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Filed pursuant to Rule 424(a)
SEC File No. 333-6581
PROSPECTUS
1,100,000 SHARES
ST. JOSEPH CAPITAL CORPORATION
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by St.
Joseph Capital Corporation (the "Company"), a Delaware corporation and a
proposed bank holding company organized to own all of the common stock of St.
Joseph Capital Bank, an Indiana-chartered bank (in organization) to be located
in Mishawaka, Indiana (the "Bank"). Neither the Company nor the Bank has ever
conducted any business operations other than matters related to their initial
organization and the raising of capital. See "Business." There has been no
public trading market for the Common Stock. The Underwriter has advised the
Company that it anticipates making a market in the Common Stock following
completion of this offering. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price. The
Company expects that quotations for the Common Stock will be reported on the
OTC Bulletin Board under the symbol "SJOE." Unless otherwise waived by the
Underwriter, shares of Common Stock will be sold only in minimum lots of 1,000
shares ($10,000).
______________
THE COMMON STOCK OFFERED BY THIS PROSPECTUS INVOLVES A HIGH DEGREE OF
RISK. INVESTORS SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN
AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" ON PAGE 7,
GENERALLY, AND "RISK FACTORS -- FAILURE TO COMMENCE OPERATIONS," PARTICULARLY.
______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Underwriting Discounts and
Price to Public Commissions(1)(2) Proceeds to Company(3)
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Per Share................. $ 10.00 $ 0.70 $ 9.30
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Total(4).................. $11,000,000 $770,000 $10,230,000
=========================================================================================================
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(1) The Underwriter has agreed with the Company that the Underwriting
Discounts and Commissions will be reduced to $0.30 per share for sales to
certain investors identified to the Underwriter by the Company. See
"Underwriting."
(2) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(3) Before deducting estimated offering expenses payable by the Company of
$113,500, which amount does not include certain organizational and other
operating expenses which were $109,426 as of May 31, 1996, and which will
continue to be incurred until the Bank commences operations.
(4) The Company has granted the Underwriter a 30-day option to purchase up to
165,000 additional shares of its Common Stock solely to cover
over-allotments, if any. If the Underwriter exercises such option in
full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be $12,650,000, $885,500 and $11,764,500,
respectively. See "Underwriting."
______________
The shares of Common Stock are offered by the Underwriter subject to prior
sale, when, as and if delivered to and accepted by it, and subject to the right
of the Underwriter to withdraw, cancel or modify such offer and to reject
orders in whole or in part. It is expected that delivery of the shares of
Common Stock will be made on or about September 10, 1996.
ROBERT W. BAIRD & CO.
INCORPORATED
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 4, 1996.
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[INSERT MAP]
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, ANY
OTHER GOVERNMENT AGENCY OR OTHERWISE.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company is not currently a reporting company pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), but will file
the reports required to be filed thereunder for the Company's 1996 fiscal year
and for any other periods for which the Exchange Act's requirements apply to
the Company. The Company, which will use a December 31 fiscal year end,
intends to furnish its stockholders with annual reports containing audited
financial information and, for the first three quarters of each fiscal year,
quarterly reports containing unaudited financial information.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless the context clearly suggests otherwise, references in this Prospectus to
the Company include the Bank. Except as otherwise indicated, all information
in this Prospectus assumes no exercise of the Underwriter's over-allotment
option.
THE COMPANY
The Company is a proposed bank holding company organized in February,
1996, under Delaware law to own all of the common stock of the Bank. The Bank
is organizing as an Indiana-chartered commercial bank with depository accounts
to be insured by the Federal Deposit Insurance Corporation (the "FDIC"). The
Bank intends to offer a full range of commercial and consumer banking services
primarily within a fifteen mile radius of Mishawaka, Indiana. This area
encompasses a substantial portion of the Indiana communities of Mishawaka,
South Bend, Notre Dame, Granger, Osceola and Elkhart, and certain Michigan
communities, including Niles and Edwardsburg. Due to the overlap of this
metropolitan area over state lines, this region is often referred to as
"Michiana." The Company and the Bank have applied for all necessary regulatory
approvals, and assuming the successful completion of this offering, anticipate
commencing business by the first quarter of 1997. The Company currently
maintains its offices at 2015 Western Avenue, South Bend, Indiana 46629. The
Company's telephone number is (219) 283-0773.
The liberalization of the interstate banking laws of Indiana and
surrounding states has led to substantial consolidation in the state of Indiana
and particularly in the Michiana area. Many of the area's financial
institutions have been acquired by large regional organizations headquartered
outside of the Michiana area. As a result of such consolidation, the Company's
management believes that the competitive and economic environment is right for
a new, independent, locally-managed bank to serve the financial needs of
Michiana's residents. The Company intends to implement a strategy which
focuses on providing a superior level of customer service, close attention to
personal needs and quick response times. Although the area has seen the loss
of a number of its community banks within the past several years, no new banks
have commenced operations in north central Indiana within the last 25 years.
ORGANIZERS AND DIRECTORS
The organizers and directors of the Company are all recognized and
established individuals in their local communities. As a group, they have
significant banking and business experience and many close personal ties to the
Michiana area. John W. Rosenthal, the Company's Chairman of the Board,
President and Chief Executive Officer, is a native of, and attended school in,
the Michiana area through his graduation from the University of Notre Dame. He
has 11 years of experience in correspondent banking and working with Indiana
banks. Mr. Rosenthal was most recently a Vice President and Senior Corporate
Banker at The First National Bank of Chicago, with primary account
responsibility for middle market lending in Indiana and downstate Illinois.
While employed at The First National Bank of Chicago, he maintained his primary
residence in the Granger area for the past three years. He is active in
community affairs and currently serves as the President of the Board of
Education at Marian High School in Mishawaka, Indiana.
Three of the Company's directors, Richard Rosenthal, Arthur McElwee and
Jack Matthys, served as executive officers of St. Joseph Bank & Trust Company
("St. Joseph Bank") and St. Joseph Bancorporation, its parent bank holding
company, in South Bend, Indiana, at various times before their acquisition in
1986. Richard Rosenthal and Arthur McElwee, as well as Jerry Hammes, another
director of the Company, also served as directors of St. Joseph Bank and St.
Joseph Bancorporation. Richard Rosenthal later served as the Director of
Athletics for the University of Notre Dame from 1987 to 1995, and Arthur
McElwee is currently the President of a manufacturing business located in
Niles, Michigan. After leaving Trustcorp Bank, the successor to St. Joseph
Bank, Mr. Matthys served as President of Krizman, Inc. until the end of 1992.
Jerry Hammes is engaged in real estate development in South Bend, Indiana. His
involvement in the financial services industry began in 1956 when he co-founded
a savings and loan association located in Illinois. He is currently Chairman
and majority stockholder of two bank holding companies and a community bank
which he co-founded in 1962 and which is located in northern Illinois. One of
the other directors of the Company, Robert A. Sullivan, was born and raised in
the South Bend area and is currently the
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President of a bank located near Toledo, Ohio, which he and others began in
1989 and which had grown to over $483 million in assets as of the end of last
year.
The other directors of the Company are all well-established business
people in other areas besides banking. They have lived in the Michiana area for
many years and have developed a number of close commercial and business
relationships which they believe will add to the success of the Company.
Arthur Decio is the Chairman and Chief Executive Officer of Skyline
Corporation, a New York Stock Exchange listed company headquartered in Elkhart,
Indiana. Scott C. Malpass is the Associate Vice President for Finance and
Chief Investment Officer for the University of Notre Dame and Helen Krizman
serves as the Controller of various affiliated manufacturers managed by The
Warrick Corp., based in Elkhart, Indiana. David Eckrich is a recognized
residential real estate developer who lives in Granger, Indiana, and V. Robert
Hepler is the President and Chief Executive Officer of VRH Rental & Sales, a
construction sales and rental company.
The Company's directors believe that their long-standing ties to the
community, coupled with their combined business and banking experience, provide
them with a unique perspective of the area's needs and the desire for a new
independent bank under local control. They further believe that the community
will react favorably to this new enterprise.
MARKET AREA
The Bank's main office will be located in Mishawaka, Indiana, which is
located in the approximate center of the Michiana area. According to Standard
& Poor's August 21, 1995, edition of CreditWeek Municipal, the demographics of
South Bend, Indiana, which comprises a major portion of the Michiana area, are
characterized by a growing and diversifying local economy, average income
levels and strong financial performance. The area's retail, distribution,
convention and tourism, health care and services sectors have expanded to
offset the decrease in manufacturing jobs which has occurred in recent years.
The University of Notre Dame, with over 10,000 students on the northeast side
of the city of South Bend, is the area's largest employer and contributes to
the stability of the local economy. South Bend is also home to eight other
colleges and technical schools providing additional stability and access to a
skilled work force.
The Michiana area has also become a large provider of health care
services. Memorial Hospital and St. Joseph's Medical Center together employed
approximately 4,660 residents at September, 1995. Based upon levels of
employment in the South Bend area, it is estimated that manufacturing still
supplied approximately 17% of the area's total employment in 1995. Allied
Signal, Inc. and A. M. General Corp. are two of the region's largest
manufacturers, but the area is also home to a number of smaller manufacturing,
retail and service businesses. Many major manufacturing companies are also
located in adjacent Elkhart County, including Bayer Corporation, Coachmen
Industries, CTS Corporation, Goshen Rubber Co., Inc., Holiday Rambler, LLC and
Skyline Corporation. Management believes this diverse commercial base provides
significant potential for business banking services, together with personal
banking services for owners and employees of these entities.
STRATEGY
The objective of the Bank's organizers and management is to create a
customer-driven financial institution focused on providing high value to
clients by delivering products and services matched directly to their needs.
Management of the Company believes that such a bank can attract those clients
who prefer to conduct business with a locally-managed institution that
demonstrates an active interest in their businesses and personal financial
affairs.
With an experienced staff to provide a superior level of personalized
service, management believes it will be able to generate competitively priced
loans and deposits. The Bank also expects to enter into agreements with
third-party service providers to provide clients with convenient electronic
access to their accounts and to deliver other bank products such as credit
cards, debit cards and home banking services. The use of third-party service
providers is intended to allow the Bank to remain at the forefront of
technology while minimizing the costs of delivery. This "high touch-high tech"
manner of operations is expected by management to be appealing to clients who
have been
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receiving banking services in the depersonalized environment of the Bank's
larger competitors. See "Business -- Business Strategy."
BANK PREMISES
The Company anticipates that the Bank's main office will be located in a
leased building at 3820 Edison Lakes Parkway, Mishawaka, Indiana. According to
the Chamber of Commerce of St. Joseph County, this location is in a fast
growing, high income area close to shopping and residential and commercial
development. Management believes that the Bank's main office will be
convenient to potential customers who wish to combine their banking with other
business and personal activities. Under the terms of the proposed lease, the
Company would pay initial annual rent of $67,500, subject to annual increases
during the term of the lease, and the Company, the Bank or an affiliate of
either would have an option to purchase this property at any time during the
term of the lease for a fixed price of $800,000.
The Company expects to begin operations in the leased building during the
second quarter of 1997. Some renovation work, which is expected to be
accomplished within approximately 45 days after it has begun, would be
necessary before the Bank would be able to commence operations from its
permanent main office. The cost of such renovation is expected to be
approximately $125,000. Until that time, the Company anticipates that the Bank
will be located in a temporary modular facility on vacant land that is being
leased by the Company and is adjacent to the Bank's future main office. The
Bank expects to commence operations in such temporary facility by the first
quarter of 1997, at a current estimated cost of $2,000 per month. The Bank's
main office would also serve as the Company's corporate headquarters.
COMPETITION
The banking industry in the Bank's proposed market area has experienced
substantial consolidation in recent years. Many of the area's locally owned or
managed financial institutions have either been acquired by large regional bank
holding companies or have been consolidated into branches. This consolidation
has been accompanied by numerous pricing changes, the dissolution of local
boards of directors, management and branch personnel changes and, in the
perception of the Company's organizers, a decline in the level of customer
service. With recent changes in interstate banking regulation, this type of
consolidation is expected to continue.
Management believes that this competitive situation, when coupled with the
area's growing and diversified economy, creates a favorable opportunity for a
new commercial bank managed by experienced local business people. Management's
experience indicates that a locally managed community bank can attract
customers by providing highly professional personalized attention, responding
in a timely manner to product and service requests and exhibiting an active
interest in customers' business and personal financial needs. The Bank will be
the only locally managed independent commercial bank with its main office
located in Mishawaka, Indiana.
Initial reaction from the local community to the formation of the Bank has
been very positive. Many local businesses and consumers have indicated to the
Company's directors their intent to transfer some or all of their banking
relationships to the Bank after it commences operations. This interest appears
to result primarily from the Bank's intent to focus on the local interests of
the Michiana area and from the reputations of the Company's directors within
this community.
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THE OFFERING
Securities offered..... 1,100,000 shares of Common Stock
Minimum purchase....... 1,000 shares ($10,000)
Maximum purchase....... 25,000 shares ($250,000)
Common Stock to be
outstanding after this
offering............... 1,100,000 shares
Use of proceeds by the
Company................ The net proceeds to the Company from this
offering (assuming no exercise of the over-allotment
option, and excluding organizational and other
operating expenses which were $109,426 as of May 31,
1996) are estimated to be $10,116,500. The Company
will invest $9 million of the net proceeds of this
offering in the Bank to provide the Bank's initial
capitalization. The Bank will use approximately
$125,000 of these funds to remodel the leased premises
that will serve as its main office, and approximately
$740,000 to purchase furniture, fixtures and equipment
and other necessary assets for the Bank's operations.
It is currently anticipated that the balance of such
amount received by the Bank will be used to fund
investments in loans and securities and for payment of
operating expenses. The Company, the Bank or an
affiliate of either may also use $800,000 from this
offering to purchase the Bank's main office. Depending
upon the final allocation of organizational costs and
offering expenses between the Company and the Bank, a
total of $275,000 of the net proceeds of this offering
will be used by the Company and the Bank to pay back
organizational loans made by the Company's directors.
Under the terms of these loans, the directors may
choose to receive payment in full or in part through
their receipt in this offering of shares of Common
Stock valued at the Price to Public. All of the
Company's directors have indicated their present
intention either to elect such option or to invest at
least an equal amount in direct purchases of Common
Stock in this offering. In addition, $1,000 of such
proceeds will be used by the Company to redeem the 100
shares of Common Stock issued to facilitate the
Company's organization. Any remaining funds (including
the net proceeds from an exercise of the Underwriter's
over-allotment option) will generally be used by the
Company for operating purposes and for possible future
capital contributions to the Bank. These funds would
also be available to partially finance possible
acquisitions of other financial institutions or for
expansion into other lines of business closely related
to banking. See "Use of Proceeds."
Risk factors........... The purchase of the securities offered hereby
involves a high degree of risk and should be considered
only by persons who can afford to sustain the total
loss of their investment. See "Risk Factors."
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SUMMARY FINANCIAL DATA
MAY 31, 1996
---------------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED (1)
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Cash and securities................. $ 244,042 $10,084,542
Total assets........................ 246,364 10,086,864
Total liabilities................... 354,790 79,790
Stockholders' equity................ $(108,426) $10,007,074
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(1) Adjusted to reflect the application of the estimated net
proceeds from the shares offered hereby. See "Use of Proceeds."
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RISK FACTORS
The Common Stock offered hereby is speculative, involves a high degree of
risk and should be considered only by persons who can afford the loss of their
entire investment. The following constitute some of the potential risks of an
investment in the Common Stock and should be carefully considered by
prospective investors prior to purchasing shares of Common Stock. The order of
the following is not intended to be indicative of the relative importance of
any described risk nor is the following intended to be inclusive of all risks
of investment in the Common Stock.
LACK OF OPERATING HISTORY; SIGNIFICANT INITIAL LOSSES EXPECTED
Neither the Company nor the Bank has any operating history. The business
of the Company and the Bank is subject to the risks inherent in the
establishment of a new business enterprise. Because the Company is only
recently formed, the Company and the Bank have only recently applied for the
necessary regulatory approvals and the Bank has not commenced banking
operations as of the date hereof, prospective investors do not have access to
all of the information that, in assessing their proposed investment, is
available to the purchasers of securities of a financial institution with a
history of operations. The Company's profitability will depend primarily upon
the Bank's operations and there is no assurance that the Bank will ever operate
profitably. As a result of the substantial start-up expenditures that must be
incurred by a new bank, the Bank (and thus the Company) can be expected to
incur significant operating losses during its initial years of operations.
FAILURE TO COMMENCE OPERATIONS
Although the Company and the Bank expect to commence operations in its
temporary modular facility by the first quarter of 1997, there can be no
assurance as to when, if at all, this will occur. As of July 31, 1996, the
Company's accumulated deficit was $224,741 ($109,426 as of May 31, 1996), and
the Company will continue to incur pre-opening expenses until the Bank
commences operations. Any delay in commencing operations will increase
pre-opening expenses and postpone realization by the Bank of potential revenues
and income. Absent the commencement of profitable operations, the Company's
accumulated deficit will continue to increase (and book value per share
decrease) as operating expenses such as rent on the Bank's proposed premises,
salaries and other administrative expenses continue to be incurred. In
addition, the proceeds from this offering may be considered part of general
corporate funds of the Company and therefore may be subject to claims of
creditors of the Bank and/or the Company. On a liquidation basis, the Company
is unlikely to recover its full investment in furniture, fixtures and
equipment. As a result, if a liquidation of the Company were to occur,
investors in this offering would likely realize substantially less than the $10
per share public offering price and would suffer a significant loss.
FAILURE TO LEASE MAIN OFFICE
The Company has entered into a commitment to lease with the owner of the
building that the Company expects to use as the Bank's permanent main office.
The Company and the owner of the building are currently negotiating the terms
of the lease. There can be no assurance that the parties will be able to reach
a final agreement for the lease of such building. In that event, the Company
would need to obtain alternative office space for the main office of the Bank.
Although the Company generally believes that alternative office space is
available in the area, the Company may not be able to lease such space on as
favorable economic terms or it may be located in a less desirable section of
the Bank's proposed market area.
REGULATORY APPROVALS
Although the Company and the Bank have applied for all regulatory
approvals required to commence operations, and have received approval from the
Indiana Department of Financial Institutions ("DFI") to establish the Bank,
subject to its capitalization of $9 million, no assurances can be given that
such other approvals required will be granted in a timely manner if at all.
Management believes that all such regulatory approvals will be obtained after a
reasonable period, subject to the satisfaction of certain conditions. Such
conditions may include, among other things that: (i) beginning paid-in
capital of the Bank be not less than $7 million; (ii) the Tier 1
capital-to-total-assets ratio of the Bank be not less than 8.0% for the first
three years of operations; and (iii) without the prior approval of the Board
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of Governors of the Federal Reserve System (the "Federal Reserve Board"), no
debt will be incurred by the Company for five years from the date the Company
acquires 100% of the Bank stock. If such regulatory approvals are substantially
delayed, the Company's accumulated deficit will continue to increase. If such
regulatory approvals are not obtained, the Company would not be able to
commence its banking activities and would probably be liquidated and dissolved.
Upon liquidation, investors would likely realize a substantial loss on their
investment. See "-- Failure to Commence Operations."
NEED FOR CAPITAL
Although the Company does not currently anticipate the need for additional
capital in the foreseeable future to commence its planned business activities,
additional capital beyond that which will be provided by this offering and any
amounts likely to be generated by the Bank's operations over the next four
years would probably be necessary before the Company could undertake any
significant acquisitions or other expansion of its operations. There can be no
assurance that any funds necessary to finance such acquisitions or expansion
will be available. Regulatory capital requirements and borrowing restrictions
which will apply to the Bank and the Company may have the effect of
constraining future growth. To the extent the Company relied upon the sale of
additional equity securities to finance future expansion, such sale could
result in significant dilution to the interests of persons purchasing shares in
this offering.
GOVERNMENT REGULATION AND MONETARY POLICY
The Company and the Bank will be subject to extensive state and federal
government supervision and regulation. Existing state and federal banking laws
will subject the Bank to substantial limitations with respect to loans,
purchase of securities, payment of dividends and many other aspects of its
banking business. There can be no assurance that future legislation or
government policy will not adversely affect the banking industry or the
operations of the Bank. Federal economic and monetary policy may affect the
Bank's ability to attract deposits, make loans and achieve satisfactory
interest spreads. See "Supervision and Regulation."
NO ASSURANCE OF DIVIDENDS
It is anticipated that no dividends will be paid on the Common Stock for
the immediately foreseeable future. It is likely that the Company will be
largely dependent upon dividends paid by the Bank for funds to pay dividends on
the Common Stock, if and when such dividends are declared. The Bank does not
anticipate paying dividends during at least the first three years of its
operations. No assurance can be given that future earnings of the Bank, and
any resulting dividends to the Company, will be sufficient to permit the legal
payment of dividends to Company stockholders at any time in the future. Even
if the Company may legally declare dividends, the amount and timing of such
dividends will be at the discretion of the Company's Board of Directors. The
Board may in its sole discretion decide not to declare dividends. For a more
detailed discussion of other regulatory limitations on the payment of cash
dividends by the Company, see "Dividend Policy."
COMPETITION
The Company and the Bank will face strong competition for deposits, loans
and other financial services from numerous Indiana and out-of-state banks,
thrifts, credit unions and other financial institutions as well as other
entities which provide financial services. Some of the financial institutions
and financial services organizations with which the Bank will compete are not
subject to the same degree of regulation as the Bank. As of December 31, 1995,
approximately 93 branch bank offices, 17 thrift offices and numerous credit
union offices were located within 15 miles of the Bank's proposed main office.
Many of these financial institutions aggressively compete for business in the
Bank's proposed market area. Most of these competitors have been in business
for many years, have established customer bases, are larger, have substantially
higher lending limits than the Bank and will be able to offer certain services,
including multiple branches and international banking services, that the Bank
can offer only through correspondents, if at all. In addition, most of these
entities have greater capital resources than the Bank, which, among other
things, may allow them to price their services at levels more favorable to the
customer and to provide larger credit facilities than could the Bank. See
"Business -- Market Area" and "Business -- Competition."
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Additionally, recently passed federal and Indiana legislation regarding
interstate branching and banking may act to increase competition in the future
from larger out-of-state banks. See "Supervision and Regulation -- Recent
Regulatory Developments."
DEPENDENCE ON MANAGEMENT
The Company and the Bank are, and for the foreseeable future will be,
dependent upon the services of John Rosenthal, the Chairman of the Board,
President and Chief Executive Officer of the Company and the Bank, and other
senior managers retained by the Company and the Bank. The loss of any of these
individuals could adversely affect the operations of the Company and the Bank.
The Company has entered into an employment agreement (which includes certain
non-competition covenants) with Mr. Rosenthal, in an effort to assure the
continued availability of his services to the Bank and the Company. In light
of the Company's dependence upon the banking expertise of its chief executive
officer, the Company has obtained a policy of key person life insurance on Mr.
Rosenthal in the amount of $1.5 million payable to the Company. See "Business
- -- Employees" and "Management."
LENDING RISKS AND LENDING LIMITS
The risk of nonpayment of loans is inherent in commercial banking, and
such nonpayment, if it occurs, may have a material adverse effect on the
Company's earnings and overall financial condition as well as the value of the
Common Stock. Moreover, the Bank's focus on small-to-medium sized businesses
may result in a larger concentration by the Bank of loans to such businesses.
As a result, the Bank may assume greater lending risks than banks which have a
lesser concentration of such loans and tend to make loans to larger companies.
Management will attempt to minimize the Bank's credit exposure by carefully
monitoring the concentration of its loans within specific industries and
through prudent loan application and approval procedures, but there can be no
assurance that such monitoring and procedures will reduce such lending risks.
The Bank's legal lending limit will initially be approximately $1,350,000.
The Board of Directors will establish an "in-house" limit that will be
somewhat lower than the Bank's legal lending limit. The Board may from time to
time raise or lower the "in-house" limit as it deems appropriate to comply with
safe and sound banking practices and respond to overall economic conditions.
Accordingly, the size of the loans which the Bank can offer to potential
customers is less than the size of loans that most of the Bank's competitors
are able to offer. Initially, this limit will affect to some degree the
ability of the Bank to seek relationships with the area's larger businesses.
The Bank expects to accommodate loan volumes in excess of its lending limit
through the sale of participations in such loans to other banks. However,
there can be no assurance that the Bank will be successful in attracting or
maintaining customers seeking larger loans or that the Bank will be able to
engage in the sale of participations in such loans on terms favorable to the
Bank.
IMPACT OF INTEREST RATES AND ECONOMIC CONDITIONS
The results of operations for financial institutions, including the Bank,
may be materially and adversely affected by changes in prevailing economic
conditions, including declines in real estate market values, rapid changes in
interest rates and the monetary and fiscal policies of the federal government.
See "Supervision and Regulation -- General" and "Supervision and Regulation --
Recent Regulatory Developments." The Bank's profitability is in part a
function of the spread between the interest rates earned on investments and
loans and the interest rates paid on deposits and other interest-bearing
liabilities. In the early 1990s, many banking organizations experienced
historically high interest rate spreads. More recently, interest rate spreads
have generally narrowed due to changing market conditions and competitive
pricing pressure, and there can be no assurance that such factors will not
continue to exert such pressure or that such high interest rate spreads will
return. Substantially all the Bank's loans will be to businesses and
individuals in the Michiana area and any decline in the economy of this area
could have an adverse impact on the Bank. Like most banking institutions, the
Bank's net interest spread and margin will be affected by general economic
conditions and other factors that influence market interest rates and the
Bank's ability to respond to changes in such rates. At any given time, the
Bank's assets and liabilities will be such that they are affected differently
by a given change in interest rates. As a result, an increase or decrease in
rates, the length of loan terms or the mix of adjustable and fixed rate loans
in the Bank's portfolio could have a positive or negative effect
9
<PAGE> 10
on the Bank's net income, capital and liquidity. There can be no assurance
that the positive trends or developments discussed in this Prospectus will
continue or that negative trends or developments will not have a material
adverse effect on the Bank. See "Supervision and Regulation."
NEED FOR TECHNOLOGICAL CHANGE
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. The Company's
future success will depend in part on its ability to address the needs of its
clients by using technology to provide products and services that will satisfy
client demands for convenience as well as to create additional efficiencies in
the Bank's operations. Many of the Bank's competitors have substantially
greater resources to invest in technological improvements. There can be no
assurance that the Bank will be able to effectively implement new
technology-driven products and services or be successful in marketing such
products and services to its clients. See "Business -- Business Strategy."
ANTI-TAKEOVER PROVISIONS
The Company's certificate of incorporation (the "Certificate") and bylaws
(the "Bylaws") include provisions which may have the effect of delaying,
deferring or preventing certain types of transactions involving an actual or
potential change in control of the Company, including transactions in which the
stockholders might otherwise receive a premium for their shares over then
current market prices, and may limit the ability of the stockholders to approve
transactions that they may deem to be in their best interests. Section 203 of
the General Corporation Law of Delaware prohibits the Company from engaging in
certain business combinations with interested stockholders, and federal law
requires the approval of the Federal Reserve Board prior to acquisition of
"control" of a bank holding company. Indiana law also requires the approval of
the DFI prior to the acquisition of direct or indirect control of an
Indiana-chartered bank. These provisions may have the effect of delaying or
preventing a change in control of the Company without action by the
stockholders, and therefore could adversely affect the price of the Common
Stock. The Company's Certificate and Bylaws provide for the indemnification of
its officers and directors and insulate its officers and directors from
liability for certain breaches of the duty of care. See "Description of
Capital Stock -- Certain Anti-Takeover, Indemnification and Limited Liability
Provisions."
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's bylaws provide for the indemnification of its officers and
directors and insulate its officers and directors from liability for certain
breaches of the duty of care. It is possible that the indemnification
obligations imposed under these provisions could result in a charge against the
Company's earnings and thereby affect the availability of funds for payment of
dividends to the Company's stockholders. The Bank's bylaws will contain
similar provisions. See "Description of Common Stock -- Anti-Takeover,
Indemnification and Limited Liability Provisions."
DETERMINATION OF OFFERING PRICE
The initial public offering price of $10.00 per share was determined by
negotiations between the Company and Robert W. Baird & Co. Incorporated, the
underwriter of this offering (the "Underwriter"). This price is not based upon
earnings or any history of operations and should not be construed as indicative
of the present or anticipated future value of the Common Stock. See
"Underwriting."
CONTROL BY MANAGEMENT
Although the combined ownership and control over the Company's Common
Stock by the Company's officers and directors is likely to be less than 20%
after this offering, such individuals will be able to exert a significant
measure of control over the affairs and policies of the Company. Such control
could be used, for example, to help prevent an acquisition of the Company,
thereby precluding stockholders from possibly realizing any
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<PAGE> 11
premium which may be offered for the Company's Common Stock by a potential
acquiror. See "Principal Stockholders."
NO PRIOR PUBLIC MARKET; LIMITED TRADING MARKET EXPECTED
Prior to this offering, there has been no public trading market for the
Common Stock. The Price to Public has been determined by negotiations between
the Company and the Underwriter and may be greater than the market price for
the Common Stock following this offering. The Company expects that the
quotations for the Common Stock will be reported on the OTC Bulletin Board
under the symbol "SJOE." The Underwriter has also advised the Company that,
upon completion of this offering, it intends to act as a market maker in the
Common Stock, subject to applicable laws and regulatory requirements. Making a
market in securities involves maintaining bid and ask quotations and being
able, as principal, to effect transactions in reasonable quantities at those
quoted prices, subject to various securities laws and other regulatory
requirements. The development of a public trading market depends, however,
upon the existence of willing buyers and sellers, the presence of which is not
within the control of the Company, the Bank or any market maker. Even with a
market maker, factors such as the limited size of this offering, the lack of
earnings history for the Company and the absence of a reasonable expectation of
dividends within the near future mean that there can be no assurance of the
development in the foreseeable future of an active and liquid market for the
Common Stock. Even if a market develops, there can be no assurance that a
market will continue, or that stockholders will be able to sell their shares at
or above the Price to Public. The potential size of a secondary market for the
Common Stock might, at least initially, be limited to some extent by the
requirement of a $10,000 minimum investment imposed in connection with this
offering. The minimum investment requirement may act to restrict the number of
stockholders and make subsequent trading of small numbers of shares less
likely. Purchasers of Common Stock should carefully consider the potentially
illiquid and long-term nature of their investment in the shares being offered
hereby.
RECENT DEVELOPMENTS
Since May 31, 1996, the date of the Company's most recent audited
financial statements, the Company has continued to incur pre-opening expenses.
As of July 31, 1996, the Company's accumulated deficit was $224,741. The
additional expenses incurred related principally to legal and professional fees
incurred in the regulatory application process and in connection with this
offering, salaries and supplies.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,100,000 shares of
Common Stock offered hereby are estimated to be $10,116,500 ($11,651,000 if the
Underwriter's over-allotment option is exercised in full), after deduction of
the underwriting discounts and commissions and estimated offering expenses.
Such net proceeds have not been reduced by the amount of the Company's
organizational and other operating expenses which were $109,426 as of May 31,
1996.
Approximately $9 million of the net proceeds of this offering will be
invested by the Company in the Bank to provide the Bank's initial
capitalization. The Bank expects to use approximately $125,000 of these funds
to renovate the premises in which it is anticipated that the Bank will be
located, and approximately $740,000 to purchase necessary furniture, fixtures
and equipment for the Bank's temporary and main offices. It is currently
anticipated that the remaining amount will be used by the Bank to fund
investments in loans and U.S. government and agency securities, federal funds
sold and for payment of operating expenses.
The balance of the net proceeds of this offering, after capitalizing the
Bank with $9 million, is estimated to be approximately $1,116,500. Depending
upon the final allocation of organizational costs and offering expenses between
the Company and the Bank, a total of $275,000 of the net proceeds of this
offering will be used by the Company and the Bank to repay organizational loans
made by the Company's directors. The loans made by the directors are repayable
only from the proceeds of this offering and bear interest at a rate of 6% per
annum. Under
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<PAGE> 12
the terms of these loans, however, the directors may choose to receive
repayment in full or in part through their receipt in this offering of shares
of Common Stock valued at the Price to Public. All of the Company's directors
have indicated their present intention either to elect such option or to invest
at least an equal amount in direct purchases of Common Stock in this offering.
See "Principal Stockholders." The Company will further use $1,000 to redeem at
cost organizational shares purchased by John Rosenthal solely to facilitate the
organization of the Company and the election of its directors. The remaining
amount (plus any net proceeds as a result of the exercise of the Underwriter's
over-allotment option) will be held by the Company as working capital for
general corporate purposes as well as for possible future capital contributions
to the Bank to support asset growth. The funds will also be available to
partially finance any acquisitions of other financial institutions or for
expansion into other lines of business closely related to banking. Management
is not, however, involved at this time in any negotiations regarding any such
other possible acquisitions or businesses.
In addition to the foregoing, the Company or another subsidiary may use
the proceeds of this offering retained at the holding company level, or the
Bank may use a portion of the capital contributed to it by the Company, to
purchase the Bank's anticipated main office for $800,000 pursuant to the option
contained in the commitment to lease such property.
DIVIDEND POLICY
The Company initially expects that all Company and Bank earnings, if any,
will be retained to finance the growth of the Company and the Bank and that no
cash dividends will be paid for the foreseeable future. If and when dividends
are declared, the Company will probably be largely dependent upon dividends
paid by the Bank for funds to pay dividends on the Common Stock. It is also
possible, however, that the Company will pay dividends in the future generated
from investment income and other activities of the Company.
Under Indiana law, the Bank will be restricted as to the maximum amount of
dividends it may pay on its common stock. The Indiana Financial Institutions
Act (the "Indiana Act") provides that an Indiana bank may not pay dividends in
an amount greater than its undivided profits or if the payment of dividends
would impair such bank's capital. Moreover, the approval of the DFI is
required for the payment of any dividend if the aggregate amount of all
dividends paid by the Bank during such calendar year, including the proposed
dividend, would exceed the sum of: (i) the total net profits (as defined in
the Indiana Act) of the Bank for that year; and (ii) the retained net profits
of the Bank for the previous two years. The DFI and the FDIC are also
authorized under certain circumstances to prohibit the payment of dividends by
the Bank. In the case of the Company, the Delaware General Corporation Law
would allow the Company to pay dividends only out of its surplus, or if none,
out of the current and/or the past fiscal year's net profits. Further
restrictions on dividends may also be imposed by the Federal Reserve Board.
See "Supervision and Regulation -- The Bank -- Dividends" and "-- The Company
- -- Dividends."
CAPITALIZATION
The following table sets forth the capitalization of the Company as of May
31, 1996, and as adjusted to reflect the sale of the shares of Common Stock
offered hereby:
<TABLE>
<CAPTION>
MAY 31, 1996
---------------------------
ACTUAL AS ADJUSTED
---------- ---------------
<S> <C> <C>
Long-term and short term debt........................ $ 275,000 $ --
======== ==========
Stockholders' equity:
Preferred Stock, $.01 par value, 100,000 shares
authorized; no shares issued or outstanding........
Common Stock, $.01 par value, 1,500,000 shares
authorized; 100 shares issued and outstanding, and
1,100,000 shares as adjusted (1)................... 1 11,000
Additional paid-in capital........................... 999 10,105,500
Accumulated deficit (2).............................. (109,426) (109,426)
-------- ----------
Total stockholders' equity........................... $(108,426) $10,007,074
======== ==========
</TABLE>
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<PAGE> 13
- ---------------
(1) Does not include 27,000 shares of Common Stock issuable upon exercise of
outstanding options under the Company's stock option plan (out of a total
of 100,000 shares reserved for issuance under such plan). See "Management
-- Stock Incentive Plan."
(2) The accumulated deficit as of May 31, 1996, is comprised primarily of
pre-opening expenses related principally to legal and professional fees
incurred in the regulatory application process, creation of the holding
company, office occupancy costs and supplies. In addition, John Rosenthal
has been receiving salary payments from the Company since March 18, 1996.
The accumulated deficit will continue to increase prior to the Bank's
commencement of operations, and will then increase further as expected
initial operating losses are incurred. Additional employees will be hired
as the commencement date approaches and further salary expenses and
training costs will be incurred at such time. Additional professional fees
will also be incurred in connection with this offering and other corporate
matters.
BUSINESS
GENERAL
The Company is a proposed bank holding company organized in February,
1996, under Delaware law to own all of the common stock of the Bank. The Bank
is organizing as an Indiana-chartered commercial bank with depository accounts
to be insured by the FDIC. The Bank intends to offer a full range of
commercial and consumer banking services primarily within a fifteen mile radius
of Mishawaka, Indiana. This area encompasses a substantial portion of the
Indiana communities of Mishawaka, South Bend, Notre Dame, Granger, Osceola and
Elkhart, and certain Michigan communities including Niles and Edwardsburg. Due
to the overlap of this metropolitan area over state lines, this region is often
referred to as "Michiana." The Company and the Bank have applied for all
necessary regulatory approvals, and assuming the successful completion of this
offering, anticipate commencing business in a temporary modular facility by the
first quarter of 1997. The Company currently maintains its offices at 2015
Western Avenue, South Bend, Indiana 46629. The Company's telephone number is
(219) 283-0773.
BACKGROUND
The liberalization of the interstate banking laws of Indiana and Michigan
in recent years has led to substantial consolidation of the banking industry in
the Michiana area. Since the early 1980s, several of the area's locally owned
or locally managed financial institutions have been acquired by large regional
bank holding companies. Members of the Board, along with other leading business
people in the community, all of whom have been active participants or observers
of the local banking scene for many years, have noticed the need for a locally
owned, highly service-oriented banking organization to fill a void created by
this consolidation in the banking industry. Specifically, it is believed that
Michiana could greatly benefit from a financial institution whose focus would
be to serve the business and personal banking needs of local entrepreneurs and
local business owners. It is further believed that this niche is currently
being under-served by other banks.
In the opinion of the Company's management, this situation has created a
favorable opportunity for a new commercial bank with headquarters in the
Michiana area. Management of the Company believes that such a bank can attract
those clients who prefer to conduct business with a locally-managed institution
that demonstrates an active interest in their businesses and personal financial
affairs. The Company believes that a locally managed institution will be
better able to deliver more timely responses to client requests, provide
customized financial products or services addressing out-of-the-ordinary
matters and offer the personal attention of senior banking officers. The Bank
will seek to take advantage of this opportunity by emphasizing in its marketing
plan the Bank's local management and the Bank's ties and commitment to the
Michiana area.
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<PAGE> 14
The Company and the Bank to date have conducted no business other than
matters incidental to their organization, including negotiations with
additional prospective executive officers. Following completion of this
offering and before commencement of operations, the Bank intends to occupy,
renovate and furnish its main office, hire and train staff, purchase or lease
and install equipment necessary to transact business, establish correspondent
banking relationships and make other arrangements for necessary services.
BUSINESS STRATEGY
The Bank intends to concentrate on the financial services needs of
individuals and local businesses. A cornerstone of the Bank's business
strategy will be to emphasize the Bank's local management and its commitment to
the Bank's market area. John Rosenthal, the Chairman of the Board, President
and Chief Executive Officer of the Company and the Bank, was most recently a
Vice President and Senior Corporate Banker at The First National Bank of
Chicago, with primary account responsibility for middle market lending in
Indiana and down-state Illinois. He has eleven years of experience in
correspondent banking and working with Indiana banks. Mr. Rosenthal is a
native of, and attended school in, the Michiana area through his graduation
from the University of Notre Dame. He is married and has three children and
has lived in Granger, Indiana for the past three years.
In addition to Mr. Rosenthal, the Company has hired three additional
experienced individuals to serve as executive officers of the Bank. Patrick D.
Novitzki is a Michiana resident who has worked in the banking industry in St.
Joseph and Elkhart Counties for over 20 years. Mr. Novitzki will serve as the
Bank's Senior Vice President - Lending. He was most recently the head of the
corporate banking department at KeyBank, National Association, in South Bend,
Indiana. Edward R. Pooley will serve as a Senior Vice President and the Cashier
of the Bank, and as a Senior Vice President and the Chief Financial Officer of
the Company. Mr. Pooley has ten years of banking experience since beginning
his career with National City Bank, Toledo, Ohio. He was most recently the
Cashier and Chief Operations Officer and the Treasurer of a bank and its parent
bank holding company, respectively, located in Ohio. Nancy N. King will serve
as Senior Vice President - Private Banking. Mrs. King is a South Bend resident
who has worked in the banking industry for 16 years. Mrs. King most recently
served as Regional Manager of Personal Trust Services for Key Trust Company of
Indiana, National Association, a subsidiary of KeyBank, National Association.
Employees will be active in the civic, charitable and social organizations
located in the Michiana area. Most of the Company's directors currently hold,
and have held in the past, leadership positions in a number of community
organizations, and intend to continue this active involvement in future years.
Other members of the management team will also be encouraged to volunteer for
such positions.
The Company's goal is to create a "customer-driven" organization focused
on providing high value to clients by promptly delivering products and services
matched directly to their needs. The Bank will strive to establish a high
standard of quality in each service it provides and the employees of the Bank
will be expected to emphasize service in their dealings with clients. Because
the Bank intends to commence operations with a staff of fewer than 15 full time
employees, these employees will need to be flexible in the duties they perform
in an effort to satisfy clients. However, management believes that the use of
state-of-the-art technology will permit each employee to devote more time and
attention to personal service, respond more quickly to a client's requests and
deliver services in the most timely manner possible. This "high touch-high
tech" manner of operations is expected by management to be appealing to
clients.
Upon its opening, the Bank is planning to undertake a marketing campaign
utilizing an aggressive officer calling program and community-based promotions.
The campaign will emphasize the Bank's independence, local management and
special focus on client service. All employees will be expected to actively
market the Bank's services.
The Bank's initial legal lending limit will be approximately $1,350,000.
The Board of Directors will establish an "in-house" limit that will be somewhat
lower than the Bank's legal lending limit. The Board may from time to time
raise or lower the "in-house" limit as it deems appropriate to comply with safe
and sound banking practices and respond to overall economic conditions.
Initially, this limit will affect to a degree the ability of the
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<PAGE> 15
Bank to seek relationships with the area's larger businesses. However, in
light of John Rosenthal's previous experience and the relationships of the
Company's directors with a number of the region's other financial institutions,
the Bank may originate loan volumes in excess of its lending limit and sell
participations in such loans to other banks. Likewise, it is quite possible
that the Bank will purchase participations from other area institutions.
PRODUCTS AND SERVICES
The Bank's hours of operation will initially be 8:30 a.m. to 5:30 p.m.,
Monday through Friday. In addition, the Bank's employees will be available to
clients wishing to make appointments outside traditional banking hours, either
at the Bank or at the clients' homes or businesses. By providing "by
appointment banking," the Bank intends to demonstrate its high level of
responsiveness and service to its clients.
The Bank intends to offer a broad range of deposit services, including
checking accounts, NOW accounts, savings accounts and time deposits of various
types. The transaction accounts and time certificates will be tailored to the
principal market area at rates competitive with those offered in the area. All
deposit accounts will be insured by the FDIC up to the maximum amount permitted
by law. The Bank intends to solicit these accounts from individuals,
businesses, associations, organizations, financial institutions and government
authorities. It does not intend to accept brokered deposits. The Bank may
also use alternative funding sources as needed, including advances from Federal
Home Loan Banks, conduit financing and the packaging of loans for
securitization and sale.
The Bank plans to offer a computerized Treasury Management workstation
which will allow the Bank's clients to access account information and conduct
certain transactions via computer. All necessary safeguards and security
measures will be utilized in connection with this product. Bank-by-mail and
bank-by-phone will also be offered initially and the Bank intends to offer
other cash management products in the future.
The Bank will offer a full range of short to intermediate term personal
and commercial loans. The Bank intends to make personal loans directly to
individuals for various purposes, including purchases of automobiles, mobile
homes, boats and other recreational vehicles, home improvements, education and
personal investments. The Bank anticipates that it will retain substantially
all of such loans. The Bank intends initially to offer only balloon payment
and adjustable rate mortgages. It does not anticipate offering long-term fixed
rate mortgage products, except through an arrangement with outside providers.
The Bank expects that any fixed rate residential mortgage loans it generates
will be sold to third party investors, though with respect to some of such
loans, the Bank may continue to service the loans for a fee. Commercial loans
will be made primarily to small and mid-sized businesses. These loans will be
both secured and unsecured and will be available for general operating
purposes, acquisition of fixed assets, including real estate, purchases of
equipment and machinery, financing of inventory and accounts receivable as well
as any other purpose considered appropriate.
The Bank currently plans to offer other services, including credit cards,
money orders, traveler's checks, automated teller services with access to one
or more regional or national automated teller networks and safe deposit
services. Although the Bank has been involved in discussions with a number of
vendors regarding the provision of such services, the Bank does not expect to
make final decisions with respect to the providers of such services until
approximately 30 days before its commencement of business. The Bank also
intends to establish relationships with correspondent banks and other financial
institutions to provide other services for its clients, including requesting
correspondent banks to participate in loans where the loan amount exceeds the
Bank's policies or legal lending limit.
Many of the data processing services, including on-line teller service,
will be purchased on a contract basis, reducing the number of persons otherwise
required to handle the operational functions of the Bank. The Bank is in the
process of discussing arrangements with potential data processing companies.
MARKET AREA
The location of the Bank's main office will be in Mishawaka, Indiana,
which is located in the approximate center of the "Michiana" area. The
Michiana area is approximated by the 15 mile radius surrounding Mishawaka,
Indiana, and generally includes the Indiana communities of Mishawaka, South
Bend, Notre Dame, Granger, Osceola
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<PAGE> 16
and Elkhart and the surrounding extended market in St. Joseph and Elkhart
Counties; as well as the Michigan communities of Niles, Buchanan, Cassapolis
and Edwardsburg and the greater Berrien and Cass County area. If conditions
warrant, the Bank may in the future open additional offices in South Bend,
Indiana, or elsewhere in the Michiana area, although the Bank presently has no
such plans.
According to Standard & Poor's August 21, 1995, edition of CreditWeek
Municipal, the demographics of South Bend, Indiana, which comprises a major
portion of the Michiana area, are characterized by a growing and diversifying
local economy, average income levels and strong financial performance.
The area's retail, distribution, convention and tourism, health care and
services sectors have expanded to offset the decrease in manufacturing jobs
which has occurred in recent years. The University of Notre Dame, with over
10,000 students on the northeast side of the city of South Bend, is the area's
largest employer with approximately 3,800 employees in 1995, and contributes to
the stability of the local economy. Every year, Notre Dame has a large number
of visitors who fill the area's hotel rooms and restaurants providing a steady
stream of customers for local businesses. South Bend is also home to St.
Mary's College and seven other colleges and technical schools including Indiana
University and Purdue University local extensions, which help to provide the
area with additional stability and a skilled work force.
The Michiana area has also become a large provider of health care
services. Memorial Hospital and St. Joseph's Medical Center hospitals together
employed approximately 4,660 residents in 1995.
Unemployment is at historical lows and manufacturing jobs are at a seven
year high. Based upon levels of employment in the South Bend area, it is
estimated that manufacturing still supplied approximately 17% of the area's
total employment in 1995. AlliedSignal, Inc. is the area's fifth largest
employer. South Bend is the U.S. headquarters for the braking systems of
AlliedSignal Automotive and the home of manufacturing facilities for
AlliedSignal Aerospace's aircraft landing systems. A. M. General Corp. which
makes high mobility multipurpose wheeled vehicles (HUMVEEs) for the U.S.
military, has its headquarters near downtown South Bend and its main
manufacturing facilities in Mishawaka. Other large employers in the area
include Massachusetts Mutual Life Insurance Company, Ameritech and American
Electric Power Company. The area is also home to a number of small
manufacturing, retail and service businesses. Many major manufacturing
companies are also located in adjacent Elkhart County, including Bayer
Corporation, Coachmen Industries, CTS Corporation, Goshen Rubber Co., Inc.,
Holiday Rambler, LLC and Skyline Corporation.
Management believes that this diverse and growing commercial base provides
significant potential for business banking services, together with personal
banking services for owners and employees of these enterprises.
COMPETITION
The Bank's intended market area is competitive. There are currently
thirteen banks with multiple offices in the 15 mile radius surrounding the
Bank's proposed location. There are also five savings associations doing
business in the area and numerous credit unions. The Bank will also face
competition from finance companies, insurance companies, mortgage companies,
securities brokerage firms, money market funds, loan production offices and
other providers of financial services. Most of the Bank's competitors have
been in business for many years, have established customer bases, are
substantially larger, have substantially larger lending limits than the Bank
and can offer certain services, including multiple branches and international
banking services, that the Bank will be able to offer only through
correspondent banks, if at all. In addition, most of these entities have
greater capital resources than the Bank, which among other things, may allow
them to price their services at levels more favorable to clients and to provide
larger credit facilities than could the Bank. The Company anticipates that the
Bank's legal lending limit of approximately $1,350,000 will be adequate to
satisfy the credit needs of most of its clients and that the needs of its
clients in excess of this amount will be met through loan participation
arrangements with correspondent banks and others.
The Bank will compete for loans principally through the range and quality
of the services it will provide, interest rates and loan fees. The Company
believes that its personal service philosophy will enhance the Bank's
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<PAGE> 17
ability to compete favorably in attracting individuals and local businesses.
The Bank will actively solicit deposit-related clients and will compete for
deposits by offering clients personal attention, professional service and
competitive interest rates.
BANK PREMISES
The Company has signed a letter of intent to lease premises for the Bank's
main office at 3820 Edison Lakes Parkway, Mishawaka, Indiana, which will also
serve as the Company's corporate headquarters. The premises consist of a 9,600
square foot, two-story brick building constructed in 1988 with parking for
approximately 57 vehicles. Until such time as the Bank needs the space, the
Company may sublet approximately 1,200 square feet of the second floor if a
suitable tenant is located, although none has yet been identified. The
building is located on a major thoroughfare in Mishawaka, approximately 2 miles
south of Interstate 80 and near the city's population center. The Bank expects
to take possession of the leased premises during March of 1997, but some
renovation work, expected to take approximately 45 days to complete, would be
required before the Bank could commence operations in its permanent office.
The Company intends to select a local contractor to handle the renovation
project.
The Company expects that the lease for the building will have a primary
term of five years with an option for one five-year extension, and will permit
the Company, the Bank or an affiliate of either to purchase the property for
$800,000 at any time during the term of the lease. The proposed aggregate
annual lease payment is $67,500 for the first year of the lease and increases
by $9,500 in each succeeding year during the initial five year term. It also
increases by 5% per year over and above the rental payment due in year five in
each year of the five year option period, if exercised. The Company is also
obligated to pay all costs associated with taxes, assessments, maintenance,
utilities and insurance. In addition, if the Company is able to sublease any
of the building to another tenant, the Company is required to pay its lessor
one-half of the rent it receives from such tenant. Moreover, if that tenant
eventually vacates the building because the Bank is in need of the space for
further expansion, the rent for the building will be increased by an amount
equal to one-half of the subtenant's rental payment. If the Company is unable
to find another sublessee, the Company will owe the lessor a one time payment
of $5,000 in the second year of the lease, but such payment would be offset by
any previous payments paid to the lessor by the subtenant.
The Company estimates that the cost to renovate the building will be
approximately $125,000, and that the cost of necessary furniture, fixtures and
equipment will total approximately $740,000. The Bank will have four interior
teller stations and a night depository facility. The Company believes the
facility will be adequate to meet the needs of the Company and the Bank for the
foreseeable future. If the Company requires additional office space in the
future, the area on the second floor would, if not then subject to lease, be
available for expansion.
Until the leased premises are ready, the Bank will be located in a
temporary modular facility on vacant land that is being leased by the Company
and is adjacent to the Bank's future main office. The Bank expects to commence
operations in this temporary facility by the first quarter of 1997, at an
estimated cost of $2,000 per month.
EMPLOYEES
The Bank intends to commence operations with a staff of fewer than 15
full-time employees. John Rosenthal will serve as the Chairman of the Board,
President and Chief Executive Officer of the Company and the Bank. The Bank's
other executive officers will include Patrick Novitzki, Senior Vice President -
Lending; Edward Pooley, Senior Vice President and Cashier; and Nancy King, who
will serve as Senior Vice President - Private Banking. Mr. Rosenthal will be
responsible for the overall management of the Bank, including public relations
and marketing activities. Mr. Novitzki will serve as one of the senior lending
officers reporting to Mr. Rosenthal. Mr. Pooley's primary responsibility will
pertain to financial controls and operations, and he will be in charge of
implementing and supervising compliance with the Bank's operating policies.
Mr. Pooley will also serve as a Senior Vice President and the Chief Financial
Officer of the Company. Mrs. King's primary responsibilities will be in the
areas of consumer lending and deposit accounts. At present, the Company's only
full-time employees are Messrs. Rosenthal, Novitzki and Pooley and Mrs. King.
See "Management."
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The Company will hire additional officers and employees as commencement of
the Bank's operations becomes more imminent. The Company plans to employ as
officers and employees of the Bank primarily persons from the Michiana area who
have substantial experience and proven records in banking. The Company intends
to pay competitive salaries to attract and retain such officers and employees.
It is not anticipated that the Bank will experience any substantial difficulty
in attracting officers and other employees of the caliber desired.
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and officers of the Company as of the date hereof, and the
contemplated directors and officers of the Bank upon completion of this
offering, are as follows:
<TABLE>
<CAPTION>
POSITIONS POSITIONS
NAME AGE WITH THE COMPANY WITH THE BANK
- ---- --- -------------------------- ------------------------
<S> <C> <C> <C>
John W. Rosenthal..... 37 Chairman of the Board, Chairman of the Board,
President and Chief President and Chief
Executive Officer Executive Officer
Arthur J. Decio....... 65 Director --
David A. Eckrich...... 55 Director Director
Jerry Hammes.......... 64 Director and Assistant Director
Secretary
V. Robert Hepler...... 67 Director --
Helen L. Krizman...... 33 Director Director
Scott C. Malpass...... 33 Director Director
Jack Matthys.......... 49 Director Director
Arthur H. McElwee..... 53 Director and Secretary Director
Richard A. Rosenthal.. 63 Director Director
Robert A. Sullivan... 41 Director Director
Nancy N. King......... 50 -- Senior Vice President -
Private Banking
Patrick D. Novitzki... 42 -- Senior Vice President -
Lending
Edward R. Pooley...... 31 Senior Vice President and Senior Vice President
Chief Financial Officer and Cashier
</TABLE>
The Company has a classified board of directors, with directors serving
staggered three-year terms. The terms of Messrs. Eckrich, Hammes, McElwee and
John Rosenthal, as Class I directors, expire in April, 1997, the terms of
Messrs. Decio, Hepler, Matthys and Richard Rosenthal, as Class II directors,
expire in April, 1998, and the terms of Messrs. Malpass and Sullivan and Mrs.
Krizman, as Class III directors, expire in April, 1999. There are no family
relationships among any of the Company's directors, officers or key personnel,
except that Richard Rosenthal is the father of John Rosenthal.
18
<PAGE> 19
Rather than receiving cash directors' fees, it is instead expected that
the Company's directors will receive compensation for their services in the
form of options to purchase shares of Common Stock pursuant to the Company's
Stock Incentive Plan (as defined below). See "Management -- Stock Incentive
Plan." After commencement of the Bank's operations, directors of the Bank will
receive no fees for attendance at board meetings, but will be reimbursed for
any related out of pocket expenses.
The Company has purchased a key person life insurance policy on John
Rosenthal in the amount of $1.5 million payable to the Company. The Company
maintains no other key person life insurance on any of its or the Bank's
officers or directors.
COMMITTEES OF THE BANK
The Bank will initially establish audit, loan, human resources and
investment committees. The audit committee will establish and review the
Bank's internal audit procedures and coordinate and review the preparation of
the Company's annual audit by its independent auditors. The loan committee
will establish lending policies and review larger lending accommodations made
by the Bank's loan officers and will monitor collection and delinquencies. The
human resources committee will generally oversee the Bank's employment
practices and employee benefits, including administration of the St. Joseph
Capital Corporation 1996 Stock Incentive Plan (the "Stock Incentive Plan").
The investment committee will set general investment guidelines, review current
and planned investments and instruments and will monitor the Bank's interest
rate exposure.
EXPERIENCE OF DIRECTORS AND OFFICERS
The experience and backgrounds of the directors and executive officers of
the Company and the Bank are summarized below.
JOHN W. ROSENTHAL has 11 years of banking experience, most recently as
Vice President and Senior Corporate Banker at the First National Bank of
Chicago, where he was employed since 1988. He is a native of Mishawaka and
attended schools there through his graduation from the University of Notre Dame
with a degree in business administration with a concentration in finance. Mr.
Rosenthal is a former faculty member of the Graduate School of Banking at the
University of Wisconsin and the Seminar for College Faculty. He is a Certified
Cash Manager. Even though he was employed at The First National Bank of
Chicago, he has maintained his primary residence in Granger, Indiana for the
past three years. He is active in community affairs and currently serves as
President of the Board of Education at Marian High School in Mishawaka,
Indiana. Mr. Rosenthal is married and has three children. He is an active
member of St. Monica's Parish and a member of Knollwood Country Club.
ARTHUR J. DECIO is Chairman of the Board and CEO of Skyline Corporation,
a New York Stock Exchange listed manufacturer of manufactured housing and
recreational vehicles. Mr. Decio is also a director of NIPSCO Industries,
Inc., a gas and electric utility company, located in Hammond, Indiana, Schwartz
Paper Co., a paper company located in Chicago, Illinois, and Quality Dining,
Inc., a food service company headquartered in Mishawaka, Indiana. Mr. Decio
has received Presidential appointments to three national commissions and has
served on the boards of more than 35 civic, religious, educational, business
and financial institutions including the Federal Reserve Bank of Chicago. He
is currently a Fellow and Trustee of The University of Notre Dame, a Trustee of
Holy Cross College, Notre Dame, Indiana, a Trustee of Hillsdale College,
Hillsdale, Michigan and a member of the Advisory Board of Indiana University,
South Bend. He is also a Life Member, Chairman of the Executive Committee, and
past Chairman of the National Advisory Board of the Salvation Army, Washington,
D.C. and a director of Special Olympics International, Washington, D.C.
DAVID A. ECKRICH has been the owner and president of Adams Road
Development, Inc., a residential real estate development company located in
Granger, Indiana, since 1978. He is a director of the Chamber of Commerce of
St. Joseph County and past Chairman and current Trustee of Project Future. He
is also a State Director of the Indiana Builders Association. He is a graduate
of the University of Notre Dame and received his MBA from Northwestern
University. Mr. Eckrich is a member of Knollwood County Club. He is married
and has five children and six grandchildren.
19
<PAGE> 20
JERRY HAMMES is Chairman of Romy Hammes Bancorp, Inc.; Peoples Bank of
Kankakee County, Illinois; and Romy Hammes, Inc., a successor to a business
founded in 1926 that has been involved in auto dealerships, major appliance
distribution and real estate developments. Mr. Hammes is a director of Skyline
Corporation, a manufacturer of manufactured housing and recreational vehicles.
He also served on the Board of Directors of the following bank holding
companies: Trustcorp, Inc., Toledo, Ohio; Society Bancorp of Indiana, Inc.,
South Bend, Indiana; and Society Corporation, Cleveland, Ohio. He is a Trustee
of St. Mary's College and Chairman of Holy Cross College Board of Trustees. He
attended the University of Notre Dame. He is involved in many fund raising,
charitable and civic projects.
V. ROBERT HEPLER is President and Chief Executive Officer of VRH Rentals,
a construction equipment company located in Florida, a position he has held
since 1994. Prior to that, Mr. Hepler was President and Chief Executive
Officer of Bob Hepler Construction Equipment Company, South Bend, Indiana,
Booms and Scissors, Indianapolis, Indiana, and Booms and Scissors South, of
North and South Carolina, all of which are construction equipment rental and
sales companies. He attended the University of Washington. Mr. Hepler is
married and has four children and ten grandchildren. He is a member of South
Bend Country Club and Signal Point Country Club.
HELEN L. KRIZMAN has been Controller of various affiliated corporations
managed by The Warrick Corporation for the past five years and is a certified
public accountant. Currently, Mrs. Krizman is serving as Controller of
R-Vision, Inc., a manufacturer of travel trailers. She held the position of
senior accountant for a large public accounting firm from 1985 through 1987.
Mrs. Krizman graduated from Western Michigan University with a major in
accounting and minors in information processing and general business. Mrs.
Krizman is married and has four children.
SCOTT C. MALPASS is currently the Associate Vice President for Finance and
Chief Investment Officer for the University of Notre Dame where he has been
employed for the past eight years. Prior to that, Mr. Malpass was an
investment consultant and portfolio manager with Irving Trust Company in New
York from 1986 to 1988. Mr. Malpass is a director of Endowment Advisers, Inc.,
Westport, Connecticut, and Venture Lending and Leasing, Inc., San Jose,
California. In addition, he serves as a member of the Advisory Council for
several venture capital and real estate investment partnerships. Mr. Malpass
is active in community affairs and is a director of The Community Foundation of
St. Joseph County, Inc. and the South Bend Community School Corporation
Education Foundation. Mr. Malpass received a Bachelor of Science degree and an
MBA with a concentration in finance from the University of Notre Dame.
JACK MATTHYS was Senior Vice President of Commercial Loans and a member of
the Management Committee for the St. Joseph Bank, which merged with Trustcorp,
Inc. in 1986. He became an Executive Vice President with Trustcorp Bank and
head of all lending in the State of Indiana through the end of 1989 when
Trustcorp merged with Society Corporation. Mr. Matthys then served as
President of Krizman, Inc., a manufacturer of automotive parts located in
Mishawaka, Indiana, from 1990 through the end of 1992 when he retired from
Krizman. Mr. Matthys is a director of Wm. Lehman, Inc., a processor of
essential mint oils located in Bremen, Indiana; Toefco Engineering, Inc., an
industrial coater, and Medical Education Foundation, a not-for-profit medical
education assistance advocate. He received a Bachelor of Science degree in
Business Administration and an MBA from Indiana University. Mr. Matthys is
married and has four children and five grandchildren. Mr. Matthys also serves
as an advisor to other area companies.
ARTHUR H. MCELWEE, JR. has been the President and Owner of Toefco
Engineering, Inc., an industrial coater located in Niles, Michigan, since 1994.
From 1991 to 1994 he was President of Goshen Rubber Co., Inc., a rubber
products manufacturer located in Goshen, Indiana. Mr. McElwee was President
from 1974 to 1986 of the St. Joseph Bank, and Chairman and Chief Executive
Officer of Trustcorp Bank and Society Bank, both successors to the St. Joseph
Bank, from 1987 to 1990. He is a director of Goshen Rubber Co., Inc., a member
of the Greater Niles Chamber of Commerce and the Economic Development
Foundation. He attended Indiana University and served as a member of the Board
of Advisors to the Business Schools of the University of Notre Dame and Indiana
University. Mr. McElwee is the founding chairman of the St. Joseph's Care
Foundation.
20
<PAGE> 21
Mr. McElwee is married and has four children and four grandchildren. He is a
member of Knollwood Country Club.
RICHARD A. ROSENTHAL was the Director of Athletics at the University of
Notre Dame from 1987 to 1995. Mr. Rosenthal was Chairman of the Board and Chief
Executive Officer of the St. Joseph Bank from 1962 to 1987. Mr. Rosenthal has
chaired a variety of civic and charitable boards, including United Way, United
Community Services, Project Future, Century Center, and St. Joseph's Medical
Center. He was Chairman of the local Operating Committee of International
Special Olympics. Mr. Rosenthal is currently a director of Athey Products,
Inc., a manufacturer of street sweepers located in Raleigh, North Carolina;
Advance Drainage Systems, Inc., a manufacturer of plastic pipe located in
Columbus, Ohio; Beck, Inc., a manufacturer of steel frames for the manufactured
housing and recreational vehicle industries located in Elkhart, Indiana; Goshen
Rubber Co., Inc., a manufacturer of rubber piece parts located in Goshen,
Indiana; LaCrosse Footwear, Inc., a manufacturer of leather and rubber footwear
located in LaCrosse, Wisconsin; Toefco Engineering, Inc., an industrial coater
located in Niles, Michigan, and Zimmer Paper Products, a specialty paper
company located in Indianapolis, Indiana. He is also an advisory board member
of CID Investment Partners, a venture capital firm located in Indianapolis,
Indiana, and R.F.E. Investment Partners, a venture capital firm located in New
Caanan, Connecticut. Mr. Rosenthal graduated from the University of Notre
Dame. He is married and has eight children and nine grandchildren. He is a
member of Signal Point Country Club.
ROBERT A. SULLIVAN is co-founder and President of Capital Bank, N.A.,
Sylvania, Ohio, a position he has held since 1989. He is a director of Capital
Bank, N.A. and of Capital Holdings, Inc., the parent company of Capital Bank,
N.A. From 1983 to 1988, Mr Sullivan served as Senior Vice President-Community
Banking Division of Trustcorp Bank, Toledo, Ohio, where he was responsible for
lending and branch activities in northwest Ohio. Mr. Sullivan is a director of
The Lyden Company, a petroleum marketing company. He is a Trustee of St.
Vincent Medical Center and Central Catholic High School and a director of the
Toledo - Lucas County Port Authority. He is a member of the Young President's
Organization, the Inverness Club and the Toledo Club. Mr. Sullivan graduated
from St. Joseph's High School in South Bend and the University of Notre Dame.
He is married and has two children.
NANCY N. KING has a broad range of banking experience, including eleven
years with Wells Fargo Bank in bank administration, consumer real estate and
commercial lending. For the past five years Mrs. King has served as a Trust
Officer and Regional Manager of Personal Trust Services at Key Trust Company of
Indiana, National Association, a wholly owned subsidiary of KeyBank, National
Association. She graduated from Miami University. In 1994 she received a
Certified Trust and Financial Analyst designation. Mrs. King serves as Vice
President of the YWCA board of directors, is a director of the Scholarship
Foundation of St. Joseph County and is actively involved in several other
community activities. Mrs. King is married with two children and lives in
South Bend, Indiana.
PATRICK D. NOVITZKI has over 20 years of banking experience in Michiana,
most recently as head of the corporate banking department at KeyBank, National
Association, in South Bend, Indiana. After graduating from the University of
Notre Dame, Mr. Novitzki began his banking career at St. Joseph Bank as a
collateral auditor and credit analyst. He is on the board of directors and a
member of the finance committee of the local YMCA, a director of the Michiana
Marlins Swim Club and a member of the Chamber of Commerce of St. Joseph County.
Mr. Novitzki is married and lives in Granger, Indiana.
EDWARD R. POOLEY has ten years of banking experience since beginning his
career with National City Bank as a management trainee. In 1991, he joined an
Ohio community bank and served as the Cashier and Chief Operations Officer of
the bank and as Treasurer of its parent bank holding company. He graduated
from the University of Toledo. Mr. Pooley is married and has two children.
21
<PAGE> 22
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to
John Rosenthal, its only executive officer who received compensation for
services rendered during the period from the Company's organization through May
31, 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE(1)
- ----------------------------------------------------------------------------------------------------
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
- ----------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (G) (H)
SECURITIES ALL OTHER
NAME AND PERIOD ENDED UNDERLYING COMPENSATION
PRINCIPAL POSITION MAY 31ST SALARY($)(2) BONUS($) OPTIONS/SARS (#) ($)
=================================================================================================
<S> <C> <C> <C> <C> <C>
John W. Rosenthal,
Chairman of the
Board, President
and Chief Executive
Officer 1996 $20,923 -- 27,000 --
</TABLE>
(1) Mr. Rosenthal 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.
(2) Mr. Rosenthal's annual salary is $98,000.
STOCK OPTION INFORMATION
The following table sets forth certain information concerning the stock
options granted by the Company through May 31, 1996:
<TABLE>
<CAPTION>
OPTION GRANTS IN 1996
- -------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING OPTIONS TO EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR PRICE ($/SH) DATE
=======================================================================================================
<S> <C> <C> <C> <C>
John W. Rosenthal,
Chairman of the
Board, President
and Chief Executive
Officer 27,000 100% $10.00 June, 2006
</TABLE>
(1) Options become exercisable in equal portions on December 31, 1996, June 30,
1997 and June 30, 1998.
22
<PAGE> 23
EMPLOYMENT AGREEMENT
The Company has entered into an employment agreement with John Rosenthal,
dated March 18, 1996, for a term beginning on such date and ending on March 18,
1997, if the Bank is not organized at such time or, if the Bank is so
organized, on March 18, 2000. In the absence of notice from either party to
the contrary, the employment term under the agreement extends for an additional
one year at the end of each year of the agreement. Under the agreement, Mr.
Rosenthal will receive an initial annual salary of $98,000. The agreement also
includes a provision for the review, and possible increase (but not a decrease)
of his salary in subsequent years, as well as performance bonuses, membership
in a local country club, an automobile allowance and participation in the
Company's benefit plans and disability benefits. The agreement also provides
for the grant of options to purchase 27,000 shares of Common Stock under the
Company's stock option plan. See "-- Stock Incentive Plan."
The employment agreement is terminable at any time by either the Company's
Board of Directors or by Mr. Rosenthal. The agreement provides severance
benefits in the event he is terminated without cause, including severance
compensation equal to his then current salary and benefits for the remainder of
the then current term of the employment agreement. The Company also must pay
all accrued salary, vested deferred compensation and other benefits then due to
him. The Company may terminate the agreement at any time for cause without
incurring any post-termination obligation to Mr. Rosenthal. If Mr. Rosenthal
is terminated upon a change in control, he is to be paid severance compensation
equal to three times: (i) his salary at the rate then in effect at the time of
termination; (ii) the amount of any bonus he would have received; and (iii) the
value of the other benefits which would have accrued to him if he had remained
employed for the full term of his agreement. Moreover, he will continue to
receive health, life and disability insurance coverage for three years
following such termination. Pursuant to a non-competition covenant of the
agreement, Mr. Rosenthal is prohibited from competing with the Company or its
subsidiaries within a 50-mile radius of the Company's main office for a period
of one year following the termination of his employment agreement.
STOCK INCENTIVE PLAN
The Company's Board of Directors and sole stockholder have adopted
resolutions approving the Stock Incentive Plan to promote equity ownership of
the Company by directors and selected officers and employees of the Company and
the Bank, to increase their proprietary interest in the success of the Company
and to encourage them to remain in the employ of the Company.
ADMINISTRATION. The Stock Incentive Plan will be administered by the
Company's human resources committee (the "Committee"), which is comprised of at
least two non-employee directors appointed by the Company's Board of Directors.
The Committee will have the authority, subject to approval by the Board of
Directors, to select the directors and employees to whom awards may be granted,
to determine the terms of each award, to interpret the provisions of the Stock
Incentive Plan and to make all other determinations that it may deem necessary
or advisable for the administration of the Stock Incentive Plan.
The Stock Incentive Plan provides for the grant of "incentive stock
options," as defined under Section 422(b) of the Internal Revenue Code of 1986,
as amended, options that do not so qualify (referred to herein as "nonstatutory
options"), restricted stock and stock appreciation rights ("SARs"), as
determined in each individual case by the Committee. The Board of Directors
has reserved 100,000 shares of Common Stock for issuance under the Stock
Incentive Plan. In general, if any award (including an award granted to a
non-employee director) granted under the Stock Incentive Plan expires,
terminates, is forfeited or is canceled for any reason, the shares of Common
Stock allocable to such award may again be made subject to an award granted
under the Stock Incentive Plan.
AWARDS. Directors and key policy-making employees of the Company and the
Bank are eligible to receive grants under the Stock Incentive Plan. Only
employees may be granted incentive stock options. Awards may be
granted subject to a vesting requirement and in any event will become fully
vested upon a merger or change of control of the Company. The exercise price
of incentive stock options granted under the Stock Incentive Plan must at least
equal the fair market value of the Common Stock subject to the option
(determined as provided in the plan) on
23
<PAGE> 24
the date the option is granted. The exercise price of nonstatutory options
and SARs will be determined by the Committee.
An incentive stock option granted under the Stock Incentive Plan to an
employee owning more than 10% of the total combined voting power of all classes
of capital stock of the Company is subject to the further restriction that such
option must have an exercise price of at least 110% of the fair market value of
the shares of Common Stock issuable upon exercise of the option (determined as
of the date the option is granted) and may not have an exercise term of more
than five years. Incentive stock options are also subject to the further
restriction that the aggregate fair market value (determined as of the date of
grant) of Common Stock as to which any such incentive stock option first
becomes exercisable in any calendar year, is limited to $100,000. To the
extent options covering more than $100,000 worth of Common Stock first become
exercisable in any one calendar year, the excess will be nonstatutory options.
For purposes of determining which, if any, options have been granted in excess
of the $100,000 limit, options will be considered to become exercisable in the
order granted.
Each director and key employee eligible to participate in the Stock
Incentive Plan will be notified by the Committee. To receive an award under
the Stock Incentive Plan, an award agreement must be executed which specifies
the type of award to be granted, the number of shares of Common Stock (if any)
to which the award relates, the terms and conditions of the award and the date
granted. In the case of an award of options, the award agreement will also
specify the price at which the shares of Common Stock subject to the option may
be purchased, the date(s) on which the option becomes exercisable and whether
the option is an incentive stock option or a nonstatutory option.
The full exercise price for all shares of Common Stock purchased upon the
exercise of options granted under the Stock Incentive Plan must be paid by
cash, personal check, personal note, award surrender or Common Stock owned at
the time of exercise. Incentive stock options granted to employees under the
Stock Incentive Plan may remain outstanding and exercisable for ten years from
the date of grant or until the expiration of ninety days (or such lesser period
as the Committee may determine) from the date on which the person to whom they
were granted ceases to be employed by the Company. Nonstatutory options and
SARs granted under the Stock Incentive Plan remain outstanding and exercisable
for such period as the Committee may determine.
INCOME TAX. Incentive stock options granted under the Stock Incentive
Plan have certain advantageous tax attributes to the recipient under the income
tax laws. No taxable income is recognized by the option holder for income tax
purposes at the time of the grant or exercise of an incentive stock option,
although neither is there any income tax deduction available to the Company as
a result of such a grant or exercise. Any gain or loss recognized by an option
holder on the later disposition of shares of Common Stock acquired pursuant to
the exercise of an incentive stock option generally will be treated as capital
gain or loss if such disposition does not occur prior to one year after the
date of exercise of the option, or two years after the date the option was
granted.
As in the case of incentive stock options, the grant of nonstatutory stock
options, restricted stock or SARs will not result in taxable income for income
tax purposes to the recipient of the awards, nor will the Company be entitled
to an income tax deduction. Upon the exercise of nonstatutory stock options or
SARs, or the lapse of restrictions on restricted stock, the award holder will
generally recognize ordinary income for income tax purposes equal to the
difference between the exercise price and the fair market value of the shares
of Common Stock acquired or deemed acquired on the date of exercise, and the
Company will be entitled to an income tax deduction in the amount of the
ordinary income recognized by the option holder. In general, any gain or loss
realized by the option holder on the subsequent disposition of such shares will
be a capital gain or loss.
AMENDMENT AND TERMINATION. The Stock Incentive Plan expires ten years
after its adoption, unless sooner terminated by the Board of Directors. The
Board of Directors has authority to amend the Stock Incentive Plan in such
manner as it deems advisable. The Stock Incentive Plan provides for
appropriate adjustment, as determined by the Committee, in the number and kind
of shares subject to unexercised options, in the event of any change in the
outstanding shares of Common Stock by reason of a stock split, stock dividend,
combination or reclassification of shares, recapitalization, merger or similar
event.
24
<PAGE> 25
In accordance with his employment agreement, on June 11,1996, Mr. John
Rosenthal received the grant of options under the Stock Incentive Plan to
purchase 27,000 shares of Common Stock at the initial public offering price of
$10.00 per share. The options will be for a ten year term and will become
exercisable in equal portions on December 31, 1996, June 30, 1997, and June 30,
1998.
CERTAIN TRANSACTIONS
ORGANIZATIONAL LOANS
The directors of the Company have loaned to the Company an aggregate of
$275,000 for use in connection with organizational and capital raising
expenses. All such amounts borrowed by the Company from its directors bear
interest at an annual rate of 6%, and are repayable in cash only from the
proceeds of this offering. Directors may elect to receive repayment in the form
of shares of Common Stock sold in this offering, valued at the Price to Public.
All of the Company's directors have indicated their current intention either to
elect such option or to invest at least an equal amount in direct purchases of
Common Stock in this offering. See "Principal Stockholders."
LEASE OF THE BANK PREMISES
The Company has signed a letter of intent to lease the Bank's permanent
office from BK Main Street, which is an affiliate of the principal stockholder
of Quality Dining, Inc. Arthur Decio, a director of the Company, is also a
director of Quality Dining, Inc., which is the current tenant of the premises.
The Company expects the lease to provide that the Company will be obligated to
pay rent in an annual amount of $67,500 during the first year of the lease with
such annual rent increasing by $9,500 in each succeeding year during the
initial five year term. The Company is also obligated to pay all costs
associated with taxes, assessments, maintenance, utilities and insurance. In
addition, if the Bank has subleased any portion of the building to another
tenant, the Company is required to pay its lessor one-half of the rent it
receives from such tenant. Moreover, if that tenant subsequently vacates the
space so that the Bank may expand its operations, the annual rent will increase
by one-half of the former subtenant's rental payment. If the Company is unable
to find another sublessee, the Company will owe the lessor a one time payment
of $5,000 in the second year of the lease, but such payment will be reduced by
any amounts previously paid to the lessor by the sublessee. The lease is
expected to be renewable for one additional five year period, with the annual
rent increasing by 5% per year over and above the rental payment due in year
five in each year during such period. The lease is expected to permit the
Company, the Bank or an affiliate of either to purchase the property for
$800,000 at any time during the term of the lease. Management of the Company
believes that the proposed terms of the lease are no less favorable to the
Company than could be obtained from non-affiliated parties.
BANKING TRANSACTIONS
It is anticipated that the directors and officers of the Company and the
Bank and the companies with which they are associated will have banking and
other transactions with the Company and the Bank in the ordinary course of
business. All transactions between the Company and affiliated persons,
including 5% stockholders, will be on terms no less favorable to the Company
than could be obtained from independent third parties. Any loans and
commitments to lend to such affiliated persons or entities included in such
transactions will be made in accordance with all applicable laws and
regulations and on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unaffiliated parties of similar creditworthiness.
INDEMNIFICATION
The Certificate and Bylaws of the Company provide for the indemnification
of directors and officers of the Company and the Bank, including reasonable
legal fees, incurred by such directors and officers while acting for or on
behalf of the Company or the Bank as a director or officer, subject to certain
limitations. See "Description of Capital Stock -- Certain Anti-Takeover,
Indemnification and Limited Liability Provisions." The Company expects to
purchase directors' and officers' liability insurance for directors and
officers of the Company and the Bank.
25
<PAGE> 26
PRINCIPAL STOCKHOLDERS
Except for 100 shares issued to John Rosenthal for the sole purpose of
incorporating the Company and electing its directors, the Company has not yet
issued any Common Stock. These organizational shares will be repurchased by
the Company at their $1,000 cost concurrently with the closing of this
offering. See "Description of Capital Stock -- Common Stock." The following
table sets forth certain information with respect to the projected beneficial
ownership of Common Stock after the sale of shares offered hereby, by: (i)
each person expected by the Company to beneficially own more than 5% of the
outstanding Common Stock; (ii) each of the current directors and executive
officers of the Company and the contemplated directors and executive officers
of the Bank; and (iii) all such directors and executive officers of the Company
and the Bank as a group. All share numbers are provided based upon estimates,
supplied to the Company by the persons listed below, of the number of shares of
Common Stock expected to be purchased in this offering by such persons,
including shares which may be issued to certain directors in full or partial
satisfaction of loans made to the Company. See "Certain Transactions --
Organizational Loans." Depending upon their individual circumstances at the
time, each of such individuals may purchase a greater or fewer number of shares
than indicated in the following table.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED
AFTER THIS PERCENTAGE OF OUTSTANDING
NAME OFFERING(1) SHARES OWNED AFTER THIS OFFERING
- ---- -------------------- --------------------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
John W. Rosenthal(2)............ 8,700 0.79%
Arthur J. Decio................. 25,000 2.27%
David A. Eckrich................ 25,000 2.27%
Jerry Hammes(3)................. 49,900 4.54%
V. Robert Hepler................ 25,000 2.27%
Helen L. Krizman................ 10,000 0.91%
Scott C. Malpass................ 2,500 0.23%
Jack Matthys.................... 20,000 1.82%
Arthur H. McElwee............... 10,000 0.91%
Richard A. Rosenthal(4)......... 20,000 1.82%
Robert A. Sullivan.............. 10,000 0.91%
Nancy N. King................... -- --
Patrick D. Novitzki............. 5,200 0.47%
Edward R. Pooley................ 1,000 0.09%
Directors and executive
officers as a group (14
individuals).................... 212,300 19.30%
</TABLE>
(1) The information contained in this column is based upon information
furnished to the Company by the persons named above and the members of the
designated group. The nature of beneficial ownership for shares shown in
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<PAGE> 27
this column is sole voting and investment power, except as set forth in the
footnotes below. Inclusion of shares shall not constitute an admission of
beneficial ownership or voting or investment power over included shares.
(2) Excludes options to purchase 27,000 shares of Common Stock.
(3) Includes 25,000 shares of Common Stock to be purchased by an affiliated
company.
(4) Includes 10,000 shares of Common Stock to be purchased by Mr. Rosenthal's
spouse.
SUPERVISION AND REGULATION
GENERAL
The growth and earnings performance of the Company can be affected not
only by management decisions and general economic conditions, but also by the
policies of various governmental regulatory authorities including, but not
limited to, the DFI, the Federal Reserve Board, the FDIC, the Internal Revenue
Service and state taxing authorities. Financial institutions and their holding
companies are extensively regulated under federal and state law. The effect of
such statutes, regulations and policies can be significant, and cannot be
predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to financial
institutions such as the Company and the Bank, regulate, among other things,
the scope of business, investments, reserves against deposits, capital levels
relative to operations, the nature and amount of collateral for loans, the
establishment of branches, mergers, consolidations and dividends. The system of
supervision and regulation applicable to the Company and the Bank establishes a
comprehensive framework for their respective operations and is intended
primarily for the protection of the FDIC's deposit insurance funds and the
depositors, rather than the stockholders, of financial institutions.
The following references to material statutes and regulations affecting
the Company and the Bank are brief summaries thereof and do not purport to be
complete, and are qualified in their entirety by reference to such statutes and
regulations. Any change in applicable law or regulations may have a material
effect on the business of the Company and the Bank.
RECENT REGULATORY DEVELOPMENTS
On August 8, 1995, the FDIC amended its regulations to change the range of
deposit insurance assessments charged to members of the Bank Insurance Fund
(the "BIF"), such as the Bank, from the then-prevailing range of 0.23% to 0.31%
of deposits, to a range of 0.04% to 0.31% of deposits. On November 14, 1995,
the FDIC further reduced the deposit insurance assessments for BIF-member
institutions by four basis points. As a result, the range of BIF assessments
for the semi-annual assessment period which commenced January 1, 1996, is
between 0% and 0.27% of deposits. BIF-member institutions qualifying for the
0% assessment category will, however, still have to pay the $1,000 minimum
semi-annual assessment required by federal statute.
The FDIC was able to change the range for BIF-member deposit insurance
assessments to their current levels because the ratio of the insurance reserves
of the BIF to total BIF-insured deposits exceeds the statutorily designated
reserve ratio of 1.25%. Because the Savings Association Insurance Fund (the
"SAIF") does not meet this designated reserve ratio, the FDIC is prohibited by
federal law from reducing the deposit insurance assessments charged to
SAIF-member institutions to the same levels currently charged BIF-member
institutions, and SAIF-insured institutions currently pay assessments ranging
from 0.23% to 0.31% of deposits. Legislation pending before the Congress would
recapitalize the SAIF to the designated reserve ratio by imposing a special
assessment against SAIF-insured institutions. The pending bill would also
require that BIF assessments be used to fund a portion of the interest payments
due on outstanding bonds issued in the late 1980's to recapitalize the Federal
Savings and Loan Insurance Corporation, which until 1989 insured the
institutions now insured by the SAIF. It is anticipated that BIF assessments
will increase if this provision is enacted. Further, in conjunction with the
proposed recapitalization of the
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<PAGE> 28
SAIF, legislation has been introduced in the Congress that would, among other
things, require federal thrift institutions to convert to state or national
banks and would merge the BIF and the SAIF into a single deposit insurance fund
administered by the FDIC. At this time, it is not possible to predict whether,
or in what form, any such legislation will be adopted or the impact, if any,
such legislation would have on the Company or the Bank or if such legislation
would cause an increase in deposit insurance premiums, although such increase
appears probable.
THE COMPANY
GENERAL. The Company expects to receive the approval of the Federal
Reserve Board to acquire all of the capital stock to be issued by the Bank in
connection with its organization. The Company, as the sole shareholder of the
Bank, will be a bank holding company. As a bank holding company, the Company
will be required to be registered with, and will be subject to regulation by,
the Federal Reserve Board under the Bank Holding Company Act of 1956, as
amended (the "BHCA"). In accordance with Federal Reserve Board policy, the
Company will be expected to act as a source of financial strength to the Bank
and to commit resources to support the Bank in circumstances where the Company
might not do so absent such policy. Under the BHCA, the Company will also be
subject to periodic examination by the Federal Reserve Board and will be
required to file periodic reports of its operations and such additional
information as the Federal Reserve Board may require.
INVESTMENTS AND ACTIVITIES. Under the BHCA, a bank holding company must
obtain Federal Reserve Board 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 Federal Reserve Board
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 Federal Reserve Board may now allow a bank
holding company to acquire banks located in any state of the United States
without regard to geographic restrictions 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 Company, with certain exceptions noted below,
from acquiring direct or 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 Federal Reserve Board to be "so closely related to
banking . . . as to be a proper incident thereto." Under current regulations
of the Federal Reserve Board, the 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. The DFI also
requires out-of-state banking-holding companies acquiring an Indiana bank or
bank holding company to file a written notice regarding such acquisition with
the DFI prior to such acquisition.
Federal legislation also prohibits the acquisition of "control" of a bank
or bank holding company, such as the Company, without prior notice to certain
federal bank regulators. "Control" is defined in certain cases as the
acquisition of 10% of the outstanding voting shares of a bank or bank holding
company. Indiana law requires the approval of the DFI prior to the acquisition
of "control" of the Company or the Bank. For these purposes, "control" means
the acquisition of at least 25% of the voting stock of an institution or the
ability to direct the management or policies of a bank or bank holding company.
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<PAGE> 29
CAPITAL REQUIREMENTS. The Federal Reserve Board uses capital adequacy
guidelines in its examination and regulation of bank holding companies. If
capital falls below minimum guideline levels, a bank holding company may, among
other things, be denied approval to acquire or establish additional banks or
non-bank businesses.
The Federal Reserve Board's capital guidelines establish the following
minimum regulatory capital requirements for bank holding companies: a
risk-based requirement expressed as a percentage of total risk-weighted assets
and a leverage requirement expressed as a percentage of total assets. The
risk-based requirement consists of a minimum ratio of total capital to total
risk-weighted assets of 8%, of which at least one-half must be Tier 1 capital
(which consists principally of stockholders' equity). The leverage requirement
consists of a minimum ratio of Tier 1 capital to total assets of 3% for the
most highly rated companies, with minimum requirements of 4% to 5% for all
others.
The risk-based and leverage standards presently used by the Federal
Reserve Board are minimum requirements and higher capital levels will be
required if warranted by the particular circumstances or risk profiles of
individual banking organizations. Further, any banking organization
experiencing or anticipating significant growth would be expected to maintain
capital ratios, including tangible capital positions (i.e., Tier 1 capital less
all intangible assets), well above the minimum levels.
The Federal Reserve Board's regulations provide that the foregoing capital
requirements will generally be applied on a bank-only (rather than a
consolidated) basis in the case of a bank holding company with less than $150
million in total consolidated assets.
DIVIDENDS. The Federal Reserve Board has issued a policy statement on the
payment of cash dividends by bank holding companies. In the policy statement,
the Federal Reserve Board expressed its view that a bank holding company
experiencing earnings weaknesses should not pay cash dividends exceeding its
net income or which could only be funded in ways that weakened the bank holding
company's financial health, such as by borrowing. Additionally, the Federal
Reserve Board possesses enforcement powers over bank holding companies and
their non-bank subsidiaries to prevent or remedy actions that represent unsafe
or unsound practices or violations of applicable statutes and regulations.
Among these powers is the ability to proscribe the payment of dividends by
banks and bank holding companies.
In addition to the restrictions on dividends imposed by the Federal
Reserve Board, the Delaware General Corporation Law would allow the Company to
pay dividends only out of its surplus, or if the Company has no such surplus,
out of its net profits for the fiscal year in which the dividend is declared
and/or the preceding fiscal year.
THE BANK
GENERAL. The Bank will be an Indiana-chartered bank, the deposit accounts
of which will be insured by the BIF of the FDIC. As a BIF-insured,
Indiana-chartered bank, the Bank will be subject to the examination,
supervision, reporting and enforcement requirements of the DFI, as the
chartering authority for Indiana banks, and the FDIC, as administrator of the
BIF.
DEPOSIT INSURANCE. As an FDIC-insured institution, the Bank will be
required to pay deposit insurance premium assessments to the FDIC. The amount
each institution pays for FDIC deposit insurance coverage is determined in
accordance with a risk-based assessment system under which all insured
depository institutions are placed into one of nine categories and assessed
insurance premiums based upon their level of capital and supervisory
evaluation. Institutions classified as well-capitalized (as defined by the
FDIC) and considered healthy pay the lowest premium while institutions that are
less than adequately capitalized (as defined by the FDIC) and considered of
substantial supervisory concern pay the highest premium. For the semi-annual
assessment period which began January 1, 1996, BIF assessments ranged from
$1,000 for institutions that are well-capitalized to 0.27% of deposits for
other institutions. Because the Bank will initially be a "well capitalized"
institution for purposes of its deposit insurance premiums, it expects its
initial annual FDIC premium to be $2,000. See " -- Recent Regulatory
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<PAGE> 30
Developments." Risk classification of all insured institutions is made by the
FDIC for each semi-annual assessment period.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital.
CAPITAL REQUIREMENTS. The FDIC has established the following minimum
capital standards for state-chartered, insured, non-member banks, such as the
Bank: a leverage requirement consisting of a minimum ratio of Tier 1 capital
to total assets of 3% for the most highly-rated banks with minimum requirements
of 4% to 5% for all others, and a risk-based capital requirement consisting of
a minimum ratio of total capital to total risk-weighted assets of 8%, at least
one-half of which must be Tier 1 capital.
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. For example, the regulations of the
FDIC provide that additional capital may be required to take adequate account
of the risks posed by concentrations of credit and nontraditional activities,
interest rate risk and the institution's ability to manage such risks.
Management does not anticipate that this amendment will adversely affect the
ability of the Bank to maintain compliance with applicable capital
requirements. Upon receiving its charter, the Bank will exceed its minimum
regulatory capital requirements.
Federal law provides the federal banking regulators with broad powers to
take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized," as defined by regulation. Depending upon the capital
category to which an institution is assigned, the regulators' corrective powers
include: requiring the submission of a capital restoration plan; placing
limits on asset growth and restrictions on activities; requiring the
institution to issue additional capital stock (including additional voting
stock) or to be acquired; restricting transactions with affiliates; restricting
the interest rate the institution may pay on deposits; ordering a new election
of directors of the institution; requiring that senior executive officers or
directors be dismissed; prohibiting the institution from accepting deposits
from correspondent banks; requiring the institution to divest certain
subsidiaries; prohibiting the payment of principal or interest on subordinated
debt; and ultimately, appointing a receiver for the institution.
DIVIDENDS. Under the Indiana Act, the Bank will be prohibited from paying
dividends in an amount greater than its undivided profits or if the payment of
dividends would impair the Bank's capital. The Bank will, however, be required
to obtain the approval of DFI for the payment of any dividend if the aggregate
amount of all dividends paid by the Bank during any calendar year, including
the proposed dividend, would exceed the sum of: (i) the total net profits of
the Bank for that year; and (ii) the retained net profits of the Bank for the
previous two years. For purposes of the Indiana Act, "net profits" means the
sum of all earnings from current operations plus actual recoveries on loans,
investments and other assets, less the sum of all current operating expenses,
actual losses, accrued dividends on preferred stock, if any, and all federal,
state and local taxes. The payment of dividends by any financial institution
or its holding company is affected by the requirement to maintain adequate
capital pursuant to applicable capital adequacy guidelines and regulations.
INSIDER TRANSACTIONS. The Bank will be subject to certain restrictions
imposed by the Federal Reserve Act on any extensions of credit to the Company
and any future subsidiaries, on investments in the stock or other securities of
the Company and its subsidiaries and the acceptance of the stock or other
securities of the Company or its subsidiaries as collateral for loans. Certain
limitations and reporting requirements are also placed on extensions of credit
by the Bank to its directors and officers, to directors and officers of the
Company and its subsidiaries, to principal stockholders of the Company and to
"related interests" of such directors, officers and principal stockholders. In
addition, such legislation and regulations may affect the terms upon which any
person becoming a
30
<PAGE> 31
director or officer of the Company or one of its subsidiaries or a principal
stockholder of the Company may obtain credit from banks with which the Bank
maintains a correspondent relationship.
SAFETY AND SOUNDNESS STANDARDS. The federal banking regulators, including
the FDIC, have promulgated guidelines establishing operational and managerial
standards to promote the safety and soundness of federally insured depository
institutions. These guidelines establish standards for internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth and compensation, fees and
benefits. In general, the guidelines prescribe the goals to be achieved in
each area, and each institution is responsible for establishing its own
procedures to achieve those goals. If an institution fails to comply with any
of the standards set forth in the guidelines, the institution's primary federal
regulator may require the institution to submit a plan for achieving and
maintaining compliance. The preamble to the guidelines states that the
agencies expect to require a compliance plan from an institution whose failure
to meet one or more of the standards is of such severity that it could threaten
the safe and sound operation of the institution. Failure to submit an
acceptable compliance plan, or failure to adhere to a compliance plan that has
been accepted by the appropriate regulator, will constitute grounds for further
enforcement action. The federal banking agencies have also published for
comment proposed asset quality and earnings standards which, if adopted, would
be added to the safety and soundness guidelines. This proposal, like the final
guidelines, would establish the goals to be achieved with respect to asset
quality and earnings, and each institution would be responsible for
establishing its own procedures to meet such goals.
BRANCHING AUTHORITY. Indiana banks, such as the Bank, have the authority
under Indiana law to establish branches anywhere in the State of Indiana,
subject to receipt of all required regulatory approvals. Effective June 1,
1997 (or earlier if expressly authorized by applicable state law), the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Riegle-Neal Act") allows banks to establish interstate branch networks through
acquisitions of other banks, subject to certain conditions, including certain
limitations on the aggregate amount of deposits that may be held by the
surviving bank and all of its insured depository institution affiliates. The
establishment of de novo interstate branches or the acquisition of individual
branches of a bank in another state (rather than the acquisition of an
out-of-state bank in its entirety) is allowed by the Riegle-Neal Act only if
specifically authorized by state law. The legislation allows individual states
to "opt-out" of certain provisions of the Riegle-Neal Act by enacting
appropriate legislation prior to June 1, 1997. The State of Indiana recently
passed a law establishing interstate branching provisions for Indiana
state-chartered banks consistent with those established by the Riegel-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, but contains the limitation 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 respective home state permit Indiana banks to merge or establish
de novo branches on a reciprocal basis.
STATE BANK ACTIVITIES. Under federal law, as implemented by regulations
adopted by the FDIC, FDIC-insured state banks are prohibited, subject to
certain exceptions, from making or retaining equity investments of a type, or
in an amount, that are not permissible for a national bank. Federal law, as
implemented by FDIC regulations, also prohibits FDIC-insured state banks and
their subsidiaries, subject to certain exceptions, from engaging as principal
in any activity that is not permitted for a national bank or its subsidiary,
respectively, unless the bank meets, and continues to meet, its minimum
regulatory capital requirements and the FDIC determines that the activity would
not pose a significant risk to the deposit insurance fund of which the bank is
a member. Impermissible investments and activities must be divested or
discontinued within certain time frames set by the FDIC. These restrictions
are not currently expected to have a material impact on the operations of the
Bank.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company presently consists of
1,500,000 shares of Common Stock, par value $.01 per share, and 100,000 shares
of preferred stock, par value $.01 per share, issuable in series (the
"Preferred Stock").
31
<PAGE> 32
COMMON STOCK
As of the date of this Prospectus, there were 100 shares of Common Stock
issued and outstanding and held by John Rosenthal. These shares were issued at
a price of $10.00 per share for the sole purpose of incorporating the Company
and for electing its directors, and they will be redeemed at cost and canceled
concurrently with the closing of this offering. All outstanding shares of
Common Stock offered hereby will be fully paid and nonassessable. The holders
of Common Stock are entitled to one vote for each share held of record on all
matters voted upon by stockholders. Subject to preferences that may be
applicable to any outstanding shares of Preferred Stock, each share of
outstanding Common Stock is entitled to participate equally in any distribution
of net assets made to the stockholders in liquidation, dissolution or winding
up the Company and is entitled to participate equally in dividends as and when
declared by the Company's Board of Directors. There are no redemption, sinking
fund, conversion or preemptive rights with respect to the shares of Common
Stock. All shares of Common Stock have equal rights and preferences. The
transfer agent and registrar for the Common Stock is First Union National Bank
of North Carolina.
PREFERRED STOCK
As of the date of this Prospectus, no shares of Preferred Stock were
issued or outstanding. The Board of Directors is authorized to fix or alter
the rights, preferences, privileges and restrictions of any wholly unissued
series of Preferred Stock, including the dividend rights, original issue price,
conversion rights, voting rights, terms of redemption, liquidation preferences
and sinking fund terms thereof, and the number of shares constituting any such
series and the designation thereof and to increase or decrease the number of
shares of such series subsequent to the issuance of shares of such series (but
not below the number of shares then outstanding). Because the terms of the
Preferred Stock can be fixed by the Board of Directors without stockholder
action, the Preferred Stock could be issued with terms calculated to defeat a
proposed takeover of the Company or to make the removal of management more
difficult. The Board of Directors, without stockholder approval, could issue
Preferred Stock with dividend, voting and conversion rights which could
adversely affect the rights of the holders of Common Stock. At present, the
Company has no plans to issue any shares of Preferred Stock.
CERTAIN ANTI-TAKEOVER, INDEMNIFICATION AND LIMITED LIABILITY PROVISIONS
The Company's Certificate contains certain provisions which may have the
effect of delaying, deferring or preventing a change in control of the Company.
Such provisions could also result in the Company being less attractive to a
potential acquiror. The Certificate provides that the Board of Directors shall
consist of three classes of directors, each serving for a three-year term
ending in a successive year. This provision may make it more difficult to
effect a takeover of the Company because it would generally take two annual
meetings of stockholders for an acquiring party to elect a majority of the
Board of Directors. As a result, a classified Board of Directors may
discourage proxy contests for the election of directors or purchasers of a
substantial block of stock because it could operate to prevent obtaining
control of the Board of Directors in a relatively short period of time. For
information relating to the initial classes of directors of the Company, see
"Management -- Directors and Officers."
The Certificate also requires the affirmative vote of 66-2/3% of the
outstanding shares of voting stock (or of shares held by disinterested
stockholders if the transaction involves an interested stockholder (as defined
below)) to approve certain fundamental changes such as mergers, consolidations
or dissolutions of the Company or the sale or lease of all or substantially all
of the Company's assets, unless such changes have received advance approval of
66-2/3% of the Company's directors (or of directors not affiliated with an
interested stockholder if the transaction involves an interested stockholder),
in which case the required vote is a majority.
In addition, the Certificate provides that the stockholders may only take
action at a duly called and held meeting and may not take action by written
consent. This provision may make it more difficult to effect a takeover of the
Company by means of certain transactions, such as a merger or sale of assets,
by requiring a potential acquiror to hold a stockholders' meeting before such a
transaction could be consummated.
The Certificate also provides that the provisions of the Certificate
governing the amendment of the Certificate and the bylaws, establishing the
Company's classified board of directors, restricting certain business
32
<PAGE> 33
combinations with interested stockholders, requiring stockholder actions to be
taken only at meetings, providing that special meetings of stockholders may
only be called by the Board of Directors and permitting the Board of Directors
to consider certain non-stockholder interests when evaluating a proposed tender
or exchange offer, may be amended only by the affirmative vote of not less than
66-2/3% of the outstanding shares of voting stock of the Company, unless such
changes have received advance approval of at least 66-2/3% of the Company's
directors, in which case the required vote is a majority.
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, this statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date the person
or entity becomes an interested stockholder, unless (with certain exceptions)
the business combination or the transaction in which the person becomes an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale or other
transaction resulting in a financial benefit to the stockholder. An
"interested stockholder" is generally defined as a person who, together with
affiliates and associates, owns (or, within the three prior years, did own) 15%
or more of the corporation's voting stock. This provision may have the effect
of delaying, deferring or preventing a change in control of the Company without
further action by the stockholders.
As permitted by the provisions of the Delaware General Corporation Law,
the Certificate eliminates in certain circumstances the monetary liability of
directors of the Company for a breach of their fiduciary duty as directors.
These provisions do not eliminate the liability of a director for: (i) a
breach of the director's duty of loyalty to the Company or its stockholders;
(ii) acts or omissions by a director not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) liability arising
under Section 174 of the Delaware General Corporation Law (relating to the
declaration of dividends and purchase or redemption of shares in violation of
the Delaware General Corporation Law); or (iv) any transaction from which the
director derived an improper personal benefit. In addition, these provisions
do not limit the rights of the Company or its stockholders, in appropriate
circumstances, to seek equitable remedies such as injunctive or other forms of
non-monetary relief. Such remedies may not be effective in all cases.
The Company's Certificate and Bylaws provide that the Company shall
indemnify all directors and officers of the Company to the full extent
permitted by the Delaware General Corporation Law. Under such provisions, any
director or officer, who in his or her capacity as such, is made or threatened
to be made, a party to any suit or proceeding, shall be indemnified if such
director or officer acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests to the Company. The
Certificate, Bylaws and the Delaware General Corporation Law further provide
that such indemnification is not exclusive of any other rights to which such
individuals may be entitled under the Certificate, the Bylaws, any agreement,
insurance policies, vote of stockholders or disinterested directors or
otherwise.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company expects to have 1,100,000
shares of its Common Stock outstanding. The 1,100,000 shares of the Company's
Common Stock purchased in this offering (plus any additional shares sold upon
the Underwriter's exercise of its over-allotment option) have been registered
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), and may generally be
resold without registration under the Securities Act unless they were acquired
by directors, executive officers, or other affiliates of the Company or the
Bank (collectively, "Affiliates"). Affiliates of the Company may generally
only sell shares of the Common Stock pursuant to the Commission's Rule 144.
In general, under Rule 144 as currently in effect, an affiliate (as
defined in Rule 144) of the Company may sell shares of Common Stock within any
three-month period in an amount limited to the greater of 1% of the outstanding
shares of the Company's Common Stock (11,000 shares immediately after the
completion of this offering) or the average weekly trading volume in the
Company's Common Stock during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain manner-of-sale provisions,
notice requirements and the availability of current public information about
the Company.
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<PAGE> 34
The Company and the directors and officers of the Company and the Bank
(who are expected to hold an aggregate of approximately 212,300 shares after
this offering), have agreed, or will agree, that they will not issue, offer for
sale, sell, grant any options for the sale of or otherwise dispose of any
shares of Common Stock or any rights to purchase shares of Common Stock, in the
open market or otherwise, without the prior written consent of the Underwriter
for a period of 180 days from the date of this Prospectus. Prior to this
offering, there has been no public trading market for the Common Stock, and no
predictions can be made as to the effect, if any, that sales of shares or the
availability of shares for sale will have on the prevailing market price of the
Common Stock after completion of this offering. Nevertheless, sales of
substantial amounts of Common Stock in the public market could have an adverse
effect on prevailing market prices.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Robert
W. Baird & Co. Incorporated, as Underwriter, has agreed to purchase from the
Company an aggregate of up to 1,100,000 shares of Common Stock at the Price to
Public less the Underwriting Discounts and Commissions set forth on the cover
page of this Prospectus.
The Underwriting Agreement provides that the Underwriter's obligation to
pay for and accept delivery of the shares of Common Stock offered hereby is
subject to certain conditions precedent and that the Underwriter will be
obligated to purchase all such shares, excluding shares covered by the
over-allotment option, if any are purchased.
The Company and the Underwriter have agreed that the Underwriter will
purchase the shares of Common Stock offered hereunder at a Price to Public of
$10.00 per share less Underwriting Discounts and Commissions of $0.70 per
share. However, Underwriting Discounts and Commissions will be reduced to
$0.30 per share with respect to sales to certain investors identified by the
Company to the Underwriter prior to June 21, 1996.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the 1,100,000 shares of Common Stock to the public at the
Price to Public. The Underwriter has advised the Company that, after the
initial public offering of the Common Stock, the public offering price and
other selling terms may be changed by the Underwriter. Unless waived by the
Underwriter, shares of Common Stock will be sold to the public only in minimum
lots of 1,000 shares ($10,000). Such minimum purchase was determined by mutual
agreement of the Company and the Underwriter and is designed to decrease the
costs to the Company that are associated with servicing a large number of
stockholders with each owning only a relatively small number of shares. The
Underwriter has informed the Company that it does not intend to confirm sales
of the shares of Common Stock offered hereby to any accounts over which it
exercises discretionary authority.
The Company has granted the Underwriter an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 165,000
additional shares of Common Stock to cover over-allotments, if any, at the same
price per share to be paid by the Underwriter for the other shares of Common
Stock offered hereby. The Underwriter may exercise such option only for the
purpose of covering any over-allotments of the 1,100,000 shares of Common Stock
offered hereby.
The Company, its directors and executive officers and those of the Bank
agreed or will agree with the Underwriter, for a period of 180 days after the
date of this Prospectus, not to issue, sell, offer to sell, grant any options
for the sale of, or otherwise dispose of any shares of Common Stock or any
rights to purchase shares of Common Stock, in the open market or otherwise,
without the prior written consent of the Underwriter.
The Underwriting Agreement contains indemnity provisions between the
Underwriter and the Company and the controlling persons thereof against certain
liabilities, including liabilities arising under the Securities Act. The
Company is generally obligated to indemnify the Underwriter in connection with
losses or claims arising out of any untrue statement of a material fact
contained in this Prospectus or in related documents filed with the Commission
or with any state securities administrator or any omission of certain material
facts from such documents.
34
<PAGE> 35
There has been no public trading market for the Common Stock. The Price
to Public was determined by negotiations between the Company and the
Underwriter. This price is not based upon earnings or any history of
operations and should not be construed as indicative of the present or
anticipated future value of the Common Stock. Several factors were considered
in determining the initial offering price of the Common Stock, among them the
size of the offering, the desire that the security being offered be attractive
to individuals and the Underwriter's experience in dealing with initial public
offerings for financial institutions.
LEGAL PROCEEDINGS
Neither the Bank nor the Company is a party to any pending legal
proceeding. Management believes there is no litigation threatened in which the
Company or the Bank faces potential loss or exposure or which will materially
affect stockholders' equity or the Company's business or financial condition
upon completion of this offering.
LEGAL OPINIONS
The legality of the shares of Common Stock being offered hereby will be
passed upon for the Company by Barack, Ferrazzano, Kirschbaum & Perlman, 333
West Wacker Drive, Suite 2700, Chicago, Illinois. Barnes & Thornburg, 1313
Merchants Building, 11 South Meridian Street, Indianapolis, Indiana, is acting
as counsel for the Underwriter in connection with certain legal matters
relating to the shares of Common Stock offered hereby.
EXPERTS
The financial statements of the Company included in this Prospectus have
been audited by Crowe, Chizek and Company LLP, independent public accountants,
as indicated in their report with respect thereto. Such financial statements
have been included herein and in the Registration Statement in reliance upon
the authority of said firm as experts in accounting and auditing in giving said
report.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement with the Commission in
accordance with the provisions of the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations
of the Commission. For further information pertaining to the shares of Common
Stock offered hereby and to the Company, reference is made to the Registration
Statement, including the Exhibits filed as a part thereof, copies of which can
be inspected at and copied at the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Room 1400, 75 Park Place, New
York, New York 10007. Copies of such materials can also be obtained at
prescribed rates by writing to the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Company is
required to file electronic versions of these documents with the Commission
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions discussed above under "Description of
Capital Stock -- Certain Anti-Takeover, Indemnification and Limited Liability
Provisions," or otherwise, the Company has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
35
<PAGE> 36
ST. JOSEPH CAPITAL CORPORATION
CONTENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT AUDITORS ................................. F-2
FINANCIAL STATEMENTS
BALANCE SHEET ................................................ F-3
STATEMENT OF OPERATIONS ...................................... F-4
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT ................ F-5
STATEMENT OF CASH FLOWS ...................................... F-6
NOTES TO FINANCIAL STATEMENTS ................................ F-7
</TABLE>
F-1
<PAGE> 37
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
St. Joseph Capital Corporation
South Bend, Indiana
We have audited the accompanying balance sheet of St. Joseph Capital
Corporation (the "Company") as of May 31, 1996, and the related statement of
operations, changes in stockholders' deficit and cash flows for the period from
February 29, 1996 (date of inception) to May 31, 1996. These financial
statements are the responsibility of the Company'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 of
material misstatements. 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 St. Joseph Capital Corporation
as of May 31, 1996, and the results of its operations and its cash flows for
the period from February 29, 1996 (date of inception) to May 31, 1996 in
conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
South Bend, Indiana
June 5, 1996
F-2
<PAGE> 38
ST. JOSEPH CAPITAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
MAY 31, 1996
- ----------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Cash and due from banks $ 42,504
Interest bearing deposits in banks 201,538
---------
Total cash and cash equivalents 244,042
Premises and equipment, net 2,322
---------
Total assets $ 246,364
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities
Accounts payable $ 76,704
Loans payable 275,000
Accrued interest payable 3,086
---------
Total liabilities 354,790
Stockholders' deficit
Preferred stock, $.01 par value, 100,000 shares authorized;
-0- shares issued and outstanding -
Common stock, $.01 par value, 1,500,000 shares authorized;
100 shares issued and outstanding 1
Additional paid-in capital 999
Deficit accumulated during the development stage (109,426)
---------
Total stockholders' deficit (108,426)
---------
Total liabilities and stockholders' deficit $ 246,364
=========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 39
ST. JOSEPH CAPITAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM FEBRUARY 29, 1996 (DATE OF INCEPTION) TO MAY 31, 1996
- ----------------------------------------------------------------------------
<TABLE>
<S> <C>
INCOME
Interest income $ 1,538
EXPENSES
Salary expense 20,923
Interest expense 3,086
Professional fees 73,921
Other expenses 13,034
------------
110,964
------------
Net loss $ (109,426)
============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 40
ST. JOSEPH CAPITAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM FEBRUARY 29, 1996 (DATE OF INCEPTION) TO MAY 31, 1996
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL DEFICIT ACCUMULATED
COMMON PAID IN DURING THE
STOCK CAPITAL DEVELOPMENT STAGE TOTAL
<S> <C> <C> <C> <C>
Proceeds from issuance
of common stock $ 1 $ 999 $ - $ 1,000
Net loss - - (109,426) (109,426)
---------- ---------- ---------- ----------
Balance, May 31, 1996 $ 1 $ 999 $ (109,426) $ (108,426)
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 41
ST. JOSEPH CAPITAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM FEBRUARY 29, 1996 (DATE OF INCEPTION) TO MAY 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
<TABLE>
<S> <C>
Net loss $ (109,426)
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation 136
Increase in accounts payable 76,704
Increase in accrued interest payable 3,086
----------
Net cash from operating activities (29,500)
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed asset expenditures (2,458)
----------
Net cash from investing activities (2,458)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 1,000
Proceeds from loans 275,000
----------
Net cash from financing activities 276,000
----------
Net increase in cash and cash equivalents 244,042
Cash and cash equivalents at beginning of period --
----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 244,042
==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 42
ST. JOSEPH CAPITAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION: St. Joseph Capital Corporation (the "Company") was incorporated
under the laws of the state of Delaware on February 29, 1996 with an initial
capitalization of $1,000. The Company's activities to date have been limited
to the organization of St. Joseph Capital Bank (the "Bank"), as well as
preparation for an $11,000,000 common stock offering (the "Offering"). A
substantial portion of the proceeds of the offering will be used by the Company
to provide the initial capitalization of the Bank. The start-up of the Bank is
contingent upon receiving the approval of various banking regulatory
authorities and also a successful completion of the offering.
NATURE OF BUSINESS: The Bank intends to offer a full range of commercial and
consumer banking services primarily within a fifteen mile radius of Mishawaka,
Indiana in the region often referred to as "Michiana."
USE OF ESTIMATES: Management must make estimates and assumptions in preparing
financial statements that affect the amounts reported therein and the
disclosures provided. These estimates and assumptions may change in the future
and future results could differ. Areas involving the use of management's
estimates and assumptions include the realization of deferred tax assets and
the depreciation of premises and equipment.
NOTE 2 - LOANS PAYABLE
The members of the Board of Directors of the Company have made loans to the
Company aggregating $275,000 for use in connection with organizational and
capital raising expenses. The loans bear interest at an annual rate of 6% and
have no specified maturity date. The loans are repayable in cash from the
proceeds received from the sale of the Company's stock. Under the terms of
these loans, however, the directors may choose to receive repayment in full or
in part through their receipt in the stock offering of shares of common stock
valued at the price to the public.
NOTE 3 - STOCK OPTIONS
The Company's Board of Directors has adopted a stock option plan. Under the
terms of this plan, options for up to 100,000 shares of the Company's common
stock may be granted to key management employees and directors of the Company
and its subsidiaries. The exercise price of the options will be determined at
the time of grant by an administrative committee to be appointed by the Board
of Directors.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company has committed to lease a building for its main office location.
The proposed lease has a term of five years with the option for one five year
extension. In addition, the lease agreement allows the Company to purchase the
building for $800,000 at any time during the term of the lease. The aggregate
annual lease payment is $67,500 for the first year of the lease and increases
by $9,500 in each succeeding year during the initial five year term. Future
minimum commitments are:
<TABLE>
<S> <C>
1997 $ 67,500
1998 77,000
1999 86,500
2000 96,000
2001 105,500
------------
Total $ 432,500
============
</TABLE>
F-7
<PAGE> 43
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS
BEEN AUTHORIZED TO GIVE INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFER MADE IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION BY ANYONE 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 ANYONE TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THE INFORMATION HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE OF THIS PROSPECTUS.
________________________
TABLE OF CONTENTS
Prospectus Summary............................ 3
Risk Factors.................................. 7
Recent Developments........................... 11
Use of Proceeds............................... 11
Dividend Policy............................... 12
Capitalization................................ 12
Business...................................... 13
Management.................................... 18
Certain Transactions.......................... 25
Principal Stockholders........................ 26
Supervision and Regulation.................... 27
Description of Capital Stock.................. 31
Shares Eligible for Future Sale............... 33
Underwriting.................................. 34
Legal Proceedings............................. 35
Legal Opinions................................ 35
Experts....................................... 35
Additional Information........................ 35
Index to Financial Statements.................F-1
________________________
UNTIL DECEMBER 3, 1996, ALL DEALERS EFFECTING
TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS
DELIVERY REQUIREMENT 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.
===========================================
===========================================
1,100,000 SHARES
ST. JOSEPH CAPITAL CORPORATION
COMMON STOCK
________________
PROSPECTUS
________________
ROBERT W. BAIRD & CO.
INCORPORATED
SEPTEMBER 4, 1996
==========================================
