes has a high probability of success determines that an Overpayment has
been made, any such Overpayment paid or distributed by the Bank to or for the
benefit of Employee shall be treated for all purposes as a loan ab initio which
the Employee shall repay to the Bank together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code; provided, however,
that no such loan shall be deemed to have been made and no amount shall be
payable by the Employee to the
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<PAGE>
Bank if and to the extent such deemed loan and payment would not either reduce
the amount on which the Employee is subject to tax under Section 1 and Section
4999 of the Code or generate a refund of such taxes. In the event that the
Advisory Firm, based upon controlling preceding or other substantial authority,
determines that an Underpayment has occurred, any such Underpayment shall be
promptly paid by the Bank to or for the benefit of the Employee together with
interest at the applicable federal rate provided for in Section 7872(f)(2) of
the Code.
5. REQUIRED REGULATORY PROVISIONS.
(a) The Bank may terminate the Employee's employment at any time, but
any termination by the Bank, other than a termination for cause, shall not
prejudice the Employee's right to compensation or other benefits under this
Agreement. The Employee shall not have the right to receive compensation or
other benefits for any period after a termination for cause as defined in
Section 2(d) hereinabove.
(b) If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S. C. ss.
1818 (e)(3) and (g)(1), the Bank's obligations under this Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while its obligations
under this Agreement were suspended, and (ii) reinstate (in whole or in part)
any of the obligations which were suspended.
(c) If the Employee is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. ss. 1818(e)(4) or (g)(1), all obligations of the Bank under this
Agreement shall terminate, as of the effective date of the order, but vested
rights of the parties shall not be affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act), all obligations under this Agreement shall
terminate as of the date of default, but this provision (d) shall not affect any
vested rights of the parties.
(e) All obligations under this Agreement may be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Director of the Office of Thrift
Supervision (the "Director"), or his or her designee, at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
Federal Deposit Insurance Act, 12 U.S.C. ss. 1823(c), or (ii) by the Director,
or his or her designee, at the time the Director or his or her designee approves
a supervisory merger to resolve problems related to operation of the Bank or
when the
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<PAGE>
Bank is determined by the Director to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be affected
by any such action.
6. REINSTATEMENT OF BENEFITS UNDER SECTION 3. In the event the Employee
is suspended and/or temporarily prohibited from participating in the conduct of
the Bank's affairs by a notice described in Section 5(b) hereof (the "Notice")
during the term of this Agreement and a change in control occurs, the Bank will
assume its obligation to pay and the Employee will be entitled to receive all of
the termination benefits provided for under Section 3 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
7. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS. This Agreement
contains the entire understanding between the parties hereto and supersedes any
prior agreement between the Bank and the Employee.
8. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
the Employee, the Bank and their respective successors and assigns.
9. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for the future
or as to any act other than that specifically waived.
10. NO MITIGATION. Except as expressly provided herein, the amount of any
payment or benefit provided for in this Agreement shall not be reduced by any
compensation earned by the Employee as the result of employment by another
employer, by retirement benefits after the date of termination or otherwise.
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<PAGE>
11. NO ASSIGNMENTS.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Bank will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank, by an assumption
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Bank would be required to perform it if no such succession or
assignment had taken place. Failure of the Bank to obtain such an assumption
agreement prior to the effectiveness of any such succession or assignment shall
be a breach of this Agreement and shall entitle the Employee to compensation
from the Bank in the same amount and on the same terms as the compensation
pursuant to Section 3 hereof. For purposes of implementing the provisions of
this Section 11(a), the date on which any such succession becomes effective
shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall inure
to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.
12. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed. to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement (provided that all
notices to the Bank shall be directed to the attention of the Board of Directors
of the Bank with a copy to the Secretary of the Bank), or to such other address
as either party may have furnished to the other in writing in accordance
herewith.
13. AMENDMENTS. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. PARAGRAPH HEADINGS. The paragraph headings used in this Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
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<PAGE>
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Indiana.
17. ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered an the arbitrator's award in any court having jurisdiction.
18. REIMBURSEMENT. In the event the Bank purports to terminate the Employee
for cause, but it is determined by a court of competent jurisdiction or by an
arbitrator pursuant to Section 17 that cause did not exist for such termination,
or if in any event it is determined by any such court or arbitrator that the
Bank has failed to make timely payment of any amounts owed to the Employee under
this Agreement, the Employee shall be entitled to reimbursement for all
reasonable costs, including attorneys' fees, incurred in challenging such
termination or collecting such amounts. Such reimbursement shall be in addition
to all rights to which the Employee is otherwise entitled under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: Madison First Federal Savings and Loan
Association
By:
Secretary
Traci A. Bridgford
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<PAGE>
The undersigned, River Valley Bancorp, sole shareholder of Bank, agrees
that if it shall be determined for any reason that any obligation on the part of
Bank to continue to make any payments due under this Agreement to Employee is
unenforceable for any reason, River Valley Bancorp agrees to honor the terms of
this Agreement and continue to make any such payments due hereunder to Employee
or to satisfy any such obligation pursuant to the terms of this Agreement, as
though it were the Bank hereunder.
RIVER VALLEY BANCORP
By:
James E. Fritz, President and
Chief Executive Officer
-10-
Exhibit 10(17)
SPECIAL TERMINATION AGREEMENT
THIS SPECIAL TERMINATION AGREEMENT ("Agreement") is made and entered into
as of this day of , 1996, by and between Madison First Federal Savings and Loan
Association, a federally chartered savings and loan association (which, together
with any successor thereto which executes and delivers the assumption agreement
provided for in Section 11(a) hereof or which otherwise becomes bound by the
terms and provisions of this Agreement by operation of law, is hereinafter
referred to as the "Bank"), and John Wayne Deveary, whose residence address is
_______________________________________ (the "Employee").
WHEREAS, the Employee is currently serving as a Vice President and
Treasurer of the Bank; and
WHEREAS, the Bank has adopted a plan of conversion whereby the Bank will
convert to capital stock form as the subsidiary of River Valley Bancorp, an
Indiana corporation (the "Holding Company") (the "Conversion"); and
WHEREAS, the Board of Directors of the Bank recognizes that, as is the case
with publicly held corporations generally, the possibility of a change in
control of the Holding Company may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of key management personnel to the detriment of the
Bank, the Holding Company and its shareholders; and
WHEREAS, the Board of Directors of the Bank believes it is in the best
interests of the Bank to enter into this Agreement with the Employee in order to
assure continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to his assigned duties
without distraction in the face of potentially disruptive circumstances arising
from the possibility of a change in control of the Holding Company, although no
such change is now contemplated; and
WHEREAS, the Board of Directors of the Bank has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 1 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, it is agreed as
follows:
1. TERM OF AGREEMENT. The term of this Agreement shall be deemed to have
commenced as of the date the Bank converts from mutual to stock form (the
"Effective Date") and shall continue until February 1, 1998. Commencing on
February 1, 1998, and continuing at each anniversary date thereafter, the Board
of Directors shall review this Agreement and, in its discretion, may authorize
extension thereof for an additional one-year period.
<PAGE>
2. PAYMENTS TO THE EMPLOYEE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a change in control of the Bank or the Holding
Company (as herein defined) during the term of the Employee's employment,
followed at any time during the term of this Agreement by the involuntary
termination of the Employee's employment, other than for cause, as defined in
Section 2(d) hereof, the provisions of Section 3 shall apply.
(b) A "change in control" of the Bank or the Holding Company shall be
deemed to have occurred if:
(i) as a result of, or in connection with, any initial public
offering, tender offer or exchange offer, merger or other business
combination, sale of assets or contested election, any combination of the
foregoing transactions, or any similar transaction, the persons who were
non-employee directors of the Bank or the Holding Company before such
transaction cease to constitute a majority of the Board of Directors of the
Bank or the Holding Company or any successor thereof;
(ii) the Bank or the Holding Company transfers substantially all of
its assets to another corporation which is not a wholly-owned subsidiary of
the Bank or the Holding Company;
(iii) the Bank or the Holding Company sells substantially all of the
assets of a subsidiary or affiliate which, at the time of such sale, is the
principal employer of the Employee; or
(iv) the Bank or the Holding Company is merged or consolidated with
another corporation and, as a result of the merger or consolidation, less
than fifty-one percent (51%) of the outstanding voting securities of the
surviving or resulting corporation is owned in the aggregate by the former
shareholders of the Bank or of the Holding Company.
(c) The Employee's employment under this Agreement may be terminated at any
time by the Board of Directors of the Bank. The terms "involuntary termination"
or "involuntarily terminated" in this Agreement shall refer to the termination
of the employment of Employee without his express written consent. In addition,
a material diminution of or interference with the Employee's duties,
responsibilities and benefits shall be deemed and shall constitute an
involuntary termination of employment to the same extent as express notice of
such involuntary termination. By way of example and not by way of limitation,
any of the following actions, if unreasonable or materially adverse to the
Employee, shall constitute such diminution or interference unless consented to
in writing by the Employee: (1) the requirement that the Employee perform his
principal executive functions more than thirty-five (35) miles from his primary
office as of the date of the change in control; (2) a material reduction in the
Employee's salary, perquisites, contingent
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<PAGE>
benefits or vacation time as in effect on the date of the change in control as
the same may be changed by mutual agreement from time to time other than as part
of an overall program applied uniformly and with equitable effect to all members
of the senior management of the Bank; (3) the assignment to the Employee of
duties and responsibilities materially different from those normally associated
with his position as referenced in this Agreement; (4) a material diminution or
reduction in the Employee's responsibilities or authority (including reporting
responsibilities) in connection with his employment with the Bank; or (5) a
material reduction in the secretarial or other administrative support of the
Employee.
(d) The Employee shall not have the right to receive termination
benefits pursuant to Section 3 hereof upon termination for cause. For purposes
of this Agreement, termination for "cause" shall include termination because of,
in the good faith determination of the Board of Directors of the Bank, the
Employee's personal dishonesty, incompetence, willful misconduct, breach of a
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than a law,
rule or regulation relating to traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors of the
Bank at a meeting of the Board called and held for such purpose (after
reasonable notice to the Employee and an opportunity for the Employee, together
with the Employee's counsel, to be heard before the Board), such meeting and the
opportunity to be heard to be held prior to, or as soon as reasonably
practicable following, termination, but in no event later than 60 days following
such termination, finding that in the good faith opinion of the Board the
Employee was guilty of conduct constituting "cause" as set forth above and
specifying the particulars thereof in detail. If, following such meeting, the
Employee is reinstated, he shall be entitled to receive back pay for the period
following termination and continuing through reinstatement.
(e) If the Employee's employment is involuntarily terminated by the
Bank, with or without cause, at any time after a date which is 18 months
following the Conversion, and upon 90 days written notice to the Employee prior
to the public announcement of a change in control of the Bank or the Holding
Company, whether consummated or merely proposed at the time of such public
announcement, the Employee shall not have any right, by virtue of such
involuntary termination, to receive termination benefits under this Agreement.
3. TERMINATION BENEFITS.
(a) If (i) at any time during a period which begins on the Effective
Date and ends 18 months thereafter, there is an involuntary termination of the
Employee's employment, other than for cause, whether or not such termination
occurs during the term of this Agreement or (ii) during the term of this
Agreement there is a change in control, and within 12 months following such
change in control there is an involuntary termination of the
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<PAGE>
Employee's employment, other than for cause, whether or not such termination
occurs during the term of this Agreement, the Bank shall, in either case, pay to
the Employee in a lump sum in cash within 25 business days after the date of
severance of employment an amount equal to 100 percent of the Employee's "base
amount" of compensation, as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended ("Code"). At the discretion of the Employee,
upon an election pursuant to Section 3(c) hereof, such payment may be made, on a
pro rata basis, semi-monthly during the twelve (12) months following the
Employee's termination.
(b) If (i) at any time during a period which begins on the Effective
Date and ends 18 months thereafter, there is an involuntary termination of the
Employee's employment, other than for cause, whether or not such termination
occurs during the term of this Agreement or (ii) during the term of this
Agreement there is a change in control, and within 12 months following such
change in control there is an involuntary termination of the Employee's
employment, other than for cause, whether or not such termination occurs during
the term of this Agreement, the Bank shall, in either case, cause to be
continued life, health and disability coverage substantially identical to the
coverage maintained by the Bank for the Employee prior to his severance. Subject
to applicable federal and state laws, such coverage shall cease upon the earlier
of the Employee's obtaining similar coverage by another employer or twelve (12)
months from the date of the Employee's termination. In the event the Employee
obtains new employment and receives less coverage for life, health or
disability, the Bank shall provide coverage substantially identical to the
coverage maintained by the Bank for the Employee prior to termination for a
period of twelve (12) months.
(c) On an annual basis the Employee shall elect whether, in the event
amounts are payable under Sections 3(a) hereof, such amounts shall be paid in a
lump sum or on a pro rata basis. Such election shall be irrevocable for the year
for which such election is made.
4. CERTAIN REDUCTION OF PAYMENTS BY THE BANK.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Bank to or
for the benefit of the Employee (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would be nondeductible (in whole or part) by the Bank for Federal
income tax purposes because of Section 280G of the Code, then the aggregate
present value of amounts payable or distributable to or for the benefit of the
Employee pursuant to this Agreement (such amounts payable or distributable
pursuant to this Agreement are hereinafter referred to as "Agreement Payments")
shall be reduced to the Reduced Amount. The "Reduced Amount" shall be an amount,
not less than zero, expressed in present value which maximizes the aggregate
present value of Agreement Payments without causing any Payment to be
nondeductible by the Bank because of Section
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<PAGE>
28OG of the Code. For purposes of this Section 4, present value shall be
determined in accordance with Section 28OG(d)(4) of the Code.
(b) All determinations required to be made under this Section 4 shall
be made by the Bank's independent auditors, or at the election of such auditors
by such other firm or individuals of recognized expertise as such auditors may
select (such auditors or, if applicable, such other firm or individual, are
hereinafter referred to as the "Advisory Firm"). The Advisory Firm shall within
ten business days of the date of termination of the Employee's employment by the
Bank or the Holding Company resulting in benefit payments hereunder (the "Date
of Termination"), or at such earlier time as is requested by the Bank, provide
to both the Bank and the Employee an opinion (and detailed supporting
calculations) that the Bank has substantial authority to deduct for federal
income tax purposes the full amount of the Agreement Payments and that the
Employee has substantial authority not to report on his federal income tax
return any excise tax imposed by Section 4999 of the Code with respect to the
Agreement Payments. Any such determination and opinion by the Advisory Firm
shall be binding upon the Bank and the Employee. The Employee shall determine
which and how much, if any, of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 4, provided that, if
the Employee does not make such determination within ten business days of the
receipt of the calculations made by the Advisory Firm, the Bank shall elect
which and how much, if any, of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 4 and shall notify the
Employee promptly of such election. Within five business days of the earlier of
(i) the Bank's receipt of the Employee's determination pursuant to the
immediately preceding sentence of this Agreement or (ii) the Bank's election in
lieu of such determination, the Bank shall pay to or distribute to or for the
benefit of the Employee such amounts as are then due the Employee under this
Agreement. The Bank and the Employee shall cooperate fully with the Advisory
Firm, including without limitation providing to the Advisory Firm all
information and materials reasonably requested by it, in connection with the
making of the determinations required under this Section 4.
(c) As a result of uncertainty in application of Section 280G of the
Code at the time of the initial determination by the Advisory Firm hereunder, it
is possible that Agreement Payments will have been made by the Bank which should
not have been made ("Overpayment") or that additional Agreement Payments will
not have been made by the Bank which should have been made ("Underpayment"), in
each case, consistent with the calculations required to be made hereunder. In
the event that the Advisory Firm, based upon the assertion by the Internal
Revenue Service against the Employee of a deficiency which the Advisory Firm
believes has a high probability of success determines that an Overpayment has
been made, any such Overpayment paid or distributed by the Bank to or for the
benefit of Employee shall be treated for all purposes as a loan ab initio which
the Employee shall repay to the Bank together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code; provided, however,
that no such loan shall be deemed to have been made and no amount shall be
payable by the Employee to the
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<PAGE>
Bank if and to the extent such deemed loan and payment would not either reduce
the amount on which the Employee is subject to tax under Section 1 and Section
4999 of the Code or generate a refund of such taxes. In the event that the
Advisory Firm, based upon controlling preceding or other substantial authority,
determines that an Underpayment has occurred, any such Underpayment shall be
promptly paid by the Bank to or for the benefit of the Employee together with
interest at the applicable federal rate provided for in Section 7872(f)(2) of
the Code.
5. REQUIRED REGULATORY PROVISIONS.
(a) The Bank may terminate the Employee's employment at any time, but
any termination by the Bank, other than a termination for cause, shall not
prejudice the Employee's right to compensation or other benefits under this
Agreement. The Employee shall not have the right to receive compensation or
other benefits for any period after a termination for cause as defined in
Section 2(d) hereinabove.
(b) If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S. C. ss.
1818 (e)(3) and (g)(1), the Bank's obligations under this Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while its obligations
under this Agreement were suspended, and (ii) reinstate (in whole or in part)
any of the obligations which were suspended.
(c) If the Employee is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. ss. 1818(e)(4) or (g)(1), all obligations of the Bank under this
Agreement shall terminate, as of the effective date of the order, but vested
rights of the parties shall not be affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act), all obligations under this Agreement shall
terminate as of the date of default, but this provision (d) shall not affect any
vested rights of the parties.
(e) All obligations under this Agreement may be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Director of the Office of Thrift
Supervision (the "Director"), or his or her designee, at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
Federal Deposit Insurance Act, 12 U.S.C. ss. 1823(c), or (ii) by the Director,
or his or her designee, at the time the Director or his or her designee approves
a supervisory merger to resolve problems related to operation of the Bank or
when the
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<PAGE>
Bank is determined by the Director to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be affected
by any such action.
6. REINSTATEMENT OF BENEFITS UNDER SECTION 3. In the event the Employee
is suspended and/or temporarily prohibited from participating in the conduct of
the Bank's affairs by a notice described in Section 5(b) hereof (the "Notice")
during the term of this Agreement and a change in control occurs, the Bank will
assume its obligation to pay and the Employee will be entitled to receive all of
the termination benefits provided for under Section 3 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
7. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties hereto and
supersedes any prior agreement between the Bank and the Employee.
8. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
the Employee, the Bank and their respective successors and assigns.
9. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for the future
or as to any act other than that specifically waived.
10. NO MITIGATION. Except as expressly provided herein, the amount of any
payment or benefit provided for in this Agreement shall not be reduced by any
compensation earned by the Employee as the result of employment by another
employer, by retirement benefits after the date of termination or otherwise.
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<PAGE>
11. NO ASSIGNMENTS.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Bank will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank, by an assumption
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Bank would be required to perform it if no such succession or
assignment had taken place. Failure of the Bank to obtain such an assumption
agreement prior to the effectiveness of any such succession or assignment shall
be a breach of this Agreement and shall entitle the Employee to compensation
from the Bank in the same amount and on the same terms as the compensation
pursuant to Section 3 hereof. For purposes of implementing the provisions of
this Section 11(a), the date on which any such succession becomes effective
shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall inure
to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.
12. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed. to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement (provided that all
notices to the Bank shall be directed to the attention of the Board of Directors
of the Bank with a copy to the Secretary of the Bank), or to such other address
as either party may have furnished to the other in writing in accordance
herewith.
13. AMENDMENTS. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. PARAGRAPH HEADINGS. The paragraph headings used in this Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
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<PAGE>
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Indiana.
17. ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered an the arbitrator's award in any court having jurisdiction.
18. REIMBURSEMENT. In the event the Bank purports to terminate the Employee
for cause, but it is determined by a court of competent jurisdiction or by an
arbitrator pursuant to Section 17 that cause did not exist for such termination,
or if in any event it is determined by any such court or arbitrator that the
Bank has failed to make timely payment of any amounts owed to the Employee under
this Agreement, the Employee shall be entitled to reimbursement for all
reasonable costs, including attorneys' fees, incurred in challenging such
termination or collecting such amounts. Such reimbursement shall be in addition
to all rights to which the Employee is otherwise entitled under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: Madison First Federal Savings and Loan
Association
By:
Secretary
John Wayne Deveary
The undersigned, River Valley Bancorp, sole shareholder of Bank, agrees
that if it shall be determined for any reason that any obligation on the part of
Bank to continue to make any payments due under this Agreement to Employee is
unenforceable for any reason, River Valley Bancorp agrees to honor the terms of
this Agreement and continue to make any such payments due hereunder to Employee
or to satisfy any such obligation pursuant to the terms of this Agreement, as
though it were the Bank hereunder.
RIVER VALLEY BANCORP
By:
James E. Fritz, President and
Chief Executive Officer
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Exhibit 10(18)
SPECIAL TERMINATION AGREEMENT
THIS SPECIAL TERMINATION AGREEMENT ("Agreement") is made and entered into
as of this day of , 1996, by and between Madison First Federal Savings and Loan
Association, a federally chartered savings and loan association (which, together
with any successor thereto which executes and delivers the assumption agreement
provided for in Section 11(a) hereof or which otherwise becomes bound by the
terms and provisions of this Agreement by operation of law, is hereinafter
referred to as the "Bank"), and Robert W. Anger, whose residence address is
_______________________________________ (the "Employee").
WHEREAS, the Employee is currently serving as a Vice President-Lending of
the Bank; and
WHEREAS, the Bank has adopted a plan of conversion whereby the Bank will
convert to capital stock form as the subsidiary of River Valley Bancorp, an
Indiana corporation (the "Holding Company") (the "Conversion"); and
WHEREAS, the Board of Directors of the Bank recognizes that, as is the case
with publicly held corporations generally, the possibility of a change in
control of the Holding Company may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of key management personnel to the detriment of the
Bank, the Holding Company and its shareholders; and
WHEREAS, the Board of Directors of the Bank believes it is in the best
interests of the Bank to enter into this Agreement with the Employee in order to
assure continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to his assigned duties
without distraction in the face of potentially disruptive circumstances arising
from the possibility of a change in control of the Holding Company, although no
such change is now contemplated; and
WHEREAS, the Board of Directors of the Bank has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 1 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, it is agreed as
follows:
1. TERM OF AGREEMENT. The term of this Agreement shall be deemed to have
commenced as of the date the Bank converts from mutual to stock form (the
"Effective Date") and shall continue until February 1, 1998. Commencing on
February 1, 1998, and continuing at each anniversary date thereafter, the Board
of Directors shall review this Agreement and, in its discretion, may authorize
extension thereof for an additional one-year period.
<PAGE>
2. PAYMENTS TO THE EMPLOYEE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a change in control of the Bank or the Holding
Company (as herein defined) during the term of the Employee's employment,
followed at any time during the term of this Agreement by the involuntary
termination of the Employee's employment, other than for cause, as defined in
Section 2(d) hereof, the provisions of Section 3 shall apply.
(b) A "change in control" of the Bank or the Holding Company shall be
deemed to have occurred if:
(i) as a result of, or in connection with, any initial public
offering, tender offer or exchange offer, merger or other business
combination, sale of assets or contested election, any combination of the
foregoing transactions, or any similar transaction, the persons who were
non-employee directors of the Bank or the Holding Company before such
transaction cease to constitute a majority of the Board of Directors of the
Bank or the Holding Company or any successor thereof;
(ii) the Bank or the Holding Company transfers substantially all of
its assets to another corporation which is not a wholly-owned subsidiary of
the Bank or the Holding Company;
(iii) the Bank or the Holding Company sells substantially all of the
assets of a subsidiary or affiliate which, at the time of such sale, is the
principal employer of the Employee; or
(iv) the Bank or the Holding Company is merged or consolidated with
another corporation and, as a result of the merger or consolidation, less
than fifty-one percent (51%) of the outstanding voting securities of the
surviving or resulting corporation is owned in the aggregate by the former
shareholders of the Bank or of the Holding Company.
(c) The Employee's employment under this Agreement may be terminated at
any time by the Board of Directors of the Bank. The terms "involuntary
termination" or "involuntarily terminated" in this Agreement shall refer to the
termination of the employment of Employee without his express written consent.
In addition, a material diminution of or interference with the Employee's
duties, responsibilities and benefits shall be deemed and shall constitute an
involuntary termination of employment to the same extent as express notice of
such involuntary termination. By way of example and not by way of limitation,
any of the following actions, if unreasonable or materially adverse to the
Employee, shall constitute such diminution or interference unless consented to
in writing by the Employee: (1) the requirement that the Employee perform his
principal executive functions more than thirty-five (35) miles from his primary
office as of the date of the change in control; (2) a material reduction in the
Employee's salary, perquisites, contingent
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<PAGE>
benefits or vacation time as in effect on the date of the change in control as
the same may be changed by mutual agreement from time to time other than as part
of an overall program applied uniformly and with equitable effect to all members
of the senior management of the Bank; (3) the assignment to the Employee of
duties and responsibilities materially different from those normally associated
with his position as referenced in this Agreement; (4) a material diminution or
reduction in the Employee's responsibilities or authority (including reporting
responsibilities) in connection with his employment with the Bank; or (5) a
material reduction in the secretarial or other administrative support of the
Employee.
(d) The Employee shall not have the right to receive termination
benefits pursuant to Section 3 hereof upon termination for cause. For purposes
of this Agreement, termination for "cause" shall include termination because of,
in the good faith determination of the Board of Directors of the Bank, the
Employee's personal dishonesty, incompetence, willful misconduct, breach of a
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than a law,
rule or regulation relating to traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors of the
Bank at a meeting of the Board called and held for such purpose (after
reasonable notice to the Employee and an opportunity for the Employee, together
with the Employee's counsel, to be heard before the Board), such meeting and the
opportunity to be heard to be held prior to, or as soon as reasonably
practicable following, termination, but in no event later than 60 days following
such termination, finding that in the good faith opinion of the Board the
Employee was guilty of conduct constituting "cause" as set forth above and
specifying the particulars thereof in detail. If, following such meeting, the
Employee is reinstated, he shall be entitled to receive back pay for the period
following termination and continuing through reinstatement.
(e) If the Employee's employment is involuntarily terminated by the
Bank, with or without cause, at any time after a date which is 18 months
following the Conversion, and upon 90 days written notice to the Employee prior
to the public announcement of a change in control of the Bank or the Holding
Company, whether consummated or merely proposed at the time of such public
announcement, the Employee shall not have any right, by virtue of such
involuntary termination, to receive termination benefits under this Agreement.
3. TERMINATION BENEFITS.
(a) If (i) at any time during a period which begins on the Effective
Date and ends 18 months thereafter, there is an involuntary termination of the
Employee's employment, other than for cause, whether or not such termination
occurs during the term of this Agreement or (ii) during the term of this
Agreement there is a change in control, and within 12 months following such
change in control there is an involuntary termination of the
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<PAGE>
Employee's employment, other than for cause, whether or not such termination
occurs during the term of Agreement, the Bank shall, in either case, pay to the
Employee in a lump sum in cash within 25 business days after the date of
severance of employment an amount equal to 100 percent of the Employee's "base
amount" of compensation, as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended ("Code"). At the discretion of the Employee,
upon an election pursuant to Section 3(c) hereof, such payment may be made, on a
pro rata basis, semi-monthly during the twelve (12) months following the
Employee's termination.
(b) If (i) at any time during a period which begins on the Effective
Date and ends 18 months thereafter, there is an involuntary termination of the
Employee's employment, other than for cause, whether or not such termination
occurs during the term of this Agreement or (ii) during the term of this
Agreement there is a change in control, and within 12 months following such
change in control there is an involuntary termination of the Employee's
employment, other than for cause, whether or not such termination occurs during
the term of this Agreement, the Bank shall, in either case, cause to be
continued life, health and disability coverage substantially identical to the
coverage maintained by the Bank for the Employee prior to his severance. Subject
to applicable federal and state laws, such coverage shall cease upon the earlier
of the Employee's obtaining similar coverage by another employer or twelve (12)
months from the date of the Employee's termination. In the event the Employee
obtains new employment and receives less coverage for life, health or
disability, the Bank shall provide coverage substantially identical to the
coverage maintained by the Bank for the Employee prior to termination for a
period of twelve (12) months.
(c) On an annual basis the Employee shall elect whether, in the event
amounts are payable under Sections 3(a) hereof, such amounts shall be paid in a
lump sum or on a pro rata basis. Such election shall be irrevocable for the year
for which such election is made.
4. CERTAIN REDUCTION OF PAYMENTS BY THE BANK.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Bank to or
for the benefit of the Employee (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would be nondeductible (in whole or part) by the Bank for Federal
income tax purposes because of Section 28OG of the Code, then the aggregate
present value of amounts payable or distributable to or for the benefit of the
Employee pursuant to this Agreement (such amounts payable or distributable
pursuant to this Agreement are hereinafter referred to as "Agreement Payments")
shall be reduced to the Reduced Amount. The "Reduced Amount" shall be an amount,
not less than zero, expressed in present value which maximizes the aggregate
present value of Agreement Payments without causing any Payment to be
nondeductible by the Bank because of Section
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<PAGE>
28OG of the Code. For purposes of this Section 4, present value shall be
determined in accordance with Section 28OG(d)(4) of the Code.
(b) All determinations required to be made under this Section 4 shall
be made by the Bank's independent auditors, or at the election of such auditors
by such other firm or individuals of recognized expertise as such auditors may
select (such auditors or, if applicable, such other firm or individual, are
hereinafter referred to as the "Advisory Firm"). The Advisory Firm shall within
ten business days of the date of termination of the Employee's employment by the
Bank or the Holding Company resulting in benefit payments hereunder (the "Date
of Termination"), or at such earlier time as is requested by the Bank, provide
to both the Bank and the Employee an opinion (and detailed supporting
calculations) that the Bank has substantial authority to deduct for federal
income tax purposes the full amount of the Agreement Payments and that the
Employee has substantial authority not to report on his federal income tax
return any excise tax imposed by Section 4999 of the Code with respect to the
Agreement Payments. Any such determination and opinion by the Advisory Firm
shall be binding upon the Bank and the Employee. The Employee shall determine
which and how much, if any, of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 4, provided that, if
the Employee does not make such determination within ten business days of the
receipt of the calculations made by the Advisory Firm, the Bank shall elect
which and how much, if any, of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 4 and shall notify the
Employee promptly of such election. Within five business days of the earlier of
(i) the Bank's receipt of the Employee's determination pursuant to the
immediately preceding sentence of this Agreement or (ii) the Bank's election in
lieu of such determination, the Bank shall pay to or distribute to or for the
benefit of the Employee such amounts as are then due the Employee under this
Agreement. The Bank and the Employee shall cooperate fully with the Advisory
Firm, including without limitation providing to the Advisory Firm all
information and materials reasonably requested by it, in connection with the
making of the determinations required under this Section 4.
(c) As a result of uncertainty in application of Section 280G of the
Code at the time of the initial determination by the Advisory Firm hereunder, it
is possible that Agreement Payments will have been made by the Bank which should
not have been made ("Overpayment") or that additional Agreement Payments will
not have been made by the Bank which should have been made ("Underpayment"), in
each case, consistent with the calculations required to be made hereunder. In
the event that the Advisory Firm, based upon the assertion by the Internal
Revenue Service against the Employee of a deficiency which the Advisory Firm
believes has a high probability of success determines that an Overpayment has
been made, any such Overpayment paid or distributed by the Bank to or for the
benefit of Employee shall be treated for all purposes as a loan ab initio which
the Employee shall repay to the Bank together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code; provided, however,
that no such loan shall be deemed to have been made and no amount shall be
payable by the Employee to the
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<PAGE>
Bank if and to the extent such deemed loan and payment would not either reduce
the amount on which the Employee is subject to tax under Section 1 and Section
4999 of the Code or generate a refund of such taxes. In the event that the
Advisory Firm, based upon controlling preceding or other substantial authority,
determines that an Underpayment has occurred, any such Underpayment shall be
promptly paid by the Bank to or for the benefit of the Employee together with
interest at the applicable federal rate provided for in Section 7872(f)(2) of
the Code.
5. REQUIRED REGULATORY PROVISIONS.
(a) The Bank may terminate the Employee's employment at any time, but
any termination by the Bank, other than a termination for cause, shall not
prejudice the Employee's right to compensation or other benefits under this
Agreement. The Employee shall not have the right to receive compensation or
other benefits for any period after a termination for cause as defined in
Section 2(d) hereinabove.
(b) If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S. C. ss.
1818 (e)(3) and (g)(1), the Bank's obligations under this Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while its obligations
under this Agreement were suspended, and (ii) reinstate (in whole or in part)
any of the obligations which were suspended.
(c) If the Employee is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. ss. 1818(e)(4) or (g)(1), all obligations of the Bank under this
Agreement shall terminate, as of the effective date of the order, but vested
rights of the parties shall not be affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act), all obligations under this Agreement shall
terminate as of the date of default, but this provision (d) shall not affect any
vested rights of the parties.
(e) All obligations under this Agreement may be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Director of the Office of Thrift
Supervision (the "Director"), or his or her designee, at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
Federal Deposit Insurance Act, 12 U.S.C. ss. 1823(c), or (ii) by the Director,
or his or her designee, at the time the Director or his or her designee approves
a supervisory merger to resolve problems related to operation of the Bank or
when the
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<PAGE>
Bank is determined by the Director to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be affected
by any such action.
6. REINSTATEMENT OF BENEFITS UNDER SECTION 3. In the event the Employee
is suspended and/or temporarily prohibited from participating in the conduct of
the Bank's affairs by a notice described in Section 5(b) hereof (the "Notice")
during the term of this Agreement and a change in control occurs, the Bank will
assume its obligation to pay and the Employee will be entitled to receive all of
the termination benefits provided for under Section 3 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
7. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS. This Agreement
contains the entire understanding between the parties hereto and supersedes any
prior agreement between the Bank and the Employee.
8. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
the Employee, the Bank and their respective successors and assigns.
9. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for the future
or as to any act other than that specifically waived.
10. NO MITIGATION. Except as expressly provided herein, the amount of any
payment or benefit provided for in this Agreement shall not be reduced by any
compensation earned by the Employee as the result of employment by another
employer, by retirement benefits after the date of termination or otherwise.
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<PAGE>
11. NO ASSIGNMENTS.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Bank will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank, by an assumption
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Bank would be required to perform it if no such succession or
assignment had taken place. Failure of the Bank to obtain such an assumption
agreement prior to the effectiveness of any such succession or assignment shall
be a breach of this Agreement and shall entitle the Employee to compensation
from the Bank in the same amount and on the same terms as the compensation
pursuant to Section 3 hereof. For purposes of implementing the provisions of
this Section 11(a), the date on which any such succession becomes effective
shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall inure
to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.
12. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed. to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement (provided that all
notices to the Bank shall be directed to the attention of the Board of Directors
of the Bank with a copy to the Secretary of the Bank), or to such other address
as either party may have furnished to the other in writing in accordance
herewith.
13. AMENDMENTS. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. PARAGRAPH HEADINGS. The paragraph headings used in this Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
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<PAGE>
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Indiana.
17. ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered an the arbitrator's award in any court having jurisdiction.
18. REIMBURSEMENT. In the event the Bank purports to terminate the Employee
for cause, but it is determined by a court of competent jurisdiction or by an
arbitrator pursuant to Section 17 that cause did not exist for such termination,
or if in any event it is determined by any such court or arbitrator that the
Bank has failed to make timely payment of any amounts owed to the Employee under
this Agreement, the Employee shall be entitled to reimbursement for all
reasonable costs, including attorneys' fees, incurred in challenging such
termination or collecting such amounts. Such reimbursement shall be in addition
to all rights to which the Employee is otherwise entitled under this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: Madison First Federal Savings and Loan
Association
By:
Secretary
Robert W. Anger
The undersigned, River Valley Bancorp, sole shareholder of Bank, agrees
that if it shall be determined for any reason that any obligation on the part of
Bank to continue to make any payments due under this Agreement to Employee is
unenforceable for any reason, River Valley Bancorp agrees to honor the terms of
this Agreement and continue to make any such payments due hereunder to Employee
or to satisfy any such obligation pursuant to the terms of this Agreement, as
though it were the Bank hereunder.
RIVER VALLEY BANCORP
By:
James E. Fritz, President and
Chief Executive Officer
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Exhibit 10(19)
SPECIAL TERMINATION AGREEMENT
THIS SPECIAL TERMINATION AGREEMENT ("Agreement") is made and
entered into as of this day of , 1996, by and between Citizens National Bank of
Madison, a national banking association (which, together with any successor
thereto which executes and delivers the assumption agreement provided for in
Section 11(a) hereof or which otherwise becomes bound by the terms and
provisions of this Agreement by operation of law, is hereinafter referred to as
the "Bank"), and Carolyn B. Flowers, whose residence address is
_______________________________________ (the "Employee").
WHEREAS, the Employee is currently serving as a Vice President-
Compliance/Operations of the Bank; and
WHEREAS, 120,429 shares of common stock, $8.00 par value per share, of
the Bank, or 95.6% of its outstanding shares, are to be acquired by River Valley
Bancorp, an Indiana corporation (the "Holding Company") (the "Acquisition"); and
WHEREAS, the Board of Directors of the Bank recognizes that, as is the
case with publicly held corporations generally, the possibility of a change in
control of the Holding Company may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of key management personnel to the detriment of the
Bank, the Holding Company and its shareholders; and
WHEREAS, the Board of Directors of the Bank believes it is in the best
interests of the Bank to enter into this Agreement with the Employee in order to
assure continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to her assigned duties
without distraction in the face of potentially disruptive circumstances arising
from the possibility of a change in control of the Holding Company, although no
such change is now contemplated; and
WHEREAS, the Board of Directors of the Bank has approved and authorized
the execution of this Agreement with the Employee to take effect as stated in
Section 1 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, it is agreed as
follows:
1. TERM OF AGREEMENT. The term of this Agreement shall be deemed to
have commenced as of the date of closing of the Acquisition (the "Effective
Date") and shall continue until February 1, 1998. Commencing on February 1,
1998, and continuing at each anniversary date thereafter, the Board of Directors
shall review this Agreement and, in its discretion, may authorize extension
thereof for an additional one-year period.
<PAGE>
2. PAYMENTS TO THE EMPLOYEE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a change in control of the Bank or the Holding
Company (as herein defined) during the term of the Employee's employment,
followed at any time during the term of this Agreement by the involuntary
termination of the Employee's employment, other than for cause, as defined in
Section 2(d) hereof, the provisions of Section 3 shall apply.
(b) A "change in control" of the Bank or the Holding Company shall be
deemed to have occurred if:
(i) as a result of, or in connection with, any initial public
offering, tender offer or exchange offer, merger or other business
combination, sale of assets or contested election, any combination of the
foregoing transactions, or any similar transaction, the persons who were
non-employee directors of the Bank or the Holding Company before such
transaction cease to constitute a majority of the Board of Directors of the
Bank or the Holding Company or any successor thereof;
(ii) the Bank or the Holding Company transfers substantially all of
its assets to another corporation which is not a wholly-owned subsidiary of
the Bank or the Holding Company;
(iii) the Bank or the Holding Company sells substantially all of the
assets of a subsidiary or affiliate which, at the time of such sale, is the
principal employer of the Employee; or
(iv) the Bank or the Holding Company is merged or consolidated with
another corporation and, as a result of the merger or consolidation, less
than fifty-one percent (51%) of the outstanding voting securities of the
surviving or resulting corporation is owned in the aggregate by the former
shareholders of the Bank or of the Holding Company.
(c) The Employee's employment under this Agreement may be terminated at any
time by the Board of Directors of the Bank. The terms "involuntary termination"
or "involuntarily terminated" in this Agreement shall refer to the termination
of the employment of Employee without her express written consent. In addition,
a material diminution of or interference with the Employee's duties,
responsibilities and benefits shall be deemed and shall constitute an
involuntary termination of employment to the same extent as express notice of
such involuntary termination. By way of example and not by way of limitation,
any of the following actions, if unreasonable or materially adverse to the
Employee, shall constitute such diminution or interference unless consented to
in writing by the Employee: (1) the requirement that the Employee perform her
principal executive functions more than thirty-five (35) miles from her primary
office as of the date of the change in control; (2) a material reduction in the
Employee's salary, perquisites, contingent benefits or vacation time as in
effect on the date of the change in control as the same may
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<PAGE>
be changed by mutual agreement from time to time other than as part of an
overall program applied uniformly and with equitable effect to all members of
the senior management of the Bank; (3) the assignment to the Employee of duties
and responsibilities materially different from those normally associated with
her position as referenced in this Agreement; (4) a material diminution or
reduction in the Employee's responsibilities or authority (including reporting
responsibilities) in connection with her employment with the Bank; or (5) a
material reduction in the secretarial or other administrative support of the
Employee.
(d) The Employee shall not have the right to receive termination
benefits pursuant to Section 3 hereof upon termination for cause. For purposes
of this Agreement, termination for "cause" shall include termination because of,
in the good faith determination of the Board of Directors of the Bank, the
Employee's personal dishonesty, incompetence, willful misconduct, breach of a
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than a law,
rule or regulation relating to traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors of the
Bank at a meeting of the Board called and held for such purpose (after
reasonable notice to the Employee and an opportunity for the Employee, together
with the Employee's counsel, to be heard before the Board), such meeting and the
opportunity to be heard to be held prior to, or as soon as reasonably
practicable following, termination, but in no event later than 60 days following
such termination, finding that in the good faith opinion of the Board the
Employee was guilty of conduct constituting "cause" as set forth above and
specifying the particulars thereof in detail. If, following such meeting, the
Employee is reinstated, he shall be entitled to receive back pay for the period
following termination and continuing through reinstatement.
(e) If the Employee's employment is involuntarily terminated by the
Bank, with or without cause, at any time after a date which is 18 months
following the Acquisition, and upon 90 days written notice to the Employee prior
to the public announcement of a change in control of the Bank or the Holding
Company, whether consummated or merely proposed at the time of such public
announcement, the Employee shall not have any right, by virtue of such
involuntary termination, to receive termination benefits under this Agreement.
3. TERMINATION BENEFITS.
(a) If (i) at any time during a period which begins on the Effective
Date and ends 18 months thereafter, there is an involuntary termination of the
Employee's employment, other than for cause, whether or not such termination
occurs during the term of the Agreement or (ii) during the term of this
Agreement there is a change in control, and within 12 months following such
change in control there is an involuntary termination of the Employee's
employment, other than for cause, whether or not such termination occurs during
the term of this Agreement, the Bank, in either case, shall pay to the Employee
in
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<PAGE>
a lump sum in cash within 25 business days after the date of severance of
employment an amount equal to 100 percent of the Employee's "base amount" of
compensation, as defined in Section 280G(b)(3) of the Internal Revenue Code of
1986, as amended ("Code"). At the discretion of the Employee, upon an election
pursuant to Section 3(c) hereof, such payment may be made, on a pro rata basis,
semi-monthly during the twelve (12) months following the Employee's termination.
(b) If (i) at any time during a period which begins on the Effective
Date and ends 18 months thereafter, there is an involuntary termination of the
Employee's employment, other than for cause, whether or not such termination
occurs during the term of the Agreement or (ii) during the term of this
Agreement there is a change in control, and within 12 months following such
change in control there is an involuntary termination of the Employee's
employment, other than for cause, whether or not such termination occurs during
the term of this Agreement the Bank shall, in either case, cause to be continued
life, health and disability coverage substantially identical to the coverage
maintained by the Bank for the Employee prior to her severance. Subject to
applicable federal and state laws, such coverage shall cease upon the earlier of
the Employee's obtaining similar coverage by another employer or twelve (12)
months from the date of the Employee's termination. In the event the Employee
obtains new employment and receives less coverage for life, health or
disability, the Bank shall provide coverage substantially identical to the
coverage maintained by the Bank for the Employee prior to termination for a
period of twelve (12) months.
(c) On an annual basis the Employee shall elect whether, in the event
amounts are payable under Sections 3(a) hereof, such amounts shall be paid in a
lump sum or on a pro rata basis. Such election shall be irrevocable for the year
for which such election is made.
4. CERTAIN REDUCTION OF PAYMENTS BY THE BANK.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Bank to or
for the benefit of the Employee (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would be nondeductible (in whole or part) by the Bank for Federal
income tax purposes because of Section 28OG of the Code, then the aggregate
present value of amounts payable or distributable to or for the benefit of the
Employee pursuant to this Agreement (such amounts payable or distributable
pursuant to this Agreement are hereinafter referred to as "Agreement Payments")
shall be reduced to the Reduced Amount. The "Reduced Amount" shall be an amount,
not less than zero, expressed in present value which maximizes the aggregate
present value of Agreement Payments without causing any Payment to be
nondeductible by the Bank because of Section 28OG of the Code. For purposes of
this Section 4, present value shall be determined in accordance with Section
28OG(d)(4) of the Code.
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<PAGE>
(b) All determinations required to be made under this Section 4 shall
be made by the Bank's independent auditors, or at the election of such auditors
by such other firm or individuals of recognized expertise as such auditors may
select (such auditors or, if applicable, such other firm or individual, are
hereinafter referred to as the "Advisory Firm"). The Advisory Firm shall within
ten business days of the date of termination of the Employee's employment by the
Bank or the Holding Company resulting in benefit payments hereunder (the "Date
of Termination"), or at such earlier time as is requested by the Bank, provide
to both the Bank and the Employee an opinion (and detailed supporting
calculations) that the Bank has substantial authority to deduct for federal
income tax purposes the full amount of the Agreement Payments and that the
Employee has substantial authority not to report on her federal income tax
return any excise tax imposed by Section 4999 of the Code with respect to the
Agreement Payments. Any such determination and opinion by the Advisory Firm
shall be binding upon the Bank and the Employee. The Employee shall determine
which and how much, if any, of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 4, provided that, if
the Employee does not make such determination within ten business days of the
receipt of the calculations made by the Advisory Firm, the Bank shall elect
which and how much, if any, of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 4 and shall notify the
Employee promptly of such election. Within five business days of the earlier of
(i) the Bank's receipt of the Employee's determination pursuant to the
immediately preceding sentence of this Agreement or (ii) the Bank's election in
lieu of such determination, the Bank shall pay to or distribute to or for the
benefit of the Employee such amounts as are then due the Employee under this
Agreement. The Bank and the Employee shall cooperate fully with the Advisory
Firm, including without limitation providing to the Advisory Firm all
information and materials reasonably requested by it, in connection with the
making of the determinations required under this Section 4.
(c) As a result of uncertainty in application of Section 280G of the
Code at the time of the initial determination by the Advisory Firm hereunder, it
is possible that Agreement Payments will have been made by the Bank which should
not have been made ("Overpayment") or that additional Agreement Payments will
not have been made by the Bank which should have been made ("Underpayment"), in
each case, consistent with the calculations required to be made hereunder. In
the event that the Advisory Firm, based upon the assertion by the Internal
Revenue Service against the Employee of a deficiency which the Advisory Firm
believes has a high probability of success determines that an Overpayment has
been made, any such Overpayment paid or distributed by the Bank to or for the
benefit of Employee shall be treated for all purposes as a loan ab initio which
the Employee shall repay to the Bank together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code; provided, however,
that no such loan shall be deemed to have been made and no amount shall be
payable by the Employee to the Bank if and to the extent such deemed loan and
payment would not either reduce the amount on which the Employee is subject to
tax under Section 1 and Section 4999 of the Code or generate a refund of such
taxes. In the event that the Advisory Firm, based upon controlling preceding or
other substantial authority, determines that an Underpayment has
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<PAGE>
occurred, any such Underpayment shall be promptly paid by the Bank to or for the
benefit of the Employee together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code.
5. REQUIRED REGULATORY PROVISIONS.
(a) The Bank may terminate the Employee's employment at any time, but
any termination by the Bank, other than a termination for cause, shall not
prejudice the Employee's right to compensation or other benefits under this
Agreement. The Employee shall not have the right to receive compensation or
other benefits for any period after a termination for cause as defined in
Section 2(d) hereinabove.
(b) If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S. C. ss.
1818 (e)(3) and (g)(1), the Bank's obligations under this Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while its obligations
under this Agreement were suspended, and (ii) reinstate (in whole or in part)
any of the obligations which were suspended.
(c) If the Employee is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. ss. 1818(e)(4) or (g)(1), all obligations of the Bank under this
Agreement shall terminate, as of the effective date of the order, but vested
rights of the parties shall not be affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act), all obligations under this Agreement shall
terminate as of the date of default, but this provision (d) shall not affect any
vested rights of the parties.
(e) All obligations under this Agreement may be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Office of the Comptroller of the
Currency (the "OCC"), or its designee, at the time the Federal Deposit Insurance
Corporation enters into an agreement to provide assistance to or on behalf of
the Bank under the authority contained in Section 13(c) of the Federal Deposit
Insurance Act, 12 U.S.C. ss. 1823(c), or (ii) by the OCC, or its designee, at
the time the OCC or its designee approves a supervisory merger to resolve
problems related to operation of the Bank or when the Bank is determined by the
OCC to be in an unsafe or unsound condition. Any rights of the parties that have
already vested, however, shall not be affected by any such action.
6. REINSTATEMENT OF BENEFITS UNDER SECTION 3. In the event the Employee is
suspended and/or temporarily prohibited from participating in the conduct of the
Bank's affairs by a notice described in Section 5(b) hereof (the "Notice")
during the term
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<PAGE>
of this Agreement and a change in control occurs, the Bank will assume its
obligation to pay and the Employee will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
7. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties hereto and
supersedes any prior agreement between the Bank and the Employee.
8. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
the Employee, the Bank and their respective successors and assigns.
9. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
10. NO MITIGATION. Except as expressly provided herein, the amount of any
payment or benefit provided for in this Agreement shall not be reduced by any
compensation earned by the Employee as the result of employment by another
employer, by retirement benefits after the date of termination or otherwise.
11. NO ASSIGNMENTS.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Bank will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank, by an
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<PAGE>
assumption agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Bank would be required to perform it if no such
succession or assignment had taken place. Failure of the Bank to obtain such an
assumption agreement prior to the effectiveness of any such succession or
assignment shall be a breach of this Agreement and shall entitle the Employee to
compensation from the Bank in the same amount and on the same terms as the
compensation pursuant to Section 3 hereof. For purposes of implementing the
provisions of this Section 11(a), the date on which any such succession becomes
effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall inure
to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.
12. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed. to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement (provided that all
notices to the Bank shall be directed to the attention of the Board of Directors
of the Bank with a copy to the Secretary of the Bank), or to such other address
as either party may have furnished to the other in writing in accordance
herewith.
13. AMENDMENTS. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. PARAGRAPH HEADINGS. The paragraph headings used in this Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Indiana.
17. ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered an the arbitrator's award in any court having jurisdiction.
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<PAGE>
18. REIMBURSEMENT. In the event the Bank purports to terminate the
Employee for cause, but it is determined by a court of competent jurisdiction or
by an arbitrator pursuant to Section 17 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Bank has failed to make timely payment of any amounts owed to the
Employee under this Agreement, the Employee shall be entitled to reimbursement
for all reasonable costs, including attorneys' fees, incurred in challenging
such termination or collecting such amounts. Such reimbursement shall be in
addition to all rights to which the Employee is otherwise entitled under this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: Citizens National Bank of Madison
By:
Secretary
Carolyn B. Flowers
The undersigned, River Valley Bancorp, sole shareholder of Bank, agrees
that if it shall be determined for any reason that any obligation on the part of
Bank to continue to make any payments due under this Agreement to Employee is
unenforceable for any reason, River Valley Bancorp agrees to honor the terms of
this Agreement and continue to make any such payments due hereunder to Employee
or to satisfy any such obligation pursuant to the terms of this Agreement, as
though it were the Bank hereunder.
RIVER VALLEY BANCORP
By:
James E. Fritz, President and
Chief Executive Officer
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Exhibit 10(20)
SPECIAL TERMINATION AGREEMENT
THIS SPECIAL TERMINATION AGREEMENT ("Agreement") is made and
entered into as of this day of , 1996, by and between Citizens National Bank of
Madison, a national banking association (which, together with any successor
thereto which executes and delivers the assumption agreement provided for in
Section 11(a) hereof or which otherwise becomes bound by the terms and
provisions of this Agreement by operation of law, is hereinafter referred to as
the "Bank"), and Larry C. Fouse, whose residence address is
_______________________________________ (the "Employee").
WHEREAS, the Employee is currently serving as a Chief Financial Officer and
Controller of the Bank; and
WHEREAS, 120,429 shares of common stock, $8.00 par value per share, of the
Bank, or 95.6% of its outstanding shares, are to be acquired by River Valley
Bancorp, an Indiana corporation (the "Holding Company") (the "Acquisition"); and
WHEREAS, the Board of Directors of the Bank recognizes that, as is the case
with publicly held corporations generally, the possibility of a change in
control of the Holding Company may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of key management personnel to the detriment of the
Bank, the Holding Company and its shareholders; and
WHEREAS, the Board of Directors of the Bank believes it is in the best
interests of the Bank to enter into this Agreement with the Employee in order to
assure continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to his assigned duties
without distraction in the face of potentially disruptive circumstances arising
from the possibility of a change in control of the Holding Company, although no
such change is now contemplated; and
WHEREAS, the Board of Directors of the Bank has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 1 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, it is agreed as
follows:
1. TERM OF AGREEMENT. The term of this Agreement shall be deemed to
have commenced as of the date of closing of the Acquisition (the "Effective
Date") and shall continue until February 1, 1998. Commencing on February 1,
1998, and continuing at each anniversary date thereafter, the Board of Directors
shall review this Agreement and, in its discretion, may authorize extension
thereof for an additional one-year period.
<PAGE>
2. PAYMENTS TO THE EMPLOYEE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a change in control of the Bank or the Holding
Company (as herein defined) during the term of the Employee's employment,
followed at any time during the term of this Agreement by the involuntary
termination of the Employee's employment, other than for cause, as defined in
Section 2(d) hereof, the provisions of Section 3 shall apply.
(b) A "change in control" of the Bank or the Holding Company shall be
deemed to have occurred if:
(i) as a result of, or in connection with, any initial public
offering, tender offer or exchange offer, merger or other business
combination, sale of assets or contested election, any combination of the
foregoing transactions, or any similar transaction, the persons who were
non-employee directors of the Bank or the Holding Company before such
transaction cease to constitute a majority of the Board of Directors of the
Bank or the Holding Company or any successor thereof;
(ii) the Bank or the Holding Company transfers substantially all of
its assets to another corporation which is not a wholly-owned subsidiary of
the Bank or the Holding Company;
(iii) the Bank or the Holding Company sells substantially all of the
assets of a subsidiary or affiliate which, at the time of such sale, is the
principal employer of the Employee; or
(iv) the Bank or the Holding Company is merged or consolidated with
another corporation and, as a result of the merger or consolidation, less
than fifty-one percent (51%) of the outstanding voting securities of the
surviving or resulting corporation is owned in the aggregate by the former
shareholders of the Bank or of the Holding Company.
(c) The Employee's employment under this Agreement may be terminated at
any time by the Board of Directors of the Bank. The terms "involuntary
termination" or "involuntarily terminated" in this Agreement shall refer to the
termination of the employment of Employee without his express written consent.
In addition, a material diminution of or interference with the Employee's
duties, responsibilities and benefits shall be deemed and shall constitute an
involuntary termination of employment to the same extent as express notice of
such involuntary termination. By way of example and not by way of limitation,
any of the following actions, if unreasonable or materially adverse to the
Employee, shall constitute such diminution or interference unless consented to
in writing by the Employee: (1) the requirement that the Employee perform his
principal executive functions more than thirty (30) miles from his primary
office as of the date of the change in control; (2) a material reduction in the
Employee's salary, perquisites, contingent benefits
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<PAGE>
or vacation time as in effect on the date of the change in control as the same
may be changed by mutual agreement from time to time other than as part of an
overall program applied uniformly and with equitable effect to all members of
the senior management of the Bank; (3) the assignment to the Employee of duties
and responsibilities materially different from those normally associated with
his position as referenced in this Agreement; (4) a material diminution or
reduction in the Employee's responsibilities or authority (including reporting
responsibilities) in connection with his employment with the Bank; or (5) a
material reduction in the secretarial or other administrative support of the
Employee.
(d) The Employee shall not have the right to receive termination
benefits pursuant to Section 3 hereof upon termination for cause. For purposes
of this Agreement, termination for "cause" shall include termination because of,
in the good faith determination of the Board of Directors of the Bank, the
Employee's personal dishonesty, incompetence, willful misconduct, breach of a
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than a law,
rule or regulation relating to traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors of the
Bank at a meeting of the Board called and held for such purpose (after
reasonable notice to the Employee and an opportunity for the Employee, together
with the Employee's counsel, to be heard before the Board), such meeting and the
opportunity to be heard to be held prior to, or as soon as reasonably
practicable following, termination, but in no event later than 60 days following
such termination, finding that in the good faith opinion of the Board the
Employee was guilty of conduct constituting "cause" as set forth above and
specifying the particulars thereof in detail. If, following such meeting, the
Employee is reinstated, he shall be entitled to receive back pay for the period
following termination and continuing through reinstatement.
(e) If the Employee's employment is involuntarily terminated by the
Bank, with or without cause, at any time after a date which is 18 months
following the Acquisition, and upon 90 days written notice to the Employee prior
to the public announcement of a change in control of the Bank or the Holding
Company, whether consummated or merely proposed at the time of such public
announcement, the Employee shall not have any right, by virtue of such
involuntary termination, to receive termination benefits under this Agreement.
3. TERMINATION BENEFITS.
(a) If (i) at any time during a period which begins on the Effective
Date and ends 18 months thereafter, there is an involuntary termination of the
Employee's employment, other than for cause, whether or not such termination
occurs during the term of this Agreement or (ii) during the term of this
Agreement there is a change in control, and within 12 months following such
change in control there is an involuntary termination of the
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<PAGE>
Employee's employment, other than for cause, whether or not such termination
occurs during the term of this Agreement, the Bank shall, in either case, pay to
the Employee in a lump sum in cash within 25 business days after the date of
severance of employment an amount equal to 100 percent of the Employee's "base
amount" of compensation, as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended ("Code"). At the discretion of the Employee,
upon an election pursuant to Section 3(c) hereof, such payment may be made, on a
pro rata basis, semi-monthly during the twelve (12) months following the
Employee's termination.
(b) If (i) at any time during a period which begins on the Effective
Date and ends 18 months thereafter, there is an involuntary termination of the
Employee's employment, other than for cause, whether or not such termination
occurs during the term of this Agreement or (ii) during the term of this
Agreement there is a change in control, and within 12 months following such
change in control there is an involuntary termination of the Employee's
employment, other than for cause, whether or not such termination occurs during
the term of this Agreement, the Bank shall, in either case, cause to be
continued life, health and disability coverage substantially identical to the
coverage maintained by the Bank for the Employee prior to his severance. Subject
to applicable federal and state laws, such coverage shall cease upon the earlier
of the Employee's obtaining similar coverage by another employer or twelve (12)
months from the date of the Employee's termination. In the event the Employee
obtains new employment and receives less coverage for life, health or
disability, the Bank shall provide coverage substantially identical to the
coverage maintained by the Bank for the Employee prior to termination for a
period of twelve (12) months.
(c) On an annual basis the Employee shall elect whether, in the event
amounts are payable under Sections 3(a) hereof, such amounts shall be paid in a
lump sum or on a pro rata basis. Such election shall be irrevocable for the year
for which such election is made.
4. CERTAIN REDUCTION OF PAYMENTS BY THE BANK.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Bank to or
for the benefit of the Employee (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would be nondeductible (in whole or part) by the Bank for Federal
income tax purposes because of Section 280G of the Code, then the aggregate
present value of amounts payable or distributable to or for the benefit of the
Employee pursuant to this Agreement (such amounts payable or distributable
pursuant to this Agreement are hereinafter referred to as "Agreement Payments")
shall be reduced to the Reduced Amount. The "Reduced Amount" shall be an amount,
not less than zero, expressed in present value which maximizes the aggregate
present value of Agreement Payments without causing any Payment to be
nondeductible by the Bank because of Section
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<PAGE>
28OG of the Code. For purposes of this Section 4, present value shall be
determined in accordance with Section 28OG(d)(4) of the Code.
(b) All determinations required to be made under this Section 4 shall
be made by the Bank's independent auditors, or at the election of such auditors
by such other firm or individuals of recognized expertise as such auditors may
select (such auditors or, if applicable, such other firm or individual, are
hereinafter referred to as the "Advisory Firm"). The Advisory Firm shall within
ten business days of the date of termination of the Employee's employment by the
Bank or the Holding Company resulting in benefit payments hereunder (the "Date
of Termination"), or at such earlier time as is requested by the Bank, provide
to both the Bank and the Employee an opinion (and detailed supporting
calculations) that the Bank has substantial authority to deduct for federal
income tax purposes the full amount of the Agreement Payments and that the
Employee has substantial authority not to report on his federal income tax
return any excise tax imposed by Section 4999 of the Code with respect to the
Agreement Payments. Any such determination and opinion by the Advisory Firm
shall be binding upon the Bank and the Employee. The Employee shall determine
which and how much, if any, of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 4, provided that, if
the Employee does not make such determination within ten business days of the
receipt of the calculations made by the Advisory Firm, the Bank shall elect
which and how much, if any, of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 4 and shall notify the
Employee promptly of such election. Within five business days of the earlier of
(i) the Bank's receipt of the Employee's determination pursuant to the
immediately preceding sentence of this Agreement or (ii) the Bank's election in
lieu of such determination, the Bank shall pay to or distribute to or for the
benefit of the Employee such amounts as are then due the Employee under this
Agreement. The Bank and the Employee shall cooperate fully with the Advisory
Firm, including without limitation providing to the Advisory Firm all
information and materials reasonably requested by it, in connection with the
making of the determinations required under this Section 4.
(c) As a result of uncertainty in application of Section 280G of the
Code at the time of the initial determination by the Advisory Firm hereunder, it
is possible that Agreement Payments will have been made by the Bank which should
not have been made ("Overpayment") or that additional Agreement Payments will
not have been made by the Bank which should have been made ("Underpayment"), in
each case, consistent with the calculations required to be made hereunder. In
the event that the Advisory Firm, based upon the assertion by the Internal
Revenue Service against the Employee of a deficiency which the Advisory Firm
believes has a high probability of success determines that an Overpayment has
been made, any such Overpayment paid or distributed by the Bank to or for the
benefit of Employee shall be treated for all purposes as a loan ab initio which
the Employee shall repay to the Bank together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code; provided, however,
that no such loan shall be deemed to have been made and no amount shall be
payable by the Employee to the
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<PAGE>
Bank if and to the extent such deemed loan and payment would not either reduce
the amount on which the Employee is subject to tax under Section 1 and Section
4999 of the Code or generate a refund of such taxes. In the event that the
Advisory Firm, based upon controlling preceding or other substantial authority,
determines that an Underpayment has occurred, any such Underpayment shall be
promptly paid by the Bank to or for the benefit of the Employee together with
interest at the applicable federal rate provided for in Section 7872(f)(2) of
the Code.
5. REQUIRED REGULATORY PROVISIONS.
(a) The Bank may terminate the Employee's employment at any time, but
any termination by the Bank, other than a termination for cause, shall not
prejudice the Employee's right to compensation or other benefits under this
Agreement. The Employee shall not have the right to receive compensation or
other benefits for any period after a termination for cause as defined in
Section 2(d) hereinabove.
(b) If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S. C. ss.
1818 (e)(3) and (g)(1), the Bank's obligations under this Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while its obligations
under this Agreement were suspended, and (ii) reinstate (in whole or in part)
any of the obligations which were suspended.
(c) If the Employee is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. ss. 1818(e)(4) or (g)(1), all obligations of the Bank under this
Agreement shall terminate, as of the effective date of the order, but vested
rights of the parties shall not be affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act), all obligations under this Agreement shall
terminate as of the date of default, but this provision (d) shall not affect any
vested rights of the parties.
(e) All obligations under this Agreement may be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Office of the Comptroller of the
Currency (the "OCC"), or its designee, at the time the Federal Deposit Insurance
Corporation enters into an agreement to provide assistance to or on behalf of
the Bank under the authority contained in Section 13(c) of the Federal Deposit
Insurance Act, 12 U.S.C. ss. 1823(c), or (ii) by the OCC, or its designee, at
the time the OCC or its designee approves a supervisory merger to resolve
problems related to operation of the Bank or when the Bank is determined by the
OCC to be in an unsafe
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<PAGE>
or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by any such action.
6. REINSTATEMENT OF BENEFITS UNDER SECTION 3. In the event the Employee
is suspended and/or temporarily prohibited from participating in the conduct of
the Bank's affairs by a notice described in Section 5(b) hereof (the "Notice")
during the term of this Agreement and a change in control occurs, the Bank will
assume its obligation to pay and the Employee will be entitled to receive all of
the termination benefits provided for under Section 3 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
7. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties hereto and
supersedes any prior agreement between the Bank and the Employee.
8. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
the Employee, the Bank and their respective successors and assigns.
9. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for the future
or as to any act other than that specifically waived.
10. NO MITIGATION. Except as expressly provided herein, the amount of any
payment or benefit provided for in this Agreement shall not be reduced by any
compensation earned by the Employee as the result of employment by another
employer, by retirement benefits after the date of termination or otherwise.
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<PAGE>
11. NO ASSIGNMENTS.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Bank will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank, by an assumption
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Bank would be required to perform it if no such succession or
assignment had taken place. Failure of the Bank to obtain such an assumption
agreement prior to the effectiveness of any such succession or assignment shall
be a breach of this Agreement and shall entitle the Employee to compensation
from the Bank in the same amount and on the same terms as the compensation
pursuant to Section 3 hereof. For purposes of implementing the provisions of
this Section 11(a), the date on which any such succession becomes effective
shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall inure
to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.
12. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed. to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement (provided that all
notices to the Bank shall be directed to the attention of the Board of Directors
of the Bank with a copy to the Secretary of the Bank), or to such other address
as either party may have furnished to the other in writing in accordance
herewith.
13. AMENDMENTS. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. PARAGRAPH HEADINGS. The paragraph headings used in this Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
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<PAGE>
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Indiana.
17. ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered an the arbitrator's award in any court having jurisdiction.
18. REIMBURSEMENT. In the event the Bank purports to terminate the Employee
for cause, but it is determined by a court of competent jurisdiction or by an
arbitrator pursuant to Section 17 that cause did not exist for such termination,
or if in any event it is determined by any such court or arbitrator that the
Bank has failed to make timely payment of any amounts owed to the Employee under
this Agreement, the Employee shall be entitled to reimbursement for all
reasonable costs, including attorneys' fees, incurred in challenging such
termination or collecting such amounts. Such reimbursement shall be in addition
to all rights to which the Employee is otherwise entitled under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: CITIZENS NATIONAL BANK OF
MADISON
By:
Secretary
Larry C. Fouse
The undersigned, River Valley Bancorp, sole shareholder of Bank, agrees
that if it shall be determined for any reason that any obligation on the part of
Bank to continue to make any payments due under this Agreement to Employee is
unenforceable for any reason, River Valley Bancorp agrees to honor the terms of
this Agreement and continue to make any such payments due hereunder to Employee
or to satisfy any such obligation pursuant to the terms of this Agreement, as
though it were the Bank hereunder.
RIVER VALLEY BANCORP
By:
James E. Fritz, President and
Chief Executive Officer
-9-
Exhibit 10(21)
SPECIAL TERMINATION AGREEMENT
THIS SPECIAL TERMINATION AGREEMENT ("Agreement") is made and entered into
as of this day of , 1996, by and between Citizens National Bank of Madison, a
national banking association (which, together with any successor thereto which
executes and delivers the assumption agreement provided for in Section 11(a)
hereof or which otherwise becomes bound by the terms and provisions of this
Agreement by operation of law, is hereinafter referred to as the "Bank"), and
Mark A. Goley, whose residence address is
_______________________________________ (the "Employee").
WHEREAS, the Employee is currently serving as Vice President and Senior
Loan Officer of the Bank; and
WHEREAS, 120,429 shares of common stock, $8.00 par value per share, of the
Bank, or 95.6% of its outstanding shares, are to be acquired by River Valley
Bancorp, an Indiana corporation (the "Holding Company") (the "Acquisition"); and
WHEREAS, the Board of Directors of the Bank recognizes that, as is the case
with publicly held corporations generally, the possibility of a change in
control of the Holding Company may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of key management personnel to the detriment of the
Bank, the Holding Company and its shareholders; and
WHEREAS, the Board of Directors of the Bank believes it is in the best
interests of the Bank to enter into this Agreement with the Employee in order to
assure continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to his assigned duties
without distraction in the face of potentially disruptive circumstances arising
from the possibility of a change in control of the Holding Company, although no
such change is now contemplated; and
WHEREAS, the Board of Directors of the Bank has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 1 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, it is agreed as
follows:
1. TERM OF AGREEMENT. The term of this Agreement shall be deemed to have
commenced as of the date of closing of the Acquisition (the "Effective Date")
and shall continue until February 1, 1998. Commencing on February 1, 1998, and
continuing at each anniversary date thereafter, the Board of Directors shall
review this Agreement and, in its discretion, may authorize extension thereof
for an additional one-year period.
<PAGE>
2. PAYMENTS TO THE EMPLOYEE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a change in control of the Bank or the
Holding Company (as herein defined) during the term of the Employee's
employment, followed at any time during the term of this Agreement by the
involuntary termination of the Employee's employment, other than for cause, as
defined in Section 2(d) hereof, the provisions of Section 3 shall apply.
(b) A "change in control" of the Bank or the Holding Company shall be
deemed to have occurred if:
(i) as a result of, or in connection with, any initial public
offering, tender offer or exchange offer, merger or other business
combination, sale of assets or contested election, any combination of
the foregoing transactions, or any similar transaction, the persons
who were non-employee directors of the Bank or the Holding Company
before such transaction cease to constitute a majority of the Board of
Directors of the Bank or the Holding Company or any successor thereof;
(ii) the Bank or the Holding Company transfers substantially all
of its assets to another corporation which is not a wholly-owned
subsidiary of the Bank or the Holding Company;
(iii) the Bank or the Holding Company sells substantially all of
the assets of a subsidiary or affiliate which, at the time of such
sale, is the principal employer of the Employee; or
(iv) the Bank or the Holding Company is merged or consolidated
with another corporation and, as a result of the merger or
consolidation, less than fifty-one percent (51%) of the outstanding
voting securities of the surviving or resulting corporation is owned
in the aggregate by the former shareholders of the Bank or of the
Holding Company.
(c) The Employee's employment under this Agreement may be terminated at
any time by the Board of Directors of the Bank. The terms "involuntary
termination" or "involuntarily terminated" in this Agreement shall refer to the
termination of the employment of Employee without his express written consent.
In addition, a material diminution of or interference with the Employee's
duties, responsibilities and benefits shall be deemed and shall constitute an
involuntary termination of employment to the same extent as express notice of
such involuntary termination. By way of example and not by way of limitation,
any of the following actions, if unreasonable or materially adverse to the
Employee, shall constitute such diminution or interference unless consented to
in writing by the Employee: (1) the requirement that the Employee perform his
principal executive functions more than thirty (30) miles from his primary
office as of the date of the change in control; (2) a material reduction in the
Employee's salary, perquisites, contingent benefits
-2-
<PAGE>
or vacation time as in effect on the date of the change in control as the same
may be changed by mutual agreement from time to time other than as part of an
overall program applied uniformly and with equitable effect to all members of
the senior management of the Bank; (3) the assignment to the Employee of duties
and responsibilities materially different from those normally associated with
his position as referenced in this Agreement; (4) a material diminution or
reduction in the Employee's responsibilities or authority (including reporting
responsibilities) in connection with his employment with the Bank; or (5) a
material reduction in the secretarial or other administrative support of the
Employee.
(d) The Employee shall not have the right to receive termination
benefits pursuant to Section 3 hereof upon termination for cause. For purposes
of this Agreement, termination for "cause" shall include termination because of,
in the good faith determination of the Board of Directors of the Bank, the
Employee's personal dishonesty, incompetence, willful misconduct, breach of a
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than a law,
rule or regulation relating to traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors of the
Bank at a meeting of the Board called and held for such purpose (after
reasonable notice to the Employee and an opportunity for the Employee, together
with the Employee's counsel, to be heard before the Board), such meeting and the
opportunity to be heard to be held prior to, or as soon as reasonably
practicable following, termination, but in no event later than 60 days following
such termination, finding that in the good faith opinion of the Board the
Employee was guilty of conduct constituting "cause" as set forth above and
specifying the particulars thereof in detail. If, following such meeting, the
Employee is reinstated, he shall be entitled to receive back pay for the period
following termination and continuing through reinstatement.
(e) If the Employee's employment is involuntarily terminated by the
Bank, with or without cause, at any time after a date which is 18 months
following the Acquisition, and upon 90 days written notice to the Employee prior
to the public announcement of a change in control of the Bank or the Holding
Company, whether consummated or merely proposed at the time of such public
announcement, the Employee shall not have any right, by virtue of such
involuntary termination, to receive termination benefits under this Agreement.
3. TERMINATION BENEFITS.
(a) If (i) at any time during a period which begins on the Effective
Date and ends 18 months thereafter, there is an involuntary termination of the
Employee's employment, other than for cause, whether or not such termination
occurs during the term of this Agreement or (ii) during the term of this
Agreement there is a change in control, and within 12 months following such
change in control there is an involuntary termination of the
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<PAGE>
Employee's employment, other than for cause, whether or not such termination
occurs during the term of this Agreement, the Bank shall, in either case, pay to
the Employee in a lump sum in cash within 25 business days after the date of
severance of employment an amount equal to 100 percent of the Employee's "base
amount" of compensation, as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended ("Code"). At the discretion of the Employee,
upon an election pursuant to Section 3(c) hereof, such payment may be made, on a
pro rata basis, semi-monthly during the twelve (12) months following the
Employee's termination.
(b) If (i) at any time during a period which begins on the Effective
Date and ends 18 months thereafter, there is an involuntary termination of the
Employee's employment, other than for cause, whether or not such termination
occurs during the term of this Agreement or (ii) during the term of this
Agreement there is a change in control, and within 12 months following such
change in control there is an involuntary termination of the Employee's
employment, other than for cause, whether or not such termination occurs during
the term of this Agreement, the Bank shall, in either case, cause to be
continued life, health and disability coverage substantially identical to the
coverage maintained by the Bank for the Employee prior to his severance. Subject
to applicable federal and state laws, such coverage shall cease upon the earlier
of the Employee's obtaining similar coverage by another employer or twelve (12)
months from the date of the Employee's termination. In the event the Employee
obtains new employment and receives less coverage for life, health or
disability, the Bank shall provide coverage substantially identical to the
coverage maintained by the Bank for the Employee prior to termination for a
period of twelve (12) months.
(c) On an annual basis the Employee shall elect whether, in the event
amounts are payable under Sections 3(a) hereof, such amounts shall be paid in a
lump sum or on a pro rata basis. Such election shall be irrevocable for the year
for which such election is made.
4. CERTAIN REDUCTION OF PAYMENTS BY THE BANK.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Bank to or
for the benefit of the Employee (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would be nondeductible (in whole or part) by the Bank for Federal
income tax purposes because of Section 280G of the Code, then the aggregate
present value of amounts payable or distributable to or for the benefit of the
Employee pursuant to this Agreement (such amounts payable or distributable
pursuant to this Agreement are hereinafter referred to as "Agreement Payments")
shall be reduced to the Reduced Amount. The "Reduced Amount" shall be an amount,
not less than zero, expressed in present value which maximizes the aggregate
present value of Agreement Payments without causing any Payment to be
nondeductible by the Bank because of Section
-4-
<PAGE>
28OG of the Code. For purposes of this Section 4, present value shall be
determined in accordance with Section 28OG(d)(4) of the Code.
(b) All determinations required to be made under this Section 4 shall
be made by the Bank's independent auditors, or at the election of such auditors
by such other firm or individuals of recognized expertise as such auditors may
select (such auditors or, if applicable, such other firm or individual, are
hereinafter referred to as the "Advisory Firm"). The Advisory Firm shall within
ten business days of the date of termination of the Employee's employment by the
Bank or the Holding Company resulting in benefit payments hereunder (the "Date
of Termination"), or at such earlier time as is requested by the Bank, provide
to both the Bank and the Employee an opinion (and detailed supporting
calculations) that the Bank has substantial authority to deduct for federal
income tax purposes the full amount of the Agreement Payments and that the
Employee has substantial authority not to report on his federal income tax
return any excise tax imposed by Section 4999 of the Code with respect to the
Agreement Payments. Any such determination and opinion by the Advisory Firm
shall be binding upon the Bank and the Employee. The Employee shall determine
which and how much, if any, of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 4, provided that, if
the Employee does not make such determination within ten business days of the
receipt of the calculations made by the Advisory Firm, the Bank shall elect
which and how much, if any, of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 4 and shall notify the
Employee promptly of such election. Within five business days of the earlier of
(i) the Bank's receipt of the Employee's determination pursuant to the
immediately preceding sentence of this Agreement or (ii) the Bank's election in
lieu of such determination, the Bank shall pay to or distribute to or for the
benefit of the Employee such amounts as are then due the Employee under this
Agreement. The Bank and the Employee shall cooperate fully with the Advisory
Firm, including without limitation providing to the Advisory Firm all
information and materials reasonably requested by it, in connection with the
making of the determinations required under this Section 4.
(c) As a result of uncertainty in application of Section 280G of the
Code at the time of the initial determination by the Advisory Firm hereunder, it
is possible that Agreement Payments will have been made by the Bank which should
not have been made ("Overpayment") or that additional Agreement Payments will
not have been made by the Bank which should have been made ("Underpayment"), in
each case, consistent with the calculations required to be made hereunder. In
the event that the Advisory Firm, based upon the assertion by the Internal
Revenue Service against the Employee of a deficiency which the Advisory Firm
believes has a high probability of success determines that an Overpayment has
been made, any such Overpayment paid or distributed by the Bank to or for the
benefit of Employee shall be treated for all purposes as a loan ab initio which
the Employee shall repay to the Bank together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code; provided, however,
that no such loan shall be deemed to have been made and no amount shall be
payable by the Employee to the
-5-
<PAGE>
Bank if and to the extent such deemed loan and payment would not either reduce
the amount on which the Employee is subject to tax under Section 1 and Section
4999 of the Code or generate a refund of such taxes. In the event that the
Advisory Firm, based upon controlling preceding or other substantial authority,
determines that an Underpayment has occurred, any such Underpayment shall be
promptly paid by the Bank to or for the benefit of the Employee together with
interest at the applicable federal rate provided for in Section 7872(f)(2) of
the Code.
5. REQUIRED REGULATORY PROVISIONS.
(a) The Bank may terminate the Employee's employment at any time, but
any termination by the Bank, other than a termination for cause, shall not
prejudice the Employee's right to compensation or other benefits under this
Agreement. The Employee shall not have the right to receive compensation or
other benefits for any period after a termination for cause as defined in
Section 2(d) hereinabove.
(b) If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S. C. ss.
1818 (e)(3) and (g)(1), the Bank's obligations under this Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while its obligations
under this Agreement were suspended, and (ii) reinstate (in whole or in part)
any of the obligations which were suspended.
(c) If the Employee is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. ss. 1818(e)(4) or (g)(1), all obligations of the Bank under this
Agreement shall terminate, as of the effective date of the order, but vested
rights of the parties shall not be affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act), all obligations under this Agreement shall
terminate as of the date of default, but this provision (d) shall not affect any
vested rights of the parties.
(e) All obligations under this Agreement may be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Office of the Comptroller of the
Currency (the "OCC"), or its designee, at the time the Federal Deposit Insurance
Corporation enters into an agreement to provide assistance to or on behalf of
the Bank under the authority contained in Section 13(c) of the Federal Deposit
Insurance Act, 12 U.S.C. ss. 1823(c), or (ii) by the OCC, or its designee, at
the time the OCC or its designee approves a supervisory merger to resolve
problems related to operation of the Bank or when the Bank is determined by the
OCC to be in an unsafe
-6-
<PAGE>
or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by any such action.
6. REINSTATEMENT OF BENEFITS UNDER SECTION 3. In the event the Employee
is suspended and/or temporarily prohibited from participating in the conduct of
the Bank's affairs by a notice described in Section 5(b) hereof (the "Notice")
during the term of this Agreement and a change in control occurs, the Bank will
assume its obligation to pay and the Employee will be entitled to receive all of
the termination benefits provided for under Section 3 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
7. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties hereto and
supersedes any prior agreement between the Bank and the Employee.
8. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
the Employee, the Bank and their respective successors and assigns.
9. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
10. NO MITIGATION. Except as expressly provided herein, the amount of any
payment or benefit provided for in this Agreement shall not be reduced by any
compensation earned by the Employee as the result of employment by another
employer, by retirement benefits after the date of termination or otherwise.
-7-
<PAGE>
11. NO ASSIGNMENTS.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Bank will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank, by an assumption
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Bank would be required to perform it if no such succession or
assignment had taken place. Failure of the Bank to obtain such an assumption
agreement prior to the effectiveness of any such succession or assignment shall
be a breach of this Agreement and shall entitle the Employee to compensation
from the Bank in the same amount and on the same terms as the compensation
pursuant to Section 3 hereof. For purposes of implementing the provisions of
this Section 11(a), the date on which any such succession becomes effective
shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall inure
to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.
12. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed. to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement (provided that all
notices to the Bank shall be directed to the attention of the Board of Directors
of the Bank with a copy to the Secretary of the Bank), or to such other address
as either party may have furnished to the other in writing in accordance
herewith.
13. AMENDMENTS. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. PARAGRAPH HEADINGS. The paragraph headings used in this Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
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<PAGE>
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Indiana.
17. ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered an the arbitrator's award in any court having jurisdiction.
18. REIMBURSEMENT. In the event the Bank purports to terminate the Employee
for cause, but it is determined by a court of competent jurisdiction or by an
arbitrator pursuant to Section 17 that cause did not exist for such termination,
or if in any event it is determined by any such court or arbitrator that the
Bank has failed to make timely payment of any amounts owed to the Employee under
this Agreement, the Employee shall be entitled to reimbursement for all
reasonable costs, including attorneys' fees, incurred in challenging such
termination or collecting such amounts. Such reimbursement shall be in addition
to all rights to which the Employee is otherwise entitled under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: CITIZENS NATIONAL BANK OF
MADISON
By:
Secretary
Mark A. Goley
The undersigned, River Valley Bancorp, sole shareholder of Bank, agrees
that if it shall be determined for any reason that any obligation on the part of
Bank to continue to make any payments due under this Agreement to Employee is
unenforceable for any reason, River Valley Bancorp agrees to honor the terms of
this Agreement and continue to make any such payments due hereunder to Employee
or to satisfy any such obligation pursuant to the terms of this Agreement, as
though it were the Bank hereunder.
RIVER VALLEY BANCORP
By:
James E. Fritz, President and
Chief Executive Officer
-9-
Exhibit 10(22)
EXEMPT LOAN AND SHARE PURCHASE AGREEMENT
between
TRUST UNDER
RIVER VALLEY BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
and
RIVER VALLEY BANCORP
Dated _____________, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND INTERPRETATION................................... 1
Section 1.1. General Interpretation......................... 1
Section 1.2. Certain Definitions............................ 2
ARTICLE II TRUST LOAN; TRUST NOTE; PAYMENTS................................. 2
Section 2.1. Trust Loan..................................... 2
Section 2.2. Use of Trust Loan Proceeds..................... 2
Section 2.3. Trust Note..................................... 3
Section 2.4. Interest....................................... 3
Section 2.5. Payments....................................... 3
Section 2.6. Optional Prepayment............................ 3
Section 2.7. Place and Time of Payment...................... 4
Section 2.8. Application of Certain Payments................ 4
Section 2.9 Due Date Extension............................. 4
Section 2.10 Computations................................... 4
Section 2.11 Interest on Overdue Amounts.................... 4
ARTICLE III SECURITY......................................................... 4
Section 3.1 Security....................................... 4
Section 3.2 Release of Shares.............................. 5
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS........................ 5
Section 4.1 Representations and Warranties of Trustee...... 5
Section 4.2 Representations and Warranties of Company...... 6
Section 4.3 Covenants of Company........................... 7
ARTICLE V CONDITIONS PRECEDENT............................................. 8
Section 5.1 Documentation Satisfactory to Company.......... 8
Section 5.2 Other Conditions Precedent
to Company Obligations......................... 8
Section 5.3 Documentation Satisfactory to Trustee.......... 8
Section 5.4 Other Conditions Precedent
to Trustee's Obligation........................ 9
ARTICLE VI EVENTS OF DEFAULT AND THEIR EFFECT............................... 9
Section 6.1 Events of Default; Effect...................... 9
i
<PAGE>
ARTICLE VII SHARE PURCHASES................................................. 9
Section 7.1 Purchase of Shares............................ 9
Section 7.2 Manner of Purchase............................ 9
Section 7.3 Readily Tradeable............................. 10
Section 7.4 No Prohibited Transactions.................... 10
Section 7.5 Maximum Number of Shares...................... 10
ARTICLE VIII GENERAL................................................ 10
Section 8.1 Waivers; Amendments........................... 10
Section 8.2 Confirmations; Information.................... 10
Section 8.3 Captions...................................... 10
Section 8.4 Governing Law................................. 10
Section 8.5 Notices....................................... 11
Section 8.6 Expenses...................................... 11
Section 8.7 Reimbursement................................. 11
Section 8.8 Entire Agreement.............................. 11
Section 8.9 Severability.................................. 11
Section 8.10 No Assignment................................. 11
Section 8.11 Counterparts.................................. 11
ARTICLE IX LIMITED RECOURSE................................................ 11
Section 9.1 Limited Recourse.............................. 11
Section 9.2 No Personal Recourse Against Trustee.......... 12
EXHIBITS
Exhibit A - Trust Note
Exhibit B - Share Pledge Agreement
Exhibit C - Certificate of Trustee
Exhibit D - Certificate of the Company
ii
<PAGE>
EXEMPT LOAN AND SHARE PURCHASE AGREEMENT
THIS EXEMPT LOAN AND SHARE PURCHASE AGREEMENT (this "Agreement" or
"Loan Agreement"), dated ____________, 1996, between the Trust (the "Trust")
established pursuant to the provisions of RIVER VALLEY BANCORP EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST AGREEMENT (EFFECTIVE AS OF JANUARY 1, 1996) (the
"ESOP") by _________________________________, as Trustee (the "Trustee"), and
RIVER VALLEY BANCORP, an Indiana corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company has duly established the ESOP in connection with which
the Trust has been created;
WHEREAS, pursuant to the ESOP and direction of the Company pursuant to
Section 8.7 of the ESOP, the Trust desires to borrow from the Company, and the
Company desires to lend to the Trust, an aggregate principal amount equal to up
to Nine Hundred Fifty-Two Thousand Two Hundred Dollars ($952,200) (the "Trust
Loan"), representing the cost of 8% of the shares of Common Stock, without par
value, of the Company (the "Common Stock"), offered in the Subscription Offering
and the Direct Community Offering of the Company's Common Stock being made in
connection with the Company's acquisition of the common stock of Madison First
Federal Savings and Loan Association (the "Association") upon conversion of the
Association from a federal mutual savings and loan association to a federal
stock savings and loan association (the "Conversion"), on the terms and
conditions hereof;
WHEREAS, the parties hereto intend that the Trust Loan constitute an
"exempt loan" within the meaning of Section 4975(d)(3) of the Code, Treasury
Regulation ss. 54.4975-7(b), Section 408(b)(3) of ERISA, and Department of Labor
Regulation ss. 2550.408b-3 (collectively, the "Exempt Loan Rules") and an
"Exempt Loan" within the meaning of Sections 1.20 and 8.7 of the ESOP;
WHEREAS, the parties intend that the Trustee will utilize the Trust
Loan for the purpose of effecting purchases in the Subscription Offering and
Direct Community Offering (collectively, the "Offering") or otherwise of shares
of Company Common Stock, without par value ("Shares"), to be held in the Trust
for participants in the ESOP.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained and other good and valuable
consideration (the receipt, adequacy and sufficiency of which each party hereto
respectively acknowledges by its execution hereof), the parties hereto intending
legally to be bound do hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1. General Interpretation. This Agreement shall be construed and
interpreted so as to maintain the status of the ESOP as a qualified leveraged
employee stock ownership plan under
<PAGE>
Sections 401(a) and 4975(e)(7) of the Code, the Trust as exempt from taxation
under Section 501(a) of the Code, and the Trust Loan as an "exempt loan" under
the Exempt Loan Rules, and as an "Exempt Loan" under Section 8.7 of the ESOP
(collectively, the "Required Status").
Section 1.2. Certain Definitions. In this Agreement, unless a clear
contrary intention appears, the terms set forth below have the following
meanings when used herein. Other terms are defined elsewhere herein.
(a) "Business Day" means a day, other than a Saturday, Sunday or public
holiday, on which commercial banks are open in Madison, Indiana for the purpose
of conducting commercial banking business.
(b) "Code" means the Internal Revenue Code of 1986, as amended, and
regulations promulgated thereunder.
(c) "Default" means an event or circumstance which, with notice or lapse of
time or both, would constitute an Event of Default as defined in Section 6.1.
(d) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and regulations promulgated thereunder.
(e) "Loan Documents" shall mean, collectively, this Agreement, the Trust
Note, the Share Pledge Agreement and any other instruments or documents required
to be delivered pursuant hereto or thereto, in each case as amended and in
effect from time to time.
ARTICLE II
TRUST LOAN; TRUST NOTE; PAYMENTS
Section 2.1. Trust Loan. Subject to the terms and conditions of this
Agreement, the Company agrees to make available to the Trust, and the Trust may
borrow from the Company, on the Closing Date (hereinafter defined), the Trust
Loan under this Agreement in an amount up to Nine Hundred Fifty-Two Thousand Two
Hundred Dollars ($952,200), representing the cost of 8% of the Shares offered in
the Offering. The Company shall, upon fulfillment of the applicable conditions
set forth in Article V, on the Closing Date make the Trust Loan up to such
amount available to the Trustee in immediately available funds, at its principal
office. Notwithstanding the foregoing, the Company shall not be obligated to
make any portion of the Trust Loan available to the Trust if the Conversion is
not consummated, or if the ESOP is not permitted to purchase any shares because
of an oversubscription in the first category of eligible subscribers. The
Closing of the Trust Loan (the "Closing") will occur at the offices of Barnes &
Thornburg, 1313 Merchants Bank Building, 11 South Meridian Street, Indianapolis,
Indiana 46204, on the same date that the Conversion closes, or such later date
as the parties shall agree upon (the "Closing Date").
Section 2.2. Use of Trust Loan Proceeds. The Trust will use the
proceeds of the Trust Loan to purchase Shares in the Offering, in accordance
with Article VII hereof.
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Section 2.3. Trust Note. The Trust Loan will be represented by a
promissory note of the Trust (the "Trust Note"), substantially in the form of
Exhibit A hereto, appropriately completed, dated the Closing Date, payable to
the order of the Company in the original principal amount of the Trust Loan, or
so much thereof as may at any time have been advanced hereunder and thereunder,
on the maturity date thereof.
Section 2.4. Interest. The portion of the Trust Loan principal
outstanding at any time shall accrue and bear daily interest at a fixed rate per
annum equal to the prime rate as published in "The Wall Street Journal" on the
Closing Date (the "Interest Rate"), payable annually in accordance with Section
2.5. On any stated or accelerated maturity of the Trust Loan all accrued and
unpaid interest thereon shall be forthwith due and payable.
Section 2.5. Payments. The Trust shall pay the principal amount of the
Trust Loan together with accrued interest as follows:
(a) an initial principal installment of one twenty-eighth
(1/28) of the initial principal amount of the Trust Loan, shall be due
and payable on December 31, 1996, together with all interest accrued on
the Trust Loan from the Closing Date through and including December 31,
1996; and
(b) thereafter, payments of principal and interest shall be
made in annual installments due and payable on the last business day of
December of each year, commencing on December 31, 1997, through and
including December 31, 2002, which annual installments shall include a
principal payment in the amount of one-seventh of the initial principal
amount of the Trust Loan, plus all interest accrued on the Trust Loan
through and including the date of such payment; and
(c) a final payment of principal in the amount of three
twenty-eighths (3/28) of the initial principal amount of the Trust
Loan, together with all interest accrued on the Trust Loan through and
including the date of such payment shall be due and payable on
September 30, 2003.
The outstanding principal of the Trust Loan, together with all accrued and
unpaid interest and any other obligations then outstanding, will in any event be
due and payable in full on September 30, 2003.
Section 2.6. Optional Prepayment.
(a) Upon compliance with this Section 2.6, the Trust, at its
option, may prepay the Trust Note at any time and from time to time,
either in whole or in part, by payment of the principal amount of the
Trust Note or portion thereof to be prepaid and accrued interest
thereon to the date of such prepayment.
(b) The Trustee will give notice of any prepayment of the
Trust Note pursuant to this Section 2.6 to the Company not less than 3
days nor more than 60 days before the date fixed for such optional
prepayment specifying (i) such date, (ii) that prepayment is to
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<PAGE>
be made under Section 2.6 of this Agreement, (iii) the principal amount
of the Trust Note to be prepaid on such date, and (iv) accrued interest
applicable to the prepayment. Such notice of prepayment shall be signed
by the Trustee. Notice of prepayment having been so given, the
aggregate principal amount of the Trust Note specified in such notice,
together with accrued interest thereon shall become due and payable on
the prepayment date.
(c) Partial prepayments of the Trust Note made pursuant to
this Section 2.6 shall be credited in each case against remaining
scheduled payments on the Trust Note in the inverse order of the due
dates of such payments.
(d) No such prepayment shall, however, be permitted if such
prepayment would adversely affect the Required Status.
Section 2.7. Place and Time of Payment. All payments of principal of, or
interest on, the Trust Note shall be made by the Trust to the Company in same
day funds at Madison, Indiana, not later than 11:00 a.m. on the date due. Funds
received after that hour shall be deemed to have been received on the next
following Business Day.
Section 2.8. Application of Certain Payments. If, and to the extent, Shares
acquired with proceeds of the Trust Loan, held in the Trust and not yet
allocated to participant accounts are sold, then, to the extent allowable by the
Exempt Loan Rules and applicable law, the Trustee, at the direction of the ESOP
committee administering the ESOP (the "Committee"), may apply the proceeds
thereof toward the repayment of the Trust Loan. Dividends or other cash
distributions paid on the Shares purchased with the proceeds of the Trust Loan
(whether or not allocated to the accounts of Participants) shall be used by the
Trustee, at the direction of the Committee, to the extent permissible to repay
the Trust Loan in accordance with the provisions of Section 4.5 of the ESOP.
Section 2.9. Due Date Extension. If any payment of principal of, or
interest on, the Trust Note falls due on a day that is not a Business Day, then
such due date shall be extended to the next following Business Day, and
additional interest shall accrue and be payable for the period of such
extension.
Section 2.10. Computations. All computations of interest on the Trust Loan
and other amounts due hereunder shall be based on a year of 360 days, comprising
twelve 30-day months.
Section 2.11. Interest on Overdue Amounts. If any payment of principal of,
or interest on, the Trust Note is not made when due, interest shall accrue on
the amount thereof, commencing on such due date through the date on which such
amount is paid in full, at a rate per annum equal to the Interest Rate plus two
percent (2%).
ARTICLE III
SECURITY
Section 3.1. Security. Payment of the Trust Note and performance by the
Trust of its obligations under this Agreement and the Trust Note will be secured
by a pledge of, and the grant
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of a security interest in, the Shares by the Trustee on behalf of the Trust to
and in favor of the Company under a Share Pledge Agreement, substantially in the
form of Exhibit B hereto (the "Share Pledge Agreement").
Section 3.2. Release of Shares. Notwithstanding any provision of this
Agreement or the Share Pledge Agreement to the contrary contained or implied,
the Company will release from the pledge and security interest under the Share
Pledge Agreement, such Shares as must be allocated to ESOP participants under
the ESOP pursuant to Section 8.7(h) of the ESOP and otherwise under the Code,
the Exempt Loan Rules or other applicable law, provided that Section 8.7(h) of
the ESOP shall not be amended without the Trustee's prior consent.
ARTICLE IV
REPRESENTATIONS, WARRANTIES
AND COVENANTS
Section 4.1. Representations and Warranties of Trustee. To induce the
Company to enter this Agreement and to make the Trust Loan, the Trustee
represents and warrants to the Company as follows:
(a) The Trustee has determined that the Trust Loan is
primarily for the benefit of ESOP participants and their beneficiaries
and bears interest at a rate not in excess of a reasonable rate and
that the terms of the loan are at least as favorable to the Trust and
the ESOP participants as the terms of a comparable loan resulting from
arm's-length negotiations between completely independent parties;
(b) [The Trustee is a national banking association, legally
existing and in good standing under the laws of the United States of
America, has corporate power and authority and is duly authorized to
enter into and perform the Trust;]
(c) The Trustee has full right, power and authority to
execute, deliver and perform on behalf of the Trust under the Trust
Agreement, the ESOP and otherwise the obligations set forth in the Loan
Documents, and the execution and performance of such obligations will
not conflict with or result in a breach of the terms of the ESOP or the
Trust or result in a breach or violation of the Trustee's Articles of
Incorporation or By-Laws or of any law or regulation, order, writ,
injunction or decree of any court or governmental authority binding on
the Trust or Trustee;
(d) The ESOP (and related Trust) has been duly authorized by
all necessary corporate action on the part of the Trustee, if any, has
been duly executed by an authorized officer of the Trustee and
delivered and constitutes a legal, valid and binding obligation of the
Trustee and declaration of trust enforceable in accordance with its
terms;
(e) The Loan Documents have been duly authorized, executed and
delivered by the Trustee and constitute legal, valid and binding
obligations, contracts and agreements of the Trustee on behalf of the
Trust, enforceable in accordance with their respective terms;
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(f) The execution, delivery and performance of the Loan Documents do
not conflict with, or result in the creation or imposition of any lien or
encumbrance upon any of the property of the Trustee (other than the
Collateral, as defined in the Share Pledge Agreement) pursuant to the
provisions of the ESOP (and related Trust) or any other agreement or other
instrument to which the Trustee is a party or may be bound; and
(g) No approval, consent or withholding of objection on the part of,
or filing, registration or qualification with, any governmental body,
Federal, state or local, is necessary in connection with the execution,
delivery and performance by the Trustee of the Loan Documents.
Section 4.2. Representations and Warranties of Company. To induce the
Trust to enter this Agreement and undertake the obligations hereunder, the
Company represents and warrants to the Trust as follows:
(a) The Company is a corporation duly organized and validly existing
under the laws of the State of Indiana, has corporate power and authority
and is duly authorized to enter into and perform its obligations under this
Agreement;
(b) Neither the execution and delivery of this Agreement, nor the
performance of the terms hereof nor the establishment of the ESOP or the
Trust violates, conflicts with or constitutes a default under Company's
Articles of Incorporation or By-Laws or any material agreement to which the
Company is a party or by which the Company or any of its assets is bound,
or violates any law, regulation, order or decree of any court, arbitration
or governmental authority applicable to the Company, in any manner that
would have a material adverse effect on the Trust, the ESOP, the Required
Status or the Company;
(c) The Company and the Bank have taken all actions required to be
taken by it to establish the ESOP and the related Trust. The ESOP and
related Trust are intended to, and the terms thereof have been drafted with
the purpose to, comply with the requirements of Sections 401(a) and 501(a)
of the Code, as applicable, with the requirements for treatment as a
leveraged employee stock ownership plan, as that term is defined in Section
4975(e)(7) of the Code, and with other applicable laws;
(d) The Bank has duly appointed the Trustee as trustee of the Trust
and the Committee under the ESOP;
(e) The Company has delivered to Trustee copies of its Articles of
Incorporation and its By-Laws, the ESOP, and resolutions of its Board of
Directors with respect to approval of this Agreement and entering into of
the transactions and execution of all documents contemplated by this
Agreement, in each case certified by the Secretary of the Company, which
copies are true, correct and complete. None of such documents or
resolutions has been amended or modified in any respect and such documents
and resolutions remain in full force and in effect, in the form previously
delivered to the Trustee;
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(f) Other than the Common Stock, the Company has no other classes of
shares outstanding or treasury shares.
(g) The Company's ability to honor put options (the "Put Options"),
which would obligate the Company to repurchase shares of Common Stock
distributed from time to time to ESOP participants and beneficiaries under
Section 6.13 of the ESOP, is not presently restricted by the provisions of
any law, rule or regulation in effect on the date hereof (except for
capital, liquidation account, requirements to obtain regulatory approval of
material repurchase transactions, and similar constraints imposed by
regulatory authorities on savings associations) or by the terms of any
loan, financing or other agreement or instrument to which the Company is a
party or by which the Company is or may be bound.
(h) There are no actions, proceedings, or investigations pending or,
to the Company's knowledge, threatened against or affecting the Company or
any of its property or rights at law or in equity or before or by any court
or tribunal that have not been disclosed to the Trustee and may have a
material adverse effect on the value of the Common Stock.
(i) All employee plans of the Bank and the Company are in compliance,
in all material respects, with all applicable reporting, disclosure and
filing requirements pertaining to employee benefit plans set forth in the
Code and ERISA.
(j) No consent, approval or other authorization or notice to any
governmental authority or expiration of any government-imposed waiting
period is required in connection with the execution or delivery of this
Agreement, except such as has been obtained, given or expired.
(k) The shares of Common Stock constitute "qualifying employer
securities" within the meaning of Section 409(l) of the Code.
Section 4.3. Covenants of Company. The Company covenants that:
(a) The Company shall submit or cause to be submitted to the Internal
Revenue Service within ninety (90) days following the Closing Date an
application for a determination letter confirming that the ESOP, effective
as of January 1, 1996, and the related Trust are qualified and exempt from
taxation under Sections 401(a) and 501(a), respectively, of the Code and
that the ESOP meets the requirements of Section 4975(e)(7) of the Code.
(b) The Company and the Bank shall make all changes reasonably
requested by the Internal Revenue Service as a condition of obtaining a
determination letter from the Internal Revenue Service with respect to the
ESOP, effective January 1, 1996. The Company and the Bank shall continue to
do all things necessary to cause the ESOP and the Trust at all times to be
operated and administered such that the ESOP remains qualified under
Section 401(a) and remains an employee stock ownership plan under Section
4975(e)(7) of the Code and the Trust remains tax-exempt under Section
501(a) of the Code.
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(c) If at any time the ESOP is required, by applicable law, court
order, or otherwise, to make distributions of Shares that otherwise would
be in violation of Federal or state securities laws, the Company shall take
all actions necessary to permit such required distributions to be made in
full compliance with such laws.
(d) The Company shall honor the Put Options if, and to the extent,
required by Section 409(h) of the Code and regulations thereunder, and
shall not permit its ability to honor such Options to be materially
restricted in any way.
(e) The Company or the Bank shall provide to the Trustee all
governmental filings relating to the ESOP and all ESOP amendments within
sixty days of the date on which such filing or amendment is effected, and,
on an annual basis, shall provide complete financial statements of the ESOP
and the Company.
ARTICLE V
CONDITIONS PRECEDENT
Section 5.1. Documentation Satisfactory to Company. The obligation of
the Company to make the Trust Loan is, in addition to the conditions precedent
contained in Section 5.2, subject to the condition precedent that the Company
shall have received each of the following, duly executed and dated as of the
Closing Date (or such earlier date as shall be satisfactory to the Company) and
in form and substance satisfactory to the Company:
(a) the Trust Note;
(b) the Share Pledge Agreement; and
(c) a certificate of the Trustee, substantially in the form of Exhibit
C hereto, with such changes thereto as shall be acceptable to the Company
and its counsel, and with respect to such other matters as the Company may
reasonably request.
Section 5.2. Other Conditions Precedent to Company Obligations. In
addition to the condition precedent contained in Section 5.1, the obligation of
the Company to make the Trust Loan available is subject to the conditions
precedent that (i) the Conversion is consummated, (ii) the representations and
warranties made by the Trustee herein shall be true and correct in all material
respects on the Closing Date as if made on and as of the Closing Date; and (iii)
the ESOP shall be permitted to purchase Shares in the Conversion.
Section 5.3. Documentation Satisfactory to Trustee. The obligation of
the Trust to enter into the Trust Loan is subject to the condition precedent
that the Trustee shall have received each of the following, duly executed and
dated as of the Closing Date (or such earlier date as shall be satisfactory to
Trustee) and in form and substance satisfactory to Trustee:
(a) The Share Pledge Agreement; and
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(b) A certificate of the Company, substantially in the form of Exhibit
D hereto, with such changes thereto as shall be acceptable to the Trustee
and its counsel, and with respect to such other matters as the Trustee may
reasonably request.
Section 5.4. Other Conditions Precedent to Trustee's Obligation. The
obligation of the Trustee to enter into the Trust Loan is subject to the
conditions precedent that (i) the Conversion is consummated, (ii) the
representations and warranties made by the Company herein shall be true and
correct in all material respects on the Closing Date as if made on and as of the
Closing Date, and (iii) no injunction or restraining order shall be in effect or
litigation pending or threatened to forbid or enjoin the consummation of the
transaction contemplated by this Agreement.
ARTICLE VI
EVENTS OF DEFAULT AND THEIR EFFECT
Section 6.1. Events of Default; Effect. If default in the payment when
due of any principal of, or default (and continuance thereof for 5 days) in the
payment when due of interest on, the Trust Note (an "Event of Default") occurs,
unless the effect thereof as an Event of Default has been waived in writing by
the Company, then the Company may declare the Trust Note to be due and payable,
whereupon the Trust Note shall become immediately due and payable, without
presentment, demand, protest or notice to the Trust or other action by the
Company of any kind whatsoever, all of which actions the Trust hereby waives to
the maximum extent permitted by law. The Company shall promptly advise the Trust
of any declaration of default, but failure to do so or delay in doing so shall
not impair the effect of such declaration. Notwithstanding anything to the
contrary herein or in the Trust Note or the Share Pledge Agreement contained or
implied, if a Default or Event of Default occurs with respect to the Trust Loan
by the Trust, the value of Trust assets transferred in satisfaction thereof
shall not exceed the amount of such default. In addition, such a transfer of
such Trust assets shall only occur upon and to the extent of the failure of the
Trust to meet the payment schedule of the Trust Loan provided in Article II.
ARTICLE VII
SHARE PURCHASES
Section 7.1. Purchase of Shares. The Company is making the Trust Loan
available to the Trustee for the purpose of allowing the Trustee to purchase
Shares in the Conversion. To the extent the ESOP is permitted to purchase up to
95,220 Shares in the Conversion, the Trustee agrees to use all of the proceeds
of the Trust Loan to purchase Shares in accordance with this Article VII.
Section 7.2. Manner of Purchase. The Trustee shall timely subscribe to
purchase the Shares the ESOP is permitted to purchase in the Conversion pursuant
to the Bank's Plan of Conversion. The Trustee shall draw upon the Trust Loan and
use the proceeds thereof to purchase the number of Shares the ESOP may purchase
in the Offering, simultaneously with consummation of the Conversion.
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Section 7.3. Readily Tradeable. The Company agrees to use reasonable
efforts to cause the Shares to be, and to maintain the Shares' status as,
"readily tradeable on an established securities market" within the meaning of
Section 409(l)(1) of the Code.
Section 7.4. No Prohibited Transactions. The Trustee in the performance
of its obligations under this Agreement, shall observe its fiduciary obligations
under Section 404 of ERISA, shall not engage in any transaction prohibited by
ERISA or contrary to such fiduciary obligations, and, in acquiring Shares, shall
not (and shall not be deemed obligated to) pay more than "adequate
consideration", as defined in Section 3(18) of ERISA.
Section 7.5. Maximum Number of Shares. The Trust shall not purchase
Shares with proceeds of the Trust Loan in excess of 8% of the outstanding Shares
of the Company at the time of purchase.
ARTICLE VIII
GENERAL
Section 8.1. Waivers; Amendments. No delay on the part of the Company,
or the holder of the Trust Note in the exercise of any right, power or remedy
shall operate as a waiver thereof, nor shall any single or partial exercise by
any of them of any right, power or remedy preclude other or further exercise
thereof, or the exercise of any other right, power or remedy. No amendment,
modification or waiver of, or consent with respect to, any provision of this
Agreement, the Trust Note or the Share Pledge Agreement shall in any event be
effective unless the same shall be in writing and signed and delivered by the
Company and then any such amendment, modification, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
Section 8.2. Confirmations; Information. The Company and the Trust (or
holder of the Trust Note) agree from time to time, upon written request received
by it from the other, to confirm to the other in writing the aggregate unpaid
principal balance then outstanding under the Trust Note and such other matters
relating to the Trust Loan, the Trust, the ESOP or the purchase of Shares as may
reasonably be the subject of inquiry.
Section 8.3. Captions. Section captions used in this Agreement are for
convenience only, and shall not affect the construction of this Agreement.
Section 8.4. Governing Law. To the extent not preempted by ERISA, this
Agreement and the Trust Note shall be a contract made under and governed by the
laws of the State of Indiana, without regard to conflict of laws principles. All
obligations of the Trust and rights of the Company and other holder of the Trust
Note expressed herein or in such Trust Note shall be in addition to and not in
limitation of those provided by law.
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Section 8.5. Notices. All communications and notices hereunder shall be
in writing and shall be deemed to be given when sent by registered or certified
mail, postage prepaid, return receipt requested, or by telecopier, duly
confirmed, and addressed to such party at the address indicated below or to such
other address as such party may designate in writing pursuant to this Section
8.5.
River Valley Bancorp
303 Clifty Drive
P.O. Box 626
Madison, Indiana 47250
Attention: James E. Fritz,
President and Chief Executive Officer
[name and address of Trustee]
Section 8.6. Expenses. All expenses of the transaction contemplated by this
Agreement shall be paid by the Company.
Section 8.7. Reimbursement. If the Trustee uses proceeds from the Trust
Loan to purchase Common Stock directly from the Company and it is subsequently
determined by a court of competent jurisdiction that the Trustee paid in excess
of "adequate consideration" within the meaning of ERISA for such shares, the
Company shall, as soon as practicable following such judgment, reimburse the
Trustee for the amount of the excess payment.
Section 8.8. Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings between the parties.
Section 8.9. Severability. Should any clause, paragraph or part of this
Agreement be held or declared to be void or illegal for any reason, all other
clauses, paragraphs or parts of this Agreement which can be affected without
such illegal clause, paragraph or part shall nevertheless remain in full force
and effect.
Section 8.10. No Assignment. This Agreement and the obligations of the
parties herein may not be assigned or assumed by any other parties.
Section 8.11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which put
together shall constitute one and the same instrument.
ARTICLE IX
LIMITED RECOURSE
Section 9.1. Limited Recourse. Notwithstanding anything to the contrary
herein or in the Trust Note, the Share Pledge Agreement or any other instrument,
agreement or document contained or implied, the obligations of the Trust under
this Agreement, the Trust Note and the Share Pledge Agreement (collectively, the
"Trust Loan Obligations") shall be enforceable to the extent permitted
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under law, including (without limitation) the Exempt Loan Rules, only against
the Trust to the extent of the Collateral (as defined in the Share Pledge
Agreement) not theretofore released from the pledge and security interest under
the Share Pledge Agreement as provided in Section 3.2 and contributions and
other payments (other than contributions of employer securities) made to the
Trust in accordance with the ESOP to enable the Trust to pay and satisfy the
Trust Loan Obligations and from earnings attributable to the Shares purchased
with Trust Loan proceeds and the investment of such contributions and payments
(collectively, the "Trust Loan Collateral"). No recourse shall be had to or
against the Trust or the assets thereof (other than the Trust Loan Collateral)
for any deficiency judgment against the Trust for the purpose of obtaining
payment or other satisfaction of the Trust Loan Obligations.
Section 9.2. No Personal Recourse Against Trustee. Without limiting the
provisions of Section 9.1, the Trustee of the Trust shall have no personal
liability for any of the Trust Loan Obligations.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their respective representatives thereunto duly
authorized as of the date first above written.
TRUST UNDER RIVER VALLEY BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
By:
By:
Printed:
Its:
RIVER VALLEY BANCORP
By:
James E. Fritz
Printed: James E. Fritz
Its: President
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EXHIBIT A
TRUST NOTE
$ ___________, 1996
--------------------------
Due: September 30, 2003
FOR VALUE RECEIVED, the undersigned, the Trust (the "Trust")
established pursuant to the provisions of RIVER VALLEY BANCORP EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST AGREEMENT, DATED AND EFFECTIVE AS OF JANUARY 1, 1996
(the "Plan") by _____________________________, as Trustee (the "Trustee"),
promises to pay to the order of RIVER VALLEY BANCORP, an Indiana corporation
(together with its successors, endorsees and assigns, the "Company"), at such
place and in such other manner as the Company may direct in writing, and when
required pursuant to the provisions of that certain Exempt Loan and Share
Purchase Agreement, dated __________, 1996 (the "Loan Agreement"), by and among
the Trustee and the Company, the principal amount of Dollars ($ ), or so much
thereof as may be advanced by the Company to the Trust hereunder and under the
Loan Agreement, said amount being due and payable together with accrued interest
in such installments and at such times as provided in the Loan Agreement, with
the entire unpaid principal balance due and payable with accrued interest in
full on September 30, 2003, as provided in the Loan Agreement.
The principal balance hereof from time to time outstanding shall bear
interest from the date of each disbursement of the Trust Loan evidenced by this
Trust Note through and including the date on which such principal amount is paid
in full, at the times provided in the Loan Agreement, at the Interest Rate, as
defined in the Loan Agreement which is ____ percent (____%) per annum (or, in
the case of overdue principal and, to the extent legally enforceable, overdue
interest, at the Interest Rate plus two percent (2%) per annum).
This Trust Note has been issued by the Trust in accordance with the
terms of the Loan Agreement to evidence the Trust Loan made by the Company to
the Trust under the Loan Agreement, to which reference is hereby made for the
statement of the terms thereof. This Trust Note and the Company are entitled to
the benefits of the Loan Agreement and the Company may enforce the agreements of
the Trust contained therein and in the Loan Documents, and may exercise the
respective remedies provided for thereby or otherwise available in respect
thereof, all in accordance with the respective terms thereof. All capitalized
terms used in this Trust Note which are not otherwise defined herein have the
respective meanings assigned to them in the Loan Agreement.
The Trust has the right to prepay the principal amount of this Trust
Note without penalty on the terms and conditions specified in the Loan
Agreement.
If any Event of Default shall occur, the entire unpaid principal amount
of this Trust Note and all of the accrued but unpaid interest thereon may become
or be due and payable in the manner and with the effect provided in the Loan
Agreement. The collection and enforcement of this Trust Note are subject to the
provisions and limitations of Section 9.1 of the Loan Agreement.
<PAGE>
To the extent not preempted by ERISA, this Trust Note and the
obligations of the Trust hereunder shall be governed by the laws of the State of
Indiana without regard to principles of conflict of laws.
All parties to this Trust Note, including endorsers, sureties and
guarantors, if any, hereby waive presentment, demand, protest, notice, relief
from valuation and appraisement laws and any and all other notices and demands
in connection with the delivery, acceptance, performance and enforcement of this
Trust Note and also hereby assent to extensions of the time of payment or
forbearance or other indulgences without notice, and agree to remain bound until
the principal, premium, if any, and interest are paid in full, notwithstanding
any extensions of time for payment which may be granted, even though the period
or periods of extension may be indefinite, and notwithstanding any inaction by,
or failure to assert any legal rights available to, the holder of this Trust
Note.
IN WITNESS WHEREOF, the Trust has caused this instrument to be executed
by the Trustee, the day and year first above written.
TRUST UNDER RIVER VALLEY BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
By: , Trustee
By:
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EXHIBIT B
SHARE PLEDGE AGREEMENT
between
TRUST UNDER
RIVER VALLEY BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
and
RIVER VALLEY BANCORP
Dated: ____________, 1996
<PAGE>
SHARE PLEDGE AGREEMENT
THIS SHARE PLEDGE AGREEMENT (this "Agreement" or "Share Pledge
Agreement"), dated as of __________, 1996, between the Trust (the "Trust")
established pursuant to the provisions of RIVER VALLEY BANCORP EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST AGREEMENT (EFFECTIVE AS OF JANUARY 1, 1996) (the
"Plan") by ___________________________________________, as Trustee ("Trustee"),
and RIVER VALLEY BANCORP, an Indiana corporation (the "Company").
WITNESSETH:
WHEREAS, contemporaneously herewith, the Trust and the Company have
entered into that certain Exempt Loan and Share Purchase Agreement (the "Loan
Agreement"; definitions of terms appearing in which have the same meanings
herein, unless a clear contrary intention appears), dated __________, 1996,
pursuant to which the Company has agreed to lend to the Trust, and the Trust has
agreed to borrow from the Company, the Trust Loan, and the Trust, to evidence
its indebtedness to the Company with respect to the Trust Loan, has executed and
delivered the Trust Note to the Company; and
WHEREAS, it is a condition precedent to the obligation of the Company
to make the Trust Loan that, among other things, the Trust execute and deliver
this Agreement to the Company,
NOW, THEREFORE, in consideration of the Loan Agreement and the Trust
Loan and other good and valuable consideration (the receipt, adequacy and
sufficiency of which the Trust acknowledges by its execution hereof, the Trust
intending to be legally bound does hereby covenant and agree with the Company as
follows:
Section 1. Pledge. To secure the due and punctual payment and
performance of the obligations of the Trust hereunder and under the Loan
Agreement and the Trust Note (collectively, the "Liabilities"), the Trustee on
behalf of the Trust hereby pledges, hypothecates, assigns, transfers, sets over
and delivers unto the Company, its successors and assigns and hereby grants to
the Company, its successors and assigns a security interest in:
(a) All Shares of Company Common Stock purchased or to be
purchased with the proceeds of the Trust Loan (collectively, the
"Pledged Shares") and the certificates representing or evidencing the
Pledged Shares, and, to the extent permitted by Section 4975(e)(7) of
the Internal Revenue Code of 1986, as amended, and Reg. ss.
54.4975-7(b)(5) promulgated thereunder, all cash, securities, interest,
dividends, rights and other property at any time and from time to time
received in respect of or in exchange for any or all of the Pledged
Shares; and
(b) all proceeds of all of the foregoing
(all such Pledged Shares, certificates, cash, securities, interest, dividends,
rights and other property, and proceeds thereof, other than as released, sold or
otherwise applied by the Company pursuant to the' terms hereof, being herein
collectively called the "Collateral"), TO HAVE AND TO HOLD such Collateral,
together with all rights, titles, interests, privileges and preferences
appertaining or
<PAGE>
incidental thereto, forever, subject, however, to the terms, covenants and
conditions hereafter set forth.
Section 2. Warranties and Covenants.
(a) The Trust represents and warrants to the Company that the
Trust is, or at the time of any future delivery, pledge, assignment or
transfer will be, the lawful owner of the Collateral, free of all
claims and liens other than the security interest hereunder, with full
right to deliver, pledge, assign and transfer the Collateral to the
Company as Collateral hereunder.
(b) So long as any of the Liabilities remain outstanding, the
Trust will, unless the Company shall otherwise consent in writing:
(i) promptly deliver to the Company from time to time
certificates representing Pledged Shares as the Trustee
acquires them and, upon request of the Company, such stock
powers and other documents, satisfactory in form and substance
to the Company, with respect to the Collateral as the Company
may reasonably request to preserve and protect, and to enable
the Company to enforce, its rights and remedies hereunder;
(ii) not create or suffer to exist any lien, security
interest or other charge or encumbrance against, in or with
respect to any of the Collateral except for the pledge
hereunder and the security interest created hereby;
(iii) not make or consent to any amendment or other
modification or waiver with respect to any of the Collateral
or enter into any agreement or permit to exist any restriction
with respect to any of the Collateral other than pursuant
hereto; and
(iv) not take or fail to take any action which would
in any manner impair the value or enforceability of the
Company's security interest in any of the Collateral.
Section 3. Care of Collateral. The Company shall be deemed to have
exercised reasonable care with respect to the interest of the Trust in the
custody and preservation of the Collateral if it takes such action for that
purpose as the Trust shall request in writing or as it would with respect to
similar assets of its own, but failure of the Company to comply with any such
request shall not of itself be deemed a failure to exercise reasonable care.
Section 4. Certain Rights Regarding Collateral and Liabilities.
(a) The Company may from time to time, whether before or after any of
the Liabilities shall become due and payable, without notice to the Trust, to
the extent otherwise permitted (i) retain or obtain a security interest in the
Collateral, to secure payment and performance of any of the Liabilities, (ii)
retain or obtain the primary or secondary liability of any party or parties, in
addition to the Trust, with respect to any of the Liabilities, (iii) extend or
renew for any period (whether or
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<PAGE>
not longer than the original period) or exchange any of the Liabilities or
release or compromise any obligation of any nature of any party with respect
thereto, and (iv) surrender, release or exchange all or any part of any
property, in addition to the Collateral, securing payment and performance of any
of the Liabilities, or compromise or extend or renew for any period (whether or
not longer than the original period) any obligations of any nature of any party
with respect to any such property.
(b) The Company shall have no right to vote the Pledged Shares prior to
the occurrence of an Event of Default (hereinafter in Section 6(a) hereof
defined). After the occurrence of an Event of Default, the Trust shall have the
right to vote any and all of the Pledged Shares in accordance with the Plan
unless and until it receives notice from the Company that such right has been
terminated with respect to shares subject to execution as a result of the
Default.
Section 5. Dividends, etc.
(a) So long as no Default or Event of Default, shall have occurred and
be continuing, the Trust shall be entitled to receive any and all cash dividends
on the Pledged Shares which it is otherwise entitled to receive, and to vote the
Pledged Shares in accordance with the terms of the Plan and to give consents,
waivers and ramifications in respect of the Pledged Shares, but any and all
stock and/or liquidating dividends, distributions in property, returns of
capital or other distributions made on or in respect of the Pledged Shares,
whether resulting from a subdivision, combination or reclassification of the
outstanding capital stock of any issuer thereof or received in exchange for the
Pledged Shares or any part thereof or as a result of any merger, consolidation,
acquisition or other exchange of assets to which any issuer may be a party or
otherwise, and any and all cash and other property received in exchange for any
Collateral shall be, and become part of the Collateral pledged hereunder and, if
received by the Trust, shall forthwith be delivered to the Company or its
designated nominee (accompanied, if appropriate, by proper instruments of
assignment and/or stock powers executed by the Trust in accordance with the
Company's instructions) to be held subject to the terms of this Agreement and
the Plan.
(b) Upon the occurrence and during the continuance of an Event of
Default, subject to the terms of Section 4(b) hereof, all rights of the Trust
pursuant to Section 5(a) hereof shall cease and the Company shall have the sole
and exclusive right and authority to receive and retain the dividends which the
Trust would otherwise be authorized to retain and, to the extent permitted by
law, to vote and give consents, waivers and ramifications pursuant to Section
5(a) hereof. Any and all money and other property paid over to or received by
the Company pursuant to the provisions of this paragraph (b) shall be retained
by the Company as additional Collateral hereunder and be applied in accordance
with the provisions hereof.
Section 6. Event of Default.
(a) The occurrence of any of the following shall constitute an Event of
Default hereunder nonpayment, when due, whether by acceleration or otherwise, of
any amount payable on any of the Liabilities; an Event of Default as defined in
the Loan Agreement; any representation or warranty of the Trust contained herein
or given pursuant hereto being untrue in any material respect; or the Trust's
failure to perform any covenant or agreement contained herein.
3
<PAGE>
(b) Upon the occurrence of an Event of Default, (i) the Company may
exercise from time to time any rights and remedies available to it under the
Uniform Commercial Code as in effect from time to time in Indiana or otherwise
available to it, including, but not limited to, sale, assignment, or other
disposal of the Pledged Shares in exchange for cash or credit, and (ii) the
Company may, without demand or notice of any kind, but subject to Section 7,
appropriate and apply toward the payment of such of the Liabilities, and in such
order of application, as the Company may from time to time elect, any balances,
credits, deposits, accounts or moneys of the Trust. If any notification of
intended disposition of any of the Collateral is required by law, such
notification, if mailed, shall be deemed reasonably and properly given if mailed
at least five (5) days before such disposition, postage prepaid, addressed to
the Trust, either at the address of the Trust shown below, or at any other
address of the Trust appearing on the records of the Company. Any proceeds of
any disposition of Collateral shall be applied as provided in Section 7 hereof.
All rights and remedies of the Company expressed hereunder are in addition to
all other rights and remedies possessed by it, including those under any other
agreement or instrument relating to any of the Liabilities or security therefor.
No delay on the part of the Company in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by the Company of
any right or remedy shall preclude other or further exercise thereof or the
exercise of any other right or remedy. No action of the Company permitted
hereunder shall impair or affect the rights of the Company in and to the
Collateral.
(c) The Trust agrees that in any sale of any of the Collateral whenever
an Event of Default hereunder shall have occurred and be continuing, the Company
is hereby authorized to comply with any limitation or restriction in connection
with such sale as it may be advised by counsel is necessary in order to avoid
any violation of law (including, without limitation, compliance with such
procedures as may restrict the number of prospective bidders and purchasers,
require that such prospective bidders and purchasers have certain qualification,
and restrict such prospective bidders and purchasers to persons who will
represent and agree that they are purchasing for their own account for
investment and not with a view to the distribution or resale of such
Collateral), or in order to obtain any required approval of the sale or of the
purchaser by any governmental regulatory authority or official, and the Trust
further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall the Company be liable nor accountable to the Trust for any discount
allowed by the reason of the fact that such Collateral is sold in compliance
with any such limitation or restriction.
(d) Notwithstanding anything to the contrary herein or in the Trust
Note or the Loan Agreement contained or implied, if an Event of Default occurs
with respect to the Trust Loan by the Trust, the value of Trust assets
transferred in satisfaction thereof shall not exceed the amount of such default.
In addition, such a transfer of such Trust assets shall only occur upon, and to
the extent of the failure of, the Trust to meet the payment schedule of the
Trust Loan provided in Article II of the Loan Agreement.
Section 7. Application of Proceeds of Sale or Cash Held as Collateral.
The proceeds of sale of Collateral sold pursuant to the terms of Section 6
hereof and/or, after an Event of Default, the cash held as Collateral hereunder,
shall be applied by the Company, to the extent permitted by applicable law, as
follows:
4
<PAGE>
First: to payment of the costs and expenses of such sale,
including the out-of-pocket costs and expenses of the Company and the
reasonable fees and out-of-pocket costs and expenses of counsel
employed in connection therewith, and to the payment of all advances
made by the Company for the account of the Trust hereunder and the
payment of all costs and expenses incurred by the Company in
connection with the administration and enforcement of this Agreement,
to the extent that such advances, costs and expenses shall not have
been reimbursed to the Company;
Second: to the payment in full of the Liabilities; and
Third: the balance, if any, of such proceeds shall be paid to the
Trust, its successors and assigns, or as a court of competent
jurisdiction may direct.
Section 8. Authority of Company. The Company shall have and be entitled
to exercise all such powers hereunder as are specifically delegated to the
Company by the terms hereof, together with such powers as are incidental
thereto. The Company may execute any of its duties hereunder by or through
agents or employees and shall be entitled to retain counsel and to act in
reliance upon the advice of such counsel concerning all matters pertaining to
its duties hereunder. Neither the Company, nor any director, officer or employee
of the Company, shall be liable for any action taken or omitted to be taken by
it or them hereunder or in connection herewith, except for its or their own
gross negligence or wilful misconduct. The Trust hereby agrees, to the extent
permitted by applicable law, to reimburse the Company, on demand, for all costs
and expenses incurred by the Company in connection with the enforcement of this
Agreement (including costs and expenses incurred by any agent employed by the
Company).
Section 9. Termination. This Agreement shall terminate when all the
Liabilities have been fully paid and performed, at which time the Company shall
reassign and redeliver (or cause to be reassigned and redelivered) to the Trust,
or to such person or persons as the Trust shall designate, against receipt, such
of the Collateral (if any) as shall not have been theretofore released, sold or
otherwise applied by the Company pursuant to the terms hereof and shall still be
held by it hereunder, together with any appropriate instruments of reassignment
and release. Any such reassignment shall be without recourse upon, or
representation or warranty by, the Company.
Section 10. Required Release of Collateral. Notwithstanding any
provision of this Agreement or the Loan Agreement to the contrary, the Company
from time to time will release from the pledge and security interest under the
Loan Agreement, such Collateral as must be allocated to participants under the
Plan pursuant to Section 8.7(h) of the Plan and otherwise under the Code, the
Exempt Loan Rules or other applicable law.
Section 11. Limited Recourse. Notwithstanding anything to the contrary
herein or in the Trust Note, the Loan Agreement or any other instrument,
agreement or document contained or implied, the Liabilities shall be enforceable
to the extent permitted under applicable law, including, without limitation, the
Exempt Loan Rules, only against the Trust to the extent of the Collateral not
theretofore released from the pledge and security interest under this Agreement
as provided herein and contributions (other than contributions of employer
securities) made to the Trust in accordance with the Plan to enable the Trust to
pay and satisfy the Liabilities and from earnings attributable to
5
<PAGE>
the Shares and the investment of such contributions (collectively, the "'Trust
Loan Collateral"). No recourse shall be had to or against the Trust or the
assets thereof (other than the Trust Loan Collateral) for any deficiency
judgment against the Trust for the purpose of obtaining payment or other
satisfaction of the Liabilities. Without limiting the foregoing, the Trustee of
the Trust shall have no personal liability for any of the Liabilities, other
than as required by or arising under applicable law.
Section 12. Notices. All communications and notices hereunder shall be
in writing and, if mailed, shall be deemed to be given when sent by registered
or certified mail, postage prepaid, return receipt requested, or by telecopier,
duly confirmed, and addressed to such party at the address indicated below or to
such other address as such party may designate in writing pursuant to this
Section 12.
RIVER VALLEY BANCORP
303 Clifty Drive
P.O. Box 626
Madison, Indiana 47250
Attention: James E. Fritz,
President and Chief Executive Officer
[name and address of Trustee]
Section 13. Binding Agreement Assignment. This Agreement, and the
terms, covenants and conditions hereof, shall be binding upon and inure to the
benefit of the parties hereto, and their respective successors and assigns,
except the Trust shall not be permitted to assign this Agreement or any interest
herein or in the Collateral, or any part thereof, or otherwise grant any option
with respect to the Collateral, or any part thereof and the Company shall not
assign any interest herein or in the Collateral unless such assignment is
expressly made subject to the terms of the Loan Documents.
Section 14. Miscellaneous Provisions. Neither this Agreement nor any
provision hereof may be amended, modified, waived, discharged or terminated nor
may any of the Collateral be released or the pledge or the security interest
created hereby extended, except by an instrument in writing duly signed by or on
behalf of the Company hereunder. The section headings used herein are for
convenience of reference only and shall not define or limit the provisions of
this Agreement. This Agreement may be executed in any number of counterparts and
by the different parties on separate counterparts and each such counterpart
shall be deemed to be an original, but all such counterparts shall together
constitute but one and the same Agreement.
Section 15. Governing Law; Interpretation. This Agreement has been made
and delivered at Madison, Indiana, and, except to the extent preempted by ERISA,
shall be governed by the internal laws of the State of Indiana, without regard
to principles of conflict of laws. Wherever possible each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid
6
<PAGE>
under such law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
Section 16. Filing as a Financing Statement. At the option of the
Company, this Agreement, or a carbon, photographic or other reproduction of this
Agreement or of any Uniform Commercial Code financing statement covering the
Collateral or any portion thereof shall be sufficient as a Uniform Commercial
Code financing statement and may be filed as such.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective representatives thereunto duly authorized as
of the date first above written.
TRUST UNDER RIVER VALLEY BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
By:
By:
Printed:
Its:
RIVER VALLEY BANCORP
By:
Printed: James E. Fritz
Its: President and Chief Executive Officer
7
<PAGE>
Exhibit C
CERTIFICATE OF TRUSTEE
The undersigned, ______________________________, [a national banking
association,] in its capacity as Trustee ("Trustee") of the Trust under the
River Valley Bancorp Employee Stock Ownership Plan and Trust Agreement
(Effective as of January 1, 1996) (the "Trust") hereby certifies, pursuant to
Section 5.1(c) of that certain Exempt Loan and Share Purchase Agreement between
the Trust and River Valley Bancorp of even date herewith (the "Loan Agreement")
that:
(i) it has determined that the Trust Loan, as defined in the Loan
Agreement, is primarily for the benefit of ESOP participants and their
beneficiaries and bears interest at a rate not in excess of a
reasonable rate and that the terms of the loan are at least as
favorable to the Trust and the ESOP participants as the terms of a
comparable loan resulting from arm's-length negotiations between
completely independent parties;
(ii) the other representations and warranties of the Trust
contained in the Loan Agreement are true in all material respects as
of the date of this Certificate; and
(iii) the conditions set forth in Article V of the Loan
Agreement, to the extent their satisfaction depends upon action on the
part of the Trust or the Trustee, have been satisfied as of the date
of this Certificate.
EXECUTED this ____ day of ____________, 1996.
________________________________, as Trustee of
the Trust under River Valley Bancorp Employee Stock
Ownership Plan and Trust Agreement (Effective as of
January 1, 1996)
By:
-----------------------------------------------
------------------------,
------------------------
<PAGE>
Exhibit D
CERTIFICATE OF THE COMPANY
The undersigned, River Valley Bancorp, an Indiana corporation (the
"Company"), pursuant to Section 5.3(b) of that certain Exempt Loan and Share
Purchase Agreement between ________________________________, a national banking
association, in its capacity as Trustee of the Trust under the River Valley
Bancorp Employee Stock Ownership Plan and Trust Agreement (Effective as of
January 1, 1996) and the Company of even date herewith (the "Loan Agreement"),
hereby certifies that the representations and warranties of the Company
contained in the Loan Agreement are true and correct in all material respects,
and the Company is in compliance with its covenants set forth in the Loan
Agreement in all material respects, as of the date of this Certificate.
EXECUTED this _____ day of ____________, 1996.
RIVER VALLEY BANCORP
By:
James E. Fritz, President and
Chief Executive Officer
Exhibit 10(23)
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
THIS AMENDED AND RESTATED STOCK PURCHASE AGREEMENT, dated as of March
4, 1996, is by and between Madison First Federal Savings and Loan Association
("Purchaser") and Eloise A. Durocher, a resident of Jefferson County, Indiana
("Seller").
RECITALS
A. Seller beneficially owns 120,429 shares of common stock, $8 par value
per share ("Common Stock"), of Citizens National Bank of Madison, a national
banking association (the "Bank"). The Bank has 126,037 outstanding shares of
Common Stock
B. Seller is willing to sell to Purchaser, and Purchaser is willing to
purchase from Seller, her 120,429 shares of Bank Common Stock (the "Shares"), on
the terms and subject to the conditions hereof.
C. Purchaser intends to convert from mutual to stock form before the
purchase of the Shares, and the actual purchase is expected to be made by a
holding company (the "Holding Company") to be formed by Purchaser at the time of
such conversion (the "Conversion").
D. The parties hereto want to reduce to writing their agreement with
respect to the foregoing.
NOW, THEREFORE. in consideration of the mutual covenants contained herein
and the acts to be performed hereunder, the parties hereby enter into the
following agreement.
1. SALE OF SHARES. Subject to the terms and upon the conditions hereof,
Seller agrees to sell. and Purchaser agrees to purchase through the Holding
Company, on the Closing Date (as hereinafter defined in paragraph 3) all of
Seller's right, title and interest in and to the Shares.
2. PURCHASE PRICE. As consideration for the Shares, on the Closing Date,
Purchaser's Holding Company shall pay to Seller an amount equal to $3,010,725.
3. CLOSING. The Closing Date shall be the date all conditions precedent to
the acquisition of the Shares provided for herein have been satisfied, or at
such other time as is mutually agreed to by the parties hereto (the "Closing
Date"). The closing (the "Closing") of the purchase and sale of the Shares
described herein shall be held at the offices of Purchaser, or at such other
place as is mutually agreed to by the parties hereto.
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents and
warrants to Purchaser as follows:
<PAGE>
(a) Seller is the record and beneficial owner of the Shares;
(b) The sale of the Shares by Seller to Purchaser's Holding Company
hereunder will vest in Purchaser's Holding Company good and valid right, title
and interest in and to the Shares, free and clear of all claims, liens, pledges,
charges, security interests and encumbrances of any nature; and
(c) Seller has the full right, power and authority to execute this
Agreement and to sell the Shares in accordance herewith.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby represents
and warrants to Seller as follows:
(a) Neither Purchaser nor its Holding Company has any present intent to
sell, distribute or otherwise transfer the Shares acquired pursuant to this
Agreement; and
(b) Purchaser has the full right, power and authority to execute this
Agreement and to purchase through its Holding Company the Shares in accordance
herewith.
6. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. All obligations of Seller
under this Agreement are subject to fulfillment, prior to or on the Closing
Date, of each of the following conditions:
(a) Purchaser's representations and warranties contained in this
Agreement shall be true at the time of Closing as though such
representations and warranties were made at such time;
(b) The Holding Company shall have delivered to Seller a check
for, or wire transfer in federal funds of, $3,010,725 as the
purchase price for the Shares;
(c) the Conversion shall be consummated and any necessary
regulatory approvals for the acquisition of the Shares
contemplated by this Agreement shall have been obtained and
any applicable waiting periods shall have expired; and
(d) this Agreement shall not have terminated as provided in paragraph
8 hereof.
7. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. All obligations of
Purchaser under this Agreement are subject to the fulfillment, prior to or on
the Closing Date, of each of the following conditions:
(a) Seller's representations and warranties contained in this
Agreement shall be true at the time of Closing as though such
representations and warranties were made at such time;
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<PAGE>
(b) Seller shall deliver to Purchaser at the Closing a certificate or
certificates representing the Shares, either endorsed in favor of
Purchaser, or accompanied by one or more duly completed and
executed stock powers in favor of Purchaser;
(c) the Conversion shall be consummated and any necessary regulatory
approvals for the acquisition of the Shares contemplated by this
Agreement shall have been obtained and any applicable waiting
periods shall have expired;
(d) this Agreement shall not have terminated as provided in paragraph
8 hereof; and
(e) Purchaser shall have completed a due diligence review of Seller
satisfactory to Purchaser and the results of such review shall be
satisfactory to Purchaser. Such investigation shall be on-going
through the date of purchase of the Shares hereunder. Seller
shall use her best efforts to cause the Bank and its officers,
employees, and agents to cooperate fully with the Purchaser in
the conduct of that due diligence investigation.
8. TERMINATION. This Agreement may be terminated (a) by either party at
any time prior to the Closing if there shall have been a final determination (as
to which all periods for appeal shall have expired and no approval shall be
pending) that any material provision of this Agreement is illegal, invalid or
unenforceable, (b) by either party if it becomes clear that any condition
precedent to such party's obligations hereunder cannot be satisfied on or prior
to June 30, 1997, (c) by Purchaser (i) if the Purchaser determines that the
balance sheet published by the Bank dated December 31, 1995, as audited by
Sherman, Barber & Mullikin does not fairly present the financial position of the
Bank as of its date, (ii) if the Purchaser determines that the income statement
of the Bank for 1995, as audited by Sherman, Barber & Mullikin does not fairly
present the results of operations of the Bank for 1995, or (iii) if the
Purchaser determines that there has been a material adverse change in the
operations, prospects or financial condition of the Bank since December 31,
1995, or (d) by Seller if it becomes clear that any condition precedent to
Seller's obligations hereunder cannot be satisfied on or prior to December 31,
1996.
9. COVENANT OF FURTHER ASSURANCES. Seller agrees, upon reasonable request,
to deliver such additional documents to Purchaser or take such additional
actions as may be necessary or appropriate to vest in Holding Company ownership
of the Shares.
10. ENTIRE AGREEMENT. This Agreement, including any document delivered by
Purchaser or Seller in accordance herewith, constitutes the entire agreement and
supersedes all prior agreements and understandings, oral and written, between
the parties hereto with respect to the subject hereof.
11. BENEFITS. This Agreement will inure to the benefit of the parties
hereto and shall be binding upon them and their respective successors and
assigns.
12. GOVERNING LAW. The parties hereto agree that this Agreement shall be
construed as to both the validity and performance and shall be enforced in
accordance with and governed by the laws of the State of Indiana and applicable
federal law.
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<PAGE>
13. NOTICES. Any notice or other communication required or permitted
hereunder shall be sufficiently given if sent registered or certified mail,
postage prepaid, addressed as follows:
If to Purchaser:
Madison First Federal Savings and Loan Association
233 East Main
Madison, IN 47250-0626
Attn: James E. Fritz, President
If to Seller:
Eloise A. Durocher
11945 West State Road 56
Lexington, IN 47138
with a copy to:
Darrell M. Auxier
509 East Main
Madison, IN 47250
or to any such other address as shall be furnished in writing by any party to
the other party, and any such notice or communication shall be deemed to have
been given as of the date it is received.
IN WITNESS WHEREOF, this Agreement was executed by Purchaser and Seller
as of the date first written above.
MADISON FIRST FEDERAL SAVINGS AND
LOAN ASSOCIATION
By:
James E. Fritz, President
"Purchaser"
Eloise A. Durocher
"Seller"
-4-
Exhibit 21
Subsidiaries of River Valley Bancorp following the Stock Conversion of
Madison First Federal Savings and Loan Association:
Name Jurisdiction of Incorporation
Madison First Federal Savings and Loan Federal
Association
Citizens National Bank of Madison Federal
Madison First Service Corporation Indiana
McCauley Insurance Agency, Inc. Indiana
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
May 30, 1996
Re: Valuation Appraisal of River Valley Bancorp/
Madison First Federal Savings and Loan Association
Madison, Indiana
We hereby consent to the use of our firm's name, Keller & Company,
Inc., and the reference to our firm as experts in the Application for Conversion
on Form AC to be filed with the Office of Thrift Supervision and the
Registration Statement on Form S-1 to be filed with the Securities and Exchange
Commission and any amendments thereto, and to the statements with respect to us
and the references to our Valuation Appraisal Report in the Prospectus, in the
said Form AC and in the said Form S-1 and any amendments thereto.
Very truly yours,
KELLER & COMPANY, INC.
By: /s/ Michael R. Keller
Michael R. Keller
President
EXHIBIT 23(2)
ACCOUNTANTS' CONSENT
We have issued our report dated January 19, 1996 (except for note L, as
to which the date is March 5, 1996), accompanying the consolidated financial
statements of Madison First Federal Savings and Loan Association contained in
Forms S-1, AC and OC of River Valley Bancorp to be filed with the Securities and
Exchange Commission and the Office of Thrift Supervision on or about May 31,
1996. We consent to the use of the aforementioned report in the Registration
Statement and Prospectus, and to the use of our name as it appears under the
caption "experts".
/s/ Grant Thornton LLP
Cincinnati, Ohio
May 30, 1996
EXHIBIT 23(3)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report dated March 1, 1996, on the
financial statements of Citizens National Bank of Madison and to reference made
to us under the caption "Experts" in the Registration Statement on Form S-1
filed by River Valley Bancorp with the United States Securities and Exchange
Commission.
/s/ Sherman, Barber & Mullikin
Sherman, Barber & Mullikin
Madison, Indiana
June 3, 1996
EXHIBIT 23(4)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report dated January 28, 1994, on the
financial statements of Citizens National Bank of Madison and to reference made
to us under the caption "Experts" in the Registration Statement on Form S-1
filed by River Valley Bancorp with the United States Securities and Exchange
Commission.
/s/ Alexander X. Kuhn & Co.
Chicago, Illinois
May 31, 1996
Exhibit 99(2)
Madison First Stock
Federal Savings Order
and Loan Association Form
----------------------------------------
Note: Please read the Stock Order Form
Instructions and Guide on the back as
you complete this form.
----------------------------------------
DEADLINE: The Subscription Offering will expire at ____ p.m., local
time, on ________, 1996, unless extended. The Direct Community
Offering may terminate as early as ___________, 1996, or at
any time thereafter, but not later than __________, 1996,
unless extended.
- --------------------------------------------------------------------------------
(1) Number of Shares Purchase Price (2) Total Payment Due
- -------------------- X $10.00 = ---------------------
The minimum number of shares that may be subscribed for is 25 shares. Members of
Madison First Federal Savings and Loan Association ("Madison") may subscribe in
the Subscription Offering for a maximum of 10,000 shares per eligible account
and/or eligible loan. Notwithstanding the foregoing sentence, the maximum number
of shares which may be purchased in the Subscription Offering by any subscribing
member (including wuch person's Associates) or group acting in concert is 20,000
shares. A member who, together with his/her Associates and persons acting in
concert, has subscribed for shares in the Subscription Offering may subscribe
for a number of additional shares in the Direct Community Offering that does not
exceed the lesser of (i) 10,000 shares, or (ii) the number of shares which, when
added to the number of shares subscribed for by the member in the Subscription
Offering, would not exceed 20,000. The maximum number of shares which may be
purchased in the Direct Community Offering by any person (including such
person's Associates) or persons acting in concert is 10,000 in the aggregate.
See the Stock Order Form Instructions and Guide on the back.
- --------------------------------------------------------------------------------
Important Subscription
Method of Payment Offering Information
----------------- --------------------
(3) |_| Enclosed is a check, bank (5) a |_|Eligible Account Holder -- Check
draft or money order made here if you were a depositor of at
payable to Madison First least $50.00 at Madison on December
Federal Savings and Loan 31, 1994. Enter information below
Association ("Madison") for all deposit accounts that you
in the amount of: had at Madison on December 31,
1994.
(5) b |_|Supplemental Eligible Account
- ------------------ Cash can be used Holder -- Check here if you were
$ only if presented a depositor of at least $50.00 at
in person at one Madison on June 30, 1996, but are
of Madison's not an Eligible Account Holder.
offices. Enter information below for all
- ------------------ deposit accounts that you had at
Madison on June 30, 1996.
(5) c |_|Other Member -- Check here if you
(4) |_| The undersigned authorizes had a loan at Madison on ______,
withdrawal from this (these) 1996, or if you were a depositor
account(s) at Madison. at Madison on ____________, 1996,
Please contact the Stock but are not an Eligible Account
Information Center if you Holder or Supplemental Account
wish to use your IRA for Holder.
stock purchase.
Account Number Amount Account Title Deposit Loan Account
(Names on Accounts) Account Account Number
- ------------------------- ------------------------------------------------
$ [ ] [ ]
$ [ ] [ ]
$ [ ] [ ]
Total Withdrawal $ [ ] [ ]
Amount
-------- ------------------------------------------------
There is no penalty for early withdrawals used for
stock payment.
Important Direct Community Offering Information
(6) a [ ] Check here if you are a resident of Jefferson County, Indiana.
Stock Registration (See back under Stock Ownership Guide)
(7) Form of Stock Ownership:
[ ] Individual [ ] Joint tenants with right of survivors [ ] Tenants in common
[ ] Uniform Gifts Transfer to Minors
[ ] Fiduciary (i.e., trust estate, etc.) [ ] Corporation or Partnership
[ ] Other __________________________________________________
<PAGE>
- --------------------------------------------------------------------------------
(8) Name(s) in which your stock Social Security No. or Tax ID No.
is to be registered
(Please Print Clearly)
- --------------------------------------------------------------------------------
Name(s) continued
- --------------------------------------------------------------------------------
Street Address City County State Zip Code
- --------------------------------------------------------------------------------
(9) Telephone Information Daytime Phone ( ) Evening Phone ( )
---------------------------------------------------
(10) NASD Affiliation. |_| Check here if you are a member of the National
Association of Securities Dealers, Inc. ("NASD"), a person associated with a
NASD member, a member of the immediate family of any such person to whose
support such person contributes, directly or indirectly, or the holder of an
account in which an NASD member or person associated with an NASD member has a
beneficial interest. To comply with conditions under which an exemption from the
NASD's Interpretation With Respect to Free-Riding and Withholding is available,
you agree, if you have checked the NASD Affiliation box, (i) not to sell,
transfer or hypothecate the stock for a period of three months following
issuance, and (ii) to report this subscription in writing to the applicable NASD
member within one day of payment therefor.
(11) Acknowledgement. To be effective, this fully completed Stock Order Form
must be actually received together with an executed from of certification, by
Madison no later than ___________, 1996, otherwise this Stock Order Form and all
subscription rights will be void. All Stock Order Forms submitted in the
Subscription Offering must be actually received by Madison no later than _____
p.m., local time, on __________, 1996, unless extended. All Stock Order Forms
submitted in the Direct Community Offering should be received by _____ p.m.,
local time, on ______________, 1996, because the Direct Community Offering is
expected to terminate at that time, although it could terminate as late as
_____________, 1996, unless extended. Completed Stock Order Forms, together with
the required payment or withdrawal authorization and form of Certification, may
be delivered to Madison or may be mailed to the Post Office Box indicated on the
enclosed business reply envelope. ALL RIGHTS EXERCISABLE HEREUNDER ARE NOT
TRANSFERABLE AND SHARES PURCHASED UPON EXERCISE OF SUCH RIGHTS MUST BE PURCHASED
FOR THE ACCOUNT OF THE PERSON EXERCISING SUCH RIGHTS.
It is understood that this Stock Order Form will be accepted in
accordance with, and subject to, the terms and conditions of the Plan of
Conversion ("Plan of Conversion") of Madison described in the accompanying
Subscription and Direct Community Offering Prospectus dated ____________, 1996.
The undersigned acknowledges receipt of such Prospectus. If the Plan of
Conversion is not approved by the voting members of Madison at a Special Meeting
to be held on ___________, 1996, or any adjournment thereof, all orders will be
cancelled and funds received as payment, with accrued interest, will be returned
promptly. The undersigned agrees that after receipt by Madison, this Stock Order
Form may not be modified, withdrawn or cancelled (unless the conversion is not
completed with 45 days of the completion of the Subscription Offering) without
Madison's consent and if authorization to withdraw from deposit accounts at
Madison has been given as payment for shares, the amount authorized for
withdrawal shall not otherwise be available for withdrawal by the undersigned.
Under penalty of perjury, the undersigned certifies that the Social
Security or Tax ID Number and the information provided in this Stock Order Form
are true, correct and complete, that he/she is not subject to back-up
withholding and that he/she is purchasing for his/her own account and that there
is no agreement or understanding regarding the transfer of his/her subscription
rights or the sale or transfer of these shares.
Applicable State and Federal regulations prohibit any person from
transferring or entering into any agreement directly or indirectly to transfer
the legal or beneficial ownership of subscription rights, or the underlying
securities to the account of another. Madison will pursue any and all legal and
equitable remedies in the event it becomes aware of the transfer of subscription
rights and will not honor orders known by it to involve such transfer.
The undersigned acknowledges that the common stock offered is not a
savings or deposit account and is not insured by the Savings Association
Insurance Fund, the Bank Insurance Fund, the Federal Deposit Insurance
Corporation, or any other government agency. A VALID STOCK ORDER FORM MUST BE
SIGNED AND DATED BELOW AND ACCOMPANIED BY A SIGNED AND DATED FORM OF
CERTIFICATION.
- --------------------------------------------------------------------------------
(12) Signature Date Signature Date
- --------------------------------------------------------------------------------
FOR OFFICE USE ONLY STOCK INFORMATION CENTER
- ------------------------------------- Madison First Federal
Date Received ______/______/______ Savings and Loan
303 Clifty Drive
Category _______________ P.O. Box 626
Madison, Indiana 47250
- ------------------------------------- (219)____________
Order #__________ Deposit __________
Batch #__________ Date Input ____/____/____
- --------------------------------------------------------------------------------
<PAGE>
MADISON FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
-----------------------------------------------------------
SUBSCRIPTION AND DIRECT COMMUNITY OFFERING
STOCK ORDER FORM INSTRUCTIONS AND GUIDE
------------------------------------------------------------
[LEFT COLUMN OF PAGE 3 OF STOCK ORDER FORM]
- ---------------------
Stock Ownership Guide
- ---------------------
Individual
Include the first name, middle initial and last name of the shareholder. Avoid
the use of two initials. Please omit words that do not affect ownership rights,
such as "Mrs.," "Mr.," "Dr.," "special account," "single person," etc.
Joint Tenants with Right of Survivorship
Joint tenants with right of survivorship may be specified to identify two or
more owners. When stock is held by joint tenants with right of survivorship,
ownership is intended to pass automatically to the surviving joint tenant(s)
upon the death of any joint tenant. All parties must agree to the transfer or
sale of shares held by joint tenants.
Tenants in Common
Tenants in common may also be specified to identify two or more owners. When
stock is held by tenants in common, upon the death of one co-tenant, ownership
of the stock will be held by the surviving co-tenant(s) and by the heirs of the
deceased co-tenant. All parties must agree to the transfer or sale of shares
held by tenants in common.
Uniform Transfer to Minors
Stock may be held in the name of a custodian for a minor under the Uniform
Transfer to Minors Acts of each state. There may be only one custodian and one
minor designated on a stock certificate. The standard abbreviation for Custodian
is "CUST," while the Uniform Transfer to Minors Act is "Unif Tran Min Act."
Standard U.S. Postal Service state abbreviation should be used to describe the
appropriate state. For example, stock held by John Doe as custodian for Susan
Doe under the Indiana Uniform Transfer to Minors Act will be abbreviated John
Doe, CUST Susan Doe Unif Tran Min Act, IN (use minor's social security number).
Fiduciaries
Information provided with respect to stock to be held in a fiduciary capacity
must contain the following:
* The name(s) of the fiduciary. If an individual, list the first name, middle
initial and last name. If a corporation, list the full corporate title
(name). If an individual and a corporation list the corporation's title
before the individual.
* The fiduciary capacity, such as administrator, executor, personal
representative, conservator, trustee, committee, etc.
* A copy and description of the document governing the fiduciary
relationship, such as living trust agreement or court order. Without
documentation establishing a fiduciary relationship, your stock may not be
registered in a fiduciary capacity.
* The date of the document governing the relationship except that the date of
a trust created by a will need not be included in the description.
* The name of the maker, donor, or testator and the name of the beneficiary.
An example of fiduciary ownership of stock in the case of a trust is: John Doe,
Trustee Under Agreement Dated 10-1-87 for Susan Doe.
You may mail your completed Stock Order Form in the envelope that has been
provided, or you may deliver your Stock Order Form to Madison's offices. If you
are purchasing in the Subscription Offering, your properly completed Stock Order
Form and executed Certification, together with payment in full (or withdrawal
authorization) at the Purchase Price, must be received by Madison no later than
_____p.m. Madison, Indiana, time, on __________, 1996. If you are purchasing in
the Direct Community Offering, your properly completed Stock Order Form and
executed Certification, together with payment in full (or withdrawal
authorization) at the Purchase Price, must be received by Madison no later than
_____ p.m., Madison, Indiana, time, on ____________, 1996, because the Direct
Community Offering is expected to terminate at that time. However, the Direct
Community Offering may terminate as late as ___________, 1996, unless extended.
Stock Order Forms shall be deemed received only upon actual receipt at Madison's
office.
If you need further assistance, please call the Stock Information Center at
(219)____________. We will be pleased to help you with the completion of your
Stock Order Form or answer any questions you may have.
<PAGE>
[RIGHT SIDE OF PAGE 3 OF STOCK ORDER FORM]
Item Instructions
Items 1 and 2 -
Fill in the number of shares that you wish to purchase and the total payment
due. The amount due is determined by multiplying the number of shares purchased
by the Purchase Price of $10.00 per share. The minimum purchase is 25 shares.
Members of Madison may subscribe in the Subscription Offering for a maximum of
10,000 shares per eligible account and/or eligible loan. Notwithstanding the
foregoing sentence, the maximum number of shares which may be purchased in the
Subscription Offering by any subscribing member (including wuch person's
Associates) or group acting in concert is 20,000 shares. A member who, together
with his/her Associates and persons acting in concert, has subscribed for shares
in the Subscription Offering may subscribe for a number of additional shares in
the Direct Community Offering that does not exceed the lesser of (i) 10,000
shares, or (ii) the number of shares which, when added to the number of shares
subscribed for by the member in the Subscription Offering, would not exceed
20,000. The maximum number of shares which may be purchased in the Direct
Community Offering by any person (including such person's Associates) or persons
acting in concert is 10,000 in the aggregate. Madison reserves the right to
reject any order received in the Community Offering, in whole or in part.
Item 3 -
Payment for shares may be made in cash (only if delivered by you in person) or
by check, bank draft or money order made payable to Madison. Your funds will
earn interest at Madison's possbook rate until the conversion is completed or
terminated. DO NOT MAIL CASH TO PURCHASE STOCK! Please check this box if your
method of payment is by cash, check , bank draft or money order.
Item 4 -
If you pay for your stock by a withdrawal from a Madison deposit account, insert
the account number(s) and the amount of your withdrawal authorization for each
account. The total amount withdrawn should equal the amount of your stock
purchase. There will be no penalty assessed for early withdrawals from
certificate accounts used for stock purchases. This form of payment may not be
used if your account is an Individual Retirement Account. Please contact the
Stock Information Center for information regarding purchases from an Individual
Retirement Account.
Item 5 -
a. Please check this box if you are a depositor of Madison as of December
31, 1994 (Eligible Account Holder). You must list the full title and account
numbers of all accounts you had at these dates in order to ensure proper
identification of your subscription rights and to receive credit for your
qualifying deposits.
b. Please check this box if you are a depositor of Madison on June 30, 1996
(Supplemental Eligible Account Holder). You must list the name of all deposit
accounts you had on this date in order to ensure proper identification of your
subscription rights and to receive credit for your qualifying deposits.
c. Please check this box if you had a loan at Madison on __________, 1996, or if
you were a depositor on _____________, 1996, but are not an Eligible Account
Holder or Supplemental Eligible Account Holder. You must list the full title and
account numbers of all accounts that you had on _____________, 1996, in order to
ensure proper identification of your subscription rights.
Item 6 -
Please check the box if you are a resident of Jefferson County, Indiana.
Items 7, 8 and 9 -
The stock transfer industry has developed a uniform system of shareholder
registrations that we will use in the issuance of your common stock. Please
complete items 6, 7 and 8 as fully and accurately as possible, and be certain to
supply your social security number or tax identification number and your daytime
and evening telephone number(s). If you have any questions or concerns regarding
the registration of your stock, please consult your legal advisor. Stock
ownership must be registered in one of the ways described under "Stock Ownership
Guide."
Item 10 -
Please check this box if you are a member of the NASD or if this item otherwise
applies to you.
Items 11 and 12 -
Please sign and date the Stock Order Form where indicated. Review the Stock
Order form carefully before you sign, including the acknowledgement. Normally,
one signature is required. An additional signature is required only when payment
is to be made by withdrawal from a deposit account that requires multiple
signatures to withdraw funds. If you have any remaining questions, or if you
would like assistance in completing your Stock Order Form, you may call the
Stock Information Center. The Stock Information Center phone number is
(812)_________. The Stock Information Center is open between the hours of _____
a.m. and _____ p.m., Monday through Friday.
A valid stock order form must be signed and dated on the front of this form.
<PAGE>
FORM OF CERTIFICATION
I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR AN ACCOUNT AND IS
NOT FEDERALLY INSURED, AND IS NOT GUARANTEED BY MADISON FIRST FEDERAL SAVINGS
AND LOAN ASSOCIATION, OR BY THE FEDERAL GOVERNMENT.
If anyone asserts that this security is federally insured or
guaranteed, or is as safe as an insured deposit, I should call the Office of
Thrift Supervision Regional Director, Ronald N. Karr at (312) 565-5300.
I further certify that, before purchasing the common stock, without par
value, of River Valley Bancorp, I received an offering circular (also known as
the prospectus).
The offering circular that I received contains disclosure concerning
the nature of the security being offered and describes the risks involved in the
investment, including but not limited to:
1. Potential Impact of Changes in Interest Rates (page 18)
2. Risks Relating to the Acquisition (page 18)
3. Commerical Lending (page 19)
4. Nonresidential Real Estate and Multi-Family Lending (page 19)
5. Disparity Between SAIF and BIF Premiums (page 19)
6. Decreasing Earnings and Impact on Return on Equity (page 20)
7. Existence of Minority Shares (page 20)
8. Possible Dilutive Effect of Future Stock Benefit Plans (page 21)
9. Potential Benefits to Management Upon and Subsequent to Conversion
(page 21)
10. ESOP Compensation Expense (page 21)
11. No Prior Market for Common Stock (page 22)
12. Competition (page 22)
13. Geographic Concentration of Loans (page 22)
14. Risk of Delayed Offering (page 22)
15. Anti-Takeover Provisions (page 23)
16. Regulatory Oversight and Recent Legislation (page 23)
17. Income Tax Consequences of Subscription Rights (page 24)
Signature:
---------------------------------------------
Date:
--------------------
